Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Q3 2024 Earnings Presentation
42 slides from Cno Financial's earnings presentation, Nov 1, 2024
Slide 1: Third Quarter 2024
Third Quarter 2024 Financial and operating results for the period ended September 30, 2024 October 31, 2024 Unless otherwise specified, comparisons in this presentation are between 3Q23 and 3Q24. 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 Our 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 Continued strong results in operating earnings, production, distribution, and capital Operational ▪ 9th consecutive quarter of strong sales momentum Highlights – Record Annuity collected premiums, up 25% – Total new annualized premiums (NAP) up 1% in total, up 7% excluding direct-t
Slide 5: Growth Scorecard
GROWTH SCORECARD Growth in all scorecard metrics 2023 2024 Change 3Q 4Q FY 1Q 2Q 3Q vs 3Q23 1 New Annualized Premiums $98.3 $96.1 $389.7 $104.5 $102.9 $99.4 1.1% Consumer 83.1 81.8 336.2 91.5 87.4 83.5 0.5% Worksite 15.2 14.3 53.5 13.0 15.5 15.9 4.6% PRODUCTION Annuity Collected Premiums $372.2 $438
Slide 6: Consumer Division Update
CONSUMER DIVISION UPDATE 8th consecutive quarter of sustained sales momentum Operational ▪ Life and Health NAP up 1%, Field agent NAP up 9% Highlights ▪ Health NAP up 11%; Medicare Supplement NAP up 15%; LTC NAP up 31% ▪ Record Annuity collected premiums, up 25%; Account values up 6% ▪ Medicare Adva
Slide 7: Worksite Division Update
WORKSITE DIVISION UPDATE 10th consecutive quarter of NAP growth Operational ▪ Life and Health NAP up 4% Highlights ▪ New products driving growth – Hospital Indemnity product up 66% – Critical Illness product up 9% ▪ Fee sales1 up 108% ▪ NAP from new group clients up 164% Distribution ▪ PAC up 17%, f
Slide 8: Financial Highlights
FINANCIAL HIGHLIGHTS Operating EPS growth driven by continued strong underwriting and NII results Earnings Results Third Quarter 2024 ▪ Operating EPS1 of $1.11, up 26% $1.11 — Net favorable results from annual actuarial review $0.88 $0.94 Net operating ▪ Operating EPS1 excl. significant items of $0.
Slide 9: Insurance Product Margin
INSURANCE PRODUCT MARGIN Continued strong underwriting margin Insurance Product Margin Excluding Significant Items1 Highlights Annuity margin 3Q23 4Q23 1Q24 2Q24 3Q24 ▪ Fixed Indexed Annuities – higher amortization from assumption unlocking and spread Annuity $57.0 $50.7 $52.0 $76.1 $54.9 compressio
Slide 10: Investment Results
INVESTMENT RESULTS Continued strong net investment income Investment Income Investment Income Not Total Net Allocated to Product Lines Allocated to Product Lines Investment Income1 $300.0 $299.5 $300.0 $300.0 $279.9 $241.5 $ 254.0 $200.0 $200.0 $200.0 $100.0 $100.0 $100.0 $38.4 $45.5 $- $- $- 3Q 202
Slide 11: Portfolio Composition
PORTFOLIO COMPOSITION High-quality, liquid portfolio producing solid and consistent results $29 Billion of Invested Assets1 Highlights ▪ High degree of liquidity: over 45% of portfolio in corporate and government bonds HY Corporates, 2.1% CMBS, 7.9% Municipals, 10.2% ▪ Strong credit risk profile Mor
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% 388% ◼ Target consolidated RBC ratio of approximately 375% ◼ RBC variability expected in periods of market volatility 2022 2023 1Q24 2Q24 3Q24 Holding Comp
Slide 13: 2024 Outlook
2024 OUTLOOK Raising full-year guidance for earnings and cash flow Earnings ▪ $3.50 - $3.60 operating EPS ▪ 19.0% – 19.2% expense ratio ▪ ~23% effective tax rate Free Cash Flow / Excess Capital ▪ $250 – $275 million excess cash flow to holding company ▪ 375% consolidated RBC ratio target ▪ $150 mill
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 Growth initiatives delivering sustainable 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 (dollars in millions) 1 Cash flows exclude acquisitions, dividend payments, stock repurchases, and financing transactions 17
Slide 18: Broker-Dealer/Registered Investment Advisor
BROKER-DEALER/REGISTERED INVESTMENT ADVISOR Account values up 35% YoY; Record $3.9 billion in client assets 2023 2024 3Q 4Q 1Q 2Q 3Q Net New Client Assets in Brokerage $ 16.7 $ (1.0) $ 10.5 $ 55.9 $ 36.6 1 Brokerage and Advisory Advisory 47.8 18.7 57.7 82.9 91.7 Total $ 64.5 $ 17.7 $ 68.2 $ 138.8 $
Slide 19: Expense Ratio
EXPENSE RATIO1 2023 2024 1Q 2Q 3Q 4Q 1Q 2Q 3Q Allocated & Non Allocated Expenses $ 175.8 $ 170.6 $ 145.7 $ 158.6 $ 178.4 $ 172.1 $ 171.5 Allocated & Non Allocated Expenses - YTD 175.8 346.4 492.1 650.7 178.4 350.5 522.0 2 Significant Items $ - $ - $ (21.7) $ - $ - $ - $ 2.9 Significant Items - YTD2
Slide 20: New Money Rate Walk
NEW MONEY RATE WALK 0.29% 6.50% 0.11% 0.44% a 6.41% — — -0.75% 2Q24 NMR Yield Curve Spread Duration Direct Investment 3Q24 NMR CNO FINANCIAL GROUP.
Slide 21: New Money Summary
NEW MONEY SUMMARY CLO Debt, 3.6% EM, 0.1% 3Q24 General Account New Money Purchases CMBS, 4.0% HY Corp, 4.3% $ % GAAP YTM Duration IG Corp BBB 141.8 23.7% 5.83% 8.0 IG Corp BBB, RMBS 120.4 20.1% 6.34% 4.0 ABS, 7.4% 23.7% Municipals 73.1 12.2% 5.75% 11.4 Alternatives 56.1 9.4% 9.71% 2.8 IG Corp AAA-A
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 Retail 41.5% Prop Type Avg LTV (% ) $200.4 Apartment 46.8 16% Industrial 42.8 Mixed Use 47.2 O
Slide 23: Commercial Mortgage-Backed Securities
COMMERCIAL MORTGAGE-BACKED SECURITIES Our CMBS allocation is highly rated - Our CMBS investments have significant structural 93% AAA/AA/A categories cushion for collateral losses BB, 2% 51% % Loss Absorbing Subordination in A, 11% Structure 25% AA, 12% 14% BBB, 7% 9% AAA, 68% B, 0.1% <10 10-15 15-30
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 September 30, 2024
TAX ASSET SUMMARY AS OF SEPTEMBER 30, 2024 $274 million / $2.58 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 $274 real estate assets. This tax method change w
Slide 26: Appendix 2: Financial Exhibits
Appendix 2: Financial Exhibits Non-GAAP Financial Measures Slides 27 - 42 26
Slide 27: 3Q24 Significant Items
3Q24 SIGNIFICANT ITEMS The table below summarizes the financial impact of significant items on our 3Q24 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results. Three months ended September 30, 2024 Excluding significan
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: Quarterly Earnings
QUARTERLY EARNINGS 3Q23 4Q23 1Q24 2Q24 3Q24 Insurance product margin Annuity $ 57.0 $ 63.6 $ 52.0 $ 76.1 $ 91.1 Health 123.2 146.4 123.0 135.9 127.8 Life 59.8 64.6 54.6 63.1 63.3 Total insurance product margin 240.0 274.6 229.6 275.1 282.2 Allocated expenses (153.2) (138.8) (161.6) (154.6) (153.0) I
Slide 32: 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 33: 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: 3Q23 4Q23 1Q24 2Q24 3Q24 Net income applicable to common stock $ 167.3 $ 36.3 $ 112.3 $ 116.3 $ 9.3 Non-operatin
Slide 34: 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: 3Q23 4Q23 1Q24 2Q24 3Q24 Operating income $ 101.3 $ 133.9 $ 57.5 $ 114.6 $ 119.2 Weighted average shares outstand
Slide 35: 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 36: 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: (i) net realized investment gains or losses from sales, impairments and change in allowance for credit losses, net of taxes; (ii)
Slide 37: Information Related to Certain Non-GAAP Financial Measures
INFORMATION RELATED TO CERTAIN NON-GAAP FINANCIAL MEASURES 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,
Slide 38: 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 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 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 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: Trailing Four Quarter Averag
Slide 42: 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