Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Q2 2024 Earnings Presentation
41 slides from Cno Financial's earnings presentation, Jul 30, 2024
Slide 1: Second Quarter 2024
Second Quarter 2024 Financial and operating results for the period ended June 30, 2024 July 29, 2024 Unless otherwise specified, comparisons in this presentation are between 2Q23 and 2Q24. 1
Slide 2: Important Legal Information
IMPORTANT LEGAL INFORMATION Forward-Looking Statements 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 ca
Slide 3: Our Purpose and Mission
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. 3
Slide 4: Quarter in Review
QUARTER IN REVIEW Strength in production, earnings and capital Operational 8th consecutive quarter of strong sales momentum Highlights – Total new annualized premiums (NAP) up 4% – Annuity collected premiums up 9% Total producing agent count (PAC) up 5%; 6th consecutive quarter of growth Polic
Slide 5: Growth Scorecard
GROWTH SCORECARD Growth in all scorecard metrics 2023 2024 Change 2Q 3Q 4Q FY 1Q 2Q vs 2Q23 1 New Annualized Premiums $98.7 $98.3 $96.1 $389.7 $104.5 $102.9 4.3% Consumer 85.6 83.1 81.8 336.2 91.5 87.4 2.1% Worksite 13.1 15.2 14.3 53.5 13.0 15.5 18.3% PRODUCTION Annuity Collected Premiums $401.8 $37
Slide 6: Consumer Division Update
CONSUMER DIVISION UPDATE Successful execution delivering consistent and sustainable sales growth; 7th consecutive quarter of sales growth Operational Life and Health NAP up 2%, field agent NAP up 8% Highlights Health NAP up 18%; Medicare Supplement NAP up 16%; LTC NAP up 88% Annuity collected
Slide 7: Worksite Division Update
WORKSITE DIVISION UPDATE Insurance sales momentum continues; 9th consecutive quarter of NAP growth Life and Health NAP up 18% Operational Highlights – At least +15% growth in 8 of the last 9 quarters New products driving growth – Accident product up 27% – Critical Illness product up 16% Fee sa
Slide 8: Financial Highlights
FINANCIAL HIGHLIGHTS Operating EPS growth driven by strong results across the board Earnings Results Second Quarter 2024 Operating EPS1 of $1.05, up 94% $1.05 — Strong insurance product margins Net operating across all major product lines earnings per share1 — NII allocated to products, benefiting
Slide 9: Insurance Product Margin
INSURANCE PRODUCT MARGIN Strong underwriting margin across all major product lines Insurance Product Margin Excluding Significant Items1 Highlights Annuity margin 2Q23 3Q23 4Q23 1Q24 2Q24 Fixed Indexed Annuities – improved Annuity $57.1 $57.0 $50.7 $52.0 $76.1 spread benefiting from portfolio opti
Slide 10: Investment Results
INVESTMENT RESULTS Strong net investment income Investment Income Investment Income Not Total Net Allocated to Product Lines Allocated to Product Lines Investment Income1 $297.1 $300.0 $252.3 $300.0 $300.0 $266.1 $238.1 $200.0 $200.0 $200.0 $100.0 $100.0 $100.0 $28.0 $44.8 $- $- $- 2Q 2023 2Q 2024 2
Slide 11: Portfolio Composition
PORTFOLIO COMPOSITION High-quality portfolio delivering strong net investment income $28 Billion of Invested Assets1 Highlights High degree of liquidity: over 60% of portfolio in corporate and government bonds HY Corporates, 2.0% CMBS, 8.7% Municipals, 10.3% Strong credit risk profile Mortgage L
Slide 12: Capital and Liquidity Overview
CAPITAL AND LIQUIDITY OVERVIEW Capital and liquidity remain above target levels Consolidated Risk Based Capital (RBC) Ratio1 384% 402% 391% 394% Target consolidated RBC ratio of approximately 375% RBC variability expected in periods of market volatility 2022 2023 1Q24 2Q24 Holding Company Liquid
Slide 13: 2024 Outlook
2024 OUTLOOK Raising full-year guidance on earnings and cash flow Earnings $3.30 - $3.50 operating EPS 19.0% – 19.2% expense ratio ~23% effective tax rate Free Cash Flow / Excess Capital $200 – $250 million excess cash flow to holding company 375% consolidated RBC ratio target $150 milli
Slide 14: Why Invest in CNO
WHY INVEST IN CNO 1 Exclusive focus on underserved middle-income market 2 Significant demographic tailwinds 3 Diverse and integrated "last mile" virtual and in-person model 4 Sustainable growth initiatives delivering results 5 Strong balance sheet and solid free cash flow generation 14
Slide 15: Questions and Answers
Questions and Answers CNO FINANCIAL GROUP 15
Slide 16: Appendix 1: Quarter in Review
Appendix 1: Quarter in Review Cash Flow Profile Slide 17 Broker-Dealer/Registered Investment Advisor Slide 18 Expense Ratio Slide 19 New Money Rate Walk Slide 20 New Money Summary Slide 21 Commercial Mortgage Loans Slide 22 Commercial Mortgage-Backed Securities Slide 23 Long-Term Car
Slide 17: Cash Flow Profile
CASH FLOW PROFILE For the Quarter Trailing Twelve Months 2Q23 2Q24 2Q23 2Q24 1 Net Operating Income $ 62.3 $ 114.6 $ 281.7 $ 407.3 Holding Company Cash Flows: Net Dividends (Contributions) from/to Subsidiaries $ 59.0 $ 56.3 $ 148.6 $ 259.1 Management Fees 29.6 28.4 121.6 115.6 Surplus Debenture Inte
Slide 18: Broker-Dealer/Registered Investment Advisor
BROKER-DEALER/REGISTERED INVESTMENT ADVISOR Account values up 24% YoY; Record $3.6 billion in client assets 2023 2024 2Q 3Q 4Q 1Q 2Q Net New Client Assets in Brokerage $ (4.2) $ 16.7 $ (1.0) $ 10.5 $ 55.9 Brokerage and Advisory1 Advisory 41.8 47.8 18.7 57.7 82.9 Total $ 37.6 $ 64.5 $ 17.7 $ 68.2 $ 1
Slide 19: Expense Ratio
EXPENSE RATIO1 2023 2024 2Q 3Q 4Q 1Q 2Q Allocated & Non Allocated Expenses $ 170.6 $ 145.7 $ 158.6 $ 178.4 $ 172.1 Allocated & Non Allocated Expenses - YTD 346.4 492.1 650.7 178.4 350.5 Significant Items 2 $ - $ (21.7) $ - $ - $ - 2 Significant Items - YTD - (21.7) (21.7) - - Allocated & Non Allocat
Slide 20: New Money Rate Walk
NEW MONEY RATE WALK 0.09% 0.30% 6.41% -0.04% 6.17% -0.11% 1QNMR Yield Curve Spread Duration Direct Investment 2Q24 NMR 20
Slide 21: New Money Summary
NEW MONEY SUMMARY 2Q24 General Account New Money Purchases CRE Loans $ % GAAP YTM Duration 8.1% RMBS Residential Alternatives IG Corp BBB 182.0 21.6% 6.17% 7.39 6.2% Mortgage 4.2% IG Corp AAA-A 143.3 17.0% 5.95% 9.43 Loans 13.9% Municipals ABS 142.5 16.9% 5.89% 11.23 4.1% Residential Mortgage Loans
Slide 22: Commercial Mortgage Loans
COMMERCIAL MORTGAGE LOANS One delinquent loan in the last 8 years Our CRE loan portfolio is conservatively margined Our CRE loan portfolio emphasizes lower risk sectors with cushion for adverse development Prop Type Avg LTV (%) Apartment 50.2 Retail 37.8% Industrial 44.0 $202.6 16.6% Mixed Use 42.1
Slide 23: Commercial Mortgage-Backed Securities
COMMERCIAL MORTGAGE-BACKED SECURITIES Our CMBS allocation is highly rated - Our CMBS investments have significant structural 91% AAA/AA/A categories cushion for collateral losses 50% % Loss Absorbing Subordination in AA+, $71 , 3% AA, $43 , 2% AA-, $99 , 4% A+, $100 , 4% Structure 22% A, $101 , 4% 1
Slide 24: Long-Term Care Insurance
LONG-TERM CARE INSURANCE Highly differentiated inforce block; Prudently managed New sales (~$50 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
Slide 25: Tax Asset Summary as of June 30, 2024
TAX ASSET SUMMARY AS OF JUNE 30, 2024 $297 million / $2.75 per diluted share value of remaining NOLs 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 tax method change will result
Slide 26: Appendix 2: Financial Exhibits
Appendix 2: Financial Exhibits Non-GAAP Financial Measures Slides 27 - 41 26
Slide 27: 4Q23 Significant Items
4Q23 SIGNIFICANT ITEMS The table below summarizes the financial impact of significant items on our 4Q23 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results. Three months ended December 31, 2023 Excluding significant
Slide 28: 3Q23 Significant Items
3Q23 SIGNIFICANT ITEMS The table below summarizes the financial impact of significant items on our 3Q23 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results. Three months ended September 30, 2023 Excluding significan
Slide 29: 4Q22 Significant Items
4Q22 SIGNIFICANT ITEMS The table below summarizes the financial impact of significant items on our 4Q22 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results. Three months ended December 31, 2022 Excluding significant
Slide 30: Quarterly Earnings
QUARTERLY EARNINGS 2Q23 3Q23 4Q23 1Q24 2Q24 Insurance product margin Annuity $ 57.1 $ 57.0 $ 63.6 $ 52.0 $ 76.1 Health 108.2 123.2 146.4 123.0 135.9 Life 57.9 59.8 64.6 54.6 63.1 Total insurance product margin 223.2 240.0 274.6 229.6 275.1 Allocated expenses (149.5) (153.2) (138.8) (161.6) (154.6) I
Slide 31: Information Related to Certain Non-GAAP Financial Measures
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 excludes or includes am
Slide 32: Information Related to Certain Non-GAAP Financial Measures
INFORMATION RELATED TO CERTAIN NON-GAAP FINANCIAL MEASURES A reconciliation of net income applicable to common stock to net operating income (and related per-share amounts) is as follows: 2Q23 3Q23 4Q23 1Q24 2Q24 Net income applicable to common stock $ 73.7 $ 167.3 $ 36.3 $ 112.3 $ 116.3 Non-operati
Slide 33: Information Related to Certain Non-GAAP Financial Measures
INFORMATION RELATED TO CERTAIN NON-GAAP FINANCIAL MEASURES A reconciliation of operating income and shares used to calculate basic and diluted operating earnings per share is as follows: 2Q23 3Q23 4Q23 1Q24 2Q24 Operating income $ 62.3 $ 101.3 $ 133.9 $ 57.5 $ 114.6 Weighted average shares outstandi
Slide 34: Information Related to Certain Non-GAAP Financial Measures
INFORMATION RELATED TO CERTAIN NON-GAAP FINANCIAL MEASURES 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 conve
Slide 35: Information Related to Certain Non-GAAP Financial Measures
INFORMATION RELATED TO CERTAIN NON-GAAP FINANCIAL MEASURES 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 va
Slide 36: Information Related to Certain Non-GAAP Financial Measures
INFORMATION RELATED TO CERTAIN NON-GAAP FINANCIAL MEASURES 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, e
Slide 37: Information Related to Certain Non-GAAP Financial Measures
INFORMATION RELATED TO CERTAIN NON-GAAP FINANCIAL MEASURES The following summarizes: (i) operating earnings; (ii) significant items; (iii) operating earnings, excluding significant items; and (iv) net income (loss): Net operating Net operating income, income, excluding excluding significant Net inco
Slide 38: Information Related to Certain Non-GAAP Financial Measures
INFORMATION RELATED TO CERTAIN NON-GAAP FINANCIAL MEASURES 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, e
Slide 39: Information Related to Certain Non-GAAP Financial Measures
INFORMATION RELATED TO CERTAIN NON-GAAP FINANCIAL MEASURES 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: 1Q22 2Q22 3Q22 4Q22 Consolid
Slide 40: Information Related to Certain Non-GAAP Financial Measures
INFORMATION RELATED TO CERTAIN NON-GAAP FINANCIAL MEASURES 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: Trailing Four Quarter Averag
Slide 41: Information Related to Certain Non-GAAP Financial Measures
INFORMATION RELATED TO CERTAIN NON-GAAP FINANCIAL MEASURES 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