Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Q1 2023 Earnings Presentation
44 slides from Cno Financial's earnings presentation, May 2, 2023
Slide 1: First Quarter 2023
First Quarter 2023 Financial and operating results for the period ended March 31, 2023 May 1, 2023 Unless otherwise specified, comparisons in this presentation are between 1Q22 and 1Q23. 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: Strong Operational Results: Quarter in Review
Quarter in Review Continued strong overall sales, strong insurance product margins, resilient capital position Operating EPS1 of $0.51 Total NAP up 7%, balanced sales growth benefitting from diversified distribution Strong Strong recruiting driving producing agent count (“PAC”) growth Operatio
Slide 5: Growth Scorecard
Growth Scorecard Strong production momentum, considerable fee revenue growth (dollars in millions) 2022 2023 % Change 1Q 2Q 3Q 4Q FY 1Q Y/Y 1 New Annualized Premiums Life $55.8 $51.4 $45.1 $40.8 $193.1 $57.1 2.3% Health 34.8 37.4 42.2 49.9 164.3 39.5 13.5% Total Life and Health $90.6 $88.8 $87.3 $90
Slide 6: Consumer Division Update
Consumer Division Update Balanced growth across nearly all product lines, record D2C Life sales Total Life and Health NAP up 4% Strong Total third-party policies issued up 81%, Medicare Advantage sales up 55% Operational Life NAP - record D2C sales; Bankers field agent sales up 5% Health NAP
Slide 7: Worksite Division Update
Worksite Division Update Eighth consecutive quarter of insurance sales growth; fourth consecutive quarter of producing agent count growth Life and Health insurance sales up 28% Strong retention of existing employer customers Strong Stable employee persistency and premium collection Operational
Slide 8: Financial Highlights
Financial Highlights Non-economic accounting impact to GAAP earnings, solid operating earnings First Quarter 2023 Earnings Results (dollars in millions, except where noted) 1Q23 net loss per share of $0.01 $1.52 Primarily due to non-economic changes in fair value of embedded derivative liabiliti
Slide 9: Insurance Product Margin
Insurance Product Margin Strong margins continue post LDTI implementation (dollars in millions) 1Q 2023 Highlights1 Insurance Product Margin Excluding Significant Items1 1Q22 2Q22 3Q22 4Q22 1Q23 Total margin up $14 million Annuity $55.9 $60.1 $60.1 $54.0 $57.3 Fixed indexed annuities $44.8 $48.4 $
Slide 10: Investment Results
Investment Results Improving NII allocated to products due to 6.34% NMR; lower variable NII consistent with market conditions (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 $
Slide 11: Portfolio Composition
Portfolio Composition Quality of portfolio evident during recent market turmoil, continued up-in-quality bias $25 billion of Invested Assets Highlights Residential Mortgage HY Corporates, Loans, 1.6% (Fair Value as of 3/31/2023) Commercial 2.2% CMBS, 9.8% High degree of liquidity: 61% of portfolio
Slide 12: Capital and Liquidity Overview
Capital and Liquidity Overview Capital and liquidity above target levels (dollars in millions) Consolidated Risk Based Capital (RBC) Ratio1 386% 384% 380% Target consolidated RBC ratio of approximately 375% RBC variability expected in periods of market volatility 2021 2022 1Q 2023 Holding Compan
Slide 13: 2023 Outlook
2023 Outlook1 Free Cash Flow / Earnings Excess Capital 375% consolidated RBC ratio target EPS range of $2.80 – $3.00 Target leverage of 25.0% – 28.0% 19.0 – 19.4% expense ratio $170mm – $200mm of excess cash 23.0 – 24.0% effective tax rate flow to holdco before impact of Bermuda captive
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 1Q22 1Q23 1Q22 1Q23 1 Net Operating Income $ 64.5 $ 58.6 $ 369.7 $ 354.5 Holding Company Cash Flows: Dividends from Subsidiaries $ 69.6 $ 34.2 $ 335.5 $ 135.9 Management Fees 33.2 30.2 119.3 121.0 Surplus Debenture Intere
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 down 8% YoY; $2.6 billion in client assets (dollars in millions) 2022 2023 1Q 2Q 3Q 4Q 1Q Net New Client Assets in Brokerage $ (35.2) $ (10.5) $ (17.9) $ (9.2) $ 7.9 Brokerage and Advisory1 Advisory 76.1 24.2 32.9 31.8 54.2 Total $ 40.9 $ 13
Slide 20: Exclusive Agent Counts
Exclusive Agent Counts PAC growth across both divisions a result of successful recruiting strategies and a softening labor market, veteran agent retention strong 2022 2023 % Change % Change Consumer 1Q 2Q 3Q 4Q 1Q vs. 4Q22 vs. 1Q22 1,3 Producing Field Agents 3,939 3,968 3,913 3,882 3,985 2.7% 1.2% 2
Slide 21: New Money Rate Walk
New Money Rate Walk Significant NMR increase reflects higher market yields 6.34% 0.84% 0.00% -0.01% 5.96% -0.45% CNO Financial Group 21
Slide 22: New Money Summary
New Money Summary Strategically harvesting rising market yields, in the context of up-in-quality strategy 1Q General Account New Money Purchases $ % GAAP YTM Duration IG Corp AAA-A 146.6 21.3% 6.10% 5.64 IG Corp BBB 14.5 2.1% 6.24% 5.94 HY Corp 0.9 0.1% 6.30% 5.59 Municipals 30.7 4.5% 5.42% 10.66 RM
Slide 23: Commercial Mortgage Loans
Commercial Mortgage Loans (dollars in millions) Our CRE loan portfolio is conservatively margined with cushion for adverse development Our CRE loan portfolio emphasizes lower risk sectors Property Type LTV Avg (%) 36% Apartment 51.7 Retail - 16.7% Industrial 39.9 Apartment 37.3% 30% Mixed Use 35.4 %
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% AA+ % Loss Absorbing Subordination in Structure $83.9 AA $31.7 AA- $171.2 A+ $78.3 22% A $81.7
Slide 25: Long-Term Care Insurance
Long-Term Care Insurance Highly differentiated inforce block; prudently managed New sales (~$25 million annually) focused on short duration products 98% 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 March 31, 2023
Tax Asset Summary as of March 31, 2023 $374 million/$3.22 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) $374 Total estimated economic value of tax assets related to our NOLs and ta
Slide 27: Appendix 2: Financial Exhibits
Appendix 2: Financial Exhibits Non-GAAP Financial Measures Slides 28 - 44 CNO Financial Group 27
Slide 28: 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 29: 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 30: 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 31: 3Q21 Significant Items
3Q21 Significant Items The table below summarizes the financial impact of significant items on our 3Q21 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: 2Q21 Significant Items
2Q21 Significant Items The table below summarizes the financial impact of significant items on our 2Q21 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 33: Quarterly Earnings
Quarterly Earnings (dollars in millions) 1Q22 2Q22 3Q22 4Q22 1Q23 Insurance product margin Annuity $ 55.9 $ 60.1 $ 60.1 $ 50.8 $ 57.3 Health 115.3 125.4 123.3 140.4 116.5 Life 36.0 70.2 55.7 43.3 47.4 Total insurance product margin 207.2 255.7 239.1 234.5 221.2 Allocated expenses (144.8) (152.2) (15
Slide 34: 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 35: 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) 1Q22 2Q22 3Q22 4Q22 1Q23 Net income (loss) applicable to common
Slide 36: 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) 1Q22 2Q22 3Q22 4Q22 1Q23 (a) Operating i
Slide 37: 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 38: 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 39: 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 40: 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 41: 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 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) 1Q21 2
Slide 43: 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 44: 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