CNO Financial Group(US:CNO)2024-05-06 14:49PART I - FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents the unaudited consolidated financial statements for CNO Financial Group, Inc. as of March 31, 2024, and for the three months then ended, encompassing the balance sheet, income statements, equity, cash flows, and related notes Consolidated Balance Sheet Consolidated Balance Sheet Summary (in millions) | Balance Sheet Item | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $34,939.7 | $35,102.5 | | Total Investments | $26,211.4 | $26,140.4 | | Cash and cash equivalents | $649.8 | $889.0 | | Total Liabilities | $32,572.0 | $32,886.9 | | Policyholder account balances | $15,736.7 | $15,667.8 | | Future policy benefits | $11,736.5 | $11,928.2 | | Notes payable – direct corporate obligations | $1,141.0 | $1,140.5 | | Total Shareholders' Equity | $2,367.7 | $2,215.6 | Consolidated Statement of Operations Consolidated Statement of Operations Summary (in millions) | Operations Item | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Total Revenues | $1,156.5 | $1,006.0 | | Total Benefits and Expenses | $1,010.3 | $1,007.0 | | Income (loss) before income taxes | $146.2 | $(1.0) | | Net Income (Loss) | $112.3 | $(0.8) | | Diluted Earnings Per Share | $1.01 | $(0.01) | Consolidated Statement of Comprehensive Income Consolidated Statement of Comprehensive Income Summary (in millions) | Comprehensive Income Item | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Net Income (Loss) | $112.3 | $(0.8) | | Other comprehensive income, net of tax | $96.5 | $292.9 | | Comprehensive Income | $208.8 | $292.1 | Consolidated Statement of Shareholders' Equity - Total shareholders' equity increased from $2,215.6 million at December 31, 2023, to $2,367.7 million at March 31, 2024, driven by net income of $112.3 million and other comprehensive income of $96.5 million, partially offset by common stock repurchases of $40.0 million and dividends of $16.4 million403 Consolidated Statement of Cash Flows Consolidated Statement of Cash Flows Summary (in millions) | Cash Flow Activity | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Net cash from operating activities | $94.6 | $81.9 | | Net cash used by investing activities | $(23.6) | $(406.7) | | Net cash provided (used) by financing activities | $(310.2) | $202.0 | | Net decrease in cash and cash equivalents | $(239.2) | $(122.8) | Notes to Consolidated Financial Statements - The company's financial statements are prepared in conformity with GAAP, requiring management to make significant estimates and assumptions affecting reported amounts of assets, liabilities, revenues, and expenses, including deferred acquisition costs, fair value of investments, and liabilities for insurance products413 Item 2. Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations Management discusses the company's financial condition and results of operations for Q1 2024, highlighting stable operations despite market fluctuations and maintaining its 2024 outlook for operating EPS between $3.10 and $3.30 Overview - CNO operates through three insurance product lines (annuity, health, and life) and two main divisions (Consumer and Worksite), focusing on serving middle-income pre-retiree and retired Americans194196201 Earnings Summary (in millions) | Earnings Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total insurance product margin | $229.6 | $221.2 | | Operating earnings before taxes | $74.8 | $76.4 | | Net operating income | $57.5 | $58.6 | | Net non-operating income (loss) | $54.8 | $(59.4) | | Net income (loss) | $112.3 | $(0.8) | | Net operating income per diluted share | $0.52 | $0.51 | Results of Operations - Insurance product margin increased to $229.6 million in Q1 2024 from $221.2 million in Q1 2023, driven by growth in Health and Life margins, which offset a decline in the Annuity margin225 - Annuity margin decreased to $52.0 million in Q1 2024 from $57.3 million in Q1 2023, primarily due to higher policy surrender activity and slight spread compression in the fixed indexed annuity block218236 - Health margin increased to $123.0 million in Q1 2024 from $116.5 million in Q1 2023, reflecting growth in the supplemental health block and favorable claims experience in the Medicare supplement business218243245 - Life margin increased to $54.6 million in Q1 2024 from $47.4 million in Q1 2023, driven by growth in the traditional life block, lower insurance policy benefits, and reduced advertising expense218257 - Net non-operating income was $71.4 million before tax in Q1 2024, a significant turnaround from a loss of $77.4 million in Q1 2023, mainly due to a $64.0 million gain from changes in fair value of embedded derivative liabilities, compared to a $65.1 million loss in the prior year265270 Liquidity and Capital Resources - The company maintains its 2024 outlook, with expected operating EPS in the range of $3.10 to $3.30 and excess holding company cash flow between $140 million and $200 million274275278 - Key capital management targets include a consolidated RBC ratio of 375%, minimum holding company liquidity of $150 million, and a debt-to-total capital ratio (excluding AOCI) of 25% to 28%279 Capital Ratios | Ratio | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Book value per common share | $21.81 | $20.26 | | Book value per common share, ex. AOCI | $35.44 | $34.68 | | Corporate debt to total capital | 32.5% | 34.0% | | Corporate debt to total capital, ex. AOCI | 22.9% | 23.1% | - The estimated consolidated statutory RBC ratio for U.S. insurance subsidiaries was 391% at March 31, 2024, down from 402% at year-end 2023 but above the 375% target295 - In Q1 2024, the company generated $34 million of free cash flow, repurchased 1.5 million shares for $40.0 million, and declared dividends of $16.4 million, with the quarterly dividend increased to $0.16 per share in May 2024310311 Investments - As of March 31, 2024, total fixed maturities, available for sale, had an estimated fair value of $21.6 billion, with investment grade securities comprising 97.0% of this portfolio based on NAIC designations321324 - The portfolio had gross unrealized losses of $2.4 billion, primarily due to higher interest rates, though the company believes issuers will continue to meet their obligations and does not intend to sell these securities before recovery321438 - Structured securities, including CMBS, RMBS, and CLOs, represented 32.4% of the fixed maturity portfolio with an estimated fair value of $7.0 billion349350 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that there have been no material changes in its market risks or the management of such risks during the first three months of 2024, referencing the disclosures in its 2023 Annual Report on Form 10-K - There have been no material changes in the first three months of 2024 to the company's market risks or its management of such risks as disclosed in the 2023 Annual Report on Form 10-K464 Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that as of March 31, 2024, the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of March 31, 2024, CNO's disclosure controls and procedures were effective465 - No changes in the Company's internal control over financial reporting occurred during Q1 2024 that have materially affected, or are reasonably likely to materially affect, internal controls478 PART II - OTHER INFORMATION Item 1. Legal Proceedings This section incorporates by reference the discussion under 'Litigation and Other Legal Proceedings' in the footnotes to the consolidated financial statements, indicating no new material legal proceedings to report separately - Information regarding legal proceedings is incorporated by reference from the 'Litigation and Other Legal Proceedings' note in the financial statements480 Item 1A. Risk Factors The company reports that there have been no material changes from the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2023 - There have been no material changes from the risk factors previously disclosed in the 2023 Annual Report on Form 10-K481 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the first quarter of 2024, CNO repurchased a total of 1,813,971 shares at an average price of $27.02, with $481.8 million remaining available for future repurchases under the program Issuer Purchases of Equity Securities (Q1 2024) | Period (2024) | Total Shares Purchased | Average Price Paid | Shares Purchased Under Program | Remaining Authority (in millions) | | :--- | :--- | :--- | :--- | :--- | | January | 245,778 | $27.69 | 243,730 | $515.1 | | February | 819,613 | $27.01 | 619,446 | $498.6 | | March | 748,580 | $26.80 | 619,329 | $481.8 | | Total | 1,813,971 | $27.02 | 1,482,505 | $481.8 | Item 5. Other Information The company disclosed that Chief Information Officer Michael E. Mead adopted a Rule 10b5-1 trading arrangement during the first quarter of 2024 for the sale of company common stock - During Q1 2024, Chief Information Officer Michael E. Mead adopted a Rule 10b5-1 trading arrangement for the sale of 12,703 shares of common stock, effective from February 26, 2024, to November 28, 2024470484 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including various award agreements, an amendment to the credit agreement, and certifications by the CEO and CFO as required by the Sarbanes-Oxley Act - Exhibits filed include forms of restricted and performance stock unit award agreements for 2024, an amendment to the Credit Agreement, and Sarbanes-Oxley Act certifications486