Hello, welcome to today's CNO Financial Group Third Quarter 2023 Earnings Call. My name is Jordan, and I will be coordinating your call today. [Operator Instructions]. I'm now going to hand over to Adam Auvil to begin. Adam, please go ahead.

Good morning, and thank you for joining us on CNO Financial Group's Third Quarter 2023 Earnings Conference Call. Today's presentation will include remarks from Gary Bhojwani, Chief Executive Officer; and Paul McDonough, Chief Financial Officer. Following the presentation, we will also have other business leaders available for the question-and-answer period. During this conference call, we will be referring to information contained in yesterday's press release. You can obtain the release by visiting the media section of our website at cnoinc.com. This morning's presentation is also available in the Investors section of our website and was filed in a Form 8-K yesterday. We expect to file our Form 10-Q and post it on our website on or before November 9th. Let me remind you that any forward-looking statements we make today are subject to a number of factors, which may cause actual results to be materially different than those contemplated by the forward-looking statements. Today's presentations contain a number of non-GAAP measures, which should not be considered as substitutes for the most directly comparable GAAP measures. You'll find a reconciliation of non-GAAP measures to the corresponding GAAP measures in the appendix. Throughout the presentation, we will be making performance comparisons, and unless otherwise specified, any comparisons made will be referring to changes between third quarter 2023 and third quarter 2022. And with that, I'll turn the call over to Gary.

Thanks, Adam. Good morning, everyone, and thank you for joining us. CNO again delivered a solid financial performance for the quarter. Operating earnings for diluted share were up $0.88, excuse me, up to - were $0.88 up 31%. Excluding significant items, operating earnings per share were up 10%. The fundamentals of our business remain sound, including double-digit growth in total new annualized premium. Continued sales momentum balanced across product lines. Strong net investment income, a robust capital position and continued strong free cash flow generation. For the third consecutive quarter, new money rates exceeded 6%, continuing the positive trend in our earned yield. Variable investment income improved for a second consecutive quarter. Health claims moderated in the quarter as expected. Sales production and agent recruiting and retention delivered strong balance results across both our consumer and worksite divisions. Total new annualized premium was up 13%. We reported sales growth in nearly all product categories, including field and D2C life sales, Medicare supplements, long term care, annuity collected premiums and worksite insurance sales. Producing agent counts were up meaningfully at both divisions. Capital and liquidity improved over the second quarter and was above target levels, even after returning $57 million to shareholders. Book value per diluted share, excluding AOCI, was $33.75 up 6%. We are pleased to announce that we established our Bermuda affiliate and received all necessary approvals related to our initial reinsurance transaction. Paul will go under further detail during his remarks. We applaud and thank our CNO team for their exceptional work and commitment to helping us establish CNO Bermuda Re. Turning to slide five on our growth scorecard. Our consumer and worksite divisions delivered strong overall results, including a second consecutive quarter of double digit growth in life and health now. Strategic investments and product enhancements in…

Thanks, Gary. Good morning, everyone. Before turning to my remarks on the quarter, I'd like to comment on our newly formed Bermuda affiliate, CNO Bermuda Re, and the initial re-insurance treaty. We have received all necessary approvals and are in the process of implementing the transaction with an effective date of October 1, 2023. Under the treaty, we are seeding approximately $6.2 billion of enforced fixed indexed annuity statutory reserves. In addition to new FIA business from our U.S. domestic company, Bankers Life and casualty to the Bermuda company. We are proud to have joined the Bermuda insurance community and look forward to working closely with the Bermuda monetary authority as we build out this business. Turning to the financial highlights on slide eight. We generated operating earnings per share of $0.88 in the quarter, which is up 31% year-over-year as reported and up 10%, excluding the significant item this period. Results in the quarter reflect strong insurance product margins and improved variable investment income results. The income in the quarter declined year-over-year for two reasons. Number one, in our consumer business, despite a 3% increase in Medicare Advantage policy issued, revenue was down as the favorable impact of assumption changes under ASC 606 accounting has diminished over time. And then secondly, in the fee income side of our worksite business, revenues and expenses have been pressured as we've invested in the platform to position it better for the future. Keep in mind that our fee income is highly seasonal, driven by the Medicare Advantage annual enrollment period, resulting in higher income in the first and fourth quarters. Expenses more broadly in the quarter were a little on the high side, but within the range of our expectations. On the capital front, we completed $40 million of share repurchases in…

Thanks, Paul. We continue to be pleased with our strong performance and the steady execution against our strategic priorities. The fourth quarter is a critical period for our business. For the consumer division, it is the Medicare annual enrollment period. For the worksite division, most employers conduct their employee benefits enrollments from October through December. We expect to end the year strong. CNO's growth and shareholder return opportunity remain compelling. Our sales production continues to generate balanced growth across our businesses and across our product lines and our balance sheet and financial flexibility are strong as reflected in our solid capital position. Entering the fourth quarter and looking ahead to 2024, we remain confident in our ability to execute on our strategy to serve middle income America, enhance customer value, drive profitable growth and deliver shareholder value. We thank you for your support of and interest in CNO Financial Group. We'll now open it up for questions. Operator?

Thank you. [Operator Instructions] Our first question comes from Brian Kruger of Stifel to begin. Brian, please go ahead.

Hey, thanks. Good morning. My first question was on use of excess capital, just now that your pre cash flow guidance for the year increased by $150 million following the Bermuda approvals. Can you give any sense of how you'd expect to return that excess capital and what sort of timing you'd be thinking of?

Sure. Good morning. Brian. This is Paul. So how we think about the deployment of excess capital has not changed. Certainly the Bermuda reinsurance treaty increases the amount of excess capital that will sit at the Holdco and that in turn increases the amount of share repurchase capacity, so that sort of landscape has changed in that way. But the way we think about deployment hasn't changed at all.

Got it. Thanks. And then, you have to think about the level of pre cash flow you'd expect to generate beyond this year. I don't know if maybe pre cash flow as a percentage of GAAP earnings or something along those lines, but just trying to think through that. I think there should be some ongoing benefit of seeding business to Bermuda. Any color you can help us with there?

Sure. So certainly there will be a benefit on some capital relief on the FIA new business that we'll see to the Bermuda company. I could give you a number for that in isolation, but there are so many puts and takes that what I'd prefer to do is provide an outlook for free cash flow for the full year 2024 on our fourth quarter earnings call when we'll provide an outlook more broadly for 2024. And that free cash flow outlook will include the impact of the Bermuda treaty on the new FIA business.

Understood. Makes sense. Thank you.

Our next question comes from Scott Heleniak of RBC. Scott, the line is yours.

Thanks. I just wanted to ask a couple of quick questions on the health business. We're about five weeks into the fourth quarter and, you saw some moderation, the claims experience and the LTC and the Medicare supplement. I'm just wondering if you could give a little bit of an update and what you're seeing kind of in the fourth quarter versus Q3. Are you seeing similar trends or is there any moderation or anything that's really changed at all?

Good morning, Scott. It's Paul. We haven't seen anything that would suggest a change in the trends. We had a little bit of a spike in the second quarter. We thought that was temporary and would rebound in the second half. We indeed saw that in the third quarter, and our expectation is that generally continues.

Okay. And it sounds like you had a good quarter for the recruiting. And you mentioned a few reasons for that. But if we're just wondering if you can just kind of elaborate on that, how you're able to attract more talent there. And then just if you could - if you can marry that up with the comments you made about geographic expansion and so just kind of what you're doing on the agency side?

Yes, thanks. Thanks for this question, Scott. This is Gary. I'll give you a couple of answers. First, there's a short answer on the agent recruiting efforts. These are things that we've been working on for many years. We've been implementing and experimenting with different support programs, with different recruiting programs, with different training programs. And we've continued to refine our model over many years so that what we're presenting to agents is a true career path where they can start as an insurance agent selling life insurance and or medical supplement as an example and then evolve into becoming a true financial advisor. And to be honest, I can't give you one thing we've done or even two or three things we've done. We've done tens, if not dozens of small things to build this into a more attractive offering where they're supported and trained and so on. So that has continued. And that's what got us through the pandemic, frankly, and you saw the productivity. The other thing that we have going for us right now, and I say that with, I guess, some caveats. When the economy softens, typically a career path like ours is open for more people to consider trying to make a change. So we're benefiting to some extent from some of that. Now, I know employment has remained strong, but I think it's the collection of factors, what people are looking at out there in the economy, what we're able to offer in terms of a career path and support and training and so on. And all of those things are coming together very nicely for us. So I'm really proud of the team. I mean, the recruiting that they've done on both the worksite and the consumer side on the insurance sales has really been exceptional. And I'm just thrilled with how well we're doing with keeping those talented people as part of the organization and growing them. Hopefully that helps.

Yes, that makes sense. Anything to offer on the geographic expansion. Is that just - nothing new? Just anything more you can add there?

No, there's a fair bit there that's new. That was - I believe that comment or where that was in our script was referring to the worksite business. And our worksite has historically been more concentrated in farming or rural communities. And we see an opportunity to continue to expand that. Excuse me. I should say, the captive agent that supports that side was historically more concentrated there, and we're continuing to grow that. So in the worksite business, we see more opportunities in other geographies and we're definitely pushing into that. And again, the leadership team there has really done a wonderful job.

Yes, that's helpful. Thanks.

Our next question comes from John Barnidge of Piper Sandler. John, please go ahead.

Good morning. Thanks a lot. Appreciate the opportunity. My questions around guidance. Can you maybe talk about the bridge and earnings as we think about $0.74 ex-notables to the fourth quarter? I know there's volatility around fee income and investment income not allocated to product lines, so curious if you could provide some help there? Thank you.

Sure. Morning, John. It's Paul. So, I would point to a few things. Number one, expenses are seemingly lower in the fourth quarter. Fee income, as you mentioned, is heavily weighted to the fourth quarter. And that's and driven by a Med advantage. And that's a business that we've been investing in growing. Gary gave you some data points on that in his remarks. And then we're assuming some modest continued sequential improvement in NII not allocated. So it's really those three things that I would emphasize as you try to bridge from Q3 to Q4 and get to the midpoint of our guidance for the full year.

Thank you for that color. Appreciate it. And my follow up. There's been some comments, at least from retailers about the impact of GLP-1 or obesity medication. How do you think about that specifically for the health long-term care and licensure as parts of your business? Thank you.

I'll make a broad comment there, John. I can't offer you a specific analysis that we've done in terms of looking at what the impacts will be. We don't have that. So maybe be forthcoming about that. If I can, I'll step back, though, and speak more generically. As a general rule, anything that improves the health of consumers is good for our business. We like it when our consumers are healthier. They have fewer health claims. We like it when they live longer. They pay their life insurance premiums for more years. And we like it even in our annuity business because as they're thinking about longer lifespan, they're planning for that and it helps our retirement business. So our general view is anything that makes for a healthier America or a healthier American consumer is good for our business. We like that. At least based on the data that I've seen, the net benefits are positive. My understanding is that these drugs help people avoid heart conditions. They help them avoid obesity. They help them avoid diabetes. All of those things result in fewer claims and a healthier life. So we think long-term, it's going to be good for our business. I'm not a medical expert. We don't have the analysis on what the long-term consequences are. But even on the long-term aspects, my understanding is many of these drugs, albeit in the diabetes context, have been used for quite some time. So there is a bit of a track record on many of these drugs. And so we think it's a good thing. Time will tell. But that's how we view it.

Appreciate it. Thanks a lot.

[Operator Instructions] Our next question comes from Suneet Kamath of Jefferies. Suneet, please go ahead.

Thanks. Good morning. Just looking at your scorecard, your annuities collected premium sort of flat-ish year-over-year. And I think you had some comments in your script about your distribution model being different, which I understand. But as we think about the rate environment now, it seems like a pretty attractive opportunity. How do you see the annuity collected premiums sort of developing as we move into fourth quarter, but also 2024?

Yes, let me first comment on just what you saw in terms of results. Typically, you'll see annuity volumes or interest in annuities fluctuate depending on what's happening with the average consumer's belief in interest rates and or stock markets. So we see that bumping around and this time is no exception. I do want to emphasize a couple of things. The nature of our model, because we have captive distribution in the way those agents are compensated and managed, we feel like we have a better chance of reducing churn and other types of things that long-term are not beneficial. So we feel good about our persistency and so on. More to the point when we look at actual experience in terms of persistency and the consumers we're bringing on, all of this is within expected ranges. So we don't see any area of concern here. We think that the annuity business will continue to be healthy and continue to be attractive to our middle income consumers. And we'll have a quarter here or there, that's up or down, but we feel really good about the aggregate opportunity. Paul, do you want to add any color to that?

No, I think that covers it well.

Okay. And then sort of relatedly, I think what you said in your script when you're talking about spreads, it sounded to me that maybe spreads have sort of stopped expanding here and we should expect them to be somewhat stable ahead. Is that the right read based on what you said?

Yes, I think that's fair, Suneet. I mean, basically what's happening is that we have and we enjoyed some wider spreads and some of the older issuances, somewhat narrower spread on some of the newer issuances. And as you have some of the older issuances run off or surrender, you have that year-over-year comparison. But I think it's important to emphasize that, although the spreads have contracted a little bit, they're still well within our pricing targets and return targets.

Got it. If I could just sneak one more in just to follow up to John's question on the unallocated VII, can you just provide a little bit more color on what you're expecting for 4Q? Is it sort of back to normal or just anything there would be helpful?

Sure. So, a component of our NII not allocated is our alternative investments. And in the quarter, the third quarter, they generated an annualized return of about 4.6%. So a significant sequential improvement. But there are long-term sort of run rate expectations for that portfolio is closer to 9%. But that's one component of NII not allocated. Other elements of it made up some of that difference. The FHLB program in particular. So as I mentioned a moment ago, our expectation for NII not allocated in total sequentially from Q3 to Q4. We'd expect a fairly modest improvement relative to our full year EPS guidance.

Okay, thanks.

As there are no additional questions right at this time, I'd like to turn the conference call back over to Adam Auvil for closing remarks.

Thank you, operator. And thank you all for participating in today's call. Please reach out to the Investor Relations team if you have any further questions. Have a great rest of your day.

Ladies and gentlemen, this concludes today's CNO Financial Group Third Quarter 2023 Earnings Call. Thank you for joining. You may now disconnect your lines.