CNO Financial Group(CNO) - 2024 Q4 - Annual Report

Insurance Liabilities and Financial Assumptions - As of December 31, 2024, the total liabilities for insurance products amounted to $29.7 billion, payable over an extended period[90] - The profitability of insurance products is influenced by various assumptions, including investment yields, mortality, morbidity, and cash flow assumptions[91] - The company’s liabilities for insurance products are based on numerous assumptions, and if actual claims exceed these assumptions, it may need to increase liabilities, adversely affecting net income[217] - The company’s operating results may suffer if policyholder surrender levels differ significantly from assumptions, impacting net income and requiring asset disposals[220] Reinsurance and Capital Management - The company’s reinsurance receivables from Wilton Reassurance Company totaled $2,457.3 million, with other significant reinsurers including Jackson National Life Insurance Company at $898.6 million[94] - The company ceded approximately $7.6 billion of fixed indexed annuity statutory reserves to CNO Bermuda Re as of December 31, 2024, under an intercompany reinsurance agreement initiated in 2023[222] - The company’s third-party reinsurance receivables and ceded life insurance inforce totaled $3.9 billion and $2.8 billion, respectively, with 97% of ceded life insurance inforce accounted for by its seven largest reinsurers[221] - CNO Bermuda Re is required to maintain a minimum solvency margin of the greater of $0.5 million, 1.5% of assets, or 25% of its enhanced capital requirement (ECR) as reported at the end of the relevant year[148] - CNO Bermuda Re's statutory economic capital and surplus is expected to exceed the TCL, indicating strong capitalization[153] Regulatory Environment and Compliance - The company’s insurance subsidiaries are licensed in all 50 states and are subject to extensive regulation and supervision by insurance regulators[110] - The NAIC's principle-based reserving approach for life insurance and annuity contracts has been adopted by all states, effective for products issued on or after January 1, 2020[115] - The NAIC has developed a Group Capital Calculation (GCC) tool to aggregate available and minimum capital across insurance holding company systems, with an annual filing requirement effective January 1, 2026[120] - The NAIC's Financial Condition (E) Committee is reviewing the insurance regulatory framework to enhance oversight of investments in complex assets, focusing on reducing reliance on credit rating providers[123] - The company is required to file an annual Certification of Compliance with the NYDFS regarding its cybersecurity program, following amendments to regulations effective April 29, 2024[157] Employee Relations and Benefits - The company employs approximately 3,500 full-time associates, with no collective bargaining agreements in place, indicating generally favorable employee relations[97] - The company has enhanced paid time-off benefits in 2024, including increased parental and maternity leave and the addition of two new company-paid holidays[103] - The company’s commitment to fair pay practices and pay equity is reflected in its compensation philosophy, which focuses on pay-for-performance[101] Market and Economic Conditions - Economic conditions such as inflation and market volatility pose risks to the demand for life insurance and annuities, potentially leading to higher policy lapses[195] - Changes in interest rates can affect the liquidity and value of investments, with rising rates potentially increasing policy surrenders as customers seek higher returns[196] - The company faces risks from prolonged low interest rates, which could reduce the spread between required payments and investment income, impacting net income[198] - Approximately 54% of fixed interest annuities and 29% of universal life products have crediting rates set at minimum levels, increasing reinvestment risk in a low interest rate environment[199] Technology and Innovation - The NAIC's Innovation, Cybersecurity and Technology Committee adopted the Model Bulletin on the Use of Artificial Intelligence Systems by Insurers in December 2023, which sets expectations for the governance of AI technologies[164] - The use of AI technologies presents operational risks, including potential misuse and flawed models, which could harm customer relationships and competitive standing[271] Competition and Market Position - The company faces competition from larger firms with greater market share and financial resources, which may impair customer retention and sales growth[276] - Many competitors have higher financial strength ratings, which impacts the company's ability to attract new customers and maintain market share[277] - The company may lose market share if competitors sell products at prices that do not cover actual costs, potentially leading to reduced profitability[278] Financial Performance and Ratings - The company's debt to total capitalization ratio was 30.5% as of December 31, 2024, against a maximum requirement of 35.0%[225] - The consolidated net worth of the company was $3,869.8 million at December 31, 2024, exceeding the minimum requirement of $2,698.8 million[226] - The estimated Risk-Based Capital (RBC) ratio of Conseco Life Insurance Company of Texas was 330% at December 31, 2024, well above the required level[231] - The current financial strength ratings of the company's primary insurance subsidiaries are "A", "A-", "A3", and "A" from Fitch, S&P, Moody's, and AM Best respectively[274] Risks and Challenges - The company is exposed to operational risks, including fraud and cybersecurity attacks, which could lead to financial loss and regulatory sanctions[259] - Major public health issues, such as pandemics, could adversely impact the company's financial condition and results of operations[261] - Natural or man-made disasters could disrupt operations and lead to increased claims, adversely affecting financial results[265] - The company faces risks from climate change regulations that may affect the value of invested assets and the willingness to hold them[267] Legislative and Tax Impacts - The Inflation Reduction Act introduces a 15% minimum tax based on financial statement income and a 1% excise tax on share buybacks, effective for tax years beginning in 2023[191] - The SECURE 2.0 Act of 2022 introduces new requirements for retirement plans aimed at expanding coverage and increasing savings, impacting annuity providers[192] - Recent federal and state legislation regarding healthcare reform could limit the company's ability to vary pricing terms, potentially increasing benefit ratios and adversely impacting financial results[253]