0:03 Good day and thank you for standing by. Welcome to the CNO Financial Group Fourth Quarter 2021 Earnings Conference Call. [Operator Instructions] Please be advised, today's conference is being recorded. [Operator Instructions]. 0:33 I would now like to hand the conference over to your speaker today, Ms. Jennifer Childe, Vice President of Investor Relations and Sustainability. Please go ahead, ma'am.

0:45 Thank you, operator. Good morning and thank you for joining us on CNO Financial Group's Fourth 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. 1:07 During this conference call, we will be referring to information contained in yesterday's press release. You can obtain the press – the release by visiting 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-K and post it on our website on or before February 25. 1:33 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 comparisons, and unless otherwise specified, any comparisons made will be referring to changes between fourth quarter 2020 and fourth quarter 2021. 2:13 And with that, I'll turn the call over to Gary.

2:16 Thank you, Jennifer. Good morning, everyone, and thank you for joining us. Turning to Slide 4 and our full year performance. We delivered another strong year of results, reinforcing the strength and resiliency of our business. We reported operating earnings per share growth of 10%, generated free cash flow of $380 million, and returned $468 million to shareholders, including record share repurchases of $402 million, reflecting 13% of our market cap as of the beginning of 2021. 2:52 Operating earnings per share grew 9%, excluding significant items and COVID impacts in both periods. Our results reflect the strength of our overall franchise, the stability of our operations, the diversity of our product suite and distribution channels, the impacts from our strategic transformation, and most importantly, the expertise and dedication of our associates and agents. 3:18 In 2021, we made significant progress against our strategic priorities. Within our Consumer Division, we strengthened the integration between our direct-to-consumer and field agent channels. We meaningfully enhanced our online insurance market -- our online health insurance marketplace and generated agent productivity gains in each quarter of the year. 3:40 Within our Worksite Division, we acquired DirectPath in February, significantly improving the attractiveness and capabilities of our worksite offering, further integrated our worksite businesses and began executing on our cross-sell playbook and piloted initiatives to position us for growth in the hybrid work environment. At the enterprise level, we prudently manage our operating expenses while investing in technology and digital tools to enhance our virtual sales and customer service capabilities. 4:08 We also made significant progress with our ESG program. Last week, MSCI upgraded our ESG score by 2 notches to A. We are now ranked in the top quartile of life insurance peers. In January of this year, A.M. Best upgraded the financial…

14:05 Thank you, Gary, and good morning, everyone. Turning to the financial highlights on Slide 10. We generated operating earnings per share of $0.87 in the quarter, which is up 43% year-over-year as reported and up 28% excluding significant items and COVID impacts in both periods. Results for the quarter benefited from solid underlying insurance margins, ongoing net favorable COVID-related impacts and disciplined expense and capital management, partially offset by still solid but moderating alternative investment results. 14:39 Fee income was flat year-over-year, reflecting growth in fee income from the sale of third-party Medicare Advantage policies, offset by a decline in fee income from our worksite business due to ongoing challenges accessing employers and employees in the workplace during COVID. As expected, the sum of expenses allocated to products and not allocated to products, excluding significant items, was down sharply versus the fourth quarter of 2020. For the full year, total expenses were up 2.8%, reflecting operating efficiency coupled with continued targeted growth investments. 15:19 Over the last 4 quarters, we deployed a record $402 million of excess capital on share repurchases, reducing weighted average shares outstanding by 8%. Operating return on equity for the year was 12.1% or 11.8%, excluding significant items. 15:39 Turning to Slide 11. Insurance product margin, excluding significant items was up $9 million or 4% in the fourth quarter as compared to the prior year period. Excluding favorable COVID impacts in both periods, total insurance margin was up $12 million or 6%. In the aggregate, the favorable net COVID impact decreased $3 million year-over-year from $19 million in the fourth quarter of 2020 to $16 million in the current year period. 16:11 The year-over-year increase in our annuity margin reflects growth in the business but also reflects volatility from FAS 133 accounting for the embedded…

26:16 Thank you, Paul. I'm pleased with our performance in the quarter and for the full year, along with the progress we've made against our strategic priorities. I thank our associates and agents for their continued commitment and dedication to helping our customers every day. While visibility into COVID's ongoing impact remains unclear, the earnings and cash flow generating power of the company remains robust. We are confident that we will navigate the pandemic from a position of strength while continuing to generate value for our shareholders. 26:47 Thank you for your support of and interest in CNO Financial. We will now open it up for questions. Operator?

26:58 [Operator Instructions] Your first question comes from the line of Erik Bass from Autonomous Research. Your line is now open.

27:18 Hi, thank you. I guess to start, you mentioned that you expect the free cash conversion rate to remain strong even though the dollars of free cash flow will decline from where they've been running. So can you help dimension this for us? Is there a conversion rate range that you could give that we should assume?

27:36 Sure. Erik, it's Paul. So just looking at this ratio that's calculated across our peer group, looking back over the last couple of years, it looks to be in the range of kind of mid-50s to high 80s, low 90s. We would expect to be in the top quartile of that range.

28:02 Got it. And then can you talk a little bit about your claims experience in health and long-term care? Other companies have started to see this normalize, but your results aren't really showing this yet. So is there anything different in your client or product mix that could explain this? And how are you thinking about 2022 claims patterns?

28:25 Sure. So it's Paul again. It's tough for us to say because we don't see the data of our peers. But what we can say is that we are recording the results based on the claims that we're seeing. And the results are based on a consistent application of the claims handling, which has also been consistent, and the consistent application of our financial reporting, very tight controls around that. 29:05 The other thing I'd say is that this is speculation, but I suspect the difference in our experience versus other companies has to do with the demographic profile of our policyholders and with respect to LTC in particular, the benefits in our policies as compared to benefits and policies at other companies. In terms of going forward, as I – as we stated in our prepared remarks, our expectation is that we continue to see net favorable COVID benefits, including in long-term care for some period of time in ’22 but tapering, again, presuming that there's no additional surge beyond the current Omicron surge.

29:54 Got it. Thank you.

29:59 Your next question comes from the line of John Barnidge from Piper Sandler.

30:07 Thank you very much. Maybe sticking with the COVID net benefit a little bit. Can you maybe talk about the progression during the quarter as the months went along and then maybe from December into January as maybe people developed COVID fatigue with the Omicron variant?

30:26 Sure. John, it's Paul. So the claims experienced during the fourth quarter was fairly consistent. Year-over-year, we did see in our long-term care and our supplemental health products less favorable impact from deferral of care but more favorable impact from mortality.

30:58 Okay. Great. And then my follow-up question, if I could. Can you maybe talk about the improvement in worksite sales? Do you think it's recovery off a lower base or real growth as people maybe return for more?

31:11 Yes. John, this is Gary. We do expect worksite to recover. I want to just emphasize a few things. We remain extremely bullish on the business. We see a trend continuing where more and more employees will seek to get some of these coverages through their employers. So we fundamentally believe in the business. We've actually done reasonably well across 2 dimensions: number 1, keeping the employers and employees that we have; and number 2, signing up new employees. 31:44 However, that doesn't translate into sales growth until we can get access to the actual employees to enroll them. So an employer says, Yes, I'll offer these products to my employees, but we've got to get in there and enroll them and of course, we can't do that until our worksites open. So that's been up and down, as you know, across the country. But we expect that as more workplace is open, these results will improve on a sequential basis. And remember, we're also going to markets in 2022 in a much more improved position than we were, say, in 2020. 32:21 We now have a technology platform, we now have a service and advice platform, and we continue to improve our products. Finally, we've invested in technology for our agents to be able to better interact with these customers. So we think as these office locations open up, we will see an improvement, and we remain very committed and very bullish on the [Indiscernible].

32:46 Thank you.

32:50 Your next question comes from the line of Humphrey Lee from Dowling & Partners.

32:57 Good morning and thank you for taking my questions. My first question is related to fee income. I was hoping you can provide a little more detail in terms of what you saw this quarter. The fee revenue growth of over 50% was definitely very strong, but the fee-related expenses grew even at a higher clip. So can you just talk about the performance of the different businesses that run through the fee income line, like meaning Medicare Advantage, broker-dealer, DirectPath and myHealthPolicy.com?

33:28 Yes. Humphrey, this is Gary. Thanks for the question and for calling in. I'll make some general comments, and then I'll invite Paul to supplement it as he sees appropriate. I think the first thing I would say to all of our shareholders, we are very pleased with the way the fee business has evolved in the aggregate. As you point out, there are a few different components to the fee business, and I'll speak to each of them generally. 33:52 The first is the fee business that we generate or the fees that we generate from the Medicare Advantage sales. I was quite pleased with the progress that we showed. Remember that we've just launched this site. We think there is a significant opportunity and a change in consumer behavior, where they're interested in pursuing or purchasing some of these products online. So we're very bullish on that. And we saw a very nice growth. And I think, frankly, we've just gotten to scratch the surface. I think where we will differentiate ourselves is narrowing those technology offerings or those online offerings with real agent support. I think that's where we can really deliver a different long-term results than perhaps others have. So we were very pleased in that. That growth was very good, very strong. Now we did have to invest, and we continue to invest in those technology offerings. 33:52 The second area that you see is the broker-dealer. And there, too -- remember, we launched the broker-dealer in 2017, and the entire strategy behind that was to make the consumer relationships stickier, to move away from transactions, i.e., an insurance product that's simply an expense, and move more towards relationships where our consumers are entrusting us with their investments and really changing that relationship. That also continues to see very robust growth. Now like most insurer, we run our broker-dealer frankly, not for the stand-alone profit that it generates. We run it for the relationship that want. 35:18 The third and final category, a main category of our fee income, has to do in our worksite business, and that pertains particularly to the investments we made in Web Benefits and DirectPath. In both cases, as I referenced earlier, worksites have not yet fully opened. So we haven't been able to exploit the full potential of those businesses and those additional offerings to our worksite customers. So we continue to invest in them. And the revenue growth hasn't been as strong in those 2 areas because the worksites aren't yet open. But we're confident that once more worksites open, we will see that revenue and profit growth pick back up. Last comment I'd make, in the aggregate, I think it's important to keep all of this in perspective. These are still, relatively speaking, smaller pieces of a much larger CNO organization. Paul, I'd invite you, any areas you want to add to in terms of my comments?

36:11 Nothing to add, Gary. Thank you.

36:15 Got it. My second question is regarding kind of Medicare Supplement within the health margin. As we think about the enrollment period results in 2021, how should we think about the top line expectation for 2022?

36:33 Humphrey, are you referring to Med Supp or Med Advantage?

36:40 Med Supp, Med Supp.

36:44 Well, as you know, the -- much of the sales occurs in the context of the ADP. The ADP Medicare Advantage sales there as well. I wouldn't expect, other than the context of sort of the secular decline in our Med Supp sales, I wouldn't expect any variation in the seasonality that you see in the historical results.

37:13 But just thinking about the lower sales in the quarter, just thinking about on a full year basis running through into 2022, should we see a little bit more kind of downward pressure on the top line for that business?

37:28 We do expect that there will continue to be downward pressure in our Med Supp sales. But -- and perhaps you can pick up here, Gary. We really think about the Medicare business broadly across Medicare and sort of Medicare Supp and Medicare Advantage. We also, as Gary mentioned, are introducing a new product in the Med Supp space in 2022, which will help improve those dynamics. 37:59 Gary, would you add anything?

38:02 Yes. Paul, I apologize. I lost audio there just for a minute or 2.

38:06 Okay.

38:08 Yes, sorry. Could you just recap the question? Is it just about our general outlook on Medicare? Was that the question?

38:13 Yes. No, the question was general outlook on Medicare Supplement sales, but I was trying to put that in the broader context of how we think about Medicare?

38:22 Yes. Actually, it's less about the sales but just more of the premium growth within like kind of running through the income statement for 2022.

38:31 Yes. And there again, Humphrey, the dynamics of how that flows through doesn't change. So you have to model what you think that the total sales decline is, if that's the expectation. Again, we do think that directionally, that's a reasonable expectation. Although we're expecting that the new Medicare Supplement product that we're introducing in '22 will change that dynamic a bit. And again, as we think about Medicare as a door opener for us, we think about that across both Med Supp and Med Advantage.

39:15 Understood. Thank you.

39:22 [Operator Instructions] Your last question comes from the line of Cullen Johnson from B. Riley Securities. Your line is now open.

39:36 Hey, good morning. Thanks for taking my question. Just respect to the tightness of the labor market, and we touched a bit on the field agent pro program, but you also hear anecdotally about salary increases or onetime bonuses or other kind of benefits that are being offered as a means to retain talent. So I was just wondering if there's any other specific programs at CNO has either enacted or will enact to kind of help with agent count in addition to that referral program?

40:06 Hi Cullen, this is Gary. Thanks for the question. I'll maybe start off by taking a crack at this. So I think, first of all, like every other business in America, we're facing labor challenges. There's no question about that, and we've made various adjustments where appropriate. The one thing I will say, we watch this pretty carefully. And I recently saw an exhibit from our Head of HR about our employee retention. And in general, I've been extremely pleased. I think that our employees really gave us some credit for the work we did throughout some of the social justice movement and the COVID crisis. And if you remember back in 2020 when COVID was still happening, we gave our employees a guarantee that no jobs will be lost. 40:54 So we did a number of things, and we made a number of improvements. And I think our employees have responded in kind with their hard work and their dedication. So in the aggregate, I'm very pleased with where we are. That said, like everybody else, we're struggling to bring new talent in. There's no question about that. It's a very tight market. And so I would share a few observations in particular about the agents. The first thing I want to emphasize is that remember that in 2017, we changed our strategy. We intentionally said we're going to deemphasize raw recruiting and just trying to bring in more and more agents and instead focus on productivity and veteran agents. Again, we started that process in 2017. And I think you've seen some of the results of that in the subsequent years where our productivity has indeed increased, where our retention of veteran agents has indeed increased. 41:43 So we've seen pretty significant retention gains, as much as…

43:16 Yes. That was really helpful. Thank you and then just one more question. So could you talk maybe a little more about the integration between direct-to-consumer and field agents and just kind of what that looks like?

43:28 Yes. I'm glad you asked about that. Frankly, that's been one of the most significant ingredients in our ability to successfully navigate COVID. You've seen that most of our growth metrics have continued to rise, and in most cases, exceed prepandemic levels. One of the largest drivers of that has been this combination. And just as a quick reminder, remember that we brought together our direct-to-consumer and agent-driven consumer businesses. We brought those together in January of 2020, right before COVID hit. 44:02 So our timing was just pure luck. I wish I could take some credit for that, but it was just pure luck. And what we've been able to do is really learn quite a bit and improve in terms of how these leads come in on a direct-to-consumer basis and how we use those in both directions. We have certain leads that come into our agents where the consumer uses a direct-to-consumer platform and vice versa. 44:26 But the combination of those two things has really made a difference. And that's what's given us the confidence to invest in myHealthPolicy.com because we believe that the things we learned in life -- in the life insurance business of going between direct-to-consumer and agent-driven businesses, we can apply some of those same learnings to the health business. So we expect to be able to bring that type of learning there as well. 44:48 I really think that our sales numbers would be very, very different if we hadn't done that in early 2020. I think that's been a significant differentiator for us. And I think we're just scratching the surface. I think that the other thing COVID did that doesn't maybe get a lot of attention, I think there are certain consumer behaviors and consumer comfort levels on interacting virtually that have changed permanently. And we feel like we're very well positioned to be able to capitalize on those.

45:14 Got it. Thanks. That’s helpful. Those are all my questions.

45:22 Your last question comes from the line of – there are no further questions. I'll hand the call back to the company. Thank you.

45:33 No, operator, I think there is one more question.

45:37 Your last question comes from the line of Rafael Cintas from FactSet.

45:47 This is actually Ryan Krueger from KBW. Thanks for getting me in. I had just, I guess, one question on advertising spend in the life business. It was up a fair amount in 2021 but obviously led to good sales results. How are you thinking about ad spend and the opportunity there as we go into 2022?

46:12 Good morning Ryan. So as we've discussed in the past, our volume of ad spend is really sort of dependent on the opportunity set at a price that makes sense for us. We manage that quite tightly, just looking at the ad spend relative to the amount of NAP that we can generate with it. So obviously, that moved up in 2021 versus prior years, and that was largely a function of sort of the demand in direct-to-consumer. So we're opportunistic there. 46:54 We expect that – that will continue. So as we look into 2022, I think it's reasonable for you to expect that the '21 levels will persist at least flat, maybe up. And again, that will depend on how things evolve and the dynamics that I just described. Gary, would you add anything?

47:19 No. Well, actually, I think the only thing I would just emphasize, and you mentioned it, Paul, but I'd emphasize it again, we watch this really carefully. We have proprietary internal metrics where we watch the marketing cost against the NAP. And when we can buy the ads at the right price that delivers the yield we want, we buy more. And when we don't get the yield we want, we buy less. And that strategy has served us well, and I think we'll continue to use it. 47:46 One final comment I'd make, given what's coming with the 2022 elections and so on, I don't know how many opportunities there will be from a pure cost standpoint to buy advertising at the levels that we really like. But if they're there, we'll do it.

48:02 Thanks. And then do you expect much of a sales benefit from the AM best upgrade, whether it be in worksite or areas where you're distributing more with third-party distributors?

48:22 I think conventional wisdom has held that on our consumer business, as long as the AM Best rating is above B+, consumers are generally satisfied. On the employer businesses, I think you need to be at an A- or higher. So stated differently, I believe that the AM Best rating we had was not previously a limiting factor. So, I doubt it will be a huge benefit. There may be some employers out there that have internal risk management guidelines that won't allow them to work with a carrier who has less than an A rating. So on the margin, there might be a few extra counts here and there, but I wouldn't expect a significant lift by virtue of that. We've played in a different space for quite some time. And I think our clients, generally speaking, are not as rating-sensitive.

49:09 Understood. Thank you.

49:15 There are no questions at this time. I'll hand the call back to the company. Thank you.

49:19 Thanks, operator. And thanks, everyone, for joining us, and we look forward to speaking with you again soon.

49:29 This concludes today's conference call. Thank you for participating. You may now disconnect.