CNO Financial Group, Inc. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• CNO delivered excellent quarter and full year results, growing operating earnings and improving profitability, achieving and mostly exceeding 2025 guidance. Operating return on equity excluding significant items was 11.4%.
• Sustained momentum included 14th consecutive quarter of sales growth, 12th consecutive quarter of growth in producing agent count, and most productive year for Bankers Life and Optavise captive agencies.
• Consumer division had 13th consecutive quarter of sales growth, third consecutive year of record production, strong Medicare Supplement and annuity performance. Worksite division had best production year ever, record insurance sales, geographic expansion and new group clients contributing to growth, with exit of fee services business in progress.
• Financials: Operating earnings per diluted share $4.40, up 11%. Net investment income solid with ninth consecutive quarter of growth. Excess capital deployed on share repurchases, and 13th year of raising quarterly common stock dividend.

Segment Performance

• Consumer Division: In 2025, CNO achieved record total new annualized premium, up 15%. Life NAP was up 10%, with direct-to-consumer life sales surging 20%. Total Health NAP grew 22%, including Medicare Supplement NAP up 49% for the full year and 92% for the quarter. Record annuity collected premiums rose 9% for the full year and 3% for the quarter. Brokerage and advisory client assets increased 24% over the prior year, totaling over $5 billion. Producing agent count grew for the 12th consecutive quarter, and registered agent count was up 8%.
• Worksite Division: 2025 was the best production year ever for worksite insurance, with full year insurance sales up 15% and fourth quarter up 13%. Record life insurance sales were up 36%, hospital indemnity up 41%, and accident insurance up 11%. Geographic expansion contributed 11% to NAP growth, and NAP from new group clients was up 23%. Producing agent count grew 7%, driven by 10% recruiting growth. The exit of the fee services business within Worksite is ongoing.

Guidance

• 2026 outlook: Expect operating earnings per share between $4.25 and $4.45 (8% increase from 2025). Expense ratio expected 18.8% to 19.2%. Fee income ~$30 million. Effective tax rate ~22.5%. Free cash flow $200 million to $250 million. Risk-based capital ratio 360% to 390%. Minimum holdco liquidity $150 million, debt to total capital ratio 25% to 28%. Continued investment in tech modernization, with $75 million expected in 2026.

Risks

• Macroeconomic headwinds: Impact on discretionary purchases due to layoffs and economic conditions.
• Medicare Advantage dynamics: Pressure on Medicare Advantage sales and potential impacts on distribution fees.
• Regulatory considerations: Respect for regulatory processes in Bermuda and U.S. affecting strategic initiatives like reinsurance transactions.

Question and Answer

Q: Earnings emergence lag A: Paul McDonough stated it depends by product and duration, but guidance captures earnings emergence based on sales trends over the last few years, with confidence in meeting 2027 ROE target.

Q: Environment impact on growth A: Gary Bhojwani said Medicare Advantage sales expected to decline, Medicare Supplement to continue growing, discretionary purchases impacted by macro conditions; producing agent count expected to grow, focus on productivity.

Q: Capital deployment A: Paul McDonough said excess capital returned to shareholders via share repurchases, with measured deployment, no specific plans beyond current strategy.

Q: Investment portfolio exposure A: Eric Johnson said software exposure ~$250 million, private credit ~$1.4 billion, PE ~$400 million, positioned to take advantage of opportunities with risk management.

Q: Medicare dynamics and ROE A: Gary Bhojwani said economically indifferent between Medicare Advantage and Supplement, preference for Supplement due to control and higher net worth clients.