Ladies and gentlemen, thank you for standing by. And welcome to the CNO Financial Group Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jennifer Childe, Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Good morning. And thank you for joining us on CNO Financial Group’s second quarter 2020 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 several 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 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 8-K yesterday. We expect to file our Form 10-Q and posted on our website on or before August 7th. 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 will 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 second quarter 2019 and second quarter 2020. And with that, I will turn the call over to Gary.

Good morning, everyone, and thank you for joining us. The country continues to face unprecedented challenges brought on by the COVID-19 pandemic. The health crisis and economic disruption caused by the virus are significant and have exacted a real and substantial human toll. We continue to be grateful to those who work tirelessly to contain the pandemic and provide essential services. We keep in our thoughts and prayers, those who have lost a loved one to this virus or are ill and recovering. While the shape of the economic recovery is uncertain, we remain focused on serving all of our stakeholders. Last quarter, we took measures to protect our workforce. At a time when many American workers are unemployed, we pledge that there will be no COVID related layoffs in 2020. We introduced financial support programs for our exclusive agents who have seen their businesses disrupted. We also added additional physical, financial and mental well-being resources to eligible associates and their families. In March, we moved 97% of our associates to work remotely. By adapting quickly, our customer service and agent support teams have been able to deliver consistent service with minimal disruption. Our exclusive insurance agents continue to use virtual selling and digital tools to conduct client consultations and make product recommendations to customers. Consumers who wish to meet with an agent in-person can request an appointment. In-person appointments are conducted in accordance with each state’s physical distancing guidelines. The majority of our associates and agents continue -- will continue to work remotely through at least mid-September. As the COVID-19 environment evolves state by state, it is too early to project beyond that date. As we discussed last quarter, sparked by the implications of the pandemic, we began reexamining the way in which we do business and accelerating our…

Thanks, Gary, and good morning, everyone. I will begin by providing a bit more detail on our second quarter results and then share our outlook for the balance of the year. Turning to the financial highlights on slide nine, as Gary mentioned, operating earnings per share were up 15%, benefiting from two significant items, which I will describe in a moment and continued strong free cash flow, funding share repurchases that reduced our share count by 10% year-over-year. The first significant item was the impact of an actuarial unlocking exercise that we completed in the second quarter. We normally make these sorts of adjustments in the fourth quarter, but given market conditions and our outlook, we thought it was appropriate to do so in the second quarter of this year. Specifically, we reduced our new money rate assumption to 4% for both initial and ultimate new money rates. That compares to our previous assumption of 4% in 2020, 4.25% in ‘21, 4.5% in ‘22 and an average ultimate rate of 5.38%. In addition, with lower new money rates, we assume we will adjust the credited rates on our interest-sensitive products to the extent allowable over time in order to optimize the balance between the spread that we earn on those products and the value we provide to consumers. The lower new money rate had an adverse impact on our annuities and inter-sensitive life products in the amount of approximately $46 million. The lower participation rates on our fixed index annuity had a favorable impact of about $92 million, reflecting lower future option costs, which lowers the reserve related to those costs, resulting in a net $46 million favorable impact in the quarter from unlocking. It’s worth noting that the unlocking had no earnings impact in our traditional life, health and…

Thanks, Paul. Looking at slides 16 and 17, despite many recent encouraging data points, we still face significant uncertainty surrounding the future path of the pandemic and the ultimate economic recovery. We recognize that COVID is creating a next normal that will permanently change many aspects of everyday life and shape future consumer expectations. The transformative steps we have taken -- we are taking to meet customers when and where they want to purchase insurance is preparing us for tomorrow’s changing environment. We have proven that we successfully navigate change and serve all of our stakeholders from a position of strength. We continue to benefit from the actions we have taken over the last several years to diversify our business, strengthen our balance sheet and manage risk in our investment portfolio. This has positioned us well to weather a number of potential adverse scenarios. We remain focused on supporting our customers, associates and communities. We will continue to operate the enterprise prudently and compassionately. To everyone on the call and to all our shareholders, please stay healthy and please stay safe. Thank you for your interest in and support of CNO Financial Group. We will now open it up for questions. Operator?

Thank you. [Operator Instructions] Our first question comes from the line of Randy Binner from B. Riley. Your line is open.

Hey. Good morning. I just had one on the assumption review. Paul, I think, you kind of outlined, yeah, call it, J-curve of different return expectations in the investment portfolio. Could you just review kind of where those are out over time and what the ultimate is and then kind of how that compares to the current new money return?

Sure. Good morning, Randy. So we changed our both initial and ultimate new money rate assumptions to 4% and that compares to the previous assumption of 4% in the current year, 4.25% next year and 4.5% in ‘22.

Okay. It is 4% forever.

4% forever, yeah, as compared to the 4%, 4.25%, 4.5%, and ultimately, new money rate of 5.38%, so a very meaningful decrease in the assumption.

And so you are kind of drop and hold at 4.0% and then where is the money you getting put to work right now?

Yeah. So the new money rate in the current period was actually higher than 4% -- 4.29%, I believe. And that reflects a couple of things, number one, in the early part of the quarter, early April, there was still a fair amount of volatility that presented attractive opportunities for someone who could be patient and opportunistic and that fits our profile. So Eric and his team were able to make purchases at attractive valuations generating attractive yields. But if you look at the profile of what we invested in, which is summarized on page 24 of the earnings call deck, you can see that it’s primarily in high quality investment grade, fitting nicely into our asset liability matching process. And so we don’t necessarily think that that represents an opportunity in the second half or certainly going forward, excuse me, I misspoke, our new money rate in the quarter was not 4.29%, it was 4.49%.

Okay. And then just one more, on the life sales and kind of how that was supported by the structural transformation process. I guess, I heard that incoming leads help drive the result, but can you flush that out a little bit more because the result was good, but I guess, I am not entirely clear on how the structural change supported that result?

Sure. Randy, this is Gary. Thanks for the question. So, I guess, I will describe what we have done at a high level and you can tell me if that addresses your concerns. So if recall, prior to the transformation, we really operated with three very separate business and there were areas of collaboration, I don’t want to make it sound like there were no areas, but certainly not to the extent we have now. We have changed the way we hand off leads to our exclusive agents. So when a consumer sees a commercial and/ or some type -- something that interests them online or on TV or what have you. And when they reach out to us, either online or through the phone, we historically would handle it with that unit, so when someone saw Colonial Penn consumer, those telesales agents would work on a lead for as long as 60 days before handing it off. We have changed a number of our protocols as a result of the reorganization, so that those leads are being processed, and I guess, analyze more quickly to determine whether they are more appropriately suited to an exclusive agent. And what we have seen is, we have seen no degradation in the close rates of our telesales and we have seen an increase in the close rate from those in-person sales by our exclusive agents and all of that together brings down the average cost per lead. Because for the same marketing dollar, we are seeing higher close rates and I believe in the script we shared that 15% of the life sales with our exclusive agents came from these types of programs. Now I have just glossed over a lot of details and operational elements, but that’s the high level explanation. So we are doing this faster, we are doing more of it and we are doing it with a greater efficacy than we ever have before, and that’s what’s driving these results. Does that make sense, Randy?

Yeah. No. That helps. That helps. So lead sharing is more active, being better managed on the margin that helped make a difference in the quarter.

Yeah. And we are developing better and better paradigms to assess when a lead comes in, how likely is this to be sold telesales, does this make sense to hand off sooner rather than later to in-person agents and so on. So as we do more and more of this, our models are becoming more and more efficient. So I would expect us to get better and better at it with every quarter.

Okay. That’s great. Thanks.

[Operator Instructions] Our next question comes from the line of John Barnidge from Piper Sandler. Your line is open.

Thanks. Is there a way to dimension the growth in sales being from the direct-to-consumer channel versus maybe a realization by consumers because of COVID that they need insurance solutions for their financial planning needs?

John thanks for the question. I just want to make sure I understand. So you are saying, are consumers getting more interested in life insurance because of what’s happening with COVID-19 and that’s why they are calling in more frequently, is that what you are asking?

That’s what I am trying to get at, especially because millennials are starting to buy houses, starting to have kids, which means they probably should buy life insurance?

Yeah. I am going to look to Paul, but off the top of my head, I don’t believe we have segmented the data that way where we precisely looked at incoming calls and asked them if their interest is due to COVID-19. I would tell you anecdotally the feedback we get, particularly from our exclusive agents who actually go out and meet with some of these folks that, that is most certainly happening. But I don’t have hard data to give you. But I do think it’s a reasonable assumption to assume that some of this demand is coming because people are getting more in tune with needs for these types of protection products.

Okay. No. That’s helpful. I didn’t think it would be anything but anecdotally. And then you are talking about this next normal and I know you are going through a process where you are trying to identify what that looks like. But maybe can you talk about what percent of your employees work in an office for COVID hit and then maybe what you are thinking it could move to go forward? Thank you very much for your answers.

Yeah. Thanks, John. So I want to make sure I answer this with a little bit of nuance. The way you asked the question, you asked about our employees. I want to remind you that part of the CNO family includes independent agents who technically are not employees. They are independent contractors and they run their own businesses and those exclusive agents number somewhere around 5,000 folks. Those 5,000 folks have always, because of the nature of their job, worked a very significant balance between being out of the office and in the office. By definition, they are out meeting with clients or prospective clients, so they are out quite frequently and they have always been working with this work-from-home and work-from-office model. So for those 5,000 folks, I want to be clear again they are not technically employees, but for those 5,000 folks, it’s always been a very high percentage and if anything, that percentage has moved up. If I had to throw it out, I’d tell you somewhere between 70% and 80% have worked with some kind of model like that, and today it’s somewhere between 80% and 90% of those 5,000 folks. For the employees, so the way you asked the question technically, the employees we have about 3,000 folks give or take. And those 3,000 employees, the vast majority somewhere north of 90% have worked from the office. And if you look at the script, what we shared is, shortly after the pandemic hit, we transitioned so that 97% of those folks are now working remotely, and even today, several months after this all started, that number is roughly accurate, of our 3,000 employees, no more than a couple hundred are coming into the office with any frequency. We expect that number to go up slightly, meaning we expect more people to come into the office. But one of the areas we have identified for revisiting our model and really taking expense out of the organization is we don’t expect to ever go back to where nearly 100% of our employees are in the office. So we just don’t think it’s going to be there at all. We are estimating that we can reduce our real estate footprint by 50% or more. So we see a very significant shift in this next normal. John, did that answer your question?

That was very helpful. Answered it correctly. Thank you very much.

We have no further questions in queue. I’d like to turn the call back over to Jennifer Childe for closing remarks.

Operator, thank you very much. We will conclude the call here. Thank you.

Thank you. Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.