Ladies and gentlemen, welcome to the CNO Financial Group Fourth Quarter 2022 Earnings Results Call. My name is Glenn and I'll be your moderator for today's call. [Operator Instructions] I will now hand you over to your host Adam Auvil to begin. Adam, please go ahead.

Good morning, and thank you for joining us on CNO Financial Group's fourth quarter 2022 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 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 24. 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 2022 and fourth quarter 2021. And with that, I'll turn the call over to Gary.

Thanks, Adam. Good morning, everyone and thank you for joining us. We reported operating earnings per share of $2.33, which reflect ongoing market volatility, moderation in our alternative investment returns, and favorable one-time actuarial benefits from the prior year that did not repeat in 2022. Adjusting for these items, we delivered sustainable earnings with strong underlying margins across our product portfolio and rising new money rates supporting investment income results. Paul will cover these items in greater detail. We remain pleased with how the full year sales momentum and solid fundamentals have positioned us for 2023 and beyond. Turning to sales results. Recent strategic investments to accelerate growth resulted in strong production momentum across both divisions. We generated double-digit year-over-year sales growth in direct-to-consumer life, annuities and our Worksite Insurance businesses. Notable investments in 2022 included enhancing our Medicare product offerings and capabilities with new Medicare Supplement Plan and more Medicare Advantage [Technical Difficulty] offered on myHealthPolicy.com. These investments contributed to a strong Medicare selling season during the fourth quarter. We also launched Optavise, a unified worksite brand, which was well received by the market as a one-stop shop for a comprehensive set of worksite solutions to maximize employee benefit programs. In early 2022, AM Best upgraded the financial strength rating of CNO's financial -- CNOs life and health subsidiaries from A minus to A continuing our strong track record of upgrades. We returned $245 million to shareholders in the year, including $180 million in share buybacks. Weighted average share count outstanding was reduced by 10%. Our key capital metrics ended the year strong and remained above target levels. We increased book value per diluted share excluding AOCI by 11% and are nearing $30 per diluted share. Turning to Slide 5 and our growth scorecard. Our sales performance in the…

Thanks, Gary, and good morning, everyone. Turning to the financial highlights on Slide 8. On balance, we reported solid earnings for the quarter and the full year with some pluses and minuses. On the plus side, number one, continued strong and stable underlying insurance product margins. Number two significant improvements in COVID related mortality impacts in our life products. Three, increases in net investment income allocated to products, reflecting growth in the business and beginning in the third quarter sequential improvement in the average yield on investments allocated to products. Fourth, an increase in fee income. Fifth, disciplined capital management, intentionally ending the year with RBC and holdco liquidity above our targets, given where we are in the credit cycle, while still returning some excess capital to shareholders. And lastly, continued expense discipline seeking to drive operating efficiencies while also investing in growth opportunities. On that point in the fourth quarter, we reduced our headcount by approximately 2% resulting in run rate cost savings of about $10 million. This was accomplished primarily through a voluntary early retirement program through eligible associates, which resulted in a $7 million restructuring charge that's included in non-operating income. Offsetting these favorable dynamics were number one, moderating COVID-related benefits in our health product. Number two, lower net investment income, not allocated to product, primarily reflecting lower returns on alternative investments. And three, fairly significant largely non-economic impacts to our fixed index annuity margin relating to the GAAP accounting for this product in the context of market volatility. As mentioned on our last earnings call, much of this has to do with the methodology that we use to draw the line between operating and non-operating income for this product. Incidentally, as we adopt LDTI in the first quarter of 2023, we'll also be updating our method…

Thanks, Paul. We are pleased with our strong performance on the steady execution against our strategic priorities. We remain confident in our growth and shareholder return opportunity. Our market is growing by underserved. In times of economic certainty the guidance and products, we provide our clients is critical. Our distribution model and product portfolio continue to be a key differentiator and how we access and serve our market. Our sales momentum is strong providing a solid foundation for future earnings and our robust cash flow remains a cornerstone of our financial strength. We are hosting our Investor Day at the New York Stock Exchange on Thursday, February 23. At the event, I will be joined by members of our management team to talk in greater detail about our business and the 2023 outlook. We hope to see you in-person for the event. There will also be a video webcast option available, please contact the Investor Relations team for registration instructions. Before moving to Q&A I wish to take a moment to acknowledge the heartbreaking loss of life and devastation from the earthquake in Turkey and Syria. Our thoughts go out to all who are impacted and to the first responders providing medical and humanitarian aid. We will now open it up for questions. Operator?

Thank you. [Operator Instructions] And our first question comes from Daniel Bergman from Jefferies. Daniel, your line is now open.

Thanks. Good morning. I guess to start, the favorable impact of COVID on your health underwriting margin has proved really remarkably durable, particularly in the supplemental health and LTC lines. So just wanted to see if you had any updated thoughts on what's driving this and how long it might persist going forward? I mean I would have expected that maybe the favorable underwriting trends might have been eroded somewhat by pricing changes at this point. So, any color on that and what you're seeing in terms of competition would be helpful?

Sure. Hi. Good morning, Dan. It's Paul. So basically, what you're seeing flow through our earnings is, us responding to the case experience and so we continue to experience some favorable case reserve development. In terms of what it looks like going forward, clearly we've transitioned from a pandemic stage to an endemic stage. I think our results will reflect that. The other dynamic is that under LDTI, much of the impacts from COVID plus and minus get offset by changes in reserves. So the dynamic entering 2023 under LDTI will be a bit different.

Got it. That's helpful. Thanks. And then maybe just switching gears a little bit just -- with capital levels now having rebounded above your minimum target. Just any thoughts you can share on how you're thinking about the cadence or pace of share buybacks going forward? I mean, should we expect it to be back to -- closer to your run rate level of capital return in the near term or if not, how soon might it take for that to revert to more fully reflect your free cash flow generation versus desire to build a more material capital buffer above those minimum targets, given some of the macro and credit uncertainty you talked about? Any thoughts on that would be great.

Sure. So, Dan, we will provide a bit more perspective and the outlook that we share at the Investor Day in a couple weeks. But I'd offer a couple of comments now. Number one, we'll continue to be a little bit cautious in the early part of the year. Again just given where we are and the potential for recessionary economic pressures. Having said that, I think you should expect that we would settle into a run rate over the course of '23 bit more, perhaps in the latter half of the year than the first half of the year.

Got it. That's really helpful. Thank you.

Thank you, Daniel. [Operator Instructions] We have our next question comes from Zach Byer from Autonomous. Zach, your line is now open.

Thanks. So recruiting was up 4% year-over-year, but total producing agent count declined 3%. Just kind of curious what dynamics are you seeing in your agent force and you can talk about agent retention trends and timeline for getting new agents up to producing status?

Yeah, Zach. This is Gary. Thanks for the question. So just a couple of comments on that. So first of all, just a reminder that the way companies define what constitutes a producing agent varies from company to company. In other words, this isn't a GAAP term that you can compare across companies. The simplest way to think about it, is it takes time, let's say, we were recruiting a new agent in January, it typically takes anywhere from two months to six months for them to really get up to a reasonable production level. So you always see producing agent count lagging new agent recruitment. And if you look in our case, what we've been trying to get our shareholders to understand is, we've seen new agent recruitment grow nicely, which is a really good leading indicator and a good sign. We've also seen the decline in producing agent count shrink every quarter. So the pace of decline is going down, which is a sign that we are at or near the bottom and we would expect producing agent count to turn up. Now all of that is important and necessary and a good leading indicator. But I would tell you that the most important thing is the productivity of the agents and you've seen us demonstrate continued increases in that productivity. While we always need new agents and it's important that we bring in new agents and we get them producing, the most important thing is the productivity and that's continued to trend very positively for quite some time. Zach, did that answer your question?

Yeah. That did. Thank you. I guess my second question is just around expenses. So you took some action in 4Q, but how are you thinking about the level of expenses going forward and should we expect them to decline forward to the statements that you've taken just offset pressures from inflation and natural growth in the cost base?

Hi Zach, it's Paul. So again, we'll provide more perspective and the outlook at Investor Day, but I'd offer a couple of comments. Number one, the expenses in the quarter and the fourth quarter particularly not allocated to products were a bit below our annualized run rate, but I'd say the full year 2022 expenses were in line with our expectations. Going forward as we continue to grow the business, I think you should expect some growth in expenses, but we will continue to try to strike the right balance between being as efficient as we possibly can be, while also investing in growth in the business. I think the action that we took in the fourth quarter is proved to the point that, we try to re-hard to be as efficient as possible.

Thank you. [Operator Instructions] We have our next question comes from Mark Dwelle from RBC. Mark, your line is now open.

Yeah. Good morning. Just a couple of questions, mainly related to the Health segment. Supplemental sales were pretty strong and the Medicare Supplement sales in particular were pretty strong, but there wasn't really any notable change in margin in the quarter. So how long is the transmission time between when you get the sales and when that starts to show up in potentially improve margins?

Hey, Mark. It's Paul. So yeah, generally, you've got some strain in the first year even on a GAAP basis from new sales. So sales this year tend to contribute to margin in the following year and in subsequent years.

So the lag would be measured in years or in quarters?

Well, I suppose on sort of a trailing 12 month basis. In general, over the course of 2022, the sales growth will translate to earnings growth in subsequent years.

Okay. And then with respect to -- I know you made some changes to the supplement product. I mean, what's the feedback been like from agents force as far as the sale ability and acceptance on that from the customer standpoint. I mean, obviously the numbers are pretty good, but are there more tweaks on the way or if you kind of landed on a winter?

Hey, Mark. This is Gary. We feel pretty good about the way the Med Supp product has been received by the market. The feedback from the agents has been good. I would tell you that, there is the potential for some further tweaks, but probably on a state by state basis. In other words, at the present time, we're not aware of major tweaks that need to be made nationwide. Now, all that said, the AEP just ended and we're still collecting feedback and we'll work with our agents if we see something we'll certainly keep our options open, but I would expect it to be more in the range of tweaks as opposed to wholesale changes. One last observation, remember that Med Supp is the product that we manufacture and therefore the one that's most susceptible to these types of tweaks and changes. We're also pretty pleased with the performance of our Med Advantage business and remember that's products where we distribute the product and we continue to get better frankly at our online platform and bringing customers there and working with our agents and so on and so forth. So we expect to continue to see growth there. And again those are products we distribute and manufacturer.

Okay, I appreciate the thoughts and I'm sure we'll get more insights on all of that at Investor Day in a few weeks.

Absolutely. Thanks for the questions.

Thank you, Mark. [Operator Instructions] We have a follow-up question from Zach Byer from Autonomous. Zach, your line is now open.

Hey. Thanks for taking my follow-up. Just kind of curious on the benefits of higher interest rates. So obviously, they've been rising and that's been a positive earnings, but how should we think about any uplift going forward? Should NII allocated to the products to be on an upward trajectory and is there still some upside to earnings spreads in your FHLB lending business?

Sure. So, Zach, I'll offer some comments and then I'll invite Eric, you to provide some perspective on those two programs. So absolutely, directionally higher rates are good for us, good for the industry. They've already contributed to a meaningful inflection point with the portfolio yield increasing sequentially in both the third quarter and fourth quarter. We haven't gotten yet to a point where it's increasing year-over-year, but I think we're approaching that, and as long as rates stay where they are and perhaps a little bit higher. We should reach that point over the next few quarters and so all good. Eric, maybe I'll turn it, turn it over to you to comment on FHLB and FABN

Sure and thanks for the question. And to follow-up on something Paul said a couple of times will -- at Investor Day, we will have some comments around the trajectory of NII and some ways. I believe that there could be some good guys there on a sustained basis going forward. One of them is obviously depending on market conditions. Higher new money rate feeding into higher book yield, feeding into more NII. A second one, as we continue to expand the institutional funding, a programs be it FHLB or FABN not only will hopefully over time. We'll see the AUM from those programs expand, hence more money. But we will recycle some of the existing inventory in the existing AUM expanding spread and so. And then, thirdly, we -- and as long as circumstances makes sense. We have some floating rate exposure on the books side, benefits from -- has benefited from the shape of the yield curve and that's played through well also. So at Investor Day, you can expect that I'll have some comments around this and put some dimensions around it, but I do think there is opportunity there for something that can really impact the bottom line.

Thank you.

Zach, does that answer your question?

Yeah, that does. Thank you.

Thank you, Zach. We have no further questions on the line. I will now hand back to Adam for closing remarks.

Thank you for your support and interest in CNO Financial Group.

Thank you. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.