CNO Financial Group Reports Third Quarter 2024 Results
Strong third quarter production; Record annuity collected premiums
CARMEL, Ind., Oct. 31, 2024 /PRNewswire/ -- CNO Financial Group, Inc. (NYSE:CNO) today reported net income of $9.3 million, or $0.09 per diluted share, in 3Q24 compared to $167.3 million, or $1.46 per diluted share, in 3Q23. Non-economic accounting impacts due to market volatility affected both periods which reduced net income in 2024 and increased it in 2023. Net operating income,(1) which excludes these non-economic accounting impacts, was $119.2 million, or $1.11 per diluted share, in 3Q24 compared to $101.3 million, or $0.88 per diluted share, in 3Q23.
Significant items(6) positively impacted both net income and net operating income(1) by $18.8 million, or $0.17 per diluted share, in 3Q24 compared to $16.9 million, or $0.14 per diluted share, in 3Q23.
"CNO delivered another quarter of excellent net operating income and sales performance, reflecting continued agent force growth, and ongoing strength in our underwriting margins and net investment income," said Gary C. Bhojwani, chief executive officer. "We posted our ninth consecutive quarter of sales growth, led by record annuity collected premiums and strong Medicare and long-term care sales.
"Our sustained sales growth is translating into earnings growth, with operating earnings per share up 26%. All Growth Scorecard performance metrics are up once again. As we advance our growth strategy, we continue to optimize the balance between production, profitability and capital management."
"CNO has a unique and differentiated position to serve the middle-income market through our products, distribution capabilities and proven track record of execution. We enter the fourth quarter with momentum, supported by favorable demographic trends, a supportive macroeconomic environment and our strong financial position."
Third Quarter 2024 Highlights (as compared to the corresponding period in the prior year unless otherwise stated)
Annuity collected premiums up 25%; Policyholder and client assets up 12%
Medicare Supplement new annualized premiums ("NAP")(4) up 15%; Medicare Advantage sales up 26%
Producing agent counts in the Consumer Division and Worksite Division up 5% and 17%, respectively
Raising full-year guidance for earnings and cash flow
Returned $106.8 million to shareholders
Book value per share was $25.86; Book value per diluted share, excluding accumulated other comprehensive loss,(2) was $35.84
Return on equity ("ROE") of 11.8%; Operating ROE, as adjusted,(5) of 11.7%
FINANCIAL SUMMARYQuarter End(Amounts in millions, except per share data)(Unaudited)
Net operating income, a non-GAAP(a) financial measure, is used consistently by CNO's management to evaluate the operating performance of the company and is a measure commonly used in the life insurance industry. It differs from net income primarily because it excludes certain non-operating items such as net realized investment gains (losses) from sales and change in the allowance for credit losses, changes in fair values of embedded derivatives and market risk benefits and the liability for a deferred compensation plan, and certain significant and unusual items included in net income. Management believes an analysis of net operating income is important in understanding the profitability and operating trends of the Company's business. Net income is the most directly comparable GAAP measure.
Per diluted share
Quarter ended
Quarter ended
September 30,
September 30,
2024
2023
% change
2024
2023
% change
Income from insurance products (b)
1.21
$ 0.76
59
$ 129.2
$ 86.8
49
Fee income
(0.03)
(0.03)
—
(2.7)
(2.9)
(7)
Investment income not allocated to product lines (c)
0.42
0.33
27
45.5
38.4
18
Expenses not allocated to product lines
(0.17)
0.07
n/m
(18.5)
7.5
n/m
Operating earnings before taxes
1.43
1.13
153.5
129.8
Income tax expense on operating income
(0.32)
(0.25)
28
(34.3)
(28.5)
20
Net operating income (1)
1.11
0.88
26
119.2
101.3
18
Net realized investment losses from sales, impairmentsand change in allowance for credit losses
(0.10)
(0.17)
(11.1)
(20.1)
Net change in market value of investments recognized in earnings
0.11
(0.08)
12.3
(9.2)
Changes in fair value of embedded derivative liabilities and market risk benefits
(1.19)
0.95
(127.1)
109.4
Other
(0.15)
0.05
(16.6)
5.7
Non-operating income (loss) before taxes
(1.33)
0.75
(142.5)
85.8
Income tax benefit (expense) on non-operating income
0.31
(0.17)
32.6
(19.8)
Net non-operating income (loss)
(1.02)
0.58
(109.9)
66.0
Net income
$ 0.09
$ 1.46
$ 9.3
$ 167.3
Weighted average diluted shares outstanding
107.1
114.5
n/m - not meaningful
(a)
GAAP is defined as accounting principles generally accepted in the United States of America.
(b)
Income from insurance products is the sum of the insurance margins of the annuity, health and life product lines, less expenses allocated to the insurance product lines. It excludes the income from our fee income business, investment income not allocated to product lines, net expenses not allocated to product lines (primarily holding company expenses) and income taxes. Insurance margin is management's measure of the profitability of its annuity, health and life segments' performance and consists of insurance policy income plus allocated investment income less insurance policy benefits, interest credited, commissions, advertising expense and amortization of acquisition costs.
(c)
Investment income not allocated to product lines represents net investment income less: (i) equity returns credited to policyholder account balances; (ii) the investment income allocated to our product lines; (iii) interest expense on notes payable, investment borrowings and financing arrangements; (iv) expenses related to the funding agreement-backed notes ("FABN") program; and (v) certain expenses related to benefit plans that are offset by special-purpose investment income; plus (vi) the impact of annual option forfeitures related to fixed indexed annuity surrenders.
FINANCIAL SUMMARY (continued)
Management vs. GAAP Measures
(Dollars in millions, except per share data)
(Unaudited)
Shareholders' equity, excluding accumulated other comprehensive income (loss), and book value per share, excluding accumulated other comprehensive income (loss), are non-GAAP measures that are utilized by management to view the business without the effect of accumulated other comprehensive income (loss) which is primarily attributable to fluctuations in interest rates associated with fixed maturities, available for sale. Management views the business in this manner because the Company has the ability and generally, the intent, to hold investments to maturity and meaningful trends can be more easily identified without the fluctuations. In addition, shareholders' equity excludes net operating loss carryforwards in our non-GAAP return on equity measures as such assets are not discounted and, accordingly, will not provide a return to shareholders until after it is realized as a reduction to taxes that would otherwise be paid. Management believes that excluding this value from the equity component of this measure enhances the understanding of the effect these non-discounted assets have on operating returns.
Quarter ended
September 30,
2024
2023
Trailing twelve months return on equity (a)
11.8 %
14.5 %
Trailing twelve months operating return on equity as adjusted to exclude accumulated other comprehensiveincome (loss) and net operating loss carryforwards (a non-GAAP financial measure) (5)
11.7 %
8.5 %
Trailing twelve months operating return, excluding significant items, on equity as adjusted to exclude accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure) (5)
10.5 %
8.0 %
Shareholders' equity
$ 2,687.8
$ 1,890.1
Accumulated other comprehensive loss
1,116.0
1,956.7
Shareholders' equity, excluding accumulated other comprehensive loss
3,803.8
3,846.8
Net operating loss carryforwards
(273.9)
(102.6)
Shareholders' equity, excluding accumulated other comprehensive loss and net operating loss carryforwards
$ 3,529.9
$ 3,744.2
Book value per diluted share
$ 25.32
$ 16.58
Accumulated other comprehensive loss
10.52
17.17
Book value per diluted share, excluding accumulated other comprehensive loss (a non-GAAP financial measure) (2)
$ 35.84
$ 33.75
(a)
Calculated using average shareholders' equity for the measurement period.
Non-Operating ItemsNet investment losses in 3Q24 were $11.1 million, including the favorable change in the allowance for credit losses of $11.6 million. Net investment losses in 3Q23 were $20.1 million, including the unfavorable change in the allowance for credit losses of $2.3 million.
During 3Q24 and 3Q23, we recognized an increase (decrease) in earnings of $12.3 million and $(9.2) million, respectively, due to the net change in market value of investments.
During 3Q24 and 3Q23, we recognized an increase (decrease) in earnings of $(127.1) million and $109.4 million, respectively, resulting from changes in the estimated fair value of embedded derivative liabilities and market risk benefits related to our fixed indexed annuities. Such amounts include the impacts of changes in market interest rates and equity impacts used to determine the estimated fair values of the embedded derivatives and market risk benefits. In addition, 3Q24 includes the impacts to the fair value of the embedded derivative and market risk benefits resulting from our comprehensive annual actuarial review.
Other non-operating items in 3Q24 included a charge of $8.3 million primarily related to a 5% workforce reduction and transition costs for outsourcing certain operations activities. In addition, other non-operating items included an increase (decrease) in earnings of $(3.5) million and $6.8 million in 3Q24 and 3Q23, respectively, for the mark-to-market change in the agent deferred compensation plan liability which was impacted by changes in the underlying actuarial assumptions used to value the liability. We recognize the mark-to-market change in the estimated value of this liability through earnings as assumptions change.
INVESTMENT PORTFOLIO
(Dollars in millions)
Fixed maturities, available for sale, at amortized cost by asset class as of September 30, 2024 are as follows:
Investment grade
Below investmentgrade
Total
Corporate securities
$ 13,083.3
$ 641.9
$ 13,725.2
Certificates of deposit
470.0
—
470.0
United States Treasury securities and obligations of the United States government and agencies
210.8
—
210.8
States and political subdivisions
3,213.6
9.6
3,223.2
Foreign governments
103.2
—
103.2
Asset-backed securities
1,479.4
99.1
1,578.5
Agency residential mortgage-backed securities
812.5
—
812.5
Non-agency residential mortgage-backed securities
1,252.0
418.0
(a)
1,670.0
Collateralized loan obligations
1,083.2
—
1,083.2
Commercial mortgage-backed securities
2,285.8
84.0
2,369.8
Total
$ 23,993.8
$ 1,252.6
$ 25,246.4
(a)
Certain structured securities rated below investment grade by Nationally Recognized Statistical Rating Organizations may be assigned a NAIC 1 or NAIC 2 designation based on the cost basis of the security relative to estimated recoverable amounts as determined by the National Association of Insurance Commissioners (NAIC).
The fair value of CNO's available for sale fixed maturity portfolio was $23.7 billion compared with an amortized cost of $25.2 billion. Net unrealized losses were comprised of gross unrealized gains of $300.3 million and gross unrealized losses of $1,796.1 million. The allowance for credit losses was $25.9 million at September 30, 2024.
Statutory (based on non-GAAP measures) and GAAP Capital InformationThe consolidated statutory risk-based capital ratio of our U.S. based insurance subsidiaries was estimated at 388% at September 30, 2024, reflecting estimated 3Q24 statutory operating earnings of $8.4 million (and $32.5 million in the first nine months of 2024) and the payment of insurance company dividends (net of capital contributions) to the holding company of $38.9 million during 3Q24 (and $111.9 million (net of capital contributions) in the first nine months of 2024).
During 3Q24, we repurchased $90.0 million of common stock under our securities repurchase program (including $1.4 million of repurchases settled in 4Q24). We repurchased 2.8 million common shares at an average cost of $32.03 per share. As of September 30, 2024, we had 103.9 million shares outstanding and had authority to repurchase up to an additional $331.8 million of our common stock. During 3Q24, dividends paid on common stock totaled $16.9 million.
Unrestricted cash and investments held by our holding company were $453 million at September 30, 2024 compared to $256.0 million at December 31, 2023. In addition, the holding company has invested $500 million of the proceeds from the previously announced May 2024 issuance of $700.0 million of 6.450% senior notes due 2034 (the "2034 Notes") primarily into certificates of deposit which are expected to be used for the repayment of $500.0 million of 5.250% senior notes due May 2025 (the "2025 Notes").
Book value per common share was $25.86 at September 30, 2024 compared to $20.26 at December 31, 2023. Book value per diluted share, excluding accumulated other comprehensive income (loss) (2), was $35.84 at September 30, 2024 compared to $33.94 at December 31, 2023.
The debt-to-capital ratio was 40.5% and 34.0% at September 30, 2024 and December 31, 2023, respectively. Our debt-to-total capital ratio, excluding accumulated other comprehensive income (loss)(3), was 32.5% and 23.1% at September 30, 2024 and December 31, 2023, respectively. Such ratios reflect the issuance of the 2034 Notes in May 2024. At September 30, 2024, adjusting for the expected repayment of the 2025 Notes, the debt-to-total capital ratio would have been 33.2% and the debt-to-total capital ratio, excluding accumulated other comprehensive income (loss), would have been 26.0%.
Return on equity for the trailing four quarters ended September 30, 2024 and 2023 was 11.8% and 14.5%, respectively. Operating return, excluding significant items, on equity as adjusted to exclude accumulated other comprehensive income (loss) and net operating loss carryforwards(5), for the trailing four quarters ended September 30, 2024 and 2023 was 10.5% and 8.0%, respectively.
In this news release, CNO includes non-GAAP measures to enhance investors' understanding of management's view of the business. The non-GAAP measures are not a substitute for GAAP, but rather a supplement to increase transparency by providing a broader perspective. CNO's definitions of non-GAAP measures may differ from other companies' definitions. More detailed information including various GAAP and non-GAAP measurements are located at CNOinc.com in the Investors section under SEC Filings.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS:
This press release may contain forward-looking statements within the meaning of federal securities laws. These prospective statements reflect management's current expectations, but are not guarantees of future performance. Accordingly, please refer to CNO's cautionary statement regarding forward-looking statements, and the business environment in which the Company operates, contained in the Company's Form 10-K for the year ended December 31, 2023 and any subsequent Form 10-Q or Form 10-K on file with the Securities and Exchange Commission and on the Company's website at CNOinc.com in the Investors section. CNO specifically disclaims any obligation to update or revise any forward-looking statement because of new information, future developments or otherwise.
EARNINGS RELEASE CONFERENCE CALL WEBCAST:
The Company will host a conference call to discuss results on November 1, 2024 at 11:00 a.m. Eastern Time. During the call, we will be referring to a presentation that will be available at the Investors section of the company's website.
To participate by dial-in, please register at https://www.netroadshow.com/events/login?show=7b707407&confId=72581. Upon registering, you will be provided with call details and a registrant ID used to track attendance on the conference call. Reminders will also be sent to registered participants via email.
For those investors who prefer to listen to the call online, we will be broadcasting the call live via webcast. The event can be accessed through the Investors section of the company's website: ir.CNOinc.com. Participants should go to the website at least 15 minutes before the event to register and download any necessary audio software.
ABOUT CNO FINANCIAL GROUP
CNO Financial Group, Inc. (NYSE:CNO) secures the future of middle-income America. CNO provides life and health insurance, annuities, financial services, and workforce benefits solutions through our family of brands, including Bankers Life, Colonial Penn, Optavise and Washington National. Our customers work hard to save for the future, and we help protect their health, income, and retirement needs with 3.2 million policies and $38 billion in total assets. Our 3,500 associates, 4,800 exclusive agents and more than 5,000 independent partner agents guide individuals, families, and businesses ...
