CNO Finl Group (NYSE:CNO) reported first-quarter financial results on Friday. The transcript from the company's first-quarter earnings call has been provided below.

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Summary

CNO Finl Group reported a strong liquidity position with $280 million, well above the $150 million target, and maintained a debt to capital ratio within the 25-28% range.

The company affirmed its 2026 guidance despite macroeconomic volatility, citing confidence in its control over business variables and plans to refine projections later in the year.

CNO Finl Group highlighted consistent growth in earnings and profitability, driven by a resilient business model and diversified product offerings, with strategic rate increases in Medicare Supplement plans expected to improve profitability.

Management expressed intent to increase the 2027 ROE target, emphasizing ongoing improvement rather than frequent updates to long-term targets.

Operational highlights included robust demand for products, particularly in the consumer segment, and a stable investment approach focused on capital efficiency amid credit market volatility.

Full Transcript

Paul

And 39.0%, recognizing that some variability is expected. Quarter to quarter holding company liquidity ended the quarter at $280 million, well above our $150 million minimum target. Debt to capital was 26.4%, remaining comfortably within our 25 to 28% target range. Overall, our capital and liquidity position provides flexibility to support growth, manage risk and deploy capital thoughtfully over time. Turning to our 2026 guidance on Slide 12, we're pleased with our first quarter results and the momentum we're carrying into the balance of the year. We feel good about the variables within our control and the underlying performance of the business. However, given the volatile macroeconomic environment and the simple fact that we have three quarters yet to go in 2026, we are affirming our original guidance at this time and consistent with our historical practice, we will refine our projections later in the year. Regarding our three year operating return on equity target. We have been clear that 12% ROE was not the destination, but rather a waypoint in the journey of our continued improvement. Our recent ROE results make it likely that we will increase our 2027 ROE ambitions. However, just as with our annual guidance, we don't believe it would be appropriate to update our 2027 ROE target less than halfway through the three year cycle. We believe credibility is built through delivery, not through frequent recasting of long term targets. And we intend to update our roe objectives for 27 and beyond no later than early next year. And with that, I'll turn it back to Gary (last name not provided).

Gary

Thanks, Paul. Turning to Slide 13, consistent, repeatable results continue to drive our momentum as we grow earnings, improve profitability and reinvest in the business. Our results reflect the resilience of our business model and the strength of our diversified products and distribution. Disciplined execution will continue to drive our growth and create meaningful value for customers, associates and shareholders in 2026 and beyond. Thank you for your support of and interest in CNO Financial Group. We will now open the call for questions.

Sunit Kamath

Thanks. Good morning. I wanted to start with the Med Supp business. Paul, I think you talked about in your prepared remarks some pricing plans. Can you flesh that out a little bit and give a sense of the timing of when you'd expect those premiums to sort of kick in?

Paul

Sure. Hi, Sydney. So we started seeing some increase in our Med Supp claims last year, translating to higher benefit ratios. As you know, as you just mentioned, we have the opportunity to file rate increases annually, allowing us to address emerging experience and maintain profitability of the book over time with a bit of a lag. So in 25, we filed for rate increases in two buckets. The closed block with a 26-01-01 effective date, asking for an increase of 10.5%. And we received approvals for 10.2%. And then the closed block with 26-07-01 effective dates, we filed for 16.8% and we're expecting approvals for around 14.5%. These rate increases earn in over time, with the full quarterly impact over these two blocks evident by fourth quarter of this year, which should translate to improved benefit ratios, depending a little bit on claims experienced in 26, which we would then address with 2027 rate filings in the long run, over time, Med Supp is a good product for us meeting our target returns. The good news is that Med Supp is not our only product. And I think this illustrates the strength and the resiliency of our business model, including its product diversity, which typically translates to puts and takes and product margin across our product portfolio, but relatively stable and growing margin in total. And you certainly see that in our first quarter results. Got it.

Sunit Kamath

And are those two buckets that you mentioned similarly sized or is one bigger than the other?

Paul

The closed block, I'd say is maybe 2/3 and the open block about a third. Definitely.

Sunit Kamath

Okay. And then maybe for Gary, just focusing on the consumer segment at the product level, it looked like Health Map was quite strong, strong, but life Direct-to-Consumer (DTC) and annuities less so. And I think you'd mentioned in annuities some tough comps, so maybe just give us some color in terms of what you expect there. Are we getting to the point where the comps are getting just too difficult to grow, or was there something anomalous

Gary

in the first quarter? Thanks. So, Suneet, thanks for the question and thanks for the continued interest in CNO. I didn't see any particular anomalies in the first quarter, and if anything, I would argue that all of the forces that have continued to allow us to grow are still there. You know, you still got the population. You still got, you know, 11,000 people folks turning 65 every day, you still got the absence of alternatives, you still got longer lifespans, you've still got the fact that the government can't solve this problem. We expect demand for these products to continue to be very robust. You're right. In citing the fact that we had tough comparables or strong comparables, I guess I should say, frankly, I would kill to have that problem every quarter. And even the 2% that we cited, I really regarded that as nothing more than just quarter to quarter fluctuation. I mean, remember, if the selling season in one quarter is one or two days shorter than another quarter, you're going to see variance. There's all kinds of stuff that goes on every quarter. To be really blunt, I don't pay that much attention to volume from quarter to quarter. I'm way more focused on the 1 and 3 year trends and everything I see points me to strong demand and more importantly, or at least as importantly, a really strong ability on our product portfolio and distribution network to be able to execute and meet those demands. So I am extremely bullish and I wouldn't pay any attention to, you know, minor fluctuations of 1 or 2% here or there. It's in my mind, irrelevant. Okay, thanks.

Operator

Your next question is from Ryan Krueger with kbw. Please go ahead.

Ryan Krueger (Equity Analyst)

Hey, thanks. Good morning. First question was just on expenses. I know you mentioned normalization during the rest of the year, but I mean, would you consider this all kind of related in terms of the abnormally favorable expenses this quarter or do you think we are actually seeing some big maybe to what you had originally expected?

Paul

Hey Ryan, it's Paul. I'm not sure I'm totally following the question, but just to offer some thoughts and please give me a follow up if I'm not answering the question. So there's always some variability across quarters. It's somewhat difficult to plan each quarter. Exactly. Typically in the first quarter of the year we have higher expenses, which translates to a higher expense ratio and that decreases over time. That's been pretty consistent over the last several years. Honestly, that was our expectation this year. It hasn't played out that way, but we expect that the expenses for the full year will still come in around where we had originally planned and that should translate to, you know, the expense ratio when you do the math. Having said that, you know, the growth we're seeing in the business will drive likely some favorability in the denominator in the ratio. And I think that points to the continued leverage that we're getting in the business from the growth that we're seeing.

Ryan Krueger (Equity Analyst)

So Ryan, let me know if that did not answer your question. No, that was exactly what I was getting at. Thank you. And then I just had one for Eric Johnson. There's certainly been a lot of volatility and I guess concern fluctuation in the credit markets these days. Just curious about your perspective on what you're seeing in the credit markets and also where you're seeing good opportunities to deploy new money right now.

Eric Johnson

Yeah. Good morning and. All right, good morning and thank you. You know, we've always taken the point of view that we wanted to have a stable and consistent investment performance at cno. And so our asset allocation model over the last couple of years has really been predicated on being capital efficient and storing up dry powder for a more favorable environment where you could really make some money at lower levels of risk versus making very little bits of money at maybe higher levels of risk. And so as we got into this year and you had some volume in the first quarter, you saw a lot of rate volume. I mean treasury curve moved up 30, 40 basis points, but credit spreads were actually pretty flat, traveled in a 5 basis points in Investment Grade (IG), maybe a 5 to 7 basis point channel, high yield, maybe 30, 40 basis point channel. So you didn't really get. The credit market was pretty well behaved largely because there was a lot of demand for product at higher rate levels. Investors were willing to buy stuff and you saw that in over subscriptions and continue good executions on new issues. So through the quarter we pretty much stuck to our knitting. As you can see, it's in the earnings deck. We worked shorter on the curve largely because that was our ALM need and we want to keep that in check. And then secondly, we just didn't. There was not the extreme opportunity to make, make big money. So you know, that's reflected in new money rate which is around a little higher than 6% consistent with prior quarters. We weren't, we didn't launch into the market. We're going to let it come to us. I don't think this story is in the ninth inning. And as the economy evolves and the impact of higher energy costs and other things happen, there'll be better entry points for, for a real change in strategy. We're not there yet. Great. Thanks a lot. Appreciate it. You're welcome.

Operator

Your next question is from Joel Hurwitz with Dowling and Partners. Please go ahead.

Joel Hurwitz (Equity Analyst)

Hey, good morning. Wanted to start on the ROE target and good to hear that. It'll likely increase, I guess. What do you think are the Biggest drivers of the recent outperformance that you guys think is sustainable moving forward. Is it growth, expenses, experience?

Paul

Good morning, Joel. You know, I think it's all of the above, as we've said, as we've been saying, you know, for a couple of years, that there aren't really any silver bullets here, but it's really a combination of things. Actions taken across the value chain of the business that is driving earnings growth and you know, some of its earnings, of course, but you know, we're also taking actions in the denominator of the calculation. So, you know, being as efficient as possible in capital, we continue to focus on that. So it's again, I feel like a little bit of a broken record on this question, but the answer hasn't changed and that is that we are focusing on the entire business and there are things that we are doing to improve effectiveness and efficiency and to drive growth and to drive risk adjusted returns in the investment portfolio and to optimize capital. You add all that up and sort of on a compounding basis, it has been driving ROE improvement, and we expect it will continue to do so.

Joel Hurwitz (Equity Analyst)

That's helpful. And then shifting to Long Term Care. Can you just sort of unpack the experience and maybe expectations moving forward? Right. Results have been favorable and they look to, you know, improve further. This quarter, I guess is a margin around 50%, sort of the, the new normal for that business.

Paul

Yeah. So Long Term Care continues to perform exceptionally well. It continues to surprise us a bit to the upside, including in this quarter. You know, we revised assumptions a bit last year's third quarter. You know, we'll do that again this year in the third quarter and we'll see how things evolve. But the claims experience has been reasonably stable and favorable. It continues to be a great business for us. It's a product that our customers need and it's designed and priced in a way that generates good returns and stable results.

Joel Hurwitz (Equity Analyst)

Okay, thank you.

Operator

Your next question is from Jack Matten with BMO Capital Markets. Please go ahead.

Jack Matten (Equity Analyst)

Hey, good morning. Just one follow up on the ROE target. Given that the CNO is currently at 12.2%, there's still, I think, some meaningful benefits to emerge from actions you've taken in recent quarters. I'm just wondering if there are any like partial offsets or places where there could be some normalization as we think about that overall trajectory. Because it just seems like there could be some meaningful upside versus the original 12% target based on where things are currently running.

Paul

Yeah, Jack, I can provide some initial thoughts And Gary may want to jump in I guess two points. Number one, the operating earnings we continue to drive and within a sort of a reasonable range we expect to be able to continue to drive growth in operating earnings. We'll continue to focus on capital to drive improvement on that side of the equation. The other comment that I would make is that the denominator is shareholders equity and so it is impacted by non operating income which as you know is volatile. So that can create some noise, you know, plus or minus in the ratio over time but over long periods of time, you know, that tends to even out. So I'll leave it there. I don't know Gary, if you want to offer some higher level comments.

Gary

Yeah, yeah, thanks Paul. Jack, thanks for the question and thanks for the interest. I think an important perspective to remember 12%. You know, we started out at the end of 2024 and said we wanted to improve our ROE by 200 basis points in three years. However, we have from the outset been clear externally and internally that that 12% number is not the destination. Not even close. We have to continue to improve. We will continue to improve. So you should absolutely count fact that we're going to do everything we can to drive that above 12%. Really the only question is by one and by how much. So whether we get to 12% in 2026 or 2027 or whatever it is, our aim is to continue to improve upon that. That's not good enough. We can get better and that's within our reach. The only thing we're stopping short of doing is communicating by how much and by when. But you should absolutely take certainty in

Jack Matten (Equity Analyst)

the fact that we are driven to improve that beyond 12%. 12% is nothing more than a waypoint. That's helpful, thank you. And my other question is just on the RBC ratio and cons of that. CNN is right in the middle of your target range right now. I guess like sequentially this quarter was there any kind of movement or impact from lower equity markets on on hedges? Kind of like what you had last year And I guess if that is the case, would it be fair to think there's been a likely recovery in a mark to market basis given what's happened in April? Just curious. Any sensitivity you can provide around those movements?

Paul

Sure. The answer to those questions or comments Jack, are yes and yes. We did have an impact from the S and P being down about 5% in the quarter. As you know from your question, that drives the reserves for FIAs and interest sensitive life down economically. It drives the Call option assets down by roughly the same amount. But because there's a prescribed flooring in the statutory reserves of the FIAs and the ISLs, you end up with some noise, meaning lower surplus, lower rbc, lower dividend capacity. But as the equity markets recover, as they've done already in the quarter to date, that unwinds from a planning perspective. We assume that this is a neutral impact in the year and over time.

Jack Matten (Equity Analyst)

Thank you.

Operator

Your next question is from Wilma Burdes with Raymond James. Please go ahead.

Wilma Burdes (Equity Analyst)

Hey, good morning. Can you talk a little bit about the FAA band market this year? Our understanding is that just the spread environment's a little bit less favorable. Just interested to hear what you're seeing there.

Eric

Thanks. Thanks Wilma. I'd invite you to take that, Eric. You know, if you look at what spreads in the market did during, if you look at what spreads in the market did during the first quarter of the year, financials actually widened out relative to, let's say industrials financials, including insurance and banks widened out relative to industrials. So if you want to think about it as a kind of on an arbitrage basis that's negative to kind of the basic arb of a funding agreement transaction, which is to be a financial, an insurance company that issues and then you take the money and invest it hopefully in high quality industrials and utilities and things like that. So because of that negative arb during the quarter, I think we run our program on a pretty strict high quality basis and a pretty high, you know, we have a pretty high target return on equity. And so I think had we tried to do an offering during, during the quarter, it would have perhaps produced a marginal contribution and not the one that we try to run the program around. That I think is that that circumstance is moderating a bit since, since quarter end financials have come in a little bit more, rates a little bit higher. So you know, we've had some relief in that, in that tension and we'll continue to reassess that as we get into our next window, which will probably be in June. You know, had a meeting about it this morning actually and you know, we're keeping a close eye on it. I would also say that, you know, we don't have to issue unless the time is right for us and we can, you know, make, achieve our targets without doing violence to our sense of risk and quality. So under, under no pressure to do anything we'd like to because it's a, you know, it's a good way to make money where we have a nice program, we're good at it and all that stuff. But we're not going to, we're not going to break the bank.

Wilma Burdes (Equity Analyst)

Makes sense. Sounds like a thoughtful verge. And can you talk a little bit more about your mortality expectations for the year? Seems like there was some, there was some favorability in the quarter, but you know, is that just kind of a one off? Like what are you seeing there? Just any color you can give for the rest of your year would be helpful.

Paul

Thanks. Hey Wilma, it's Paul. So yeah, we saw some, a bit of favorable mortality in our trad life business. I'd say kind of within the normal range of expectations. And so we'll continue to monitor that and again revisit our assumptions in the third quarter. Okay, thank you.

Operator

There are no further questions at this time. I will now turn the call back to Adam Aville, VP of Investor Relations for closing remarks. Please go ahead.

Adam Aville (VP of Investor Relations)

Thank you, operator. And thank you all for participating in today's call. Please reach out to the investor relations team if you have any further questions. Have a great rest of your day.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.

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