Good morning. Thank you for joining us on CNO Financial Group’s first quarter 2023 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 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 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 8-K yesterday. We expect to file our Form 10-Q and posted on our website on or before May 10th.

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 statements. Today’s presentations contain a number of GAAP measures, which should not be considered as substitutes for the most directly comparable GAAP measures.

You will find a reconciliation of the non-GAAP measures to the corresponding GAAP measures in the appendix. Throughout the presentation, we will be making performance comparisons, and unless otherwise specified, any comparisons made will be referring to changes between first quarter 2023 and first quarter 2022.

And with that, I will turn the call over to Gary.

Thanks, Adam. Good morning, everyone and thank you for joining us.

We are off to a positive start in 2023, posting solid operating earnings, production and capital results. Operating earnings per share were $0.51, our balance business model and strength, stability and resilience to our earnings results.

The fundamental health of the business is solid as demonstrated by strong insurance product margins, growth and fee income, increasing new money rates and solid overall investment results even as alternative results underperformed compared to the prior year period. Sales production an agent recruiting delivered strong balance results across both our consumer and worksite divisions.

Total new annualized premium was up 7%. We posted sales growth in nearly all product categories, including direct-to-consumer and field agents solid Life Medicare products, including both Medicare Supplement and Medicare Advantage, Supplemental health, annuities, and worksite insurance sales.

Capital ratios and liquidity remained above target levels underscoring our resilient capital position and disciplined capital management. Our high quality investment portfolio remains well positioned to weather market turmoil and to deliver consistent investment income.

Book value per diluted share excluding AOCI was up 13% to over $31. Effective January, we adopted LDTI, the new GAAP accounting standard for long duration insurance contracts.

This transition represents the culmination of a significant multiyear initiative. We thank and recognize the many CNO associates from across our organization for their hard work and dedication to implementing LDTI.

Turning to Slide 5 in our growth scorecard. Four of our five growth scorecard metrics were up for the quarter demonstrating the value of our broad product portfolio and diverse integrated distribution model.

I will discuss each division in the next two slides. Beginning with the consumer division on Slide 6.

We are very pleased with sales performance in the quarter. We saw year-over-year sales growth in nearly all of our product lines in the consumer divisions.

Life and health map was up 4% for the quarter. Life production was up nicely.

Life sales and the Bankers Life agent channel were up 5%. Our direct-to-consumer channel generated record Life sales up 1% against a strong comparable.

This is the seventh consecutive quarter of sales growth for D2C Life. Efficient advertising spend enhanced distribution and solid policy conversion rates continue to live with growth for this business.

Supplemental health sales were up 12%, the third quarter of double-digit growth for these products. Our Medicare business posted record growth in the quarter building on sales momentum from the fourth quarter Medicare annual enrollment period.

As a reminder, our approach to Medicare business includes Medicare Supplement products that we manufacture and a broad offering of third-party Medicare Advantage and Part D prescription drug plans for which we collect fees. Medicare Supplement map was up 20% for the quarter.

The new more competitive Medicare Supplement plans that we launched last year continue to be well received by consumers in this important market. Medicare Advantage sales were up 55% for the quarter.

This contributed to third-party fee revenue growth of 57%. As a reminder, MA policies drive fee revenue and are not reflected in MAP.

Enhancements to our Medicare portfolio are enabling double-digit growth. We continue to add Medicare Advantage carrier plans that are available through our My Health Policy platform and makes strategic technology investments in the platform’s capabilities.

With branch offices in more than 230 communities, we operate a national footprint of knowledgeable local agents ready to help with Medicare enrollments. Our agents build personal relationships with our customers earning the opportunity to assist with future needs and develop potential cross sales.

These strong relationships allow us to mitigate the churn prevalent in so much of the industry. Our unique ability to marry a virtual connection with our established in person agent force who complete the important last mile of sales and service remains a key differentiator.

Annuity collected premiums were of 1% our 10th consecutive quarter of comparable period growth. Annuity persistency remains within expected ranges, this is primarily due to our model of distributing annuity products exclusively through our captive agents.

Client assets in brokerage and advisory were down 8% year-over-year to $2.6 billion due to ongoing market volatility and declining equity values. More importantly, net inflows and new accounts were up continuing this positive trend from prior quarters.

Combined with our annuity account values, our clients entrust us with nearly $14 billion of their assets. Agent recruiting continued to accelerate and was up 22%, our fifth consecutive quarter of recruiting agents.

As a result of this sustained recruiting success, we achieved an inflection point in our producing agent count, which ended up 1% for the quarter. As I have shared in previous calls, it takes time for new agents to meet production levels to be counted as a producing agent.

We are pleased to see meaningful increases in agent recruiting begin to translate into increases in producing agents count. We remain bullish on our agent force prospects for the balance of the year.

Our recruiting strategies support a return to continued agent force growth. These include our proven agent referral program and recent enhancements to our online recruiting coaches.

Software labor market has traditionally resulted in more successful recruiting environments. Veterans agent retention and productivity remains solid.

Our registered agent count increased 5% from prior year, expanding the number of securities professionals available to assist our customers in today’s challenging economic environment. Turning to Slide 7 and our worksite Division performance.

Insurance sales were up 28% this quarter. This is the 8th consecutive quarter of growth.

Three of the last four quarters had growth of 20% or more, albeit off a small base. Leading indicators of the health of the business continue to trend positively.

Retention of our existing employer customers remains strong, employee persistency within these employer groups is stable. Producing agent counts were up 38% and recruiting was up 48%.

We remain squarely focused on deepening the integration of our worksite capabilities under our optimized brand, advancing our strategic worksite priorities in both the national and regional employer markets, and accelerating agent recruiting momentum. We also continue to invest in our ability to serve customers through service and product offerings.

In the second half of last year, we introduced our hybrid enrollment platform Optavise Now. The platform gives our agents greater ability to connect with employees wherever they are, including by video meeting or over the phone.

It continues to be well received by employers and employees, and we have experienced an uptick in attendance race, as a result of the technology. And with that, I will turn it over to Paul.

Thank you, Gary, and good morning, everyone. Before commenting on our financial results in the quarter, I would like to say a few words regarding the implementation of LDTI.

Yesterday, we posted our fourth quarter 2022 financial supplement recast to reflect the adoption of the new accounting standard. The impact on the balance sheet of transition and on earnings over the re-measurement period were in-line with the estimates we had previously provided.

As a reminder, LDTI has no impact on stat’s financial results, capital or cash flows. I would like to second Gary’s comment from the beginning of the call and also expressed my gratitude to the CNO implementation team.

We are well-positioned not just for the first quarter close under the new standard, but also to operate smoothly and efficiently going forward. Turning to the financial highlights on Slide 8.

Our net income for the quarter was a loss of just under $1 million, driven by a non-operating loss of $59 million, which in turn was driven primarily by $65 million pretax of fair value changes, embedded derivative, reserve liabilities and market risk benefits, both of which relate to the GAAP accounting for our annuity business and both of which are largely non-economic in nature. Conversely, our operating income for the quarter was a gain of $59 million or $0.51 per share, $6 million or $0.03 per share lower than the prior year period, driven by a decline in the variable components of net investment income.

Expenses were also elevated compared to the prior year period, but in-line with our expectations for the quarter. Our projected expense ratio for the full-year is unchanged at between 19.0% and 19.4%.

On a run rate basis, we are very pleased with the results in the quarter. Notably, insurance product margin increased by $14 million or 7% year-over-year, and fee income increased by $6 million or 57%.

We deployed $15 million of capital on share repurchases in the quarter contributing to a 5% reduction in weighted average diluted shares outstanding year-over-year. For the 12-months ending March 31, 2023, operating return on equity was 10.3%.

Turning to Slide 9, the growth and insurance product margin was driven by growth in lower mortality by growth and lower mortality in the Life business, and also reflects growth in fixed indexed annuities and supplemental health. The annuity and health margins were largely flat in total year-over-year, with pluses and minuses by individual product line within each product category.

Turning to Slide 10. The new money rate in the quarter was 6.34%, up from 3.73% in the prior year period, and 5.96% in 4Q 2022.

This is the fourth consecutive quarter with new money rates exceeding the average yield unallocated investments, which increased to 4.62% in the quarter, up two basis points both sequentially and year-over-year. This marks the third quarter of sequential improvement, and the first quarter of year-over-year improvement in net yield.

While the improvement is small, it is nevertheless an important inflection point after years of declining yield, and together with growth in net insurance liabilities, contributes to growth in net investment income allocated to product, which was up 4% in the quarter. Investment income not allocated to products fell in the quarter, driven by a decline in the return on alternative investments and also a decline in prepayment and call income.

Notably, the decline was in part mitigated by growth and income from general account assets, the FHLB and FABN programs and the contribution from quarterly investments. Our new investments comprised approximately $690 million of assets, with an average rating of AA- and an average duration of three-years.

Our new investments are summarized in more detail on slides 21 and 22 of this presentation. Turning to Slide 11.

At quarter end, our invested assets totaled $25 billion, down 8% year-over-year, reflecting declining market values driven primarily by higher interest rates. Approximately 97% of our fixed maturity portfolio at quarter end was investment grade rated with an average rating of single A reflecting our up and quality actions over the last several quarters.

In the last 12-months. The allocation to single A rated or higher securities is up 460 basis points.

The BBB allocation is down 330 basis points, and the high yield allocation is down 130 basis points. These actions served as well during the recent banking crisis and continue to position as well relative to potential broader economic downturn.

Given the amount of attention that commercial real estate market has received in the media and an equity research recently, I thought, I should touch on that briefly. You will note that 9.8% of our investment assets are in commercial mortgage backed securities, and 4.7% are in commercial mortgage loans.

We have included some metrics on these investments in Slides 23 and 24 of this presentation. The key messages are number one that our CMBS allocation is highly rated with significant structural protection tilted toward lower risk property types and with limited loss content in extreme stress scenarios.

And second, that our commercial mortgage loan allocation is also conservatively positioned across a number of metrics. Turning to Slide 12.

At quarter end, our consolidated RBC ratio is 380%, Holdco liquidity was $158 million. We continue to manage this to the targets of 375% RBC, and $150 million Holdco liquidity.

Turning to Slide 13. Our outlook for the full-year as summarized on this slide is unchanged from what we shared back in February at our Investor Day.

I do want to provide an update on our plan formation of a captive Bermuda Reinsurance Company. We continue to work through the regulatory approval process, which we expect will conclude in time to initiate a treaty in the third quarter of this year.

Under this treaty, we intend to cede a portion of our fixed index annuity business, from our U.S. operations to the Bermuda Company.

Contingent on all necessary regulatory approvals, we expect excess cash flow to the Holdco to increase by $150 million to $200 million at inception of the initial reinsurance treaty. We will certainly be judicious in how and when we deploy that capital, applying the same discipline and logic that we have historically.

Regulatory approval is by no means assured, and we don’t want to get ahead of the approval process. But we thought it was nevertheless appropriate at this stage to dimensionalize what the capital impact might be.

And with that, I will turn it back to Gary.

Thanks, Paul. In February, we held our Investor Day at the New York Stock Exchange.

It was nice to see so many of you in person. We also appreciate it those who were able to join virtually.

At the meeting, I opened my remarks with this comment. CNO is a growth story.

After several years of navigating the pandemic and macro economic uncertainties, we are resuming our growth momentum. The pivot to growth was again on display this quarter in the strong sales performance delivered by both of our divisions.

We have solid free cash flow to fund both growth and capital return. Our balance sheet, capital position and liquidity remain strong.

As we look to the remainder of 2023 and beyond, we are squarely focused on accelerating that profitable growth, consistent steady execution on our strategic priorities and generating sustainable long-term shareholder value. We thank you for your support of and interest in CNO Financial Group.

We will now open it up for questions. Operator.

Hey thanks, good morning. My first question was on their Bermuda transaction.

There is some proposed changes to Bermuda capital rules. And I just want to confirm that the expected $150 million to $200 million benefit already incorporated those potential impacts.

Good morning, Ryan. It is Paul.

The range certainly incorporates the potential impact of the new rules that Bermuda has presented. Honestly, we are still sort of working through what the specific impacts might be, but we don’t expect them to be material.

Okay, great. And then as a follow-up, how are you thinking about the potential use of the additional capital freed up, would you be likely to return most of that to shareholders or would you like potentially use a piece of that to build a further capital cushion?

So Ryan, we will continue to think about excess capital the way that we always have, which I think if you look at what we have done historically. We are thoughtful and deployed appropriately on the margin.

Certainly, we have used it to return excess capital to shareholders. So I would imagine that would be a component of it.

But as I said, we will not do anything right away. We will think about it and approach it, again the same way we have historically.

Okay, great. Thank you.

Hi. Thank you.

I was hoping you could talk a little bit more about the level of capital generation and excess cash flow to the holding company this quarter. And curious if this was affected at all by any seasonal impacts or timing issues?

Sure. Hey, good morning, Eric.

It is Paul. So the excess cash flow in the quarter was a bit on the low side.

I would emphasize that we expect the cash flow for the full-year to be in the range of 170 million to 200 million. There are really two things that that pushed it to the low side in the quarter.

The first is the other category in sources of cash. This is largely timing differences of intercompany cash flows between the Holdco and the operating subsidiaries.

It was minus $17 million in the quarter, on a full-year basis, it tends to be neutral to slightly positive. And then the second thing is holding company expenses, and other are typically higher in the first quarter, that is driven primarily by annual bonus payments made in March.

So it was minus 38 million in the quarter and we would expect that to improve in subsequent quarters.

Got it. Thank you.

That is helpful. And then a follow-up on the Bermuda cap.

I guess, is the plan initially to re-insure all of the enforced bankers Life fixed annuity policies and then thinking about the benefit pro respectively, can we use the size of the capital release as a percentage of liabilities seated to kind of approximate what that go forward benefit would be on new sales?

So Eric, it is Paul again. So on the in force book, we are proposing to seed the 2018 and more recent issue years.

And that translates to about 60% of the in force fixed indexed annuities, which have an account value currently of about $9 billion. With respect to the new business, we do propose to seed 100% of the new business.

I wouldn’t take the amount freed up at inception necessarily as a proxy. I think there are more moving parts.

We are declining to size of that at this stage, but certainly as we get into this, we will provide some appropriate disclosure.

Thank you. If I could just sneak in one quick one.

Just your $2.8 to $3 of EPS guidance range factored in an expectation of lower VII in the first quarter or should we think of the range being based on a normal level of VII for the year?

So it is really based on actuals for the first quarter and plan for the balance of the year. So it does not presume that we get back the low VII in the first quarter, but it does presume that all income reverts to the mean in subsequent quarters.

It also notably assumes that Life margin improves off seasonal first quarter lows and that expenses trend down, resulting in the full-year expense ratio in our guidance and between 19.0 and 19.4.

Got it. Thank you very much.

Good morning, thank you very much. If we stick with guidance for a second, it looks like the income is really, really strong in the quarter.

Can you talk about how we should be thinking that the balance of the year. I know there is seasonality with the waiting for the first quarter?

Thank you.

So John, as I just shared in response to Eric’s question. The guidance is really pretty straightforward.

It is based on actuals for the first quarter, and plan for the balance of the year. The only material variance to our plan in the first quarter was lower all returns partially offset by higher fee income.

Notably, our expenses in the first quarter were in-line with our plan expectations. So if you do the math, clearly we expect earnings to be higher in subsequent quarters than the first quarter.

There is some seasonality to Life margin that explains some of that. As I mentioned, we expect expenses to trend down and again, as I mentioned, we expect alts to revert to the mean in subsequent quarters.

Can you talk about the drivers with the strong growth in the fee income in the quarter. It seems like there was some good follow through without device driving improved enrollment rates?

Yes. So the fee income in the quarter was actually driven primarily by the Med Advantage sales in the quarter, not so much by app device.

Okay, great. And then, one last one, it looks like agent recruitment trends have been increasing in with softening in the labor market.

There is a propensity for referrals to be better agents. Are you seeing any different sectors where the supply that is coming as the labor market shifts?

Thank you for the answers.

Yes. John, this is Gary.

I will take that one. What we have found we have certain targeted approaches, specifically referrals and certain other things we are doing online.

And I wouldn’t say, we have seen a particular sector one or another, deliver more agent opportunities to us or more perspective agents to us. We are still following the same playbook with tweaks here and there.

All that said, I think it is reasonable to conclude if a particular industry experiences more layoffs, might we see more agents coming from that industry. I think that is a fair theory.

But we haven’t seen it play yet.

Thank you.

Yes, good morning. You are just building on the question on the recruitment.

The recruitments been ramping up a lot the last the last couple of quarters what is the normal kind of lag time or hang time between when you do get recruitment. And when they these people translate into productive agents delivering targeted quotas or whatever the right metric is?

Sure. Mark, this is Gary, thanks for the question.

Before I answer your question, I just want to remind everybody of one thing. Producing agent count is not a GAAP defined metric.

In other words, what we count as a productive agent may be different than Brand X. So it is always important to remember that we have got various standards that are laid out in terms of how we define a producing agent.

But to answer your question, I think one to three-years is, is when we see a really notable difference somewhere in that timeframe, if they make it past the first 12-months, then we really see the productivity start to ramp up, again, between months 12 and 36. That is where we really see it start to kick in.

Thanks that is helpful. And then turning to some of the disclosures that you had related to the loan book and CMBS, first of all, appreciate you putting those together for us, it is definitely helpful.

When you sit back and look at this, what would be the area that you are most concerned, where would you see the greatest vulnerability as you look at this set of data?

Yes, good morning. This is Erick Johnson, thank you for your question.

When I look at this set of data, what I see is a pretty strong basis to whatever lies ahead in terms of the developments of the commercial mortgage market. I feel looking at CMBS, which you mentioned, first, it is a pretty highly rated portfolio has very low loss content.

Even using the NAIC most conservative scenario, which they think has a 2% probability of occurring 40% deterioration in property values, maybe we lose 15 million, 20 million bucks in that scenario, on a $2 billion portfolio over 10-years. So I think that demonstrates the even in the lowest probability scenarios, that is a fairly well constructed portfolio with a lot of inherent credit support.

If you look at commercial mortgage loan portfolio, very conservatively constructed, we gave you some data around LTV, which are current around DSCRs which are current, very tilted toward a lower risk properties spaces, no delinquencies, no restructured loans, very low amount, absolute amount of maturity. So in both those areas, while I do think there is still going to be some - we are in the fourth inning of a nine inning game, and I think we all have to be prepared for to play those next five innings.

I think we have a strong basis, not just to deliver pretty stable results from what we have got, but find opportunities that emerge once CMBS trades, the levels where severe losses are baked into the prices or you know, higher quality loans and what is becoming a very conservative underwriting and pricing environment. So this may be an area where we have to be thoughtful, protect what we have got, but also look for the upside opportunities, which I think will emerge as we get into the later innings of the game.

Thank you very much for the additional color, I would tend to agree with your thoughts on that. Thank you.

Thanks. Paul, a follow-up on the Bermuda Reinsurance cap is, the $150 million to $200 million amount being freed up.

Can you kind of split out how much of that is on the in force versus how much of that do you expect to come from seeding 100% of new business for FIAs and then maybe as a follow-up, what kind of annual cash flow benefit would you expect the new business part of that to have beyond this immediate one-time benefit?

Sure. Good morning, Tom.

So the 150 million to 200 million is entirely on seeding the in force. And again, it is 2018 and more recent issued years, which is roughly 60% of that in force book.

So we have not sized the impact from the new business, which we expect we would begin seeding 100% of at inception of the treaty, which we expect sometime in the third quarter. So directionally there is some incremental lift there, which we haven’t quantified.

We will do so as we get deeper into this. But certainly there is some relief from new business strain with this structure.

Got you. And then I guess we will get more after you effect this in 3Q in terms of what the kind of ongoing benefit is expected.

I assume there is going to be an ongoing benefit based on the new business strain positive and then would - yes, should you be willing to dimension that by 3Q?

I think we probably will. We will know more than we do today.

We will have spent more time modeling it. We will begin to have some real activity with it.

So I imagine we would be prepared to give some dimensionality to the relief of new business strain with this structure.

Great. And then for a follow-up, another question for Eric Johnson.

So it looked like 30% of your new money in the quarter was in residential mortgage loans at 7.57% yield. Were those direct investments into resi mortgage loans, I assume those are direct investments not MBS.

And then can you talk a little bit about, would you expect to continue to allocate a lot to that asset class, because I think it is fairly small for you right now?

Good morning and thanks for the question. Today residential mortgage loan now is probably one in some change percent of our overall asset allocation, I think that can get bigger.

Although I think it will remain probably below 3% at the high end. Why do I say this?

One, I think it is a good risk return even in an environment where HPA is flat to declining, and the consumer has probably peaked in terms of credit quality. I think that because, the market for non-QM, non-conforming loans, it is really been in a much more conservative underwriting posture in the last year relative to the prior period, where you are getting much lower, LTVs.

Higher FICO, what we have been buying is - FICO is in the middle 700s, LTVs in the in the middle 60s. And what we would historically expect for home loans of those characteristics would be a very low loss content in the basis points, in a normal year 10 to 20 basis points and a really bad year 30 to 50 basis points.

So, if you are - these loans carry a capital weighting, that is akin to a single A corporate bond, but they probably pay 200 extra basis points. So you have plenty of room to be wrong, and still make an excess yield relative to the investable alternative.

And our experience with them, we have been doing it now for a number of years, has been quite good and in-line with our expectations of losses in the basis points. So this is an area that we feel as additive to our overall performance.

It is not a mainstream product for us, but at the margin, and in times where the non-QM market and other markets are not providing the outlet. You can buy these at a good price on good terms and it worked out pretty well.

Makes sense. Thank you.

Thanks, good morning. To start, I was hoping you could provide a little more color on the main moving pieces for the RBC ratio this quarter.

It looks like itself slowly from year-end 2022 levels despite a blow typical level of dividends paid to the holding company this quarter. So any call you can get on the main drivers for the ratio in the first quarter would be great?

Good morning Dan. I would describe it as sort of typical impacts in RDC.

So the main drivers are any impact from investments, which were in line with their expectations to the low side and then statutory income and dividends. So it is really sort of part and parcel of cash flow.

And in that context, I would just repeat two of the main drivers that push the excess cash flow to the Holdco to the low end, in the quarter, and they are the other category in sources of cash, which is really just intercompany cash flows between Holdco and OpCo negative 17 in the quarter tends to be neutral to positive on a full-year basis. And then Holdco expenses in the period include the annual bonus payment, obviously, that is a seasonal thing.

So that was 38 million in the quarter and we would expect that to trend down in subsequent quarters.

And then maybe shifting gears a little bit, just the Medicare Supplement earnings and margin in the quarter came a little bit below or they have been running in recent quarters. So can you give some color on the main drivers and what you saw on the quarter, I mean, is there any way to think about how much of an impact came from seasonality versus higher utilization, post pandemic or other factors?

Any way to dimension the earnings power of this business kind of going forward post LBJ would be very helpful.

So there is a seasonality component to it. The first quarter is typically the lowest margin quarter for Med Supp.

Year-over-year in the first quarter, the decline is really driven primarily by two things, the shrinking size of the Med Supp block, and better claims experience in the prior year period as compared to the current year period. We were observing that claims in Med Supp are certainly back to pre-COVID volumes in the quarter a bit on the high end of that range still within for normal range of volatility, but back to pre-COVID levels.

Got it. That is very helpful.

Thank you.

Thank you, operator and thank you all for participating in today’s call. Please reach out to the investor relations team if you have any further questions, and have a great rest of your day.