Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Q4 2023 Earnings Presentation
46 slides from Cno Financial's earnings presentation, Feb 6, 2024
Slide 1: Fourth Quarter 2023 Financial and Operating Results
CNO Financial Group 1 Fourth Quarter 2023 Financial and operating results for the period ended December 31, 2023 February 6, 2024 Unless otherwise specified, comparisons in this presentation are between 4Q22 and 4Q23. Exhibit 99.3
Slide 2: Important Legal Information
CNO Financial Group 2 Important Legal Information Certain statements made in this presentation should be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These include statements about future results of operations and capital plans. We caution
Slide 3: CNO Financial Group 3
CNO Financial Group 3
Slide 4: 2023 Year in Review
CNO Financial Group 4 2023 Year in Review Strong Operational Results Disciplined Execution Comparisons are between full year 2023 and 2022 unless otherwise specified. 1 A non-GAAP measure. See the Appendix for a reconciliation to the corresponding GAAP measure. Operating EPS1 of $3.09 Total NAP
Slide 5: Growth Scorecard
CNO Financial Group 5 4Q FY 1Q 2Q 3Q 4Q FY vs. 4Q22 vs. FY22 New Annualized Premiums 1 Life $40.8 $193.1 $57.1 $55.6 $50.0 $43.9 $206.6 7.6% 7.0% Health 49.9 164.3 39.5 43.1 48.3 52.2 183.1 4.6% 11.4% Total Life and Health $90.7 $357.4 $96.6 $98.7 $98.3 $96.1 $389.7 6.0% 9.0% Collected Premiums Life
Slide 6: Consumer Division Year in Review
CNO Financial Group 6 Consumer Division Year in Review Strong Operational Results Disciplined Execution Total Life and Health NAP up 6%; up 4% vs 4Q22 Field agent NAP up 16% Life NAP up 6%, balanced across field and D2C Record D2C NAP in 2023 Health NAP up 8%; Medicare Advantage fee revenu
Slide 7: Worksite Division Year in Review
CNO Financial Group 7 Insurance sales momentum continuing, seventh consecutive quarter of PAC growth Worksite Division Year in Review Life and Health NAP up 29%; up 20% vs 4Q22 +20% growth in 5 of the last 6 quarters Accident product up 34% driven by 2Q23 product refresh PAC up 27%, first-ye
Slide 8: Financial Highlights: 4Q23 Operating EPS up 34% excluding significant items
CNO Financial Group 8 4Q23 Operating EPS1 up 34% excluding significant items Financial Highlights Earnings ResultsEarnings Drivers $356.1$360.4$133.9$82.9Net operating income1 $312.8$342.5$107.5$82.4 Net operating income excluding significant items1 115.1117.7113.7116.7 Weighted average shares outst
Slide 9: Insurance Product Margin
CNO Financial Group 9 Strong supplemental health and life margins, net favorable impact from annual actuarial review Insurance Product Margin 4Q22 1Q23 2Q23 3Q23 4Q23 Annuity $54.0 $57.3 $57.1 $57.0 $50.7 Fixed indexed annuities $44.5 $46.5 $47.6 $47.2 $41.5 Fixed interest annuities $7.8 $9.1 $8.7 $
Slide 10: NII benefiting from strong NMRs, growing asset base and improved VII
CNO Financial Group 10 NII benefiting from strong NMRs, growing asset base and improved VII $25.2 $38.3 $- $50.0 $100.0 $150.0 $200.0 4Q 2022 4Q 2023 Investment Income Not Allocated to Product Lines $- $100.0 $200.0 $300.0 $400.0 4Q 2022 4Q 2023 Total Net Investment Income1 Annuity Health Life Not A
Slide 11: Rising earnings power with stable credit trend
CNO Financial Group 11 Rising earnings power with stable credit trend Portfolio Composition $25 Billion of Invested Assets Highlights (Fair Value as of 12/31/2023) General Approach Positioned for relatively stable performance across credit cycles Focus on quality - margin against adverse develop
Slide 12: Capital and Liquidity
CNO Financial Group 12 1 The ratio of the combined capital of the U.S. based insurance companies to the minimum amount of capital appropriate to support the overall business operations, as determined based on the methodology developed by the National Association of Insurance Commissioners. 2 Excludi
Slide 13: 2024 Outlook
CNO Financial Group 13 2024 Outlook1 1Excluding significant items. Earnings Free Cash Flow / Excess Capital Operating EPS range of $3.10 – $3.30 18.8% – 19.2% expense ratio ~23% effective tax rate $140 – $200 million of excess cash flow to holdco 375% consolidated RBC ratio target Minimu
Slide 14: Investment Highlights
CNO Financial Group 14 Investment Highlights Sustainable growth initiatives in place Favorable demographic tailwinds Exclusive focus on underserved middle market Diverse and integrated "last mile" virtual and in-person model Strong balance sheet and solid free cash flow generation
Slide 15: Questions and Answers
CNO Financial Group 15 Questions and Answers
Slide 16: Excess Capital Allocation Strategy
CNO Financial Group 16 Agent pilots, technology- driven customer experience enhancements Hybrid distribution Worksite B2B marketing, lead generation Share repurchases: $80 million in 4Q23, $165 million in 2023 Dividends: $17 million in 4Q23, $68 million in 2023 Highly selective M&A CNO
Slide 17: Cash Flow Profile
CNO Financial Group 17 Cash Flow Profile 1 A non-GAAP measure. See the Appendix for a reconciliation to the corresponding GAAP measure. 2 Cash flows exclude acquisitions, dividend payments, stock repurchases, and financing transactions. (dollars in millions) 4Q22 4Q23 4Q22 4Q23 Net Operating Income1
Slide 18: Appendix 1: Quarter in Review
CNO Financial Group 18 Appendix 1: Quarter in Review Strong Operational Performance Broker-Dealer/Registered Investment Advisor Slide 19 Exclusive Agent Counts Slide 20 Building on Strong Track Record of Execution Expense Ratio Slide 21 New Money Rate Walk Slide 22 New Money Summary Slide
Slide 19: Broker-Dealer/Registered Investment Advisor
CNO Financial Group 19 Account values up 20% YoY; record $3.2 billion in client assets Broker-Dealer/Registered Investment Advisor 1 Client assets include cash and securities in brokerage, broker/dealer customer account assets custodied directly at fund companies and insurance carriers, and assets u
Slide 20: Exclusive Agent Counts
CNO Financial Group 20 Year-over-year PAC growth every quarter of 2023 across both divisions Exclusive Agent Counts 1 Producing agents represent the monthly average of exclusive agents that have submitted at least one policy in the month. 2 Registered agents are dually licensed as insurance agents a
Slide 21: Expense Ratio
CNO Financial Group 21 1Q 2Q 3Q 4Q Allocated & Non Allocated Expenses 175.8$ 170.6$ 145.7$ 158.6$ Allocated & Non Allocated Expenses - YTD 175.8 346.4 492.1 650.7 Significant Items2 -$ -$ (21.7)$ -$ Significant Items - YTD2 - - (21.7) (21.7) Allocated & Non Allocated Expenses Excluding Significant I
Slide 22: New Money Rate Walk
CNO Financial Group 22 Reflects relative value allocations to agencies and residential mortgage loans along with rising rates New Money Rate Walk 6.03% 0.42% 0.77% -0.28% -0.02% 6.92% 3Q23 NMR Yield Curve Spread Duration Direct Investment 4Q23 NMR
Slide 23: New Money Summary
CNO Financial Group 23 New Money Summary 4Q23 General Account New Money Purchases Reflects opportunistic allocations to agencies, municipals, residential mortgage loans, as well as rising interest rates at the long end of the curve $ % GAAP YTM Duration Commercial Real Estate 65.2 18.2% 5.77% 6.70 M
Slide 24: Commercial Mortgage Loans
CNO Financial Group 24 Prop Type % AUM Avg LTV Apartment 38.4% 48.1% Industrial 26.5% 40.5% Mixed Use 1.3% 46.5% Office 12.2% 59.6% Other 7.2% 29.4% Retail 14.3% 43.2% 47.7% 20.9% 20.5% 10.3% 0.5% 0.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% >2.00x 1.70x - 2.00x 1.40x - 1.70x 1.15x - 1.40x 1.00x - 1.15x
Slide 25: Commercial Mortgage-Backed Securities
CNO Financial Group 25 $7 $8 $9 $12 $13 $19 $22 $26 32.50 10% 6% -1% -7% -10% -19% -24% -29% -40% 11% 17% 22% 50% <10 10-15 15-30 >30 Source: NAIC Loss Scenario Our CMBS investments have significant structural cushion for collateral losses Our holdings have limited loss content in severe scenarios C
Slide 26: Long-Term Care Insurance
CNO Financial Group 26 New sales (~$35 million annually) focused on short duration products 99% of new sales for policies with 2 years or less in benefits Average benefit period of 12 months New business 25% reinsured since 2008 Reserve assumptions informed by historical experience No morbid
Slide 27: Tax Asset Summary
CNO Financial Group 27 Value of NOLs and deferred tax assets (DTAs) related to tax strategy Details Total estimated economic value of tax assets related to our NOLs and tax strategy of approximately $206 million @ 10% discount rate ($1.84 on a per share basis). Life NOLs have been fully utilized
Slide 28: Appendix 2: Financial Exhibits
CNO Financial Group 28 Appendix 2: Financial Exhibits Non-GAAP Financial Measures Slides 29 - 46
Slide 29: Insurance product margin, three months ended December 31, 2023
CNO Financial Group 29 Insurance product margin Annuity 63.6$ (12.9)$ (1) 50.7$ Health 146.4 (22.3) (1) 124.1 Life 64.6 1.3 (1) 65.9 Total insurance product margin 274.6 (33.9) 240.7 Allocated expenses (138.8) - (138.8) Income from insurance products 135.8 (33.9) 101.9 Fee income 17.8 - 17.8 Investm
Slide 30: Insurance product margin, three months ended September 30, 2023
CNO Financial Group 30 Insurance product margin Annuity 57.0$ -$ 57.0$ Health 123.2 - 123.2 Life 59.8 - 59.8 Total insurance product margin 240.0 - 240.0 Allocated expenses (153.2) - (153.2) Income from insurance products 86.8 - 86.8 Fee income (2.9) - (2.9) Investment income not allocated to produc
Slide 31: Insurance product margin, three months ended December 31, 2022
CNO Financial Group 31 Insurance product margin Annuity 50.8$ 3.2$ (1) 54.0$ Health 140.4 (18.3) (1) 122.1 Life 43.3 14.4 (1) 57.7 Total insurance product margin 234.5 (0.7) 233.8 Allocated expenses (149.1) - (149.1) Income from insurance products 85.4 (0.7) 84.7 Fee income 9.2 - 9.2 Investment inco
Slide 32: Insurance product margin, three months ended June 30, 2022
CNO Financial Group 32 Insurance product margin Annuity 60.1$ -$ 60.1$ Health 125.4 - 125.4 Life 70.2 - 70.2 Total insurance product margin 255.7 - 255.7 Allocated expenses (152.2) - (152.2) Income from insurance products 103.5 - 103.5 Fee income 3.2 - 3.2 Investment income not allocated to product
Slide 33: Insurance product margin, year ended December 31, 2023
CNO Financial Group 33 Actual Results Significant Items Excluding significant items Insurance product margin Annuity 235.0$ (12.9)$ (1) 222.1$ Health 494.3 (22.3) (1) 472.0 Life 229.7 1.3 (1) 231.0 Total insurance product margin 959.0 (33.9) 925.1 Allocated expenses (599.0) - (599.0) Income from ins
Slide 34: Insurance product margin, year ended December 31, 2022
CNO Financial Group 34 Insurance product margin Annuity 226.9$ 3.2$ (1) 230.1$ Health 504.4 (18.3) (1) 486.1 Life 205.2 14.4 (1) 219.6 Total insurance product margin 936.5 (0.7) 935.8 Allocated expenses (596.6) - (596.6) Income from insurance products 339.9 (0.7) 339.2 Fee income 23.7 - 23.7 Investm
Slide 35: Net operating income definition and reconciliation
CNO Financial Group 35 (dollars in millions) * Management believes that an analysis of Net income applicable to common stock before: (i) net realized investment gains or losses from sales, impairments and the change in allowance for credit losses, net of taxes; (ii) net change in market value of inv
Slide 36: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 36 Information Related to Certain Non-GAAP Financial Measures The following provides additional information regarding certain non-GAAP measures used in this presentation. A non-GAAP measure is a numerical measure of a company’s performance, financial position, or cash flows that
Slide 37: Reconciliation of net income to net operating income
CNO Financial Group 37 A reconciliation of net income applicable to common stock to net operating income (and related per-share amounts) is as follows: (dollars in millions, except per-share amounts) Information Related to Certain Non-GAAP Financial Measures 4Q22 YTD 4Q22 1Q23 2Q23 3Q23 4Q23 YTD 4Q2
Slide 38: Reconciliation of operating income and shares for operating EPS
CNO Financial Group 38 A reconciliation of operating income and shares used to calculate basic and diluted operating earnings per share is as follows: (dollars in millions, except per-share amounts, and shares in thousands) Information Related to Certain Non-GAAP Financial Measures 4Q22 1Q23 2Q23 3Q
Slide 39: Book value per diluted share
CNO Financial Group 39 Book value per diluted share Book value per diluted share reflects the potential dilution that could occur if outstanding stock options were exercised, restricted stock and performance units were vested, and convertible securities were converted. The dilution from options, res
Slide 40: Operating return measures
CNO Financial Group 40 Operating return measures Management believes that an analysis of net income applicable to common stock before net realized investment gains or losses from sales, impairments and change in allowance for credit losses, net change in market value of investments recognized in ear
Slide 41: Operating return on equity calculations
CNO Financial Group 41 The calculations of: (i) operating return on equity, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure); (ii) operating return, excluding significant item, on equity, excluding accumulated other comprehen
Slide 42: Operating earnings, significant items and net income summary
CNO Financial Group 42 The following summarizes: (i) operating earnings; (ii) significant items; (iii) operating earnings, excluding significant items; and (iv) net income (loss): (dollars in millions) (a) The significant items have been discussed in either the current or prior press releases. (Cont
Slide 43: Operating return on equity calculations (continued)
CNO Financial Group 43 The calculations of: (i) operating return on equity, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure); (ii) operating return, excluding significant item, on equity, excluding accumulated other comprehen
Slide 44: Reconciliation of consolidated capital to common shareholders' equity
CNO Financial Group 44 A reconciliation of consolidated capital, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure) to common shareholders’ equity, is as follows: (dollars in millions) Information Related to Certain Non-GAAP Fi
Slide 45: Reconciliation of consolidated capital to common shareholders' equity (continued)
CNO Financial Group 45 A reconciliation of consolidated capital, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure) to common shareholders’ equity, is as follows: (dollars in millions) Information Related to Certain Non-GAAP Fi
Slide 46: Debt to capital ratio, excluding accumulated other comprehensive income
CNO Financial Group 46 Debt to capital ratio, excluding accumulated other comprehensive income (loss) The debt to capital ratio, excluding accumulated other comprehensive income (loss), differs from the debt to capital ratio because accumulated other comprehensive income (loss) has been excluded fro