CNO Financial Group, Inc. (CNO) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reflects a positive outlook with strong financial performance, improved ROE targets, and increased shareholder returns. Despite some challenges in discretionary purchases and Medicare Advantage, the company expects growth in Medicare Supplement sales, aligning with demographic trends. The Q&A session revealed confidence in hitting targets and maintaining regulatory relationships, although there were some vague responses. The market cap suggests moderate sensitivity to positive news, leading to an expected stock price increase of 2% to 8% over the next two weeks.
Key Financial Performance
Operating Return on Equity (ROE) Improved to 11.4% in 2025 from 10% in 2024, reflecting progress towards a 12% target by 2027. This improvement was driven by strong insurance product margins and net investment income.
Operating Earnings Per Diluted Share Increased to $4.40 in 2025, an 11% rise year-over-year. Growth was attributed to strong insurance product margins and investment results.
Total New Annualized Premium (NAP) Increased by 15% in 2025, with double-digit growth in life, supplemental health, Medicare Supplement, annuities, and client assets in brokerage and advisory. Growth was driven by technology enhancements and diversification in marketing channels.
Life NAP Grew by 10% in 2025, with direct-to-consumer life sales up 20%. Growth was supported by technology-driven productivity enhancements and a shift from television to digital and web marketing.
Total Health NAP Increased by 22% in 2025, marking 14 consecutive quarters of growth. Supplemental health grew by 15%, and long-term care grew by 4%. Medicare Supplement NAP rose by 49% for the year and 92% for the quarter, driven by a shift in consumer preferences.
Annuity Collected Premiums Grew by 9% in 2025 and 3% in Q4, marking the 10th consecutive quarter of growth. In-force account values increased by 7%, exceeding $13 billion.
Brokerage and Advisory Client Assets Increased by 24% in 2025, totaling over $5 billion. Total accounts grew by 12%, and combined with annuity account values, total client assets reached $18 billion, up 11% from 2024.
Worksite Insurance Sales Achieved record full-year growth of 15% in 2025, with life insurance sales up 36%, hospital indemnity insurance up 41%, and accident insurance up 11%. Growth was supported by geographic expansion and new group clients.
Net Investment Income (NII) Marked the 9th consecutive quarter of growth in 2025. Allocated NII increased by 6% for the year, supported by growth in average net insurance liabilities and improved average yield on investments.
Book Value Per Diluted Share (Excluding AOCI) Increased to $38.81 in 2025, representing a 7% compound annual growth rate over the past three years.
Capital Returned to Shareholders Totaled $386 million in 2025, an 11% increase from 2024. This included a 14% increase in share repurchases and the 13th consecutive annual increase in the quarterly common stock dividend.
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Operating Highlights
New Annualized Premium (NAP): Record total NAP up 15% for the full year, with double-digit growth in life, supplemental health, and Medicare Supplement. Record growth in annuities and client assets in brokerage and advisory.
Direct-to-Consumer (D2C) Life Sales: Life NAP up 10% for the full year, with direct-to-consumer life sales up 20%. Technology-driven productivity enhancements and diversification of direct marketing channels contributed to this growth.
Medicare Supplement NAP: Up 49% for the full year and 92% for the quarter, marking the best Medicare Supplement quarter in 15 years.
Annuity Collected Premiums: Record annuity collected premiums up 9% for the full year and 3% for the quarter, with in-force account values exceeding $13 billion.
Brokerage and Advisory Growth: Client assets in the channel up 24% over the prior year, totaling more than $5 billion. Total accounts up 12%.
Geographic Expansion in Worksite Division: Contributed 11% of the NAP growth for the year. NAP from new group clients was up 23%.
Medicare Market: Shift in consumer preferences from Medicare Advantage to Medicare Supplement, with total Medicare policies sold up 5% for the year.
Operating Return on Equity (ROE): Improved to 11.4%, reflecting progress toward the 2027 target of 12%.
Operating Earnings Per Share: Increased 11% to $4.40, benefiting from strong insurance product margin and investment results.
Expense Ratio: Improved to 18.9%, reflecting better operating leverage.
Agent Productivity: Producing agent count grew for the 12th consecutive quarter, and registered agent count was up 8%.
Exit of Fee Services Business in Worksite Division: Progressing on schedule, with expected completion in the first half of 2026. Streamlining focus on core insurance business.
Tech Modernization Initiative: Three-year initiative with an expected investment of $170 million. $20 million deployed in 2025, with $75 million planned for 2026.
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Risk or Challenges
Regulatory Compliance: The company is implementing tax strategies and managing effective tax rates, which could face challenges due to changes in tax laws or regulations.
Fee Services Business Exit: The exit of the fee services business within the Worksite division is progressing, but there could be risks associated with the transition and its impact on operations.
Tech Modernization Initiative: The company is investing $170 million over three years in tech modernization, which could face risks related to budget overruns, delays, or implementation challenges.
Macroeconomic Environment: The 2026 guidance assumes a stable macroeconomic environment, which could be adversely impacted by economic uncertainties or market volatility.
Debt Management: The company maintains a debt-to-total capital ratio of 25% to 28%, which could be impacted by changes in interest rates or financial market conditions.
Medicare Product Shifts: There is a growing shift in consumer preferences from Medicare Advantage to Medicare Supplement, which could pose challenges in adapting to changing market demands.
Investment Portfolio Performance: The investment portfolio's performance is subject to risks from market conditions, particularly in commercial real estate and private credit portfolios.
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Guidance & Outlook
Operating Return on Equity (ROE): CNO Financial Group targets an improvement in run rate operating ROE of 200 basis points through 2027, starting from a run rate 2024 ROE of approximately 10%. The 2026 guidance aligns with this trajectory, aiming for improved profitability while maintaining growth momentum and a resilient capital position.
Operating Earnings Per Share (EPS): The company expects operating EPS between $4.25 and $4.45 for 2026, representing an 8% increase at the midpoint from 2025 results. This projection assumes a stable macro environment and investment returns consistent with long-term expectations.
Expense Ratio: The expense ratio is expected to range between 18.8% and 19.2% in 2026. This reflects stable operating leverage as the business grows, partially offset by ongoing investments to support growth.
Free Cash Flow: CNO anticipates free cash flow of $200 million to $250 million in 2026, supporting capital deployment, business growth, and strategic initiatives.
Tech Modernization Initiative: The company plans to invest approximately $75 million in 2026 as part of a 3-year tech modernization initiative, with a total expected investment of $170 million over the period. This initiative is on track and on budget.
Risk-Based Capital (RBC) Ratio: CNO expects to operate with a risk-based capital ratio in the range of 360% to 390% in 2026, consistent with its risk management approach.
Debt to Total Capital Ratio: The company aims to maintain a debt to total capital ratio of 25% to 28% in 2026.
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Shareholder Return Plan
Quarterly common stock dividend: For the 13th year in a row, the company raised its quarterly common stock dividend.
Share repurchases: The company deployed $320 million of excess capital on share repurchases in the year, up 14%, including $60 million in the fourth quarter. This contributed to an 8% reduction in weighted average diluted shares outstanding.
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Key Q&A
Q:What is the lag time between writing business and achieving target returns?
A:Paul McDonough explained that the lag time depends on the product and its duration. He emphasized that the company is hitting target returns across its product portfolio and that the guidance provided reflects earnings emerging from recent sales trends. The company is confident in meeting its ROE target by 2027 and expects further improvement beyond that.
Q:How is the company addressing the current economic environment, including layoffs and job numbers?
A:Gary Bhojwani stated that the company expects to grow producing agent count in 2026 but prioritizes agent productivity over count. He acknowledged the challenges posed by layoffs and economic uncertainty, which could impact discretionary purchases like annuities and life insurance. However, he noted opportunities in Medicare Supplement sales and the demographic trend of 11,000 people turning 65 daily.
Q:Is the company planning additional Bermuda transactions?
A:Paul McDonough confirmed that the company completed its second treaty in Q4 of last year and is working to grow its Bermuda operation. However, no additional treaties are included in the 2026 guidance, and the company respects the regulatory review process. Gary Bhojwani emphasized the importance of maintaining good relationships with regulators.
Q:Is the growth seen in 2025 sustainable, and what are the expectations for Medicare Advantage and Medicare Supplement sales?
A:Gary Bhojwani explained that Medicare Advantage sales are expected to decline due to market conditions, while Medicare Supplement sales are expected to increase due to demographic trends. He noted that macroeconomic conditions could impact discretionary purchases, but the company remains confident in its guidance.
Q:What are the impacts of Medicare Advantage distribution fees and churn on the 2026 outlook?
A:Gary Bhojwani stated that the company has accounted for expected volume changes in Medicare Advantage in its projections. He anticipates significant headwinds for Medicare Advantage but emphasized a preference for Medicare Supplement due to its better alignment with the company's model and consumer demographics.
Q:How is the company planning to deploy excess capital?
A:Paul McDonough stated that the company plans to return excess capital to shareholders through share repurchases, absent more compelling alternatives. The company aims to be measured in reducing excess capital, and past practices are indicative of future behavior.
Q:What is the outlook for unallocated net investment income (NII)?
A:Paul McDonough noted that special dividends in Q4 are not expected to be repeated and that income from alternatives has been volatile. The company's guidance assumes a long-term return of 8%-9% for alternatives.
Q:What is the company's exposure to software in its investment portfolio?
A:Eric Johnson stated that the company has approximately $250 million in software exposure, primarily in enterprise-focused, mission-critical software. Additional exposure exists in private credit and private equity, but the company is positioned to take advantage of opportunities as they arise.
Q:How does the company view the demographic trend of 11,000 people turning 65 daily?
A:Gary Bhojwani noted that this trend is expected to peak around 2030-2035 and then gradually decline. The company sees this as a long-term opportunity, as individuals turning 65 will continue to consider Medicare-related products.
Q:Are there any elevated sales benefits from annuities due to increased Medicare Supplement sales?
A:Gary Bhojwani stated that the strong Medicare Supplement sales have helped, but the cross-sell ratio remains consistent with normal growth.
Q:Are there any dynamics in the investment universe influencing asset allocation?
A:Eric Johnson explained that the company is maintaining portfolio quality and monitoring opportunities in areas like software and BDCs. However, current valuations are not attractive enough to warrant changes in risk parameters.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the lag time for achieving target returns, the exact cadence of future Bermuda transactions, and the specific impacts of Medicare Advantage churn on financials. Additionally, they did not provide detailed guidance on unallocated NII trends or changes in asset allocation strategies.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AOCI compound
Americans day
Auvil
Bankers Life
Bermuda affiliate
DC
Investor Relations
RBC
ability
agency
agent force
balance
capital position
capital ratio
count agent
credit
dividend
division product
expense ratio
fee
flow generation
focus
income investment
investment NII
item end
life sale
midpoint
momentum Slide
product line
progress
rate return
record production
reinsurance transaction
risk capital
sale record
share increase
tax rate
transaction Bermuda
CNO Transcript
CNO Financial Group, Inc. (CNO) Q4 2025 Earnings Call Transcript
Positive2-6
The earnings call reflects a positive outlook with strong financial performance, improved ROE targets, and increased shareholder returns. Despite some challenges in discretionary purchases and Medicare Advantage, the company expects growth in Medicare Supplement sales, aligning with demographic trends. The Q&A session revealed confidence in hitting targets and maintaining regulatory relationships, although there were some vague responses. The market cap suggests moderate sensitivity to positive news, leading to an expected stock price increase of 2% to 8% over the next two weeks.
CNO Financial Group, Inc. (CNO) Q3 2025 Earnings Call Transcript
Positive11-4
The earnings call summary and Q&A reveal a positive outlook with strong revenue growth across multiple product lines, improved expense ratio guidance, and strategic capital deployment. Despite some unclear management responses, the strong D2C sales and partnerships, along with optimistic guidance, outweigh the concerns. The company's focus on shareholder returns through share repurchases and investments in growth is likely to drive a positive stock price movement. Given the market cap of $2.98 billion, a positive reaction of 2% to 8% is anticipated over the next two weeks.
CNO Financial Group, Inc. (CNO) Q2 2025 Earnings Call Transcript
Positive7-29
The earnings call summary and Q&A indicate strong financial performance, with growth across divisions, solid investment income, and a positive outlook on direct-to-consumer sales. While there were no specific new partnership announcements, the reaffirmation of 2025 guidance and stable financial health are positives. The Q&A addressed potential concerns, showing confidence in sustaining growth and managing competition. The market cap suggests moderate sensitivity, leading to a positive short-term stock price reaction.
CNO Financial Group, Inc. (CNO) Q1 2025 Earnings Call Transcript
Positive4-29
The earnings call reflects a positive outlook, with strong sales growth, high Medicare Advantage policy growth, and improved insurance product margins. Net investment income and the market value of invested assets have increased significantly. The shareholder return plan includes elevated buybacks, indicating confidence in future performance. However, there are some concerns about unclear management responses and potential revenue recognition issues, which slightly temper the overall positive sentiment. Considering the company's moderate market cap, the stock is likely to experience a positive movement between 2% and 8% over the next two weeks.
CNO Slides
CNO Report
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