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CNO Financial Group, Inc. (CNO)·Q1 2025 Earnings Summary

Executive Summary

  • Operating EPS of $0.79 was up 52% year over year; excluding significant items, operating EPS was $0.74, up 42%. GAAP diluted EPS was $0.13, reflecting non-economic market impacts in fixed indexed annuity (FIA) derivative marks and investment valuation changes .
  • Revenue was $1.004B, above Wall Street consensus ($975.6M*) and Primary EPS was effectively in line with consensus ($0.79*). Management reaffirmed full-year 2025 guidance including $3.70–$3.90 operating EPS, ~23% tax rate, 19.0–19.4% expense ratio, $200–$250M excess cash flow, and target leverage 25–28% .
  • Core insurance product margins remained strong across Annuity, Health, and Life; annuity collected premiums rose 12%, client assets in brokerage/advisory rose 16%, and producing agent count increased 3% year over year .
  • Shareholder returns totaled $116.8M (repurchases $99.9M; dividends $16.9M) in Q1; the Board subsequently increased the quarterly dividend to $0.17 (13th consecutive annual increase) .
  • Call catalysts: accounting headwind in fee income from Medicare Advantage (MA) mix timing under ASC 606 (cash flows healthy); continued buyback appetite given liquidity; RBC variability explained by FIA option mark-to-market timing; guidance reaffirmation amid macro uncertainty .

What Went Well and What Went Wrong

What Went Well

  • Operating earnings strength: Operating EPS $0.79 (+52% YoY); excluding significant items $0.74 (+42% YoY), supported by insurance product margins and improved book yield/new money rates (6.43%) .
  • Distribution and production: Annuity collected premiums up 12% (seventh consecutive quarter of growth), client assets in brokerage/advisory up 16%, producing agent count up 3% YoY (ninth consecutive quarter) .
  • Management tone: “Our first quarter results enable us to reaffirm our full-year 2025 and three-year ROE guidance… Operating earnings per share excluding significant items were up 42%” – CEO Gary Bhojwani .

What Went Wrong

  • GAAP EPS compression: GAAP diluted EPS fell to $0.13 due to non-economic accounting impacts (changes in fair value of embedded derivatives and market risk benefits, investment valuation) versus $1.01 in 1Q24 .
  • Fee income headwind: Fee income declined ($-0.8M) from timing under ASC 606 for MA policies as sales mix shifted toward carriers with constrained lifetime revenue recognition; management expects future period reversals as experience builds .
  • Stat capital variability: RBC ratio dipped to 379% on timing factors (non-admitted assets) and FIA option mark-to-market dynamics when equities fell; CFO explained economic hedge efficacy and expected reversals .

Financial Results

MetricQ1 2024Q4 2024Q1 2025
Total Revenues ($USD Millions)$1,156.5 $1,097.2 $1,004.1
GAAP Diluted EPS ($)$1.01 $1.58 $0.13
Net Operating Income per Diluted Share ($)$0.52 $1.31 $0.79
Income from Insurance Products ($USD Millions)$68.0 $107.0 $87.7
Fee Income ($USD Millions)$11.3 $20.6 $(0.8)
Investment Income Not Allocated ($USD Millions)$12.3 $65.3 $38.0

Q1 2025 vs consensus (S&P Global):

MetricActualConsensusImpression
Primary EPS ($)0.790.7933In line*
Revenue ($USD Millions)1,004.1975.6Beat*

Values retrieved from S&P Global.*

Segment margins:

Segment Margin ($USD Millions)Q1 2024Q4 2024Q1 2025
Annuity Margin$52.0 $55.0 $54.5
Health Margin$123.0 $130.1 $126.2
Life Margin$54.6 $68.0 $68.2
Total Insurance Product Margin$229.6 $253.1 $248.9

KPIs and balance sheet indicators:

KPIQ1 2024Q4 2024Q1 2025
Annuity Collected Premiums ($USD Millions)$393.3 $493.1 $442.0
Total Health NAP ($USD Millions)$47.8 $63.5 $52.0
Total Life NAP ($USD Millions)$56.7 $45.1 $53.7
Total NAP ($USD Millions)$104.5 $108.6 $105.7
Client Assets in Brokerage & Advisory (End of Period, $USD Millions)$3,446.0 $4,062.4 $3,997.9
Producing Agent Count (Total)4,690 4,952 4,820
Book Value per Diluted Share ex-AOCI ($)$34.97 $37.19 $37.03

Non-GAAP adjustments in Q1 2025: Out-of-period favorable reserve adjustment ($6.8M) benefited Life margin, contributing $0.05 to net operating income per diluted share .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Operating EPS ($)FY 2025$3.70–$3.90 $3.70–$3.90 Maintained
Expense Ratio (%)FY 202519.0–19.4% 19.0–19.4% Maintained
Effective Tax Rate (%)FY 2025~23% ~23% Maintained
Excess Cash Flow to Holdco ($USD Millions)FY 2025$200–$250 $200–$250 Maintained
Consolidated RBC Ratio (target)Ongoing~375% ~375% Maintained
Min Holding Co Liquidity ($USD Millions)Ongoing$150 $150 Maintained
Target Leverage (%)Ongoing25–28% 25–28% Maintained
Quarterly Dividend ($/share)Next payment$0.16 (Nov 2024) $0.17 (May 2025) Raised

Earnings Call Themes & Trends

TopicQ3 2024 MentionsQ4 2024 MentionsQ1 2025 Current PeriodTrend
Capital return (buybacks)Repurchased $90M; strong liquidity Repurchased $91.6M; liquidity $372.5M Leaning into buybacks; $250M holdco liquidity, elevated repurchases $100M Continued appetite
Fee income (MA accounting)N/AHigh fee income into Q4 MA mix shift to carriers with constrained ASC 606 recognition; expect reversals; cash flows healthy Timing volatility; underlying growth
Annuity/new money ratesRecord annuity premiums; book yield rising New money rates > portfolio; strong NII NMR 6.43%; average yield 4.87%; sustained invested asset growth Durable strength
RBC dynamics and FIA optionsN/ARBC 383% RBC 379%; FIA option M2M timing; expected reversals Explains variability
D2C life advertisingN/AStrong production Higher TV costs post-election; shift to web/digital (36% of D2C) Channel mix evolving
Worksite expansionN/AN/ANAP up 11%; geographic expansion contributed 32% of growth; Optavise Clear launch Broadening footprint

Management Commentary

  • CEO Gary Bhojwani: “Operating earnings per diluted share were $0.79, up 52%… Our first quarter results enable us to reaffirm our full year 2025 and 3-year ROE guidance” .
  • CFO Paul McDonough on fee income: “Under ASC 606… we apply a constraint with newer carriers… increase in percentage of sales with other carriers drove the decline in fee income… we would see a reversal in some future period” .
  • CFO on capital: “We’re inclined to continue to lean in… $250 million of cash at holdco… potential for continuation of elevated buybacks” .
  • CFO on RBC: “RBC of 379%… increase in non-admitted assets will reverse… FIA option M2M impact when equities decline; economically a near perfect hedge” .
  • CEO on Consumer & Worksite: Health NAP up 9%; Medicare Supplement NAP up 24%; MA policies up 42%; Worksite critical illness up 37%; life up 17%; accident up 4% .

Q&A Highlights

  • Buybacks: Management remains inclined to continue elevated repurchases given liquidity and capital position .
  • Fee income/MA: Detailed explanation of ASC 606 constraints with newer carriers; expectation for partial reversal within 2025 or beyond; reaffirmed FY fee income guidance as small component of total EPS .
  • RBC variability: Timing impacts (non-admitted assets, FIA option marks) explained; economic hedge; variability expected in volatile markets .
  • D2C life recovery: Expect bounce in spend/sales, with caveat of secular shift to streaming/social; 36% of D2C sales now via web/digital .
  • Macro resilience: Middle-income demand seen as relatively resilient through cycles (aging demographics, medical cost inflation) .
  • Medicare dynamics: If MA margins tighten, potential shift to Med Supp; CNO well-positioned in either case (manufactures Med Supp; distributes MA) .

Estimates Context

  • Q1 2025 outcomes: Primary EPS $0.79 vs consensus $0.7933 (in line); Revenue $1,004.1M vs consensus $975.6M (beat).*
  • Implication: Modest top-line beat with in-line EPS given non-GAAP fee timing and FIA derivative valuation impacts; consensus likely to hold near-term with attention on fee revenue cadence and NII trajectory.*

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Earnings quality: Strong operating EPS growth with resilient insurance product margins; GAAP EPS impacted by market marks not reflective of core operations .
  • Revenue and NII momentum: New money rates remain above portfolio, supporting book yield and NII; annuity collected premiums and client assets growth underpin forward earnings power .
  • Fee accounting noise, not fundamentals: Fee income decline stems from ASC 606 constraints on newer MA carriers; cash flows healthy and reversals expected as experience matures .
  • Capital deployment: Elevated buybacks likely to continue given liquidity and target leverage, adding EPS support; dividend increased to $0.17 post-quarter .
  • Guidance stability amid macro uncertainty: Reaffirmed FY25 targets (EPS, tax rate, expense ratio, excess cash, RBC, liquidity, leverage) provide a clear framework; watch FIA option mark-to-market for interim RBC volatility .
  • Tactical trading: Near-term stock moves likely tied to MA fee recognition cadence and market-driven derivative marks; constructive bias given core margin strength, buybacks, and guidance reaffirmation .
  • Medium-term thesis: Demographic tailwinds, distribution breadth (Consumer + Worksite), and investment portfolio discipline support sustainable ROE improvement through 2027 .

Additional context: Optavise launched “Optavise Clear,” enhancing advocacy and technology for Worksite clients—supports fee-based services and cross-sell opportunities .