CNO - Earnings call transcript Q2 2022 | CNO Financial Group, Inc.

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Operator

Hello everyone, and thank you for joining the CNO Financial Group Second Quarter 2022 Earnings Results Call. My name is Varis and I will be moderating your call today. [Operator Instructions] I now have the pleasure of handing over to your host Adam Auvil. Please go ahead.

Adam Auvil

Good morning. joining conference CNO call. for quarter Group's you earnings XXXX thank us Financial on second And Officer. Today's Bhojwani, and Financial Chief will Executive presentation include Officer; Paul remarks McDonough, from Gary Chief

other Following business period. the will presentation, also leaders for the we available question-and-answer have

we conference referring be press call, in to During contained yesterday's will this information release.

was release Form section Media morning's obtain section yesterday. also is You of presentation website website in our a the available can Investors filed of by visiting the X-K our and This in at cnoinc.com.

We X. XX-Q our expect and post website on file our to Form it or on before August

Let forward-looking measures. factors, of forward-looking presentations contain are which should today measures, GAAP you as those be me of actual statements. subject Today's substitutes which the for cause than remind the to directly results that statements we most non-GAAP comparable not by number may number a be materially any to considered a different make contemplated

non-GAAP You'll Gary. GAAP the find with comparisons, the the between And made making specified, be we unless a turn and in I'll will call Throughout performance the otherwise corresponding XXXX to quarter any second measures reconciliation the second changes to referring will that, XXXX. comparisons presentation, of measures be over to quarter appendix.

Gary Bhojwani

Thanks thank Adam. Good you morning everyone. us. And for joining

X, year. Operating per prior share earnings Slide performance, we up overall quarter. the over reported second the to and Turning quarter solid were our for strong earnings sales and XX% $X.XX,

resilience performed market a per continued earnings in period operating items up showing Variable income significant were during volatility. well Excluding X%. investment the quarter share results of

businesses to were display the our We especially Worksite value sales. expected. product insurance enhance in the direct-to-consumer margins, our agent of insurance and with productivity strong as on underlying Our remain and business pleased of recent our investments strategic growth results annuities, The quarter. performance were accelerate with performing

worksite brand in launched We outstanding average new in to shares our and million weighted Worksite new Consumer returned by We product Optavise, Medicare Notably, and Supplement continue quarter. strategic advance and XX%. the $XX key we our to shareholders both the initiatives divisions. introduced reduced the

position remains AOCI to We changing our levels XX%. and for share, excluding sheet positioned capital conditions. Our tolerance increased is within book to diluted well by risk value respond macroeconomic balance

to X value and our of The two Turning solid diversified Consumer quarter. distribution on to scorecard. Division Slide portfolio the growth next sales and specifics in contributed and division Slide in channels strength by I'll X. slides. product our overall touch the with Beginning on the the

our Health improvement compared productivity prior reflect Our across sales in portfolio. Life results minuses down demonstrate agent and X% were and continued year. product pluses as and some the to

this positive and We on enhanced life second distribution. were in half expect trends our based recent to year, from to channel opportunistic This spend benefit from X%. up of continues recruiting. Medicare see investments in updates sales in the the Supplement agent trajectory change advertising Direct-to-consumer portfolio and

squarely Early Medicare the Med end is that addresses we to of encouraging. represented income our states the plans by in Sub states. have of results Sub XX% These Supplement, launched expect competitive a our middle Turning Med to XXXX our are This new sales. XX needs of consumers. product August,

AEP the Medicare are annual new Please making of final marker and expect in period months a submissions occurs the we for the launch. in to strong with quarter. the which the results be telling our product that the increase We year recall in seeing significant this quarter, sales, application in reflected and fourth momentum enrollment most third or fourth

the and XX% year-over-year up were up the sales XX% in Advantage Medicare second months. XX over last Third-party, quarter

not As a that. reminder fee business in reflected is

myHealthPolicy for direct platform, plans through customers enrollment or agents. our Medicare our of carrier available sale to Advantage through through online to field continue We number enables expand which the plans buy

our clients. retain strength unique service a is model omnichannel how Our and acquire in we

market our We and to share growing us this Medicare Advantage grow the Medicare important plans combination market expect well in new to options of position segment. our plan supplement

annuity remain Fixed year an annuity perform Our rose robust. average prior sales in by equity of size compared environment and premiums Annuity need annuity to policy index interest collected for to products were tend retirement up were X%. rates reliable uncertain well the markets. and attractive The XX% quarter, our in and the rising continues the equity increased on by down declining equity driven the $X.X combined make impacts income X% brokerage account pure Client balances. with riskiness year-over-year these and advisory to customers. to investments assets to of products billion second

partially for the which up values. was XX%, asset Producing in New agent however, count accounts, quarter. offset the decline X% were down

we the to the appears and leading recruiting recorded producing macro X% slight first recruiting, agent retention from be environment softening Sequentially, efforts. in growth a our counts increase to However, in helping quarter.

registered the inflection indicator, results, our recruiting. Our up and are agent plus on point leading we agent up from at was was prior count retention signal remains X% XX% stable. an Agent productivity agent year. Veteran

our Turning Slide in to Worksite performance. Division X

communications This the Optavise. brand combination healthcare administration launch move Optavise technologies. voluntary unique of guidance from educators expert a brand. existing advocacy offer our benefits agents three single employers and into quarter, advocates, we worksite benefit The our a we Through year now and and announced of benefits, unified employees services round and

serving low Worksite to from than a and XXX businesses more Our considerable footprint Optavise agents. reported network XX%, size businesses in growth sales nationwide and XX,XXX XX,XXX the Fortune with small quarter Worksite we're XXX companies. of Through through medium We and broker nearly in off up distribution partners insurance dedicated base. operates a employers albeit

acquisition. a as is of Growth quarter both the and office. enrollment workplace by client in onsite employees business healthy the more growth in reservice driven new was to mix steadily to return increasing access Our

we of With employer our of be product stable. our vision employees enrollment existing employer distribution This new groups can portfolio. expect to Retention coverage agents these the dental quarter, is attendance our broaden however events. and rollout we platform employee popular launched and enrollment partnerships hybrid Separately, to reach last they at strong choose. with employees now and to customers continues higher drive remain persistency within it our our

sequential. grew reported results Consumer recruiting of recruiting we of down XX% Division. path Our sustained the since year-over-year, growth agent suggest These strongest X% a start We producing pandemic. to similar are the the on count but our was quarter

and due increased our enrollments fewer fourth revenue also the agent momentum our encouraged parts that to accelerate driven are we single is in integration The field off-cycle of of fee-based We Optavise recruiting progressing program field brand. see referral the to XXXX. with was flat quarter. within the in in launched large in Worksite businesses Fee well should by quarter the

fee-based success sales businesses. our cross see to continue We between

X. to in share shareholders quarter, second million including returned $XX million to We the $XX in Slide Turning buybacks.

and use Our unchanged. capital over We intend capital to XXX% time. best allocation strategy deploy excess its remains highest to our of

form it that component share Paul. our over and to strategy, I'll organic important repurchases a While And of with play turn inorganic investments critical also role. an

Paul McDonough

everyone. morning, good and Gary, Thanks,

by significant Turning successful long-term significant million under to income impacts XX% reinsurance annuity the health was due in period reflect care implementation of excluding and the relating highlights Results to The was approval affected results favorable items year-over-year, the not item increases. of and products generated primarily largely continued the rate sum and $XX.X primarily again the Fee income Annuity X% to variable as allocated both to $X volatility. million to related up margins. X, non-economic the quarter allocated X% higher legacy investment life reflecting is lower The margins of to excluding based operating reported the partially in of growth market products an in in down financial by were which expenses initiatives. business. items share reported of we earned in is terms significant on on earnings up agreement per investment expenses up and and the offset regulatory in certain year-over-year Slide refund experience quarter, $X.XX periods.

the up prior by was ago state annualized repurchases of the in from from million the Our contributing change is XX.X% year-over-year. XXX change the year outstanding driven but of points income quarter lower as shares a to to state from applied state average in reflects weighted period, reduction deployed credits XX% share a Illinois We capital XXXX. quarter. second in tax effective The taxes discussed $XX year sequential XX diluted The last quarter, the points quarter. income basis and rate identified basis and decline down of first on Illinois in impact tax

For excluding XX.X% the operating months ending XX significant items. return or XXXX XX, was June on XX.X% equity

compared period. $XX second FIA to the on Turning the business. margins, or $X to as continued year the market product all Adjusting million, advertising across Slide referenced as products, quarter of the margin impacts was non-deferred in and reflecting favorable XX, prior in insurance X% margin dynamics down on the decrease underlying of stable million was our impacts for by COVID expense the the slide. Total our

the usual, down As puts items $X by and takes million, were annuity margin these by some million. there life was margin was million for line. up up margin was by health $X by and product $X Adjusting

liabilities rate Turning rates offset to increased variable as new FHLB to the a an components million $XX by the our assets impact for quarter. sequentially allocated interest the reflecting quarter investments flat where by of products in from income, or basis investment reflecting is call of investment the the was the program. allocated Excuse through from not products, X.XX% and benefiting FABN related in to points yield. to up Slide higher allocation me, the also program, and and XX, spreads, and and income from income flow decline growth contribution alternative money net was higher was the income addition XXX prepayment and of XX% Investment which higher

an "A" billion new X.X $X of duration roughly of comprise Our and years. average rating an of average with assets investments

summarized deck. are on in Our the Slides new detail of and investments XX more XX

year-over-year. values XX% securities quarter Slide XXX primarily up basis portfolio "A" year-over-year rating over quarter-end interest $XX and points higher income to average actions assets rated up the rated XX, quarter maturity rated X% allocation points The fixed year-over-year, our the our last the end or quality several investment totaled the XX portfolio at fixed The grade investment XX% points allocation up quarter by is invested "BBB" roughly below at basis remaining our is is market of which of was basis with and to of reflecting rates. declining points Approximately billion, sequentially. down in quarters. year-over-year at grade, while basis was "A" down an end Turning XXX higher reflecting XXX down driven

a Slide Turning on free in is Capital trailing due cash The of related declined level factor. was companies largely also by of valuations fixed required of for dividends accounting the statutory XX, though This equity operating XX-month statutory the the conversion to quarter. annuities. to market remains impact strong driven basis flow the the absolute out Rialto decline capital investment in the index recent on in to contributing and a income in capital the increase

and to quarter million. is $XXX was XX, liquidity Slide end at consolidated our ratio our Turning holdco XXX% RBC

to down adverse our in expect impact Taken of to the build minimum conditions, event back fixed index target subject such down treatment holdco the not that over a in the reason $XXX our general fixed together million the million. the have options a of trade of of our statutory ratio market we and impact approximately reserve. year, half as for of on year similar noting first stabilize. equity RBC the this use then we're we It's XXX% related the as decline adverse the index The impact related it that's markets to liquidity in relates the would experiencing the to the $XX of first annuities below in XXX%, the call stressed time hedge conditions participation equity worth statutory year our further. of market to to In half to income flex RBC equities in up and in quarters. that capital future the and In rate and accounting annuities

but reserving not of to nearly trade equity an hedge down As accounting the on methodology. related due is required the value markets on reserve statutory economic a call options basis. than statutory the perfect The the statutory basis, declines more

the good Given most value general, XX equity no the portion in to current value therefore of options these pleased we first of would the and adverse capital markets on of and the zero the in have a our Turning downward on movements respects. a options not income are approaching additional impact call XXXX Slide materially market in is and outlook earnings of our half in impact material results continues hold with adverse statutory

income elevated respect year year our in half expectations average. ex-significant and with on changed and COVID to our year indicator sales our second the the a full is a income, expenses second first materially. in the the good quarters, the items the we half and to of first Looking and percentage in to third basis lower slightly impacts full the increasing quarters expectation in investment the year will of the year full expenses near-term fourth increase relative strong, have build expect the the of The fee with in back Free momentum, pressured a positive for rate directional earnings while expected expenses increase levels. remains bit targeted we run RBC be cash flow as liquidity than but holdco not to

targeted standard. with provide update our it I'd in like turn a or we long improvement stand XXX duration back progress to Gary, ASC to where I Before adopting brief on the

have on We flows lifetime or change quantitative to gap and forma progress provide toward First significant it's quarter. made in by the accounting capital XXXX will the adoption X, of the regulators, required fourth impact expect no cash accounting impacts profits. results the to Jan note the pro important including statutory that standard or

during to transition And reporting For to back estimated please and additional that information I'll and that first balance our the impacts the with detail sheet turn quarter materials comments provided refer Gary. it

Gary Bhojwani

Thanks Paul.

We for customers Next what's These share will CNO long-term agents, that to Group. we commitments make lives support products corporate communities remarkable in our week to various and investors. our ESG. where and associates, sustainable CNO CNOs to more your create you I responsibility believe to interest our and is working do read how and environment. operates what sustain commitments are a advise an We release social offer the day helping with we Thank we best how every coupled will our performance. right report agents our Financial learn customers' we're you our improve more the report better CNO about for future. and associates third

up [Operator first from open Krueger it Ryan. We questions. from for question you. Operator? Thank ahead, will go Ryan Please now comes Instructions] Our KBW.

Ryan Krueger

how to the on Hi. Thanks. going that like you're thinking about that pace XXX Good if morning. Could have back any to talk and the you forward view repurchase the build you'd you RBC up first the of timeframe share about target? ratio

Paul McDonough

well. provide Ryan, Sure. Paul. then want A perspective, color some I hey, context think little probably some, and and to it's as Gary will

blackout in through So repurchase also we repurchases program million million of in the due to and XXbX-X In first April. XX late we of period made all share Capital and XX conditions April. was of the the dialed earnings in investment May a the quarter that share June in back Rialto market our

flow. emphasize recall, to to to just release press target also stock didn't was you that time. holdco as our In levels. to our a continue given you a inflection we business we'll X, both should liquidity back two our we – purchase the remarks. our should quarter very portfolio healthy the rate, number points X, money referenced hit count continue the Number to and rate cash agent we levels producing of and free above that generate important in on X Number consumer a improvement in expect dial on we RBC our the want that. near-term where couple the at work issued zero prepared sequential I dial share back that and X, site. If back in Number build new We things. certainly trading in

to forward expect and cash persist, of of should flow. both which a earnings tailwind dynamics to We terms sales, in those going free translate

that perspective with Gary, for and I'll additional you defer color. So to

Gary Bhojwani

we're that, Paul. good, on I'm I good. follow see any got I think Ryan's if I think I'll but No, otherwise up

Paul McDonough

Okay.

Sounds good.

Ryan Krueger

separate had I a follow-up. Thanks.

rate income of of to that unallocated FABN investment Is more could that? uptick You color had you the given type that big us quarter, in FHLB and program. the expect non-variable in pretty interest this something had if level the Thanks. continue component you in a you'd on give environment, higher

Paul McDonough

Sure.

some two. provide to Eric those Johnson and I'll So on us you defer Eric here is with to color

Eric Johnson

sure. Yes,

assume similar permanent markets pretty some I part are and became a less quarter we'll of markets wider increment And we an as as to kind particularly in was curve that benefit were the fortunate funds able of from long over as that's this continue I cost to of not intermediate think we credit to during persisting healthy. add of that in spreads type think enough the dynamic, market the us makes particularly that we make I securitized liquid. period progress the for although would a do it. the were possible

Now bearing however, and investment had. don't that amount opportunity you turnover a certain be new in assets the over every mind, there's all those turn to of and programs also quarter only it's, money –

I'm of off So that little expecting we in the kind a think the but tailwind run thinking near-term, not might it's to about that I'm in and how it. get I increment additional near-term

Ryan Krueger

of and, FHLB quick Just the one follow-up; what's duration backing programs? the are and assets FABN that

Gary Bhojwani

know done have and you funding quality have that Sure. Well we those of as a in duration three symmetrical agreement three, issues buckets. the of matches assets and assume a you seven handful should each good such that we've five

you at on great and Home rate Loan are look liabilities Bank a assets of Federal If the the floating basis. bulk

management the like of short good effect we so carefully cash sheet. anything that kind feel both flows we those have were muzzled dis-intermediation comfortable programs But – not such likely that. durations balance hit a and they very are And in sides have very that of both asset the on and to of or liability have any

Ryan Krueger

Got it. a Thanks lot.

Gary Bhojwani

welcome You're

Operator

from go comes Dan. Dan Please question next Our Jefferies. ahead, Bergman from

Dan Bergman

morning. good Thanks,

saw just wanted could thoughts first in reversal the some half snap not in helpful. momentum from whether pressure markets statutory are markets to were in FAA weak we that see back July. of on on I favorable the are further on the ratio third of comments provide you the expecting should the if that saw impact of the RBC any quarter, Your given But equity RBC we pressure very block we in or expect

Just there's how there it, trying any would be to works more get helpful? a be if Any accounting color more on the recovery symmetry of that works or – how sense the statutory gradual. would

Gary Bhojwani

Sure.

traded it here. be reverse largely limits movement downside other have works on Dan, subject to first of we on call floor basically down the where sort options, you saw way. of this sit So the the year the but a is in would But you from going symmetrical half the

Dan Bergman

thanks. little bit, shifting think Got after like looked was seemingly it. step-up That's I both quarter-over-quarter advertising it maybe gears then a meaningful helpful, life And spend really down, year-over-year the the last quarter. and

So I or just that? What the pressure wanted cost on from terms seeing give inflation? color more impact can you're there's if advertising any seeing in and you're to see any you of of

Paul McDonough

Sure.

So crack at I'll provide a take first I'll that. –

essentially we're out with, internal So manage with number spend. metrics the Dan to the that make getting our we of ad a expected sure advertising to productivity of

between the particular, the premium opportunistic where ad terms of So in we're in we're ads. what's relationship that placing spend? and very We're the those also generating

generally in spend And ad any given the quarter. so drives that of level the

guess I'd there. it leave to So I add that. Gary, would you anything

Gary Bhojwani

thing we of up willing the the we and we we spend the dial it presents depending be will or on and advertising? yield, opportunity to And if itself on touched throughout, think the expenses down where Paul really can the emphasize said just would maintain only you we've more. I as efficacy would an increase

Dan Bergman

it. Got you. Makes Thank sense.

Operator

ahead, Please Piper from Sandler. question from John. John comes Next go Barnidge

John Barnidge

Thank much. you very

RBC? impact capital So is discuss investments. on potential proposal CLO views maybe and increased your What considering NAIC charges the and RBC are require to the on

Paul McDonough

it's John, Paul. Hey,

about asking the Capital You're changes. S&P

John Barnidge

correct. Yes, that's

Paul McDonough

heard Yes. make I sure the to just question. wanted I

Okay.

comment year of are resubmit it for expecting goal, think, some withdrew for So, I as sort the put out at proposal, feedback, with you implementing end. got it know to of it they

So stage, staying primarily at tuned. this we're just

think, it have capital it out, of We make I very to manageable. context however, top charges. shakes some to will be may adjustments revise

this we stage. I that's are it So with say at I'd where

John Barnidge

you your were deposits from? Thank where that talk maybe Thank gross Okay, outlook Can in came about you. And follow-up annuity you. that the my quarter. rather great. demand for strong

Gary Bhojwani

Yes.

that relationship been the for time Thanks agents assets undertaking because Gary. be long the increasing buying on changes, And are things. consumers, simply we've longer couple voyage of the A and is time. an annuity, question. canceled we're our an reason their number main so a to an consumers their Remember relationship that relationship like insurance this And as John, license. as paying no viewed have opposed to the they it's that can investment quite transactional of change that fundamentally an a for our product us entrust course strategy a When now securities premium. we at have expense. been the where with is to we've any with of So get

and happen more during it market to upside interest around. become We themselves these the much and/or to long more of should in the downside and think, on of so upside periods margins equity forces the we've we that the rising, turn you environmental in consumers service insulate So the products, participate make consumers, volatility then generally on. to a consumers they the great way because a represent or the significant and and business, markets more have, speaking, to been to journey time if set our very I of for against it's for still like interesting of an products participate a we like rates do that. more on And

push it I XX%, we to now. it to led we this develop continue we the growth. annuity skills So to it. our after we're growth to in we for products own that at volatile know efforts, to grow and and it’s I internal on continue times internal this our some couple think years that the clip. like grow a continue demand enjoying We've see robust these this with rate go don't a like product, for been combined pretty sales to good But going

Operator

from question Autonomous Erik Bass Please next from go The is Research. ahead, Eric.

Erik Bass

follow-up to market on in the the thank just annuities you. I block. wanted equity Hi, sensitivity

GAAP. the if see fall the capital the front you in sell happens to on there dynamic hoping provide mean, I clear term, where new very you is answer is a which your similar downside sensitivity call short continuously at kind further, business and on the a of on the think options portfolio your could is it changing markets And least is what guess similar I the I just other impact And capital, to expire. less markets benefit is option of and upside you question would on rise. as is that

So to it that move as And a being few back expose how does sensitivity we go change of forward your sort quarters? downside? does to upside and

Paul McDonough

is Paul. Eric Hi

So both pieces side on should line GAAP and draw GAAP directionally, certainly sort reaching and half what annuities in of it symmetrical. And business of you large market impacts every are the are non-operating we if new more side you directions and the operating experienced income. are month income and with first favorable of exactly work expect options But by respect does the in are There to on the between year. moving the sort the we've as as conditions statutory We're reverse dynamic, anniversary. their this write complicated purchasing then of call right.

back And you would right, process. so symmetry is a point down. is And you a up there it are get and dynamic where to

Erik Bass

to And GAAP the side, Got be clear. on just just it.

index or if here, largely, in again are zeroed now, you've that negative there smaller lot So a were go that out credits? would would quarter, the to still essentially you markets be adjustment down expect from a would – given

Paul McDonough

valuations thoughts. puzzle. sort and the Couple Number equities it's GAAP one, the sub of on equity sensitive are of although to Yes. side

factors I operating favorable. again, then where think it's equal So line But equities say, being the inter much more different we more and be as I else in the all complicated with draw And dominant. between up would non-operating. shades

Erik Bass

was I outlook you are are it. you the for level about about uncertain thinking the you given the credit, then factors thinking capital economic Got the to And this near may just how into term? in of want buffers outlook how maintain curious how just and

Paul McDonough

north cycle. with the in really million flexing stressed we're level minimum intended Well, bullish the $XXX sort the of million would million. $XXX of million. We the equal. very sort conditions of is and with FIAs would the that the we're extent down, that to to through of and we've a stressing talked by to drive of down And sort economic $XXX comfortable still of $XXX takes In that that market that large target RBC healthy to comfortable capital you manage RBC subject about markets backdrop, target the all very $XXX dynamic million be that above the else

we that to and think I have comes goes. that acknowledge

that stay So to us some $XXX $XXX by amount, cause may million, $XXX million million. above

Erik Bass

I nothing that's it. you be… and guess it front feel the you worrying on Got the credit like sounds to making need

Paul McDonough

and of the already, a for No, positioned again, whatnot. what potential we’re take quality just because portfolio discipline through of is a around the I and recessionary well I on fairly that adopted $XXX million of of migration our And the also bias very more matching and the quarters conservative cycle. us top last composition credit think, credit fact our was and several we've context the intended up [indiscernible] to think, and bias, the in viability and the that

Erik Bass

it. you. Got Thank

Operator

an to has I back it will Session Adam Auvil for to end. Q&A final remarks. hand came Today's

Adam Auvil

everyone CNO. Thanks in for joining today, operator. us your for thanks interest Thanks and

Operator

today’s concludes call. for This you joining. Thank

You may now disconnect your lines.

CNO Financial (CNO) 2 Aug 222022 Q2 Earnings call transcript