Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Q4 2024 Earnings Presentation
46 slides from Cno Financial's earnings presentation, Feb 6, 2025
Slide 1: Fourth Quarter 2024 Financial and Operating Results
1 Unless otherwise specified, comparisons in this presentation are between 4Q23 and 4Q24. Fourth Quarter 2024 Financial and operating results for the period ended December 31, 2024 February 6, 2025
Slide 2: Forward-Looking Statements
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: Year in Review
4 1 A non-GAAP measure. See the Appendix for a reconciliation to the corresponding GAAP measure. Operational Highlights Financial Highlights YEAR IN REVIEW Exceptional full-year earnings and production results Operating EPS1 of $3.97 up 28%, and up 40% excluding significant items – Strong underwri
Slide 5: Growth Scorecard
5 1 Measured as 100% of new life and health annualized premiums, except for single premium whole life deposits, which are measured at 10% of annualized premium. 2 Represents fee revenue from the sales of third-party insurance products; fees generated by our broker/dealer and registered investment ad
Slide 6: Consumer Division Update
6 CONSUMER DIVISION UPDATE Strong 2024; 9th consecutive quarter of sustained sales growth PAC up 8%, 8th consecutive quarter of growth – Full year improvement in recruiting, retention and productivity Continued disciplined and opportunistic approach to D2C advertising spend Technology enabling
Slide 7: Worksite Division Update
7 WORKSITE DIVISION UPDATE Record year and 4Q for insurance sales; 11th consecutive quarter of NAP growth Life and Health NAP up 16%, up 23% vs 4Q23 New products driving growth – Critical Illness product up 24%, up 54% vs 4Q23 – Accident product up 13%, up 12% vs 4Q23 – Hospital Indemnity produc
Slide 8: Financial Highlights
8 1 A non-GAAP measure. See the Appendix for a reconciliation to the corresponding GAAP measure. Net operating income1 $133.9 $138.0 $356.1 $429.3 Net operating income excluding significant items1 $107.5 $141.1 $312.8 $410.5 Weighted average shares outstanding (in millions) 113.7 105.2 115.1 108.1 N
Slide 9: Insurance Product Margin Excluding Significant Items
9 (dollars in millions) Insurance Product Margin Excluding Significant Items1 1 Excludes the following impacts from annual actuarial review. See the Appendix for a reconciliation to the corresponding GAAP measure. 4Q23: Annuity - $12.9 million, Health - $22.3 million, and Life - ($1.3) million 3Q24:
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 12/31/2024 PORTFOLIO COMPOSITION High-quality, liquid portfolio delivering strong and durable results Highlights General Approach IG Corporates, 39.3% CDs, 1.7% Non- Agency RMBS, 5.4% Mortgage Loans, 8.1% HY Corporates, 2.2% CMBS, 7.9% Municipals, 9.5% ABS, 5.3% Govts/Agency, 4
Slide 12: Capital and Liquidity
12 Debt to Capital2 Consolidated Risk Based Capital (RBC) Ratio1 Holding Company Liquidity 1 The ratio of the combined capital of the insurance companies to the minimum amount of capital appropriate to support the overall business operations, as determined based on the methodology developed by the N
Slide 13: 2025 Guidance
13 Earnings Free Cash Flow / Excess Capital 2025 GUIDANCE Guidance excludes significant items Improve run rate operating ROE by 150 basis points over the next three years 50 basis points of improvement in 2025 to a run rate Operating ROE of ~10.5% $3.70 - $3.90 operating EPS 19.0% – 19.4% ex
Slide 14: Levers to Drive Operating ROE
14 LEVERS TO DRIVE OPERATING ROE Combination of top and bottom line actions to improve Operating ROE over the long-term Accelerating brokerage and advisory growth Product introductions (both insurance and services) New business terms, processing and underwriting Optimize agent count and prod
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" in-person and virtual model Delivering growth while improving ROE 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 Financial Results Seasonality Slide 21 New Money Rate Walk Slide 22 New Money Summary Slide 23 Commercial Mortgage Loans Slide 24 Commercial Mortgage-Backed Securities Slide 25
Slide 18: Cash Flow Profile
18 1 Cash flows exclude acquisitions, dividend payments, stock repurchases, and financing transactions (dollars in millions) CASH FLOW PROFILE
Slide 19: Broker-Dealer/Registered Investment Advisor
19 Account values up 28% YoY; Record $4.1 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 1 Expenses allocated to products plus not allocated to products, divided by the sum of insurance policy income and net investment income allocated to products. Results exclude significant items. 2 See pages 29-34 for a reconciliation of the significant items. EXPENSE RATIO1 (dollars in millions)
Slide 21: Financial Results Seasonality
21 (dollars in millions) FINANCIAL RESULTS SEASONALITY 1Q 2Q 3Q 4Q Medicare Supplement Margin Seasonally highest claims and surrenders Mortality Seasonally highest mortality D2C Advertising Traditionally highest advertising Traditionally lowest advertising Fee Income ~1/4 income Near breakeven Near
Slide 22: New Money Rate Walk
NEW MONEY RATE WA 0.33% 0.66% 6.72% _ — e -0.47% [| -0.30% 3Q24 NMR Yield Curve Spread Duration Direct Investment 4Q24 NMR CNO FINANCIAL GROUP 22
Slide 23: New Money Summary
23 4Q24 General Account New Money Purchases NEW MONEY SUMMARY (dollars in millions) $ % GAAP YTM Duration Residential Mortgage Loans 177.3 21.6% 6.76% 3.12 IG Corp AAA-A 113.6 13.9% 5.21% 9.62 RMBS 108.0 13.2% 4.84% 11.46 Municipals 92.4 11.3% 5.50% 9.39 Alternatives 91.8 11.2% 10.88% 2.12 Rated Not
Slide 24: Commercial Mortgage Loans
24 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 25: Commercial Mortgage-Backed Securities
25 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 low
Slide 26: Long-Term Care Insurance
26 New sales (~$54 million annually) focused on short duration products Recent growth due to launch of new LTC Fundamental product 99.9% of new sales for policies with 2 years or less in benefits Average benefit period of 12 months Reserve assumptions informed by historical experience No mor
Slide 27: Tax Asset Summary
27 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 in a current year deduction of certain costs previously capitalized under the prior method. As a
Slide 28: Appendix 2: Financial Exhibits
28 Appendix 2: Financial Exhibits Non-GAAP Financial Measures Slides 29 - 46
Slide 29: 2024 Significant Items
29 2024 SIGNIFICANT ITEMS The table below summarizes the financial impact of significant items on our 2024 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) (a) Com
Slide 30: 4Q24 Significant Items
30 (dollars in millions, except per-share amounts) The table below summarizes the financial impact of significant items on our 4Q24 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results. 4Q24 SIGNIFICANT ITEMS Insuran
Slide 31: 3Q24 Significant Items
31 (dollars in millions, except per-share amounts) (a) Significant items impacting the health margin were revised from $8.2 million reported in September 30, 2024 to $4.3 million. (b) Impacts arising from our comprehensive annual actuarial review. (c) Unfavorable impact related to a fixed asset impa
Slide 32: 2023 Significant Items
32 2023 SIGNIFICANT ITEMS The table below summarizes the financial impact of significant items on our 2023 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results. (dollars in millions, except per-share amounts) Actual
Slide 33: 4Q23 Significant Items
33 Insurance product margin Annuity 63.6$ (12.9)$ (a) 50.7$ Health 146.4 (22.3) (a) 124.1 Life 64.6 1.3 (a) 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 34: 3Q23 Significant Items
34 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 35: (dollars in millions) *Management believes that an analysis of net income applicable to common
35 (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 the change in allowance for credit losses, net of taxes; (ii) net change in market value of investments recognized i
Slide 36: Information Related to Certain Non-GAAP Financial Measures
36 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 37: Net Income to Net Operating Income Reconciliation
37 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) INFORMATION RELATED TO CERTAIN NON-GAAP FINANCIAL MEASURES 4Q23 YTD 4Q23 1Q24 2Q24 3Q24 4Q24 YTD 4Q24 Net income applica
Slide 38: Operating Earnings Per Share Reconciliation
38 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) INFORMATION RELATED TO CERTAIN NON-GAAP FINANCIAL MEASURES 4Q23 1Q24 2Q24 3Q24 4Q24 Operating in
Slide 39: Book Value per Diluted Share
39 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 40: Operating Return Measures
40 Operating return measures 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
Slide 41: Operating Return on Equity Calculations
41 The calculations of: (i) Operating return on equity as adjusted to exclude accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure); (ii) Operating return, excluding significant items, on equity as adjusted to exclude accumulated other comp
Slide 42: Operating Earnings and Significant Items Summary
42 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 43: Operating Return on Equity Calculations (continued)
43 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 44: Consolidated Capital Reconciliation
44 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 45: Consolidated Capital Reconciliation
45 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) INFORMATION RELATED TO CERTAIN NON-GAAP FINANCIAL MEASURES 4Q2
Slide 46: Debt to Capital Ratio Excluding AOCI
46 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