CNO Financial Group, Inc. 2026 Q2 Earnings Call

Please go ahead. Good morning, and thank you for joining us on CNO Financial Group's Second Quarter 2026 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 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. 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 presentation contains 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 presentation, we'll be making performance comparisons, and unless otherwise specified, any comparisons made will refer to changes between the second quarter of 2026 and the second quarter of 2025. With that, I'll turn the call over to Adam.

Thanks, Adam. Good morning, everyone, and thank you for joining us. CNO delivered a very strong quarter and first half of the year. Operating earnings per diluted share were up 45% in the second quarter and up 43% year to date, excluding significant items. We delivered our 16th consecutive quarter of sales growth and our 14th consecutive quarter of producing agent count growth. As a result, we are raising our full-year operating earnings per share guidance and either improving or reaffirming all other 2026 guidance. We remain pleased with the consistent results we're generating, and we remain focused on growing earnings, improving profitability, and reinvesting in the business. Our business model continues to perform well as we navigate a dynamic macroeconomic environment. Sales results in the quarter were strong across both divisions. Total new annualized premiums were up 7%, and we set multiple sales records.

Our exclusive middle market focus and our last mile captive agent distribution model are the foundation of our durable competitive moat. This difficult-to-replicate model remains a key competitive advantage that drives consistent sales performance and profitable growth. Earnings benefited from strong insurance product margin and investment results, reflecting growth in the business and expansion of the portfolio book yield. We maintained a robust capital position while returning $77 million to shareholders. Book value per diluted share, excluding AOCI, was $39.92, up 5%. Turning to Slide Five and our growth scorecard. Nearly all of our growth scorecard metrics were up for the quarter, with strong performance across production, distribution, and investments in capital. Turning to Slide Six and our Consumer Division. We delivered our 15th consecutive quarter of sustained sales growth, including records in annuities and brokerage and advisory. Total health NAP was up 17%, marking 16 consecutive quarters of growth.

Supplemental health was up 5%, long-term care was up 4%. Our Medicare business continued to perform well. Medicare Supplement NAP was up 52%, marking the third consecutive quarter of growth over 50%. Our results benefit from the shift in consumer preferences away from Medicare Advantage and towards Medicare Supplement. This trend underscores the value of offering both Medicare Supplement and Medicare Advantage through our local agent distribution model. Medicare remains a flagship door-opening product for CNO, supporting our ability to expand the total number of households we serve. Total Medicare policies sold were up 12%. The baby boomer generation is moving through its peak retirement years with more than 11,000 Americans turning 65 each day. Rising retirement healthcare costs also continue to pressure household finance.

In 2026, the amount that a typical retired couple needs to save for healthcare increased nearly 8%, compared with annual increases of 2% to 3% in recent years. For these reasons, we expect durable demand for all our healthcare products. Life NAP was down 9% for the quarter against a strong comparable. Results were primarily driven by lower direct-to-consumer sales. We take a measured approach to managing our D2C channel. We invest where we see productive opportunities and optimize performance over time. This quarter, non-television marketing channels, including web, digital, and third-party partners, generated nearly 72% of all D2C life sales. As consumer media habits evolve, we continue to reduce our reliance on television advertising and shift more towards efficient marketing channels. While this transition may create some quarterly variability, we remain comfortable with the business and its long-term prospects. In general, demand for life insurance remains healthy.

Our broad product portfolio allows us to meet shifting customer needs across protection, health, and retirement income solutions. We set multiple records in our asset accumulation business during the quarter, reflecting the demand for retirement income solutions among middle-income consumers. Annuity collected premiums reached a new record of $536 million, up 3%. Account values were up 7%. We also delivered our 13th consecutive quarter of brokerage and advisory growth. Client assets were up 24% to a new record, and total accounts were up 13%. When combined with our annuity account values, our clients entrust us with more than $19 billion of their assets, up 11%. Strong agent productivity and retention fueled our sales momentum. Producing agent count was up 3%, our 14th consecutive quarter of growth. Registered agents count grew 4%.

Slide seven in our Worksite Division performance. We delivered our 17th consecutive quarter of sustained sales growth. Record life and health NAP was up 29% for the quarter. This represents our seventh consecutive quarter of double-digit insurance sales growth. Highlights from the quarter include life up 44%, hospital indemnity up 33%, accident up 31%, and critical illness up 7%. Our focus on small to mid-size businesses and associations drives meaningful sales growth. Employers invest heavily in employee benefits, the mix is shifting. To control costs, many are reducing traditional Medicare coverage while increasing the availability of employee-paid voluntary benefits. Our products are designed to address these protection needs, our career agents and partners are well-positioned to help employees understand and address potential gaps in coverage. NAP from new clients increased 84%. This growth is well-balanced between geographic expansion and further penetration into existing markets.

Life sales continue to experience a significant uptick from these new client relationships. Producing agent count was up 6%, our 16th consecutive quarter of growth. Productivity remained robust across all agent cohorts. Importantly, our optimized career agency remains a growth engine for the division, generating approximately 90% of our total Worksite insurance sales. Given its strong performance and long-term potential, we will continue to invest in expanding this channel. Across both divisions, our results highlight the value of a diversified product portfolio built around customer needs rather than individual products. We think about our product diversification in three simple ways. First, we serve a broad range of customer needs with health, wealth, and income protection solutions. Second, our products play different roles in the customer life cycle. Medicare products help us initiate new customer relationships while annuities deepen existing relationships and support long-term customer value.

Third, our product portfolio balances risk across mortality, morbidity, and longevity. This combination is a unique strength in the marketplace. It enables us to build lasting customer relationships while delivering consistent performance over time. With that, I'll turn it over to Paul.

Thanks, Gary, good morning, everyone. Turning to the financial highlights on slide eight, we delivered a very strong quarter, generating operating earnings per share of $1.26, up 45% from the prior year. The quarter reflects continued strong earnings fundamentals, including the compounding of sustained sales momentum contributing to growth in insurance product margin and net investment income, favorable underwriting across nearly all products, and improvement in net investment income not allocated to products led by alternative investment returns. The income results were generally on plan through the first half of the year, we remain on track to achieve our full-year outlook. The expense ratio was 18.4%, reflecting another quarter of favorable expense performance. We continue to view this as a timing difference and expect expenses to normalize over the remainder of the year.

We maintained our disciplined and balanced approach to capital management, deploying $60 million on share repurchases in the quarter, contributing to a 5% reduction in weighted average diluted shares outstanding. On a trailing 12-month basis, operating return on equity was 14.1% and 13.1% excluding significant items, reflecting steady progress on improving the profitability of the business. Overall, the results demonstrate the strength of our business model and consistent execution over the last several years. Turning to slide nine. Sales momentum, combined with broadly favorable claims experience, drove growth in insurance product margin across all three major product categories. Fixed indexed annuities continued to benefit from growth in the block. Other annuities benefited from favorable reserve releases due to higher mortality on closed block policies. Supplemental health benefited from growth in the block, partially offset by a handful of large claims on older policies.