Good day, and thank you for standing by. Welcome to the CNO Financial Group Third Quarter 2021 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jennifer Childe, Vice President of Investor Relations and Sustainability. Please go ahead.

Thank you, operator. Good morning, and thank you for joining us on CNO Financial Group’s third quarter 2021 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 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 post it on our website on or before November 5. 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 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 will be making performance concerts and unless otherwise specified, any comparisons made will be referring to changes between third quarter 2020 and third quarter 2021. And with that, I’ll turn the call over to Gary.

Thank you, Jennifer. Good morning everyone, and thank you for joining us. We delivered another strong quarter with operating earnings per share up 7% over the prior year period, excluding significant items and COVID impacts in both periods. Our results reflect ongoing deferral of medical care, which continue to boost our health margins, solid variable investment income results and robust share repurchase activity. Our sales metrics exceeded pre-pandemic levels in a number of areas. Total life and Health NAP was up 1% over the third quarter of 2020 and up 1% relative to 2019 levels. As the pandemic continued to pressure an already tight labor market, we experienced a slowdown in new agent recruiting. Premium collections remained strong, exceeding pre-pandemic levels. As expected, our underlying margins excluding COVID impacts, performed well. Our capital and investment portfolio remain conservatively positioned with ample liquidity. We ended the quarter with an RBC ratio of 388% and $366 million in cash at the holding company. This is after returning $131 million to shareholders through a combination of share repurchases and dividends. We continue to execute well against our strategic priorities, specifically, successfully executing on our strategic transformation, growing the business profitably, launching new products and services, expanding to the rise to slightly younger, wealthier consumers within the middle-income market and deploying excess capital to its highest and best use. Turning to Slide 5 and our growth scorecard. Four of our 5 growth scorecard metrics were up compared to 2020. Relative to 2019, all 5 metrics were up for the second consecutive quarter. As a reminder, pre-pandemic, we have delivered 5 consecutive quarters of growth in all 5 of our scorecard metrics. Life sales were up modestly compared to 2020 fueled largely by continued momentum in our direct-to-consumer channel. Relative to 2019, life sales were…

Thanks, Gary, and good morning, everyone. Turning to the financial highlights on Slide 9. We generated operating earnings per share of $0.72 in the quarter, which is down $0.07 year-over-year as reported, down $0.05, excluding significant items and up $0.04 or 7% excluding significant items and adjusting for the net favorable COVID impacts on insurance product margin. We had $3 million pretax or $0.02 per share of unfavorable significant items in the current period and none ended prior year period. And we had $23 million or $0.14 per share of net favorable COVID impacts in the current period as compared to $42 million or $0.23 per share in the prior year period. The results for the quarter reflect solid underlying insurance margins, ongoing net favorable COVID-related impacts, strong alternative investment performance and prepayment income and continued disciplined capital management. Over the last 4 quarters, we have deployed more than $400 million of excess capital on share repurchases, reducing weighted average shares outstanding by 9%. The operating return on equity was 11.5% for the 12 months ending September 30, 2021. The sum of expenses allocated to products and not allocated to products, excluding significant items, was flat to the first quarter of 2021 as expected. In general, our expenses continue to reflect both expense discipline and operational efficiency on the one hand and continued targeted growth investments on the other. Turning to Slide 10. Insurance product margin, excluding significant items, was down $21 million or 9% in the third quarter as compared to the prior year period, driven by the $19 million year-over-year change in COVID impacts. The year-over-year decrease in net COVID impacts primarily reflects a decrease in the favorable benefit in our Med Supp product. Sequentially, the net favorable COVID benefit was essentially flat with the offsetting changes in…

Thank you, Paul. I’m pleased with our results for the third quarter, which reflects solid execution against our strategic objectives. Although uncertainty surrounding the pandemic remains, I am confident that we are well positioned to successfully navigate whatever lies ahead. The earnings and cash flow generating power of the company remains strong, and our team is laser-focused on building upon our progress in delivering long-term growth and value creation for our shareholders. Finally, please continue to take care of yourself, including getting vaccinated if you are able. Stay healthy and stay safe. We will now open it up for questions. Operator?

[Operator Instructions] Your first question comes from the line of Humphrey Lee with Dowling and Partners.

My first question is related to the funding agreement program. So you’ve talked about the target spread is 100 basis points. As we think about that program and your appetite, like how big case that business can grow to?

Sure, Humphrey, it’s Paul. So as disclosed upon launching the program, the program size is $3 billion. As you know, we did the first issuance of $500 million and the 5-year maturity priced in September, closed in October. Our expectation is that market conditions permitting and supporting that we would do issuances every sort of 3 to 6 months. So that would translate to reaching the full $3 billion size and over a 2 to 3-year period.

I guess, any appetite to go beyond the $3 billion?

I’m sorry, say again, Humphrey.

Any appetite to go beyond the $3 billion?

Well, we’ll revisit that as we get closer to the $3 billion. The rating agencies have some bright lines, Moody’s in particular, that we’ll be careful not to cross. So for the time being, we’re focused on $3 billion, and we’ll see what things look like as we approach that amount.

Got it. And then on the annuity margin, you talked about the embedded derivatives had an impact in recent quarter’s performance. But given how volatile it has been lately, I was just wondering if there’s anything that you can share to help us think about the market sensitivities for the sellers?

Sure. So maybe I’ll just size the impacts that we’ve seen. As I mentioned, it was favorable in the second quarter, roughly $6 million was the impact of that favorability. Market conditions went the other way in the third quarter and resulted in an unfavorable impact in roughly the same size, $6 million. So if you adjust for those 2 things in the sequential quarters, the margin was relatively stable.

Got it.

Your next question comes from Cullen Johnson with B. Riley Securities.

Just looking at the unfavorable COVID impact in Life of $3 million in the quarter relative to the $9 million we saw in 3Q ‘20. Despite COVID that statistics broadly in the U.S., I think were relatively similar in those quarters. So is there -- do you have any insight into what maybe drove the difference and the impact on the bottom line?

Sure. So Cullen, what we booked in the quarter is really a reflection of the claims experienced in the quarter, which is a reflection of the profile of our book, which I suspect is more geographically diverse than some other companies, certainly skews older than most companies, which likely translates to higher vaccination rates.

Okay. Yes, that makes sense. And then kind of thinking about, I guess, as deferral cash slowly starts to normalize, would it be fair to think that the longer that it persists maybe the lower likelihood of a sort of catch-up period where utilization exceeds your kind of longer term average?

Yes, Cullen, I think that that’s a reasonable expectation. I would continue to emphasize that how things actually evolve is very uncertain, is why we’ve gotten out of the business of saying, when we do -- when we think it will change and given what the impact of that might be. But directionally, I think what you’re suggesting is a reasonable baseline expectation.

Your next question comes from Erik Bass with Autonomous Research.

I was hoping you could talk a bit about your health experience over the course of the quarter. And did you see any signs of normalization later in the quarter as the delta wave started to wane?

Erik, it’s Paul. I’d liked your Groundhog Day reference in your write-up because it certainly does feel that way. So the only thing that I would comment on in the claims experience on the health side is that we did see in August, what looked like the beginning of an uptick in claims in Med Supp. But then it went the other way again in September. So that’s what drives the lower favorable COVID impact in Med Supp in the quarter. We’ll see where it goes from here.

Got it. And maybe extending that to long-term care as well. Any kind of changes in claims incidence or experience there?

Yes. Not on the COVID side, we did have some slightly favorable non-COVID experience in the quarter. So if you look at the trend in the long-term care margin, ex-COVID, there’s a little bit of an improvement in the quarter. Nothing that we think is a long-term trend, but some favorable sort of quarterly volatility.

Got it. And then with the health and LTC claims, I realize this is probably a tough question to answer, but do you have a sense of how much of the lower level of claims is due to less incidence of covered events or just reluctance of people to seek care versus how much may be related to capacity constraints and inability to schedule things like nonemergency procedures or to find home health care nurses or things like that, that are kind of inhibiting people’s ability to actually put in a claim, I guess?

Yes. I don’t think we have any insight into what the mix is. It’s certainly some of both. But I don’t think we have any unique insight into what the mix is.

Erik, this is Gary. I would -- I completely agree with Paul. I would just add one perspective this year. Remember that we haven’t seen any material changes in our persistency rates. And so if there was a reluctance that was expected to be a significant and or a long lasting, you might see that. So I think that tells us something about policy holder payment. They’re still paying the premiums.

Got it. That’s a helpful point.

[Operator Instructions] Your next question is from John Barnidge with Piper Sandler.

Can you talk a little bit maybe about the lag in mortality in current -- in claim? I’m just trying to understand better whether the delta surge was completely captured in the life insurance results in 3Q ‘21.

Sure, John. There’s certainly a lag. The amount of lag has been pretty volatile as we move through the pandemic. So I think it’s reasonable for you to expect that some of the deaths in the latter part of the quarter would show up as claims in the fourth quarter.

Okay. And then my follow-up, and thanks for the answer. The COVID benefit on a net basis certainly has remained longer than expected. How should we be thinking about buyback capacity in light of that, at least in the near term?

Well, I mean, buyback capacity is a function of free cash flow and the biggest driver of free cash flow is dividendable capital out of the OpCos and stronger operating earnings translates to more dividendable capital. So on the margin, obviously to the extent that tailwind persists, we have more dividendable capacity, more free cash flow and more share repurchase capacity.

Great. All the best for the quarter ahead.

Thank you.

[Operator Instructions] There are no additional questions in queue at this time. I would like to turn it back over to management for closing remarks.

Thank you, operator. Thank you, everyone, for joining us, and we look forward to speaking with you again soon. Thank you. This concludes today’s conference call. You may now disconnect.