CNO Financial Group, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the CNO Financial Group fourth 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 will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Jennifer Childs, Vice President of Investor Relations. Thank you. Please go ahead.

Thank you, Operator. Good morning, and thank you for joining us on CNO Financial Group's fourth quarter 2020 earnings conference call. Today's presentation will include remarks from Gary Bujwani, 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 investor section of our website and was filed in a form 8K yesterday. We expect to file our form 10-K and post it on our website on or before February 26th. 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 statement. 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 fourth quarter 2019 and fourth quarter 2020. And with that, I'll turn the call over to Gary.

Thanks, Jennifer. Good morning, everyone, and thank you for joining us. I'm going to start with a discussion of the direct path acquisition we announced last night. I'll then provide brief commentary on our fourth quarter and year performance before turning it over to Paul to discuss our financial results and outlook in more detail. I'll finish with a few closing remarks before opening it up to your questions. Turning to slide four, we are very excited about this transaction and the enhanced worksite capabilities it brings to C&O. The transformation that we announced last year created a worksite division dedicated to this market. Growing our worksite business is the next step in our strategy. We are significantly expanding on worksite business to position CNO as a full service provider of worksite solutions. DirectPath is a leading national provider of employee benefits management services to employers and employees. It brings three primary new revenue sources to CNO, employee education services, employee advocacy and transparency services, and employer benefits communications and compliance services. DirectPath operates directly nationwide through approximately 7,000 benefit broker partners. It serves 400 employers of all sizes, from small businesses to Fortune 100 companies, which reflects a covered employee base of more than 2.5 million individuals. Prior to COVID, Worksite was one of the fastest-growing hire multiple businesses for us and in the industry. We expect that dynamic to resume over the next year or so. DirectPath builds out our capabilities and gets us deeper into the employer value chain. It will also create extensive process selling and referral opportunities for us. Through its fee-based structure, DirectPath will diversify our worksite revenue base. It adds to our existing high-return fee-based businesses that will help drive expansion in our overall ROE. The purchase price of $50 million was funded out of holding company cash. There is an additional earn-out if certain financial targets are achieved. The transaction is expected to add a penny per share to our earnings beginning in 2022. This transaction aligns well with the M&A playbook we've been executing against and is reflective of the types of opportunities we may consider again in the future. Turning to slide five and our full year performance. We reported operating earnings per share growth of 37% for the full year. $387 million in free cash flow or 107% of our operating income And we returned $330 million to shareholders in the form of buybacks and dividends, which reflects 12% of our market cap at the beginning of 2020. And results underscore the continued strength and resiliency of our diverse product portfolio and distribution channels. Despite the COVID backdrop, we achieved many important operational accomplishments during 2020. Within the consumer division, we've continued to build upon success with our direct-to-consumer life business and cross-channel collaboration efforts. Integrating these channels has led to significant improvements in overall lead conversion rates and per-customer acquisition costs. Leads generated from our D2C business have become an increasingly important source of new business for our exclusive field agent force. In 2020, these leads drove two-thirds of the increase in life sales generated by our exclusive field agents. This year we recognized the opportunity to create a similar multi-channel sales and service experience for the Medicare market. We launched our new digital health insurance marketplace, MyHealthPolicy.com. Our objective is to take the strength of our face-to-face distribution, couple it with our growing online strength, and use our unique offerings to become a significant player in the online health insurance market. This is a competitive space. The depth and strength of our agent force is the key differentiator. Just as we successfully scaled and became a top five provider of direct-to-consumer life insurance, we intend to profitably grow the direct-to-consumer healthcare business. Within the Worksite Division, despite COVID, we saw modest growth in our employer client base. Of course, we faced significant restrictions accessing workplaces to complete employee enrollments. In response, we focused extensively on building out our virtual and online enrollment capabilities. For the full year, virtual sales comprised 23% of total production. Continued premium persistency was another key driver of our worksite business this year. Persistency was actually up modestly over historical levels, reflecting the critical value of our consumers' attribute to our protection products and the mix of stable industries we serve. While we intentionally slowed our agent recruiting efforts in 2020 to align with the softer demand for onsite enrollment due to COVID, We retained our core managers who are critical to rebuilding our sales force and driving our ultimate recovery. As I've shared in previous quarters, in 2020, we made significant investments in supporting the safety, wellness, and financial well-being of our associates, customers, and agents in response to the pandemic. We expanded our commitment to diversity, equity, and inclusion and named a senior director to support our ongoing initiatives to develop and embed DE&I practices across our organizations. We also made progress in our ESG efforts, the principles of which are central to our overall business strategy. CNO is now a signatory to the United Nations principles for responsible investment, which commits us to incorporating ESG principles in our investment analysis and reporting framework. We expect to formally adopt the SASB and TCFD reporting frameworks this year when we publish our updated corporate social responsibility report. Turning to slide six and our results for the quarter. Our fourth quarter results benefited from the ongoing deferral of medical care, which drove continued strong health margins. Our performance was also boosted by a particularly robust alternative investment earnings. Operating earnings per share were up 17%. Our book value per diluted share, excluding AOCI, was up 8%. During the quarter, we saw continued improvement in several key metrics. However, the wave of COVID late in the fourth quarter created a headwind to certain sales and agent metrics. Premium collections remain strong across both divisions, but reflect the impact from weaker health sales in recent periods. Expenses were higher in the quarter and higher than we signaled on previous calls, driven primarily by the acceleration of spending on growth initiatives. This was a conscious decision. The strength of our business and cash flow in 2020 enabled us to capitalize on opportunities to support the continued growth of our franchise beyond the pandemic. We saw this as an opportunity to build capabilities for future growth and differentiation. Paul will provide more details. Fee income was down, reflecting solid growth in fee revenue offset by spending related to the development and marketing of myhealthpolicy.com. Our capital and liquidity positions remain solid. We issued $150 million in subordinated debt in November and ended the quarter with an RBC ratio of 411%, with $388 million in cash at the holding company. Turning to our growth scorecard on slide seven. Three of our five metrics were up year over year. Life sales were up 6% for the quarter and 12% for the full year, fueled by both continued strong direct-to-consumer growth and a sharp increase in sales from our exclusive field agents. Collected life premiums were up 3%, reflecting solid growth in NAP in recent quarters and the continued strong persistency of our customer base. Collected health premiums were down 4.7%, largely resulting from the impact of softer in-person health sales in recent quarters. Annuity collected premiums were up 6% for the quarter, reversing the trend in recent quarters. Client assets under management grew 18% to nearly $1.8 billion. Of this growth, approximately half was driven by new client assets. Fee revenue was up a healthy 19% to $36 million, reflecting growth in third-party sales and growth within our broker-dealer and registered investment advisor. Health sales remained challenged, down 22% over the prior year, driven by a 29% decline in Medicare supplement sales. As we've discussed previously, we're in the midst of a secular shift away from Medicare supplement towards Medicare Advantage. Helping customers navigate the complex Medicare landscape has been a core strength of our exclusive field agency. Our approach to the shift in consumer preferences is to leverage the strength of both our field agents and our new digital health marketplace to capture incremental Medicare Advantage sales. At the same time, we will continue to maintain a strong presence in the Medicare supplement market, which consistently delivers a compelling loss ratio and provides a meaningful contribution to our health margin. It's also a key differentiator. Very few peer companies manufacture and sell Medicare plans. As a reminder, Medicare supplement sales are reflected in the new annualized premium, while Medicare Advantage sales are reflected in the fee revenue. Turning to our consumer division on slide eight. Sales of life insurance remain strong, up 17% for the quarter and up 19% for the full year. Direct-to-consumer life sales, which comprise about half of our total life sales, were up 10%. Life sales generated by our exclusive field agents were up 26%, supported by LEED's shared from our direct-to-consumer channel this cross-channel dynamic has resulted in improved productivity metrics such as lead conversion rates and customer acquisition costs again this underscores the value of our unified distribution model as growth in one channel is able to feed growth in the other as i mentioned earlier we are working to create the same dynamic on the health side of our consumer business during this year's medicare annual enrollment period consumers were able to purchase medicare products from us online or from one of 2,800 telesales and local exclusive field agents certified to sell Medicare plans. With the launch of MyHealthPolicy.com Marketplace, we created pathways for our teleagents to refer consumers to local agents and for field agents to refer consumers to a teleagent or the platform itself. As a result, our Medicare Advantage policies sold in the fourth quarter increased 3% over the prior year, and total third-party policies were up 5%. MyHealthPolicy.com accounted for 14% of our third party health sales in the quarter. Our producing agent count was down 3%, which makes our sales momentum and productivity even more impressive. Due to the resurgence of the pandemic, COVID-related quarantines kept a number of our exclusive field agents and clients from engaging in face-to-face appointments. COVID restrictions also remain more stringent in the areas of the country where our agents are more concentrated. As a reminder, to be counted as producing, our agents need to sell at least one policy each month. Our total exclusive agent count, which includes our field and telesales agents, was actually up 3% for the full year. We continue to grow the number of securities licensed financial representatives, which is core to how we are evolving our field force and changing the relationship with our clients. Turning to slide nine and our worksite divisions. Collected premiums remain strong as the profile of our existing employer groups has translated to continued healthy levels of employee persistency. We saw continued sequential improvement in our worksite sales in the fourth quarter, with sales up 61% over the third quarter. Relative to the year-ago period, however, sales were down 41%. Given recent increases in COVID infection rates across the country and workplaces opening up more slowly, we continue to expect a steeper recovery path in the worksite business. We launched a new group product in the fourth quarter called Monthly Income Protection Group Term Life. This is a unique group life product that is designed to replace monthly income rather than paying a lump sum death benefit. Web Benefits Design delivered solid results in 4Q, including a 3% increase in the average per employee per month charge. WBD cross-selling activities drove 5% of overall NAP in the quarter. As I mentioned at the beginning of my prepared remarks, we are excited to bring DirectPath into our worksite organization. The division will be co-managed by current worksite president Mike Hurd and by DirectPath chairman and CEO Mike Byers. Both will report to me and Mike Byers will join our executive leadership team. Turning to slide 10. We returned $117 million to shareholders in the fourth quarter, including $100 million in share buybacks. For the full year, we deployed $263 million on buybacks at an average price of $18.17. Our capital allocation strategy remains consistent. We intend to deploy 100% of our excess capital to its highest and best use over time. While share repurchases form a critical component of our strategy, organic and inorganic investments also play an important role. It's worth noting that most of our organic investments in the fourth quarter flow through our income statement as operating expenses rather than as capital expenditures. These investments remain mission critical to our future success. Paul will provide more color in his remarks. Turning to slide 11. Over the past two years, we've also been making minority investments in various insure tech and fintech companies. Through C&O Ventures, we seek to generate attractive returns, develop relationships, source and track opportunities, and ultimately invest in various companies that are disrupting the insurance and financial space. We fully expect these investments to stand on their own merits and deliver attractive returns. They also serve as important vehicles for us to collaborate and innovate. We seek out companies that are strategically relevant, particularly those we can partner with to help us improve our digital engagement with consumers, accelerate our speed to market with new products and services, and or enhance our technology. To date, we have invested a total of $21 million in five companies, including healthcare.com, human API, and Kinder. We expect to complete a few similar transactions per year. The portfolio will remain small relative to our total invested assets, but impactful in other ways. And with that, I'll turn it over to Paul. Paul?