CNO Financial Group, Inc.

Ladies and gentlemen, thank you for standing by and welcome to CNO Financial Group's first quarter 2020 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to your first speaker today, Jennifer Child, Vice President of Investor Relations. Thank you. Please go ahead.

Thank you, Operator. Good afternoon and thank you for joining us on CNO Financial Group's first quarter 2020 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 several 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 afternoon's presentation is also available in the Investors section of our website and was filed in a Form 8K yesterday. We expect to file our Form 10Q and post it on our website on or before May 11th. Let me remind you that any forward-looking statements we may 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 the non-GAAP measures to the corresponding GAAP measures in the appendix. Throughout the presentations, we will be making performance comparisons, and unless otherwise specified, any comparisons made will be referring to changes between first quarter 2019 and first quarter 2020. And with that, I'll turn the call over to Gary.

Good afternoon, everyone, and thank you for joining us. Today's call is going to run a little differently from our usual format. I begin with comments on the current environment, the actions we're taking to address the pandemic, and provide a brief overview of our first quarter business performance. Then Paul will provide more detail on our first quarter results, our balance sheet, and our outlook. I'd like to start with some remarks on the COVID-19 crisis. First and foremost, I hope that you and yours are keeping safe and healthy. Second, every one of us at CNO would like to extend our gratitude to the healthcare professionals, first responders, and many others who are providing essential services that keep our country running. We also extend our deepest sympathies to the families who have lost a loved one to the virus or are ill and recovering. Our thoughts and prayers are with you. I'd also like to take a moment to thank our many associates who literally worked night and day to mobilize our remote work capabilities and keep our infrastructure running smoothly. I'm incredibly proud of how our associates and agents have responded and adapted to these challenges. They have been working tirelessly to support our customers during this difficult period. Most states consider our business to be essential under the stay at home orders because of the critical protection products that we provide. Never before have we been so forcefully reminded of the importance of the service provided by a company and industry. We pay claims when our customers are in need. We protect what people have spent a lifetime building. And we help people live their lives with a little less worry and a little more financial dignity. Every business is navigating unprecedented economic fallout from COVID-19. Some economists are forecasting unemployment and GDP estimates that signal a recession unseen since the 1930s. We are truly in uncharted territory, but we will get through this. Thankfully, CNO is operating from a position of strength. There are five key takeaways I highlight for you. First, our capital and liquidity remain strong. Even under our severe stress scenario, we expect to maintain our dividend and have the capacity to resume share repurchases should that make sense as conditions evolve. Second, our investment portfolio is solid. In earlier periods, we benefited significantly from investment earnings in favorable credit environments. Early in 2019, we proactively reduced the risk profile of our portfolio, positioning it for an eventual change in the credit cycle with a bias towards steady and predictable results. This portfolio repositioning decreased our short-term profits in 2019. But, more importantly, it allows us to exit 2019 more conservatively positioned. The recent events suggest that the decision to trade near-term returns in 2019 for safety in 2020 was a prudent decision. Third, though the pandemic will pressure sales in the near term, our growth engine remains intact. In fact, demand for some of our products, especially our direct to consumer life insurance, has increased meaningfully. We believe our performance during the crisis will demonstrate the strength of our business model and the value proposition of our broad suite of products. The business transformation we announced in January positions us well for an increasingly digital world. Across all industries, the COVID crisis is accelerating the transition of more services to a digital and virtual format. Our transformation was developed to capitalize on changing customer expectations. The groundwork laid by our transformation enables us to now accelerate virtual selling, digital service, and lead sharing between channels to support consumers in response to the crisis. Fifth, we delivered record operating earnings per share in the first quarter but generated a non-operating loss largely due to the gap mark-to-market treatment of various assets and liabilities. The majority of the loss reflects non-cash impacts. Paul will discuss this in further detail in a few moments. At CNO, we take the long view. Over the past several years, we've put in the work to strengthen our financial foundation and earn our investment grade rating. Our recent transformation puts us on the right path to respond more quickly and effectively to the changing needs of our customers. As an outcome of the crisis we are further reexamining the way we do business and intend to accelerate our strategic plans in certain areas. In doing so we are balancing expense discipline with investments targeted at technology, innovation, distribution enhancements, and improvements to the way we prospect and reach customers. Turning to slide four, I'd like to address what CNO has done to navigate through this challenging environment. First and foremost, we're focused on the health and safety of our associates and agents and the continuity of service to our policyholders. I share our approach by our three constituencies, our associates and agents, our consumers, and our communities. Starting with our associates and agents, in mid-March, we instituted a work-from-home mandate in both our corporate and sales offices. Within 10 days, we successfully transitioned 70% of our associates to remote working arrangements. For those business critical associates whose roles do not allow them to work remotely, we have taken significant steps to safeguard their health and safety at the office. Many customers prefer to meet with our agents in a face-to-face setting. To assist, we deployed enhanced technology tools and training for our exclusive agents to allow them to serve consumers through virtual consultations and digital insurance applications. Although we cannot predict what the long term holds, it was important to reaffirm our commitment to our workforce. Last month, we communicated that there would be no associate reductions due to COVID-19 for at least the balance of this year. We also introduced financial support programs for our exclusive agents who have seen their businesses disrupted and their livelihoods challenged. In response to COVID-19, numerous health and well-being resources were made available to eligible associates, which you can see on the slide. Our exclusive agents, financial advisors and customer care centers remain fully engaged and available for our more than 1.3 million policyholders. We are also working with consumers who may be experiencing financial difficulty. We provide an extended period of time to make premium payments without the risk of losing their benefits during these difficult times. It is precisely in situations like these that our exceptional client service is so important. For our communities, CNO committed to maintaining our 2020 budgeted donations for corporate philanthropic partners. Associates are participating in virtual volunteering opportunities offered through our Team CNO volunteer program. CNO and senior leaders also donated $300,000 to two financial assistance funds to support agents and associates within the CNO family that have been impacted by COVID-19 or other personal financial hardships. The actions we are taking to respond to the pandemic are consistent with our core values and our commitment to social responsibility. We realize that our long-term success is tied to the collective wellbeing of our customers, our associates, our agents, and our communities. It is our privilege and duty to support these constituents. We embrace this role. I'd like to now dig more deeply into our businesses and the impact from the pandemic. I was very pleased with our first quarter operating progress and record results. We successfully implemented our business continuity plan with minimal disruption and no significant loss of operational capacity. Today, all key operational functions are running smoothly. This includes our call centers, underwriting, claims processing, and other shared services. Our service levels remain strong. We also implemented additional cybersecurity precautions to ensure that associates working remotely have systems that meet our rigorous security standards. Turning to slide five. The first quarter was divided into two distinct periods. Our sales performance through early March was solid and then slowed meaningfully in the last two to three weeks of the quarter as states and consumers responded to the pandemic. As a result, our first quarter sales reflect a blend of those two periods. From an operating earnings perspective, we felt very little impact of the crisis in the first quarter. Operating earnings were up 28% and operating earnings per share were up 41% to a record 58 cents. Even if we exclude the outperformance from our non-allocated investment income and the benefits from a slightly lower tax rate, our operating earnings per share were still up This was due to growth in fee income, a reduction in our corporate expenses, and a lower share count due to our share repurchase activity. Paul will cover all of this in more detail during his prepared remarks. Both insurance policy income and insurance product margin were up year over year, reflecting both the diversification of our business and its resiliency in the face of continued interest rate headwinds. I'd also like to note that our expenses decreased by $4 million or 2% year over year as we capture efficiencies in certain areas while continuing to invest in growth. Turning to our growth scorecard on slide six. Despite the COVID-19 impact on our sales in the second half of March, our top line results were still strong for the quarter. We had growth in four of our five scorecard metrics. Life and health sales were up 7%, our seventh consecutive increase. Annuity account balances were up 8%. As expected, in the context of continued low interest rates and resulting pricing actions, annuity sales were down 7%. Turning to our consumer business on slide 7. For the full quarter, life and health sales were up 8%. Our consumer business entered the quarter with good momentum. Life and health sales were up 14% through February. Towards the end of the quarter, as many parts of the country started to shelter in place, and face-to-face meetings slowed, we saw a steep decline in sales. As a result of previous investments in technology, such as electronic applications and CRM tools, we were able to quickly transition both our field and telesales agents to work remotely. Agents are conducting virtual sales presentations and using digital and voice signatures. This has allowed our exclusive agents to regain sales traction, albeit at lower levels. Direct-to-consumer life sales are surging, and this channel serves as a key lead source to our exclusive agents. We are encouraged by the demographic makeup of our Enforce book. A disproportionate number of our life, health and annuity policyholders are over age 65. For those that are retired, they may not be as impacted by the economic disruption. At the same time, the crisis underscores the crucial need for insurance and financial protection products and the peace of mind our suite of products provides. Annuity sales, as I mentioned, were down 7% in the first quarter as compared to 25% growth in the comparable 2019 period. Knowing that our sales would be affected, we took additional pricing action during the quarter. We continuously managed the participation rates on our annuities in order to balance sales growth and profitability in the current low interest rate environment. As has been the case in prior periods, We will accept lower sales when market conditions warrant. This ensures that we are putting business on the books that meet our return threshold. We remain comfortable with this trade-off and will continue to employ the same discipline in similar circumstances. Agent recruiting and retention continues to be strong. Our producing agent count was up 2% in the first quarter on top of 3% growth in the same period last year. Initially after the shutdown began, Our efforts to license new agents were stymied by the closure of state insurance testing centers. More recently, many states have agreed to issue temporary licenses and in some areas, testing centers are reopening. Consistent with our experience in prior periods of job disruption, we expect the current environment to create a tailwind for our new agent recruiting efforts. Through our national network of offices, we have the ability to create new insurance agent jobs in communities across the country. With stay-at-home orders in place across much of the country during Q1, the health crisis is hastening the movement to digital purchasing of more products and services, including insurance. Since physical distancing guidelines went into effect, we have seen a significant increase in our website traffic and digital sales. Recall that in January, we announced our business transformation that consolidated our three segments into two divisions, consumer and worksite, to enable cross-channel efficiencies and better serve our customers. I'm pleased with the initial progress we've made to reduce the barriers between our businesses. For example, in late March, when our exclusive agents were increasingly unable to meet with prospects face-to-face, we ramped up our direct-to-consumer advertising spend and accelerated the lead sharing with our exclusive agent force. This translated to higher lead conversion rates and higher premiums per sale. This ability to flex resources across channels demonstrates the value we can unlock under our new structures. We have a number of other cross-channel collaboration programs underway. Turning to slide eight in our worksite business. Our worksite business also began the year very strong. Through the bulk of the first quarter, we were on track for another double-digit quarter. Worksite producing agent growth was up a healthy 13% in the first quarter. Sales were up 12% through mid-March. In the back half of March, sales decreased sharply. Responding to the pandemic, employers diverted their attention to crisis response, limited office visitation, and in most cases, closed their offices altogether. We ended the quarter with total worksite sales down 1%. Web Benefits Design, or WBD, our benefits administration technology platform, performed well, with fee revenue up 8%. The integration of WBD remains on track, and we're seeing solid progress in our cross-selling efforts. Approximately 6% of worksite insurance sales this quarter were attributable to WBD-related relationships in the quarter. We expect a steeper path to recovery within the worksite business than in consumer business, given its greater reliance on face-to-face sales at worksite locations. That said, we have armed our agents with virtual sales tools, and they are actively engaging with current customers and existing employer clients to drive sales. The demographic breakdown of our employer groups is also encouraging. More than 70% of our covered employee base are employed by state and local governments, primary and secondary schools, utilities, and other public service oriented organizations less likely to be impacted by the pandemic. Turning to slide nine. We returned $99 million to shareholders in the first quarter, including $83 million in the form of share repurchases. In mid-March, as financial markets began to deteriorate due to the uncertainty surrounding the ultimate severity and duration of the pandemic, we suspended our share repurchase activity. Paul will provide more detail in a few moments. Before I turn it over to Paul, I'd like to make a few comments on our outlook. From where we sit today, it is too soon to predict when the country would return to normalcy and what that path will look like. But you can be assured that we remain laser focused on delivering value to our customers, our communities, and our shareholders as we navigate through these unprecedented times. Despite these significant short-term challenges, our franchise remains healthy and our strategies and priorities remain consistent. We are benefiting today from the actions we've taken over the last several years to diversify our business, strengthen our balance sheet, and manage risk in our investment portfolio. In the tragedy and economic crisis brought on by COVID-19, we recognize and embrace our duty to help those that count on us. Nothing is more important than ensuring our ability to keep the promises we make with every product we sell. We know the responsibility that rests with us and we take it very seriously. We are well positioned to weather what is ahead of us, and I am confident that we will exit this crisis as a stronger and more resilient company. And with that, I'll now turn it over to Paul.