CNO Financial Group, Inc.

Good day and thank you for standing by and welcome to the CNO Financial Group first quarter 2022 earnings results. At this time, all participants are in the listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Jennifer Child, Vice President of Investor Relations and Sustainability. Please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining us on C&O Financial Group's first quarter 2022 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 Q&A 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 8K yesterday. We expect to file our Form 10-Q and post it on our website on or before May 6th. 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 first quarter 2022 and first quarter 2021. And with that, I'll turn the call over to Gary.

Thank you, Jennifer. Good morning, everyone, and thank you for joining us. Before we get started, I would be remiss if I didn't address the ongoing conflict in Ukraine. Our thoughts and prayers continue to be with the people of Ukraine and everyone impacted by this senseless war. Turning to slide four and our first quarter performance. I'm pleased with our continued progress advancing our strategic initiatives. We reported solid sales growth, particularly within our direct-to-consumer business, and generated significant improvements in agent productivity. Our longstanding strategy to focus on agent productivity helped to offset the continued recruiting headwinds due to the tight labor market. In addition, we experienced increased recruiting traction in the latter portion of the quarter, which has carried over into April. Operating earnings per share excluding significant items were down 17 cents or 29% compared to the prior period. Normalizing for various factors, which Paul will discuss in a few moments, our margins and earnings were quite healthy. we returned significant capital to shareholders in the quarter, reducing our share count by another 11 percent while ending the quarter at targeted capital levels. Turning to slide five and our growth scorecard. Four of our five growth scorecard metrics were up compared to the first quarter of 2021, and most production metrics continue to exceed pre-pandemic levels. Total NAF was up 2 percent for the quarter. Life sales momentum remained strong, up 5% over the prior year. This was offset somewhat by lower health sales, which were down 3% for the quarter, reflecting a continuing shift by consumers away from Medicare Supplement toward Medicare Advantage products. Total collected life and health premiums were down 2% for the quarter. We are providing additional detail on this slide to give insight into the distinctions within our life business. We offer single premium whole life policies that are often purchased for estate planning purposes and are paid as a lump sum. While these policies typically comprise around 2% of life sales, they tend to be larger, so even a small move can cause volatility in our reported collective premiums. We saw a spike in sales of these policies in the first quarter of 2021 as compared to the first quarter of 2022. Excluding single premium policies, traditional life collective premiums were up 3.5 percent. Annuity collective premiums were up 13 percent for the quarter, our sixth consecutive increase. Client assets in brokerage and advisory grew 16 percent year-over-year to $2.8 billion. Fee revenue was up 25 percent for the quarter to $40 million, reflecting significant growth in our distribution of third-party products, expansion of our broker-dealer and registered investment advisor, and continued growth in our worksite fee business. Turning to our consumer division on slide six. Life sales were up 3% for the quarter, driven by continued strong direct-to-consumer sales. Direct-to-consumer sales were up 16% on top of the 38% growth in direct-to-consumer sales that was generated in the year-ago period. This channel continues to benefit from investments in opportunistic advertising spend, self-directed applications, direct mail campaigns, and enhanced distribution through third-party partnerships. Life sales generated by our exclusive field agents were down 16% as the tight labor market has slowed recruitment of first-year agents who tend to sell a higher proportion of life policies. We expect our agent sold life insurance to rebound as agent recruiting levels normalize. Health sales were down 1% with strong supplemental health and long-term care sales offset by continued weakness in Medicare Supplement. As discussed in previous quarters, our market is experiencing a secular shift away from Medicare Supplement and towards Medicare Advantage. We continue to invest in both our Medicare Supplement and Medicare Advantage offerings to ensure we remain well-positioned to meet our customers' needs and preferences. As a reminder, later this year, we plan to launch a new Medicare supplement product that aligns well with current consumer preferences. Third-party Medicare Advantage sales were up 14% in the first quarter, which follows on the heels of our fourth quarter increase of 20%. We attribute the strength in our third-party Medicare Advantage sales to our high-touch model which blends the digital capabilities of our growing online health platform, myhealthpolicy.com, with the personal support of our teleagents and local bankers' life agents. Annuity collected premiums were up 13% compared to the prior year, and the average annuity policy size rose 8%. Client assets in brokerage and advisory grew 16% year over year to $2.8 billion in the first quarter, driven by an increase in new accounts. Combined with our annuity account values, we now manage more than $13 billion in assets for our clients. This has fundamentally shifted the relationship we have with our customer base. Unlike some insurance products, which can be transactional in nature, investment products typically create deeper and longer-lasting customer relationships. In recent years, we've proactively shifted our agent recruiting strategy to focus more heavily on targeted recruiting agent approaches and strategies to boost the productivity levels of our existing agent base. We intentionally recruit fewer new agents, emphasizing quality over quantity. Therefore, the new agents that we do appoint are more likely to succeed and stay with us over time. Agent productivity remains strong and is up in all cohorts versus historical levels. In addition, veteran agent retention is stable. This is especially important as these agents typically generate higher premiums for policy. Of course, we always need to recruit new agents. The tight labor market continued to impact us during the first quarter and our total producing agent count declined 11% as we recruited fewer first-year agents. That said, the recruiting environment improved steadily over the course of the quarter and that momentum has carried over into April. we are cautiously optimistic that our recruiting challenges have bottomed, although the pace of improvement remains unclear. Turning to slide seven and our worksite division performance. We continue to see steady improvement in this business despite the prolonged COVID disruption. Worksite sales were up 8% in the first quarter, reflecting both the expansion of our vertical sales strategy and our recent focus on dormant accounts. In the first quarter, we rolled out our new hybrid enrollment tool that will enable our career agents to reach employees wherever they are. It provides appointment setting functionality to allow employees to schedule either face-to-face or video enrollment sessions in the language of their choice, and then facilitates the video sessions. It also offers communication campaigns that are designed to increase employee engagement and participation. Retention of our existing employer customers remains strong and employee persistency within these employer groups continues to be stable. We expect the pace of worksite recovery to continue to improve in the coming quarters as COVID disruptions subside. Our producing agent count was down 14% year over year, largely as a result of ongoing labor market conditions. Similar to our consumer division, we saw steadily improving agent recruiting over the course of the quarter, particularly from our field agent referral program. We have also seen significantly higher productivity across all agent groups, including first-year agents. As has been the case in recent quarters, retention and productivity levels among our veteran agents remain stable. The integration of our fee-based businesses is progressing well, and we continue to generate cross-sale success. Fee revenue within Worksite was up nearly 40% in the quarter, of which 10% was due to organic growth. the average client size for our benefits administration business grew 10%. We continue to see healthy growth in our per employee per month counts. Turning to slide eight, we returned $116 million to shareholders in the first quarter, including $100 million in share buybacks. Our capital allocation strategy remains unchanged. 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.