Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Q3 2023 Earnings Presentation
43 slides from Cno Financial's earnings presentation, Nov 7, 2023
Slide 1: Third Quarter 2023
Third Quarter 2023 Financial and operating results for the period ended September 30, 2023 November 6, 2023 Unless otherwise specified, comparisons in this presentation are between 3Q22 and 3Q23. CNO Financial Group 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: CNO Financial Group
CNO Financial Group 3
Slide 4: Quarter in Review
Quarter in Review Solid earnings, strong sales growth, reinsurance transaction with Bermuda affiliate approved Operating EPS1 of $0.88, up 31% 3Q23 includes $0.14 favorable impact from significant items Total NAP up 13%, balanced sales benefiting from growing agent counts and broad product por
Slide 5: Growth Scorecard
Growth Scorecard Second consecutive quarter of double-digit Total Life and Health NAP growth (dollars in millions) 2022 2023 % Change 3Q 4Q FY 1Q 2Q 3Q Y/Y New Annualized Premiums 1 Life $45.1 $40.8 $193.1 $57.1 $55.6 $50.0 10.9% Health 42.2 49.9 164.3 39.5 43.1 48.3 14.5% Total Life and Health $87.
Slide 6: Consumer Division Update
Consumer Division Update Accelerating gains in PAC driving balanced Life and Health NAP growth Total Life and Health NAP up 9% Life NAP up 8%, balanced across field and D2C Strong Health NAP up 11%, LTC up 48% Operational Solid Annuity collected premiums, account value up 4% PAC up 9%, thi
Slide 7: Worksite Division Update
Worksite Division Update Insurance sales momentum accelerating, sixth consecutive quarter of PAC growth Strong Life and Health NAP up 36%, +20% growth 4 of the last 5 quarters Operational PAC up 24%, first-year agent counts up 58% Results Refreshed accident insurance product performing well
Slide 8: Financial Highlights
Financial Highlights Operating EPS1 excluding significant items up 10%, strong underwriting margins and NII Third Quarter 2023 Earnings Results (dollars in millions, except where noted) 3Q23 Operating EPS1 of $0.88, up 31% 3Q23 Operating EPS1 excl. significant items of $0.74, up Net operating ea
Slide 9: Insurance Product Margin
Insurance Product Margin Health claims moderated, strong supplemental health and life margins (dollars in millions) Insurance Product Margin Excluding Significant Items1 3Q 2023 Highlights 3Q22 4Q22 1Q23 2Q23 3Q23 Annuity margin Annuity $60.1 $54.0 $57.3 $57.1 $57.0 FIA – moderating spreads, par
Slide 10: Investment Results
Investment Results NII benefiting from strong NMRs, growing asset base and improved VII (dollars in millions) Investment Income Allocated Investment Income Not to Product Lines Allocated to Product Lines Total Net Investment Income1 $400.0 $200.0 $400.0 $300.0 $150.0 $300.0 $279.9 $241.5 $256.9 $229
Slide 11: Portfolio Composition
Portfolio Composition Rising earnings power with stable credit trend $24 Billion of Invested Assets Highlights (Fair Value as of 9/30/2023) HY Corporates, 2.0% CMBS, 9.7% High degree of liquidity: 60% of portfolio in corporate Mortgage Loans, and government bonds 7.4% Municipals, 9.5% Up-in-qual
Slide 12: Capital and Liquidity Overview
Capital and Liquidity Overview Capital and liquidity remain above target levels (dollars in millions) Consolidated Risk Based Capital (RBC) Ratio1 386% 384% 380% 386% 392% Target consolidated RBC ratio of approximately 375% RBC variability expected in periods of market volatility 2021 2022 1Q 20
Slide 13: 2023 Outlook
2023 Outlook1 Free Cash Flow / Earnings Excess Capital EPS range of $2.70 – $2.80 375% consolidated RBC ratio target 19.2 – 19.4% expense ratio Target leverage of 25.0% – 28.0% ~23% effective tax rate $330 – $350 million of excess cash flow to holdco after inception of the reinsurance tr
Slide 14: Investment Highlights
Investment Highlights Exclusive focus on Favorable Diverse and underserved middle demographic integrated "last mile" market tailwinds virtual & in-person model Sustainable Strong balance sheet growth initiatives and solid free cash flow in place generation CNO Financial Group 14
Slide 15: Questions and Answers
Questions and Answers CNO Financial Group 15
Slide 16: Excess Capital Allocation Strategy
Excess Capital Allocation Strategy Disciplined and opportunistic approach to maximize shareholder value Organic investments to sustain and grow Return capital to Opportunistic the core businesses shareholders transactions Agent pilots, technology- Share repurchases: Highly selective M&A driven
Slide 17: Cash Flow Profile
Cash Flow Profile (dollars in millions) For the Quarter Trailing Twelve Months 3Q22 3Q23 3Q22 3Q23 1 $ 77.9 $ 101.3 $ 380.6 $ 305.1 Net Operating Income Holding Company Cash Flows: Net Dividends (Contributions) from/to Subsidiaries $ 11.0 $ (16.8) $ 123.0 $ 120.8 Management Fees 27.5 28.4 119.7 122.
Slide 18: Appendix 1: Quarter in Review
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 New Money Rate Walk Slide 21 New Money Summary Slide 22 Commercial Mortgage Loans Slide 23 Commer
Slide 19: Broker-Dealer/Registered Investment Advisor
Broker-Dealer/Registered Investment Advisor Account values up 18% YoY; $2.9 billion in client assets (dollars in millions) 2022 2023 3Q 4Q 1Q 2Q 3Q Net New Client Assets in Brokerage $ (17.9) $ (9.2) $ 7.9 $ (4.2) $ 16.7 1 Brokerage and Advisory Advisory 32.9 31.8 54.2 41.8 47.8 Total $ 15.0 $ 22.6
Slide 20: Exclusive Agent Counts
Exclusive Agent Counts PAC growth across both divisions a result of successful recruiting strategies 2022 2023 % Change % Change Consumer 3Q 4Q 1Q 2Q 3Q vs. 2Q23 vs. 3Q22 Producing Field Agents1,3 3,913 3,882 3,985 4,279 4,267 -0.3% 9.0% Registered Agents 2,3 688 695 695 695 701 0.9% 1.9% Worksite P
Slide 21: New Money Rate Walk
New Money Rate Walk NMR reflects stable rates at short durations, rising interest rates at long end offset by tighter credit spreads CNO Financial Group 21
Slide 22: New Money Summary
New Money Summary NMR reflects stable rates at short durations, rising interest rates at long end offset by tighter credit spreads IG Corp BBB 3Q General Account New Money Purchases Alternatives EM 1.1% 4.3% 0.1% CDOS 6.0% RMBS $ % GAAP YTM Duration 26.1% RMBS ABS 144.4 26.1 5.87% 9.35 7.9% Municipa
Slide 23: Commercial Mortgage Loans
Commercial Mortgage Loans (dollars in millions) Our CRE loan portfolio is conservatively margined Our CRE loan portfolio emphasizes lower risk sectors with cushion for adverse development Prop Type Avg LTV (%) Retail 50.0% Apartment 45.44 15% Industrial 37.31 40.6% 40.0% Mixed Use 46.65 Other Apartm
Slide 24: Commercial Mortgage-Backed Securities
Commercial Mortgage-Backed Securities (dollars in millions) Our CMBS allocation is highly rated - Our CMBS investments have significant structural cushion 91% AAA/AA/A categories for collateral losses 49% % Loss Absorbing Subordination in Structure AA+ $83.9 AA $36.2 AA- $171.3 A+ $77.9 A 22% $81.8
Slide 25: Long-Term Care Insurance
Long-Term Care Insurance Highly differentiated inforce block; prudently managed New sales (~$30 million annually) focused on short duration products 99% of new sales for policies with 2 years or less in benefits Average benefit period of 11 months New business 25% reinsured since 2008 Reserve
Slide 26: Tax Asset Summary as of September 30, 2023
Tax Asset Summary as of September 30, 2023 $345 million/$3.02 per diluted share value of NOLs and DTAs related to tax strategy Value of NOLs and deferred tax assets Details (DTAs) related to tax strategy (dollars in millions) $345 Total estimated economic value of tax assets related to our NOLs an
Slide 27: Appendix 2: Financial Exhibits
Appendix 2: Financial Exhibits Non-GAAP Financial Measures Slides 28 - 43 CNO Financial Group 27
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. (dollars in millions, except per-share amounts) Three mont
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. (dollars in millions, except per-share amounts) Three mont
Slide 30: 2Q22 Significant Items
2Q22 Significant Items The table below summarizes the financial impact of significant items on our 2Q22 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results. (dollars in millions, except per-share amounts) Three mont
Slide 31: 4Q21 Significant Items
4Q21 Significant Items The table below summarizes the financial impact of significant items on our 4Q21 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results. (dollars in millions, except per-share amounts) Three mont
Slide 32: Quarterly Earnings
Quarterly Earnings (dollars in millions) 3Q22 4Q22 1Q23 2Q23 3Q23 Insurance product margin Annuity $ 60.1 $ 50.8 $ 57.3 $ 57.1 $ 57.0 Health 123.3 140.4 116.5 108.2 123.2 Life 55.7 43.3 47.4 57.9 59.8 Total insurance product margin 239.1 234.5 221.2 223.2 240.0 Allocated expenses (150.5) (149.1) (15
Slide 33: 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 34: 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: (dollars in millions, except per-share amounts) 3Q22 4Q22 1Q23 2Q23 3Q23 Net income (loss) applicable to common
Slide 35: 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: (dollars in millions, except per-share amounts, and shares in thousands) (a) 3Q22 4Q22 1Q23 2Q23 3Q23 Operating i
Slide 36: 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 37: 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 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 The following summarizes: (i) operating earnings; (ii) significant items; (iii) operating earnings, excluding significant items; and (iv) net income (loss): (dollars in millions) Net operating Net operating income, income, excluding excludin
Slide 40: 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 41: 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: (dollars in millions) 1Q21 2
Slide 42: 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: (dollars in millions) Traili
Slide 43: 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