CNO Financial Group, Inc. Q1 FY2025 earnings call

• CNO began the quarter strongly, building on 2024's strong performance. Operating earnings per diluted share were $0.79, up 52%, and $0.74 up 42% excluding significant items. • Full year 2025 and three-year ROE guidance was reaffirmed. • There was an 11th consecutive quarter of strong sales momentum and a ninth consecutive quarter of growth in producing agent comp. • Earnings were boosted by favorable insurance product margin and strong investment results. New money rates exceeded 6% for nine consecutive quarters. • In the Consumer division: Annuity, brokerage and advisory showed growth, health NAP grew, and the Medicare portfolio had strong sales growth. Life production declined due to lower D2C leads, but web and digital now account for over 36% of D2C sales. • In the Worksite Division: 12th consecutive quarter of insurance sales growth, critical illness insurance had strong momentum, and geographic expansion contributed to NAP growth.

CNO's Consumer division had a solid start. Annuity collected premiums were up 12% (seventh consecutive quarter of growth), account values rose 7%, and premium per policy increased 19%. Health NAP was up 9% (11th consecutive quarter of growth), Medicare Supplement NAP jumped 24%, and Medicare Advantage policies were up 42%. The Worksite Division saw insurance sales rise 11% (12th consecutive quarter of growth), with critical illness insurance up 37%, life insurance up 17%, and accident insurance up 4%. The geographic expansion initiative contributed 32% of the NAP growth in the quarter.

• Full year 2025 and three-year ROE guidance was reaffirmed. • Confidence in generating direct-to-consumer sales at an attractive rate of return was expressed. • Focus was on leveraging the business model for sustained profitable growth, executing strategic priorities, and driving ROE expansion.

• Visibility into macroeconomic drivers like interest rates was deteriorating. • Potential impact of a recession or economic downturn on the business, although CNO expected to weather it better than some. • Uncertainty in the timing of revenue recognition for fee income related to the Medicare Advantage sales mix.

Q: Just on buybacks, would you expect to lean into buyback again in the choppy macro environment?

A: Paul McDonough said they were inclined to continue, as they were sitting on $250 million of cash flow at the Holdco with capacity for continued elevated levels.

Q: On fee revenue and Medicare Advantage accounting, how does GAAP differ from cash flow?

A: Paul explained that under ASC 606, estimated lifetime revenue from Med Advantage policies was involved, with constraints on newer carriers causing fee income decline, but a reversal was expected in future periods.

Q: On the Optavise Clear product, how is the opportunity set?

A: Gary Bhojwani said they were bullish, as it brought together services, had a new Medicare advice service, and early reactions were positive.

Q: On direct-to-consumer life sales bounce back, any caveats?

A: Gary Bhojwani said yes, but there was a shift away from broadcast TV to streaming that might affect, though they were moving to social media channels with good success.

Q: On consumer agent recruiting and retention outlook?

A: Gary Bhojwani said optimistic, expecting growth as the offering resonated, and unemployment pressure might help.

Q: On PAC in the Consumer division outlook?

A: Gary Bhojwani said they expected continued growth, with some quarter-to-quarter fluctuations but annual growth expected.

Q: On the Medicare business shift between MA and Med Supp?

A: Gary Bhojwani said some demand might shift, but CNO viewed themselves in a good position regardless.

Q: On RBC ratio variability and second quarter impact?

A: Paul McDonough said the RBC ratio was impacted by timing, with non-admitted assets and FIA accounting, and the impact was timing-related.

Q: On the expense side for ROE improvement and risks?

A: Paul McDonough said multiple factors contributed, including expenses, business growth, interest rates, and capital management, with no single silver bullet.

Q: On FIA fair value derivatives drag from equity market weakness?

A: Paul McDonough said the magnitude in Q1 was ~$25 million, timing-related, and would unwind over time.

Q: On Med Advantage revenue recognition drag and cash flows?

A: Paul McDonough said cash flows were simpler, GAAP was accounting estimate, and Q1 had an experience adjustment causing drag but cash flows were stronger.