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CNO Financial Group, Inc. (CNO)·Q4 2024 Earnings Summary

Executive Summary

  • CNO delivered a strong Q4 with net operating EPS of $1.31, up 11% YoY and 18% QoQ; GAAP diluted EPS was $1.58 vs $0.32 in Q4’23 as non-operating items swung favorably. Insurance product margin remained solid despite a modest actuarial headwind in Health .
  • Top-line was softer YoY on lower policyholder/special-purpose portfolio investment income; total revenues were $1.10B vs $1.17B in Q4’23 but improved vs Q3’24 ($1.13B). Operating income grew on underwriting margins and higher net investment income allocated to products .
  • 2025 guidance introduced: operating EPS $3.70–$3.90, run-rate operating ROE ~10.5% (+50 bps), expense ratio 19.0–19.4%, excess Holdco cash flow $200–$250m; multi-year tech modernization ($170m over 3 years) to enable cloud/AI, included in guidance .
  • Capital deployment is a clear catalyst: $92m repurchased in Q4; post-print, Board added $500m to buyback authorization and maintained $0.16 dividend, supporting TSR while RBC remains ~383% and Holdco liquidity $372m .

What Went Well and What Went Wrong

  • What Went Well
    • Broad-based sales momentum and distribution growth: 10th straight quarter of sales growth; producing agent counts +8% YoY; record annuity collected premiums (second straight quarter) .
    • Underwriting margins and investment income: Operating EPS ex significant items +41% YoY in Q4; NII not allocated benefited from a $28.1m dividend from the Rialto investment; allocated yields up to 4.87% .
    • Strategic clarity: Introduced multi-year ROE expansion plan (+150 bps over 3 years) while investing in tech modernization to leverage AI/cloud and accelerate product/customer capabilities .
  • What Went Wrong
    • Revenues declined YoY (−6%) given lower policyholder/special-purpose portfolio income; Q4 total revenues $1.10B vs $1.17B in Q4’23 .
    • Health actuarial review headwind: 4Q24 significant items included a $3.9m unfavorable impact to Health margin, partially offset by strong underlying margins; 3Q24 had unusually favorable actuarial items .
    • Fee income seasonality/mix: Management flagged near-term pressure on fee income in 2025 given sales mix shift to smaller MA providers and service investments in Worksite; expect 1Q ~¼ and 4Q ~¾ of annual fee income .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Total Revenues ($USD Billions)$1.171 $1.130 $1.097
Net Income ($USD Millions)$36.3 $9.3 $166.1
Diluted EPS (GAAP)$0.32 $0.09 $1.58
Net Operating Income ($USD Millions, non-GAAP)$133.9 $119.2 $138.0
Net Operating EPS (non-GAAP)$1.18 $1.11 $1.31
Insurance Product Margin ($USD Millions)$274.6 $282.2 $253.1

Segment insurance product margin (non-GAAP):

Segment Margin ($USD Millions)Q4 2023Q3 2024Q4 2024
Annuity$63.6 $91.1 $55.0
Health$146.4 $127.8 $130.1
Life$64.6 $63.3 $68.0
Total$274.6 $282.2 $253.1

Key KPIs and capital:

KPI / Capital MetricQ4 2023Q3 2024Q4 2024
Total New Annualized Premiums (NAP, $mm)$96.1 $99.4 $108.6
Annuity Collected Premiums ($mm)$438.3 $465.1 $493.1
Producing Agent Counts (PAC)4,573 4,859 4,952
Client Assets in Brokerage & Advisory ($mm)$3,168 $3,931 $4,062
Annuity Account Values ($mm)$11,636 $12,081 $12,413
Book Value/Share (GAAP)$20.26 $25.86 $24.59
Book Value/Share ex AOCI (Diluted)$33.94 $35.84 $37.19
RBC Ratio (Consolidated)402% (YE) 388% 383%
Share Repurchases ($mm)N/A$90.0 $91.6

Notes: Operating metrics are non-GAAP; reconciliations are provided by the company .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Operating EPSFY 2025N/A (not provided previously)$3.70 – $3.90 New
Run-rate Operating ROEFY 2025N/A~10.5% (+50 bps vs 2024 run-rate) New
Run-rate Operating ROE3-year outlookN/A+150 bps to ~11.5% by 2027 New
Expense Ratio (ex sig. items)FY 2025N/A19.0% – 19.4% New
Effective Tax RateFY 2025N/A~23% New
Excess Cash Flow to HoldcoFY 2025N/A$200 – $250m New
RBC TargetOngoing~375% (target historically used)~375% (reaffirmed) Maintained
Minimum Holdco LiquidityOngoing$150m (target historically used)$150m (reaffirmed) Maintained
Target LeverageOngoing25% – 28% (target historically used)25% – 28% (reaffirmed) Maintained
Share Repurchase AuthorizationPost-Q4$240.3m remaining at 12/31/24 +$500m increase announced Feb 12, 2025 Raised
DividendQ4 2024$0.16 declared (50th consecutive)$0.16 maintained Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024, Q3 2024)Current Period (Q4 2024)Trend
AI/Technology modernizationQ2: No explicit tech program; general operational progress and raised guidance . Q3: Not highlighted in PR .Launching a 3-year, ~$170m tech modernization (cloud/SaaS), enabling Gen AI, with ~$60m in 2025; majority treated as nonoperating; included in guidance .New major initiative; investment phase through 2027.
Macro/Interest ratesQ2/Q3: “Supportive macro,” higher-for-longer yields aided NII; raised full-year guidance .Plan assumes ~4.5% 10Y “higher-for-longer”; tailwind to ROE over time via yield and growth .Supportive; compounding tailwind.
Product performanceQ2: 8th straight quarter of sales growth; Med Supp +16%; annuity collected premiums +9% . Q3: 9th straight; record annuity collected premiums; Med Supp +15% .10th straight; record annuity collected premiums (2nd consecutive); Health NAP +18% FY; Med Supp NAP +26% FY; MA policies +14% FY; LTC NAP +35% FY .Strong, broad-based growth.
Distribution/GeographyQ2/Q3: Growing PAC; momentum in Worksite .Worksite geographic expansion drove 35% of FY NAP growth and 38% in Q4; PAC +8%, 10 consecutive quarters; strong recruiting .Expanding footprint; sustained agent growth.
Regulatory/Reinsurance (Bermuda)Q2/Q3: Establishing CNO Bermuda Re; no new treaties disclosed .Evaluating additional Bermuda opportunities; building platform and regulator relationships .Potential future capital optimization lever.
Fee income/MA mixQ2/Q3: Seasonality noted; fee revenue present but variable .2025 fee income under near-term pressure (mix shift to smaller MA providers; Worksite service investments); pronounced seasonality (1Q ~¼, 4Q ~¾) .Near-term headwind; seasonal cadence.

Management Commentary

  • “CNO delivered an exceptional quarter and full-year financial performance… Building on 10 consecutive quarters of sales growth… highlighted by production records across both divisions.” – CEO Gary Bhojwani .
  • “Operating earnings per share excluding significant items were up 41% for the quarter and 40% for the year… robust capital position and free cash flow… returning $349 million to shareholders.” – CEO .
  • “Operating EPS excluding significant items up 41% in the quarter… investment income not allocated benefited from a $28.1 million dividend from our investment in Rialto… run rate operating ROE about 10%.” – CFO Paul McDonough .
  • “3-year project to modernize certain elements of our technology… convert legacy/mainframe to cloud-based SaaS; enables us to leverage Gen AI… expected cost ~$170m over 3 years, ~$60m in 2025.” – CFO and CEO .

Q&A Highlights

  • Capital return cadence: Buyback capacity tied to excess free cash flow and starting Holdco liquidity; management points to capacity absent more compelling uses .
  • Worksite geographic expansion: Still early with “a lot” of upside; Worksite has ~1/10th the agents of Consumer; expansion balanced with expense discipline .
  • Bermuda reinsurance: Company “closely evaluating” additional opportunities; platform and BMA relationships established; sees capacity in market .
  • FIAs: Surrender rates moderated vs 2023 highs and stabilized; management “bullish” on annuity demand (demographics, lack of pensions) though quarterly comps tougher .
  • Tech modernization accounting: Majority treated as nonoperating; not a cost-savings play but a growth enabler; 2025 guidance includes impacts on operating income, equity, and Holdco cash flow .
  • Expense ratio trajectory: Expect flat near term due to tech/Bermuda exploration costs; longer term should decline with operating leverage .
  • LTC/Supp Health margins: 2024 at favorable end of expected range; guidance assumes normalization toward run-rate .

Estimates Context

  • Wall Street consensus (S&P Global) was unavailable at time of retrieval due to access limits; therefore, we cannot present beat/miss vs estimates for Q4 2024 or near-term periods (Values from S&P Global unavailable).
  • Implication: Investors should focus on YoY/QoQ trajectories and the company’s 2025 guidance until third-party consensus is obtained.

Key Takeaways for Investors

  • 2025 guide sets a credible, measurable path: Operating EPS $3.70–$3.90 and +50 bps ROE improvement, with a 3-year +150 bps target, while investing in foundational tech—supportive for a “grow-and-optimize ROE” narrative .
  • Capital returns remain robust and accelerating: $92m repurchased in Q4; post-quarter, Board added $500m authorization; dividend maintained at $0.16—supporting TSR alongside solid RBC and liquidity .
  • Sales engines are firing: Record annuity premium collections, strong Medicare and LTC momentum, and consistent agent growth underpin forward earnings power despite revenue mix variability .
  • Margin sustainability watch: 2024 included favorable morbidity and reserve releases; guidance prudently assumes normalization—monitor Health/LTC run-rate margins and “other annuities” reserve effects .
  • Tech modernization is a medium-term enabler: Near-term expense/fee headwinds, but long-term capability to leverage AI/cloud for faster product cycles, better agent/customer experience, and operating leverage .
  • Macro tailwinds: Higher-for-longer rates and demographic demand bolster annuity economics; management assumes ~4.5% 10Y, offering compounding support to ROE as assets grow and yields lift .
  • Wildcards/catalysts: IRS approval for NOL tax method change recharacterization expected in 1Q25 (no net financial statement impact at YE but economically meaningful over time); potential Bermuda treaty expansion .

Appendix: Additional Data Points (for reference)

  • Q4 significant items: net unfavorable $3.1m to operating income, driven by Health actuarial review (−$3.9m), vs favorable $26.4m in Q4’23; FY24 significant items +$18.8m .
  • Capital metrics: Year-end RBC 383%; Holdco liquidity $372.5m; debt-to-total capital ex-AOCI 32.1% (25.6% pro forma for May 2025 notes repayment) .
  • Quarterly revenue mix: Insurance policy income $643.6m; general account NII $399.5m; policyholder/special portfolios $17.1m; total revenues $1,097.2m in Q4 .