Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Q1 2024 Earnings Presentation
43 slides from Cno Financial's earnings presentation, Apr 29, 2024
Slide 1: First Quarter 2024 Financial and Operating Results
1 Unless otherwise specified, comparisons in this presentation are between 1Q23 and 1Q24. First Quarter 2024 Financial and operating results for the period ended March 31, 2024 April 29, 2024 Exhibit 99.3
Slide 2: Forward-Looking Statements and Non-GAAP Measures
2 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 investors that these forward-looking statements
Slide 3: Our Purpose and Mission
3 OUR PURPOSE We secure the future of middle-income America. OUR MISSION We secure the future of middle-income America by providing insurance and financial services that help protect their health, income and retirement needs, while building enduring value for all our stakeholders.
Slide 4: Quarter in Review
4 1 A non-GAAP measure. See the Appendix for a reconciliation to the corresponding GAAP measure. 2 Pre-tax. Operational Highlights 7th consecutive quarter of strong sales momentum – Total new annualized premium (NAP) up 8% – Sales growth in nearly all product categories Total producing agent cou
Slide 5: Key Quarterly Metrics
5 1Q 2Q 3Q 4Q FY 1Q vs 1Q23 New Annualized Premiums1 $96.6 $98.7 $98.3 $96.1 $389.7 $104.5 8.2% Consumer 85.7 85.6 83.1 81.8 336.2 91.5 6.8% Worksite 10.9 13.1 15.2 14.3 53.5 13.0 19.3% Annuity Collected Premiums $370.9 $401.8 $372.2 $438.3 $1,583.2 $393.3 6.0% Fee Revenue2 $51.3 $29.4 $27.9 $69.0 $
Slide 6: Consumer Division Update
61 A non-GAAP measure. See the Appendix for a reconciliation to the corresponding GAAP measure. CONSUMER DIVISION UPDATE Strong execution delivering consistent and sustainable sales growth; 6th consecutive quarter of sales growth PAC up 8%, 5th consecutive quarter of growth Recruiting up 12%, 7t
Slide 7: Worksite Division Update
71 A non-GAAP measure. See the Appendix for a reconciliation to the corresponding GAAP measure. WORKSITE DIVISION UPDATE Insurance sales momentum continuing; 8th consecutive quarter of PAC growth Life and Health NAP up 19% – At least +15% growth in 7 of the last 8 quarters New products driving g
Slide 8: Financial Highlights
81 A non-GAAP measure. See the Appendix for a reconciliation to the corresponding GAAP measure. $57.5$58.6Net operating income1 110.8114.5 Weighted average shares outstanding (in millions) $0.51 $0.52 Net operating earnings per share1 First Quarter 2024 (dollars in millions, except where noted) Earn
Slide 9: Insurance Product Margin Excluding Significant Items
9 1Q23 2Q23 3Q23 4Q23 1Q24 Annuity $57.3 $57.1 $57.0 $50.7 $52.0 Fixed indexed annuities $46.5 $47.6 $47.2 $41.5 $43.4 Fixed interest annuities $9.1 $8.7 $8.4 $7.7 $7.6 Other annuities $1.7 $0.8 $1.4 $1.5 $1.0 Health $116.5 $108.2 $123.2 $124.1 $123.0 Supplemental health $63.3 $59.9 $62.8 $66.5 $65.
Slide 10: Net Investment Income
10 1 Reflects sum of allocated and non-allocated investment income. Refer to pages 15-18 of the financial supplement for more information on the components of net investment income. 2 Net insurance liabilities for the purpose of allocating investment income to product lines are equal to: (i) policyh
Slide 11: Portfolio Composition
11 1 Fair Value as of 3/31/2024 PORTFOLIO COMPOSITION High-quality portfolio driving higher and consistent NII allocated to product Highlights General Approach Positioned for stable performance across credit cycles Focus on quality - margin against adverse development Low impairments through m
Slide 12: Alternatives Allocation
12 Private Equity, 17% Private Credit, 25% Institutional Real Estate Funds, 20% Real Estate Partnerships, 14% Infrastructure, 7% COLI, 16% Hedge Funds, 1% (dollars in millions) ALTERNATIVES ALLOCATION Book Value LTM Distribution Quarterly Distribution Equity Pickup Private Credit $159 $23 $8 -$2 Ins
Slide 13: Capital and Liquidity
13 Debt to Capital2 Consolidated Risk Based Capital (RBC) Ratio1 Holding Company Liquidity 386% 384% 402% 391% 2021 2022 2023 1Q 2024 $249 $167 $256 $223 2021 2022 2023 1Q24 25.6% 23.4% 23.1% 22.9% 2021 2022 2023 1Q24 1 The ratio of the combined capital of the insurance companies to the minimum amou
Slide 14: 2024 Outlook
14 Earnings 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 holding company 375% consolidated RBC ratio target Minimum $150 million in holding company liquidity Target leverage of 25% – 28% Free Cash Fl
Slide 15: Why Invest in CNO
15 4 5 3 2 1 Exclusive focus on underserved middle-income market Significant demographic tailwinds Diverse and integrated "last mile" virtual and in-person model Sustainable growth initiatives in place Strong balance sheet and solid free cash flow generation WHY INVEST IN CNO
Slide 16: Questions and Answers
Questions and Answers CNO FINANCIAL GROUP 16
Slide 17: Appendix 1: Quarter in Review
17 Cash Flow Profile Slide 18 Broker-Dealer/Registered Investment Advisor Slide 19 Expense Ratio Slide 20 New Money Rate Walk Slide 21 New Money Summary Slide 22 Commercial Mortgage Loans Slide 23 Commercial Mortgage-Backed Securities Slide 24 Long-Term Care Insurance Slide 25 Tax
Slide 18: Cash Flow Profile
18 1 Cash flows exclude acquisitions, dividend payments, stock repurchases, and financing transactions. (dollars in millions) 1Q23 1Q24 1Q23 1Q24 Holding Company Cash Flows: Net Dividends (Contributions) from/to Subsidiaries 34.2$ 43.3$ 121.3$ 261.8$ Management Fees 30.2 30.9 121.0 116.8 Surplus Deb
Slide 19: Broker-Dealer/Registered Investment Advisor
19 Account values up 32% YoY; Record $3.4 billion in client assets 1 Client assets include cash and securities in brokerage, broker/dealer customer account assets custodied directly at fund companies and insurance carriers, and assets under management in advisory accounts. Prior periods have been re
Slide 20: Expense Ratio
20 2024 1Q 2Q 3Q 4Q 1Q Allocated & Non Allocated Expenses 175.8$ 170.6$ 145.7$ 158.6$ 178.4$ Allocated & Non Allocated Expenses - YTD 175.8 346.4 492.1 650.7 178.4 Significant Items2 -$ -$ (21.7)$ -$ -$ Significant Items - YTD2 - - (21.7) (21.7) - Allocated & Non Allocated Expenses Excluding Signifi
Slide 21: New Money Rate Walk
21 NEW MONEY RATE WALK 4QNMR Yield Curve Spread Duration Direct Investment 1Q24 NMR 6.92% -0.25% -0.58% -0.15% 0.23% 6.17%
Slide 22: New Money Summary
22 1Q24 General Account New Money Purchases NEW MONEY SUMMARY $ % GAAP YTM Duration Municipals 204.6 27.2% 5.64% 10.14 IG Corp AAA-A 131.6 17.5% 5.42% 5.26 CLO Debt 67.0 8.9% 5.74% 6.84 Residential Mortgage Loans 61.2 8.1% 6.52% 3.77 ABS 64.8 8.6% 6.83% 3.40 RMBS 56.8 7.6% 5.43% 13.39 Alternatives 5
Slide 23: Commercial Mortgage Loans
23 Our CRE loan portfolio emphasizes lower risk sectors Our CRE loan portfolio is conservatively margined with cushion for adverse development We emphasize stabilized cash flowing properties DSCR Our CRE loan portfolio is not significantly exposed to 2024/2025 maturity default risk (dollars in milli
Slide 24: Commercial Mortgage-Backed Securities
24 Source: NAIC Loss Scenario Our CMBS investments have significant structural cushion for collateral losses Our holdings have limited loss content in severe scenarios Change in CRE Values – NAIC Scenarios BearBull Estimated Life of Portfolio CNO Principal Loss Our CMBS allocation is tilted toward l
Slide 25: Long-Term Care Insurance
25 New sales (~$40 million annually) focused on short duration products Recent growth due to launch of new LTC Fundamental product 99% of new sales for policies with 2 years or less in benefits Average benefit period of 12 months New business 25% reinsured since 2008 Reserve assumptions info
Slide 26: Tax Asset Summary
26 Value of NOLs Details Effective January 1, 2024, the Company changed its method of accounting for indirect costs allocable to self-constructed real estate assets. This method change will result in a current year deduction of certain costs previously capitalized under the prior method. As a resu
Slide 27: Appendix 2: Financial Exhibits
27 Appendix 2: Financial Exhibits Non-GAAP Financial Measures Slides 28 - 43
Slide 28: Insurance Product Margin, Three Months Ended Dec 31, 2023
28 Insurance product margin Annuity 63.6$ (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 Investment income not alloc
Slide 29: Insurance Product Margin, Three Months Ended Sep 30, 2023
29 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 product lines 38.4 - 38.4
Slide 30: Insurance Product Margin, Three Months Ended Dec 31, 2022
30 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 income not allocated to
Slide 31: Insurance Product Margin, Three Months Ended Jun 30, 2022
31 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 lines 64.6 - 64.6 Ex
Slide 32: Net Operating Income Reconciliation
32 (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 change in allowance for credit losses, net of taxes; (ii) net change in market value of investments recognized in e
Slide 33: Information Related to Certain Non-GAAP Financial Measures
33 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 excludes or includes amounts that are normally excluded or included in the most
Slide 34: Net Income to Net Operating Income Reconciliation
34 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) 1Q23 2Q23 3Q23 4Q23 1Q24 Net income (loss) applicable to common stock (0.8)$ 73.7$ 167.3$ 36.3$ 112.3$ Non-operating ite
Slide 35: Operating Earnings Per Share Reconciliation
35 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) 1Q23 2Q23 3Q23 4Q23 1Q24 Operating income 58.6$ 62.3$ 101.3$ 133.9$ 57.5$ Weighted average share
Slide 36: Book Value Per Diluted Share
36 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, restricted shares and p
Slide 37: Operating Return Measures
37 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 earnings, changes in fa
Slide 38: Operating Return on Equity Calculations
38 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 comprehensive income (loss) a
Slide 39: Operating Earnings and Significant Items Summary
39 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. (Continued on next page)
Slide 40: Operating Return on Equity Calculations (continued)
40 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 comprehensive income (loss) a
Slide 41: Consolidated Capital Reconciliation
41 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) 1Q22 2Q22 3Q22 4Q22 Consolidated capital, excluding accumulate
Slide 42: Consolidated Capital Reconciliation, Trailing Four Quarter Average
42 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) 1Q23 2Q23 3Q23 4Q23 1Q24 Consolidated capital, excluding accum
Slide 43: Debt to Capital Ratio Excluding AOCI
43 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 from the value of capit