Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Q1 2024 Earnings Presentation
43 slides from Cno Financial's earnings presentation, Apr 30, 2024
Slide 1: First Quarter 2024
First Quarter 2024 Financial and operating results for the period ended March 31, 2024 April 29, 2024 Unless otherwise specified, comparisons in this presentation are between 1Q23 and 1Q24. 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 Strong start to 2024, continuing track record of sustainable growth Operational ▪ 7th consecutive quarter of strong sales momentum Highlights – Total new annualized premium (NAP) up 8% – Sales growth in nearly all product categories ▪ Total producing agent count (PAC) up 10%, 5th c
Slide 5: Growth Scorecard
GROWTH SCORECARD Expanded scorecard demonstrates sustained results across 3 core areas 2023 2024 Change 1Q 2Q 3Q 4Q FY 1Q vs 1Q23 1 New Annualized Premiums $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% PRODUCTION
Slide 6: Consumer Division Update
CONSUMER DIVISION UPDATE Strong execution delivering consistent and sustainable sales growth; 6th consecutive quarter of sales growth Operational ▪ Life and Health NAP up 7% Highlights ▪ Health NAP up 22%, Medicare Supplement NAP up 24%, LTC NAP up 71% ▪ Medicare Advantage policies sold up 38% ▪ Ann
Slide 7: Worksite Division Update
WORKSITE DIVISION UPDATE Insurance sales momentum continuing; 8th consecutive quarter of PAC growth ▪ Life and Health NAP up 19% Operational Highlights – At least +15% growth in 7 of the last 8 quarters ▪ New products driving growth – Accident product launched mid-2023, up 43% – Critical Illness pro
Slide 8: Financial Highlights
FINANCIAL HIGHLIGHTS Solid earnings; Strong underwriting margin and NII allocated to products Earnings Results First Quarter 2024 ▪ Operating EPS1 of $0.52 $0.52 $0.51 — Strong insurance product margins driven Net operating earnings per by Health and Life share1 — NII allocated to products benefitin
Slide 9: Insurance Product Margin
INSURANCE PRODUCT MARGIN Diverse product portfolio delivers strong underwriting margin Insurance Product Margin Excluding Significant Items1 Highlights Annuity margin 1Q23 2Q23 3Q23 4Q23 1Q24 ▪ Elevated surrenders – due to interest Annuity $57.3 $57.1 $57.0 $50.7 $52.0 rate environment Fixed indexed
Slide 10: Investment Results
INVESTMENT RESULTS NII allocated to products benefiting from strong NMRs and growing asset base; 1Q24 VII below long-term expectation Investment Income Investment Income Not Total Net Allocated to Product Lines Allocated to Product Lines Investment Income1 +2.5% $300.0 $300.0 $300.0 $245.3 $251.2 $2
Slide 11: Portfolio Composition
PORTFOLIO COMPOSITION High-quality portfolio driving higher and consistent NII allocated to product $26 Billion of Invested Assets1 HY Corporates, 2.0% CMBS, 8.7% Highlights Municipals, 10.3% Mortgage Loans, 7.4% ▪ High degree of liquidity: 60% of portfolio in corporate and government bonds ABS, 5.7
Slide 12: Alternatives Allocation
ALTERNATIVES ALLOCATION Solid real estate alternative historical performance; Real estate partnerships impacted by net unfavorable mark-to-market in 1Q24; Affected asset base is small and contained Hedge Funds, Real Estate Partnerships 1% ◼ Annual appraisals reflected higher cap rates due to market
Slide 13: Capital and Liquidity Overview
CAPITAL AND LIQUIDITY OVERVIEW Capital and liquidity remain above target levels Consolidated Risk Based Capital (RBC) Ratio1 386% 384% 402% 391% ◼ Target consolidated RBC ratio of approximately 375% ◼ RBC variability expected in periods of market volatility 2021 2022 2023 1Q 2024 Holding Company Liq
Slide 14: 2024 Outlook
2024 OUTLOOK No change to guidance Earnings ▪ Operating EPS range of $3.10 - $3.30 ▪ 18.8% – 19.2% expense ratio ▪ ~23% effective tax rate Free Cash Flow / Excess Capital ▪ $140 – $200 million of excess cash flow to holding company ▪ 375% consolidated RBC ratio target ▪ Minimum $150 million in holdi
Slide 15: 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 in place 5 Strong balance sheet and solid free cash flow generation 15
Slide 16: Questions and Answers
Questions and Answers CNO FINANCIAL GROUP. 16
Slide 17: Appendix 1: Quarter in Review
Appendix 1: Quarter in Review ▪ 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 Car
Slide 18: Cash Flow Profile
CASH FLOW PROFILE For the Quarter Trailing Twelve Months 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 Debenture Interest 15.9 17.6 62.7 83.7 Earnings on Corporate Investm
Slide 19: Broker-Dealer/Registered Investment Advisor
BROKER-DEALER/REGISTERED INVESTMENT ADVISOR Account values up 32% YoY; Record $3.4 billion in client assets 2023 2024 1Q 2Q 3Q 4Q 1Q Net New Client Assets in Brokerage $ 7.9 $ (4.2) $ 16.7 $ (1.0) $ 10.5 1 Brokerage and Advisory Advisory 54.2 41.8 47.8 18.7 57.7 Total $ 62.1 $ 37.6 $ 64.5 $ 17.7 $ 6
Slide 20: Expense Ratio
EXPENSE RATIO1 2023 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 2 Significant Items $ - $ - $ (21.7) $ - $ - 2 Significant Items - YTD - - (21.7) (21.7) - Allocated & Non Allocat
Slide 21: New Money Rate Walk
NEW MONEY RATE WALK 6.92% -0.25% 0.23% 6.17% -0.58% -0.15% 4QNMR Yield Curve Spread Duration Direct Investment 1Q24 NMR 21
Slide 22: New Money Summary
NEW MONEY SUMMARY CRE Loans, 1.7% 1Q24 General Account New Money Purchases HY Corporates, 2.8% EM, 0.3% CMBS, 2.9% $ % GAAP YTM Duration Municipals 204.6 27.2% 5.64% 10.14 IG Corp BBB, IG Corp AAA-A 131.6 17.5% 5.42% 5.26 7.1% CLO Debt 67.0 8.9% 5.74% 6.84 Residential Mortgage Loans 61.2 8.1% 6.52%
Slide 23: 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 51.8 Retail, 15.2%, 40% Industrial 43.5 $178.6 34.8% Mixed Use
Slide 24: 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 AA, $43 AA-, $99 Structure A+, $100 22% A, $101 17% AAA, $1,794 11% A-, $6
Slide 25: Long-Term Care Insurance
LONG-TERM CARE INSURANCE Highly differentiated inforce block; Prudently managed 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
Slide 26: Tax Asset Summary as of March 31, 2024
TAX ASSET SUMMARY AS OF MARCH 31, 2024 $311 million / $2.83 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 $311 self-constructed real estate assets. This method change will resu
Slide 27: Appendix 2: Financial Exhibits
Appendix 2: Financial Exhibits Non-GAAP Financial Measures Slides 28 - 43 27
Slide 28: 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 29: 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 30: 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 31: 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. Three months ended June 30, 2022 Excluding significant Act
Slide 32: Quarterly Earnings
QUARTERLY EARNINGS 1Q23 2Q23 3Q23 4Q23 1Q24 Insurance product margin Annuity $ 57.3 $ 57.1 $ 57.0 $ 63.6 $ 52.0 Health 116.5 108.2 123.2 146.4 123.0 Life 47.4 57.9 59.8 64.6 54.6 Total insurance product margin 221.2 223.2 240.0 274.6 229.6 Allocated expenses (157.5) (149.5) (153.2) (138.8) (161.6) I
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: 1Q23 2Q23 3Q23 4Q23 1Q24 Net income (loss) applicable to common stock $ (0.8) $ 73.7 $ 167.3 $ 36.3 $ 112.3 Non-
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: 1Q23 (a) 2Q23 3Q23 4Q23 1Q24 Operating income $ 58.6 $ 62.3 $ 101.3 $ 133.9 $ 57.5 Weighted average shares outsta
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): Net operating Net operating income, income, excluding excluding significant Net inco
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: 1Q22 2Q22 3Q22 4Q22 Consolid
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: Trailing Four Quarter Averag
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