8-K: CNO Financial Group Reports Strong Third Quarter 2024 Results, Driven by Record Annuity Premiums

CNO Financial Group announced solid third-quarter 2024 results, highlighted by a 25% increase in annuity collected premiums and a 26% rise in operating earnings per share.

Summary

• CNO Financial Group reported a net income of $9.3 million, or $0.09 per diluted share, for the third quarter of 2024, compared to $167.3 million, or $1.46 per diluted share, in the same period last year.
• The company's net operating income, which excludes non-economic accounting impacts, was $119.2 million, or $1.11 per diluted share, in 3Q24, up from $101.3 million, or $0.88 per diluted share, in 3Q23.
• Significant items positively impacted both net income and net operating income by $18.8 million, or $0.17 per diluted share, in 3Q24.
• Annuity collected premiums increased by 25%, and policyholder and client assets grew by 12%.
• Medicare Supplement new annualized premiums were up 15%, and Medicare Advantage sales increased by 26%.
• Producing agent counts in the Consumer Division and Worksite Division rose by 5% and 17%, respectively.
• CNO returned $106.8 million to shareholders during the quarter.
• The company's book value per share was $25.86, and book value per diluted share, excluding accumulated other comprehensive loss, was $35.84.
• Return on equity was 11.8%, and operating return on equity, as adjusted, was 11.7%.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong growth in key areas like annuity premiums and agent counts. While there are some negative impacts from accounting adjustments and market volatility, the overall tone is optimistic, supported by increased guidance and strong financial metrics.

Positives

• CNO achieved its ninth consecutive quarter of sales growth.
• The company experienced strong underwriting margins and net investment income.
• Operating earnings per share increased by 26%.
• All Growth Scorecard performance metrics are up once again.
• CNO has a unique and differentiated position to serve the middle-income market.
• The company enters the fourth quarter with momentum, supported by favorable demographic trends and a supportive macroeconomic environment.
• The company raised full-year guidance for earnings and cash flow.
• The company's capital and liquidity remain above target levels.
• The company's average yield on allocated investments increased by 12 basis points.

Negatives

• Net income decreased to $9.3 million, or $0.09 per diluted share, in 3Q24, compared to $167.3 million, or $1.46 per diluted share, in 3Q23, due to non-economic accounting impacts.
• Net investment losses in 3Q24 were $11.1 million.
• The company recognized a decrease in earnings of $127.1 million due to changes in the estimated fair value of embedded derivative liabilities and market risk benefits.
• Other non-operating items included a charge of $8.3 million primarily related to a 5% workforce reduction and transition costs for outsourcing certain operations activities.

Risks

• Market volatility can impact net income due to non-economic accounting impacts.
• Changes in market interest rates and equity impacts can affect the fair value of embedded derivatives and market risk benefits.
• The company is exposed to credit risk in its investment portfolio.
• The company's debt-to-capital ratio increased to 40.5% at September 30, 2024, reflecting the issuance of senior notes.
• The company's statutory risk-based capital ratio is estimated at 388%, which is subject to change.

Future Outlook

CNO raised its full-year guidance for earnings and cash flow, and expects to continue to optimize the balance between production, profitability, and capital management. The company anticipates favorable demographic trends and a supportive macroeconomic environment will contribute to future growth.

Management Comments

• Gary C. Bhojwani, chief executive officer, stated that CNO delivered another quarter of excellent net operating income and sales performance, reflecting continued agent force growth, and ongoing strength in underwriting margins and net investment income.
• He also noted that the company posted its ninth consecutive quarter of sales growth, led by record annuity collected premiums and strong Medicare and long-term care sales.
• He added that sustained sales growth is translating into earnings growth, with operating earnings per share up 26%.

Industry Context

The results reflect a continued trend of growth in the insurance and financial services sector, particularly in the middle-income market. The company's focus on agent growth and diverse distribution channels aligns with industry best practices for reaching a broad customer base. The increase in annuity premiums and Medicare sales indicates a strong demand for these products in the current market.

Comparison to Industry Standards

• CNO's 25% increase in annuity collected premiums is a strong performance compared to industry averages, which typically see single-digit growth.
• The 26% increase in Medicare Advantage sales is also notable, indicating a successful strategy in this growing market segment.
• The company's operating return on equity of 11.7% is competitive with other mid-sized insurance companies, such as Globe Life (GL) and Primerica (PRI), which have similar ROE ranges.
• CNO's focus on the middle-income market is a differentiator, as many larger insurers focus on higher-net-worth individuals.
• The company's new money rate of 6.5% is higher than many of its peers, indicating a strong investment strategy.
• The company's debt-to-capital ratio of 40.5% is higher than some peers, but is expected to decrease to 26% after the repayment of the 2025 notes.

Stakeholder Impact

• Shareholders will benefit from the increased earnings, share repurchases, and dividends.
• Employees may be impacted by the 5% workforce reduction, but the company is also investing in agent growth.
• Customers will benefit from the company's continued focus on providing insurance and financial services.
• Suppliers and creditors will be impacted by the company's financial performance and capital management decisions.

Next Steps

• The company will host a conference call on November 1, 2024, to discuss the results.
• The company will continue to focus on optimizing the balance between production, profitability, and capital management.
• The company will continue to advance its growth strategy.

Key Dates

Keywords

annuities, insurance, financial services, net operating income, premiums, agent growth, Medicare, long-term care, investment income, shareholders, capital management