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Edited Transcript of CNO earnings conference call or presentation 31-Jul-19 3:00pm GMT

Q2 2019 CNO Financial Group Inc Earnings Call

CARMEL Aug 6, 2019 (Thomson StreetEvents) -- Edited Transcript of CNO Financial Group Inc earnings conference call or presentation Wednesday, July 31, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Eric Ronald Johnson

CNO Financial Group, Inc. - CIO

* Gary Chandru Bhojwani

CNO Financial Group, Inc. - CEO & Director

* Jennifer Childe

CNO Financial Group, Inc. - VP of IR

* Paul Harrington McDonough

CNO Financial Group, Inc. - CFO

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Conference Call Participants

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* Erik James Bass

Autonomous Research LLP - Partner of US Life Insurance

* Humphrey Lee

Dowling & Partners Securities, LLC - Research Analyst

* Randolph Binner

B. Riley FBR, Inc., Research Division - Analyst

* Ryan Joel Krueger

Keefe, Bruyette, & Woods, Inc., Research Division - MD of Equity Research

* Taylor Alexander Scott

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Thomas George Gallagher

Evercore ISI Institutional Equities, Research Division - Senior MD

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Presentation

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Operator [1]

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Good morning. My name is Sharon, and I'll be your conference operator today. At this time, I would like to welcome everyone to the CNO Financial Group Inc. Second Quarter 2019 Earnings Results Conference Call. (Operator Instructions) Ms. Jennifer Childe, Vice President of Investor Relations, you may begin your conference.

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Jennifer Childe, CNO Financial Group, Inc. - VP of IR [2]

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Thank you, Sharon. Good morning, everyone, and thank you for joining us on CNO Financial Group's second quarter 2019 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 several other business leaders available for the question-and-answer period.

During this conference call, we will be referring to information contained in the 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 August 7.

Let 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'll will be making performance comparisons and unless otherwise specified, any comparisons made will be referring to changes between second quarter 2018 and second quarter 2019.

With that, I'll turn the call over to Gary.

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Gary Chandru Bhojwani, CNO Financial Group, Inc. - CEO & Director [3]

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Thanks, Jennifer. Good morning, everyone, and thank you for joining us. Turning to Slide 5, I'm very pleased with our performance this quarter. Our operating earnings per share on an apples-to-apples basis were up 4%. This excludes the earnings from the long-term care business that was ceded in the third quarter of 2018.

We delivered solid growth across all of our product lines and business segments, strong investment performance and steady underwriting results.

We continue to execute well against our strategic priorities, growing the franchise profitably, launching new products and services, expanding to the right to slightly younger, wealthier consumers within the middle-income market and deploying excess capital to its highest and best use.

The investments we've made in growth over the past year or so are paying off as expected, translating to solid and sustainable topline growth. While it takes time for the premium momentum to make its way down to EBIT growth, we remain very well positioned to generate profitable earnings growth in future quarters.

During the quarter, S&P and Fitch upgraded our credit ratings. With these 2 upgrades, CNO is now in -- rated investment grade by all 4 leading rating agencies. We are very pleased that S&P and Fitch recognized us for successfully reducing our exposure to our legacy long-term care liabilities with our 2018 LTC reinsurance transaction and acknowledge our improving operating performance and balance sheet strength.

Turning to Slide 6 for a review of the growth scorecard. Our second quarter production remained strong. Life NAP grew 7%, Health NAP grew 2% and annuity collected premiums grew 19%. Total collected premiums within our operating segments increased 7% in the quarter.

This was the fourth consecutive quarter of topline growth and once again all 5 of our growth card -- growth scorecard metrics were up. It's been years since we've seen this level of consistent and largely organic growth momentum at CNO. I'm extremely proud of our associates and agents' hard work in achieving this performance.

Turning to Bankers Life on Slide 7. We continue to make progress against our strategic initiatives to reinvigorate growth, expand to the right, reshape the agent force and optimize productivity. Agent recruiting and retention initiatives helped drive another 3% increase in our producing agent count. This marks the fourth consecutive quarter of growth in this metric.

We also continue to see improvement in retention and productivity, driven by the various initiatives that are now approaching scale. As a reminder, our strategy is to recruit fewer more productive agents, which is translating to stronger sales and better overall retention.

Our expand to the right strategy also continues to advance. Annuity sales, which tend to have higher premiums and are typically sold to wealthier consumer were up 19%, which is against a 9% comparable in the second quarter of 2018. The average collected premium per policy was up 5%.

The account value of our annuities now stands at $8.8 billion and they serve as the largest driver of our earnings. You may recall that our annuities are simply in design and easily understood by our consumer base. Unlike many competing products, our annuities do not contain a roll-up rate or benefit base. 73% of our annuities are within the surrender period, which translates to strong persistency and earnings generation. Our guarantees are fair, but modest and we achieved a spread that allows for robust return on our annuity book.

Currently, 14% or 1 in 7 of our Bankers Life agents are dually licensed as financial advisors and insurance agents. As I've shared before, this is important since financial advisors drive more than 50% of our annuity sales and the policies they sell average 20% higher pace of ours. This is also indicative of the success we are realizing in our expand to the right strategy.

Our broker dealer and registered investment advisor businesses also continue to grow nicely. Client assets increased 20% over the period to $1.3 billion. Consumer relationships tend to be stronger when we can provide income and retirement solutions as well as insurance products. Our ability to serve the income, retirement and insurance needs of our middle-income consumers remains the key differentiator.

Life insurance sales at Bankers Life were down 4% for the quarter. However, this reflected continued improvement over the past 2 quarters. We continue to refine our underwriting approach in order to strike the right balance between sales and margins. We're comfortable with the trade-off.

We are also seeing a general shift in sales from larger life insurance cases to annuities. This shift is consistent with the demographics of our target market. We're facing the real possibility of outliving the retirement savings and are increasingly looking for retirement income solutions.

We're comfortable with this trade-off because annuities are among the most profitable products in our portfolio. Due to solid persistency, they also added strong and stable earnings stream.

Health NAP was up 6%, largely as a result of the short-term care sales. Medical supplement sales were also up 1%. This increase reflects the positive consumer response to our new Medicare Supplement Plan D product that we launched during the second quarter.

At the same time, our third-party Medicare Advantage sales were up 34% in the quarter. As a reminder, Medicare Advantage sales were recorded as fee income and not included in NAP.

Moving on to Washington National. Sales were up 1% in the second quarter, including a 29% increase in life sales. These results reflect our cross-sell initiatives and efforts to diversify the product mix. Life sales comprised 12% of our overall sales mix year-to-date, up from 10% in 2018 and 8% in 2017.

Worksite sales were up 15%, marking the fifth consecutive quarter of double-digit growth. Worksite now comprises roughly 50% of Washington National sales. The worksite performance in the quarter was largely attributable to the various growth initiatives discussed on previous calls, including geographic expansion and product portfolio diversification. This business has also benefited from strong recruiting results over the past several quarters, including a 28% increase in the worksite agent count this quarter.

Worksite strength was offset, as expected, by continued weakness in our individual business.

Our individual consumer business was down 10% in the quarter. However, this is an improvement over the past few quarters. The farm and rural communities served by this business continue to face challenges. Therefore, we expect to remain at these levels through at least the end of 2019. Efforts to rebuild this business are underway, leveraging key learnings from Bankers Life regarding the successful agent pilots and continued product diversification.

Finally, I'd like to spend a few minutes talking about the web benefits -- talking about Web Benefits Design or WBD, the worksite technology platform that we acquired at the end of April. As a reminder WBD employs a profitable recurring fee-based model that typically bills employers on a per employee per month basis for its services and the use of this technology platform.

The integration process is running smoothly, with all back office activities and distribution synergy preparations tracking as planned. Following the transaction, all key personnel joined the CNO family and we have retained all of WBD's customers, carriers and broker relationships.

Turning to Colonial Penn on Slide 9. Colonial Penn delivered another strong quarter. Sales were up 16%, marking the fourth consecutive quarter of double-digit growth. In keeping with recent trends, growth was largely driven by increases in cost effective marketing spend and sales productivity improvements.

Year-to-date, our acquisition cost per dollar of sales is the lowest it has been in 4 years. Early results from the Living Insurance product that we launched in March were promising and are in line with our expectations. Living Insurance combines simplified issue life insurance products with optional accelerated health benefit riders. It is currently available in 21 states and we will be rolled out nationally by the end of the third quarter.

Through Colonial Penn, we continue to grow our direct-to-consumer channel. Colonial Penn handles approximately 1.5 million customer phone calls and over 2 million unique visitors to our colonialpenn.com website each year. This makes us a top 5 direct to consumer life insurer.

In June, we also added a web chat capability on our Colonial Penn website and to date have completed 6,000 chat sessions with prospective customers. We expect our direct-to-consumer channel to play an increasingly important role in our future as we evolve to offer an omni-channel customer experience.

Ultimately, we envision consumers moving seamlessly through the buying experience across our distribution channels. This cross collaboration has already been underway. In fact for some time now leads generated by Colonial Penn had been an important and growing source of new business for Bankers Life agents. This is just 1 example. We expect to continue to leverage more omni-channel opportunities between all 3 of our business brands in the future.

Moving to Slide 10. Before I turn it over to Paul, I'd like to remind all of you about our capital deployment strategy. We are committed to deploying 100% of our excess capital to its highest and best use over time. Our goals and incentives remain unchanged to maximize return on invested capital over the long run.

We will continue to weigh our options according. During the second quarter, we returned $72 million to shareholders, including $55 million in share repurchases and $17 million in dividends. For the first 6 months of the year, we have spent $102 million on repurchases.

As we demonstrated again this quarter, share repurchases, common stock dividends, organic investments and M&A do not need to be mutually exclusive.

With that, I'll now turn it over to Paul to discuss the financials. Paul?

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Paul Harrington McDonough, CNO Financial Group, Inc. - CFO [4]

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Thanks, Gary, and good morning everyone. Turning to the financial highlights on Slide 11. As Gary mentioned, operating income per diluted share, adjusting for the long-term care transaction in Q3 '18 was up 4% year-over-year. This reflects a combination of stable underwriting and strong investment results, offset somewhat by increased expenses, reflecting strategic investments in systems, infrastructure and other ongoing growth initiatives. The decline in interest rates resulted in a $39 million non-operating loss in the quarter, but also a $443 million increase in accumulated other comprehensive income.

Operating return on equity, excluding significant items, was 10.9% in the trailing 12 months ended June 30, 2019, compared to 9.4% in the prior year period and 10.5% at March 31, 2019.

Holding company cash and investments were $264 million, up from $230 million at the end of the first quarter. As Gary stated, we repurchased $55 million of stock in the second quarter and we raised our dividend by 10%, reflecting the seventh consecutive double-digit annual increase.

CNO's estimated consolidated risk-based capital ratio is 409%, down slightly from 416% at the end of the first quarter, but within our targeted range. Statutory earnings and capital were $79 million and $1.7 billion respectively.

As Gary mentioned, during the second quarter, we received upgrades on our senior debt from both S&P and Fitch. We are now rated investment grade by all 4 rating agencies. These upgrades cap a multi-year journey of strengthening our balance sheet and optimizing our capital structure. We issued $500 million of 10-year senior unsecured notes in the quarter. Proceeds were used primarily to refinance $425 million of existing debt.

As I discussed on the first quarter call, we are reviewing our capital and liquidity targets in the context of our peers, rating agency views and from our own enterprise risk management perspective. I expect we will complete that work during the fourth quarter of this year, and we'll be prepared to share our conclusions on the fourth quarter earnings call early next year. Until then, our target the same, specifically RBC in the 400% to 425% range, minimum holding company liquidity of $150 million, and debt-to-total capital, excluding AOCI, between 22% and 25%.

Turning to Slide 12, and segment earnings. Within Bankers Life, earnings in the second quarter were down $4.3 million or 5% year-over-year. Earnings benefited from an increase in investment income, fee revenue and other income, more than offset by an increase in expense, driven by technology investments and other growth initiatives.

Sequentially expenses declined in Q2 from Q1 2019 as expected. In the second half of the year, we expect to remain generally flat to Q2 levels. Growth in fee income in the quarter reflects growth in MA sales and growth in our broker dealer.

Washington National's earnings in the period were up 2%, benefiting from favorable claims experience, offset somewhat by higher operating expenses including those associated with recent growth initiatives. Colonial Penn's earnings were up 7% year-over-year, and in-force earnings grew 9% over the prior year to a record $19.7 million.

This marks the fifth consecutive quarter of in-force earnings growth. Our acquisition cost per dollar now continues to be strong, which is attributable to the impact from efficiencies driven by technology, more productive tele sales agents and optimizing our advertising spend across multiple media outlets.

As a reminder, a majority of Colonial Penn's advertising spend is not capitalized and deferred, which impact short-term earnings. We continue to expect Colonial Penn's full year EBIT to be in the $12 million to $20 million range.

Earnings from long-term care in run-off were $3.2 million, down from $8.5 million in the prior period as that quarter included earnings from the long-term care business that was ceded in Q3 '18. We expect this segment to report normalized earnings of roughly breakeven, but quarterly results can be volatile.

Lastly, the corporate segment improved 14% year-over-year, primarily reflecting favorable investment income.

Turning to Slide 13 and our key health benefit ratios. Bankers Life Medicare Supplement benefit ratio was 74%. This was higher than the seasonally-favorable first quarter ratio, but in line with our expectations and our guidance of 73% to 77%.

Bankers Life long-term care interest adjusted benefit ratio for the retained block of business was 77.5%, which is in line with our expected range of 74% to 79%. As a result of ceding a significant portion of this business in Q3 '18 and the resulting smaller base, we expect more variation in the benefit ratio from quarter-to-quarter, while remaining within our expected range.

Washington National supplemental health interest adjusted benefit ratio is 56.2%, down 40 basis points year-over-year. In line with our guidance of 55% to 58% and more consistent with historical experience.

Turning to Slide 14 and our investment results for the quarter. Recall that during the first quarter, we reduced our allocation to BBB corporate bonds by roughly $1 billion to 39% of our fixed income portfolio, cut our equity investments to $41 million and lowered our CLO equity tranche investment to about $100 million. That up in quality repositioning of the portfolio, together with lower rates and tighter spreads generally explains the decline in portfolio yields year-over-year.

We did not undertake a significant additional repositioning of the portfolio in the second quarter. To provide a more transparent view, you'll note that we changed our new money rate disclosure in the table on the slide to reflect only fixed maturity investments required in the period.

We also added a row to the table showing the book yield on our fixed maturity investments whereas the earned yield includes both fixed maturity and non-fixed maturity investments, notably alternatives and any call and prepayment income.

Strong alternative investments performance and prepayment income in the second quarter provided a tailwind to our earned yield, which increased 28 basis points sequentially to 5.30%. As we look forward to the second half of the year, the book yield and the earned yield will likely continue to be pressured by the decline in rates and spreads generally.

And with that, I'll turn it back to Gary.

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Gary Chandru Bhojwani, CNO Financial Group, Inc. - CEO & Director [5]

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Thanks, Paul. As I mentioned earlier, our growth investments are yielding the benefits we anticipated. As we look forward, we remain optimistic that the sales momentum we've generated in recent quarters will continue. The successful pilots we put in place last year continue to scale, while our new product development and lead source expansion activities remain robust.

As we continue to expand and leverage our operating expenses, we expect to generate sustainable, profitable topline and bottom line growth. While interest rate movements are outside of our control, we are doing everything that is within our control to offset the impact.

In addition to the efficiencies, we expect to achieve simply through scale, we're taking a hard look at the way we manage the business and our overall cost structure. In doing so, we aim to optimize profitability, cash flow and value for our shareholders. I expect to have more to share with you about this in coming quarters. Thank you for your interest in CNO Financial Group. We will now open it up for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question comes from Randy Binner with broadly FBR.

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Randolph Binner, B. Riley FBR, Inc., Research Division - Analyst [2]

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I had a couple, I guess, 1, just on the -- thinking about the Medicare sub products and market and some issues with underwriting in the past -- coming out of the past open enrollment period, I think it was regarding physician administer drug treatments. Can you -- that has stabilized in the numbers, and I assume you're getting ready to kind of market and underwrite those products ahead of the next open enrollment. Can you just give us some details on kind of preparations for that and your expectations of how those re-underwritten products will be accepted in the market with the new underwriting?

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Paul Harrington McDonough, CNO Financial Group, Inc. - CFO [3]

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Randy, it's Paul. I will -- I will take that and then see if Gary wants to provide any additional color. I guess I'd make a couple comments. #1, as you mentioned, the ratio is with our guided range and we think the product is performing well in that context.

The other thing I would mention is, we have already filed the rate increase for January 1, 2020. It's in the neighborhood of 7%. That's public information. You could find that if you knew where to look. So what that will translate to in terms of the performance of that product in 2020, I don't think I would offer any different guidance than our current guidance on the ratio.

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Randolph Binner, B. Riley FBR, Inc., Research Division - Analyst [4]

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Do you have a sense that -- I mean, just from a topline perspective, I mean do you have a sense of other providers that have filed similar rate increases? I assume it's a universal issue that happened to everyone.

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Paul Harrington McDonough, CNO Financial Group, Inc. - CFO [5]

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It is, and we've seen others file rates both lower and higher. So we seem to be generally in the mix. I don't think our rate increase will sort of put us out of position relative to our competition.

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Gary Chandru Bhojwani, CNO Financial Group, Inc. - CEO & Director [6]

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Randy, this is Gary. I just want to add a couple of comments to -- so first of all, I agree with what he said. I think we remain comfortable with the guidance and remain comfortable that we've got an appropriate handle on this.

The other thing I would just remind you of that the nature of our distribution network, meaning a career channel almost by definition, there is of course successors for this, but almost by definition, to a very large extent the consumers that are buying these products through Bankers Life are doing so because they have a broader relationship or they want that service or what have you.

So I don't -- I would not go so far as to say that we don't have the same pricing pressures that others have, but what I would say is almost by definition, the people that are buying from us, they're not necessarily the price shoppers, they're the ones who want that service, that advice in that overall relationship.

So we will always be a little bit insulated from those consumers that are simply looking for the lowest price, not immune, but we have a little bit more installation in some of the other because of the nature of our distribution.

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Randolph Binner, B. Riley FBR, Inc., Research Division - Analyst [7]

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Understood. And then I had one other one. Going to Slide 14 and the reference to the up in quality shift, was that -- was that a -- what drove that decision and the reason I'm asking the question is, with the move to more fixed annuity-type general account products, I believe your investment leverage is going to go up a little bit, not a lot, but is that -- are you reacting to kind of a bigger general account portfolio relative to capital or was the up in quality move a reaction to something else?

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Eric Ronald Johnson, CNO Financial Group, Inc. - CIO [8]

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This is Eric Johnson. I would say that it really is a relative value transaction as much as anything else, seeing the collapse in spreads across different quality grades during the -- particularly the early part of the year as the market rebounded from the fourth -- problems in the fourth -- issues in the fourth quarter.

The spreads between singles and single agent BBB has collapsed pretty substantially and in terms of just extracting a return on equity, you could go up in quality. Give up not too much relative yield and we greatly take risk and capital off the table.

So in the -- it made a lot of sense at the time. We still remember -- we still have a fairly significant BBB allocation. We're not the rest of BBB and while I don't anticipate that we're going to continue, up in quality in regarding to BBBs, I think we're comfortable with where we are. I think we went from a pretty good overweight to a more balanced position that we're comfortable with as the cycle comes toward its end and we move into a different environment.

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Operator [9]

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Your next question comes from Ryan Krueger with KBW.

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Ryan Joel Krueger, Keefe, Bruyette, & Woods, Inc., Research Division - MD of Equity Research [10]

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I just had a question on the investment yield. I think last quarter you expected something the 5.25% range. It came in at 5.30%. Is that -- was that delta mostly just due to the stronger alternative investment income in the quarter? And then what would be your expectation going forward?

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Paul Harrington McDonough, CNO Financial Group, Inc. - CFO [11]

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It's Paul. Yes. That is exactly what drove the yield in the quarter. And I think that in terms of what we would expect, we would expect some volatility and performance of all quarter-to-quarter and that's going to usually provide some lift off of the book yield to the earned yield.

So I don't think I would point you to a specific number. I think you just need to expect some variation and the income from alternatives and calls and prepays. We tried to lay that out for you in the table on the slide. So hopefully, that helps you connect the dots, if you will.

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Operator [12]

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Your next question comes from Tom Gallagher with Evercore ISI.

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Thomas George Gallagher, Evercore ISI Institutional Equities, Research Division - Senior MD [13]

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Gary, at the end of your prepared remarks, my apologies, I didn't get everything you said, but it sounded like you had made some comments about more to come on some corporate-wide initiatives including free cash flow and expenses. Can you just elaborate even without giving away fully what's going on, just sort of directionally what you're thinking on those things?

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Gary Chandru Bhojwani, CNO Financial Group, Inc. - CEO & Director [14]

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Sure, Tom. I think, I'd make a couple of comments. So first of all, I'm very pleased with our progress, but not yet satisfied with the result. I continue to believe that we can do better. I've been very pleased with our ability to launch new product with our ability to increase the productivity of our agents with our ability to increase the number of agents that we retain. A variety of different things I think that have gone very well for us over the last several quarters in terms of the growth.

So now that we've got the growth engine running, and continue to execute, now it's time to get more efficient. And I think there is opportunities for us to grow and collaborate between the brands to have more products and produce a better consumer experience and do all of that and ultimately drive the results. So there's a lot more work that needs to be done there, but that was some intentionally -- intentional signaling on my part.

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Thomas George Gallagher, Evercore ISI Institutional Equities, Research Division - Senior MD [15]

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Got you. And then next question to your ceding on excess liquidity at the holdco, that's I think over $100 million above your -- at least the low end of your target. What are you guys thinking about near term and Gary, I heard your comments about balancing different opportunities with cash flow, but what are you thinking specifically right now, just because you do have some excess?

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Paul Harrington McDonough, CNO Financial Group, Inc. - CFO [16]

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Thomas, I'll take that initially. So we continue to manage to the capital and liquidity targets that I referenced in my prepared remarks. And while the holdco liquidity is certainly a bit elevated relative to the minimum 1.50%, we really think about the holdco liquidity and the RBC ratio together. And so when you think about the 409% RBC at the lower end of the 400% to 425% range, together with 260 holdco liquidity, I'd say that we're operating within the range of our targets.

And in that context, we continued to deploy and roughly $50 million of share repurchase per quarter. We've been pretty consistent in that regard. There are certainly incentives for us to be thoughtful about returning capital to shareholders from an ROE perspective.

And then the last comment I would make is, as I mentioned in my remarks, we continue to look at our capital and liquidity thresholds. I -- as I alluded to on the first quarter call, I think there may be some room there to free up some capital, but there is some work to do, particularly from a internal capital modeling perspective, that's going to take several more months and as I indicated, I think we'll be prepared towards the end of this year into the early part of next year to share our conclusions from that work.

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Thomas George Gallagher, Evercore ISI Institutional Equities, Research Division - Senior MD [17]

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And then final question, just for Eric on book yield was 5.08% this quarter, it was 5.44% a year ago. It's a pretty big drop. I get the new money dynamic and how that blends in the portfolio yield, but it seems like the level of decline was a bit magnified. Is there a reason it's dropping so quickly as you've been elevated prepays of higher yielding assets or something and where do you see that book yield going?

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Eric Ronald Johnson, CNO Financial Group, Inc. - CIO [18]

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Historically we've got a book yield attrition that's been in the context of single digits of basis points a quarter. And sometimes 3 sometimes 8, and somewhere in between. The major 2 factors in that more recent shift, it was 1 being first quarter repositioning, which was a kind of a step function. And then obviously second as rates have come out -- have come off, I think they'll exert a little bit more pressure.

Prepayments have had some impact, but not greatly substantial. I also mentioned, we've been carrying off a little bit higher levels of cash in recent -- in recent quarters than we did historically, which also on a pro forma basis have a little bit of an impact as well. And by that I mean, we've tried to always run a pretty close to fully invested $50 million, $75 million of portfolio cash in more recent periods that balance of them a little bit higher, which obviously cash is earning a fairly low book return.

So it is a number of factors kind of mixed up in that. I would say though that you should think about in attrition that is closer to the first range I gave you on a kind of a normalized basis. Then kind of the more step functions that I described a moment ago.

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Operator [19]

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Your next question comes from Erik Bass with Autonomous Research.

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Erik James Bass, Autonomous Research LLP - Partner of US Life Insurance [20]

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Can you talk about how much of a lag there is between seeing an acceleration in sales and when this translates into earnings and is this significantly different between the savings and brokerage products than your traditional insurance products?

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Paul Harrington McDonough, CNO Financial Group, Inc. - CFO [21]

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Erik, its Paul. I'll take a crack at that. There is so many moving pieces in that equation that I'm not sure that I can give a simplified answer. Very high level as we think about our business, I think I would just echo Gary's earlier comments, which were that we have been in recent quarters, call it in the last year or 2 even very focused on investing in topline growth and as Gary alluded to in his comments for reaching sort of an inflection point where we have demonstrated that we can grow the topline and we need to know also I think critically about our overall structure and there are certainly opportunities there and that will help sales translate to earnings growth as well. Does that help, Eric?

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Erik James Bass, Autonomous Research LLP - Partner of US Life Insurance [22]

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It does, I guess maybe related to that, I think you gave some comments about what to expect for the level of expenses for bankers for the remainder of the year, but as we think kind of across the enterprise and the level of planned investment spending for the next few quarters, can you just help us think about what that might look like?

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Gary Chandru Bhojwani, CNO Financial Group, Inc. - CEO & Director [23]

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Yes, I don't think we -- sorry Erik, this is Gary. I don't think we've provided specific guidance on our expense levels or the target growth levels.

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Eric Ronald Johnson, CNO Financial Group, Inc. - CIO [24]

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We have, and it's Eric, and bankers are so much of the entire enterprise that I think if you just look at trends in each of the segments, which you can see pretty clearly in our financial supplement, it should be fairly straightforward to trend that into the second half of the year.

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Paul Harrington McDonough, CNO Financial Group, Inc. - CFO [25]

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Maybe I'll just add a couple of comments. Obviously, if you take a look at where our incentives lie, we don't have an incentive to just grow topline and not bottom line. We have an incentive, a very strong incentive to grow both. I think that's the first thing I want to try and emphasize.

Another way to think about some of these investments, there are a few different categories and just to keep it simple, I'll lock them into 2 broad categories. The first think about some of the expenses related to technology. Those are generally one-time, although I confess it as a non-technology expert. I feel like every time I turn around there are some kind of new technology emerging. But they're supposed to be at least one-time in nature and can be capitalized and so on and should result in productivity and things like that.

There are other things that we've been doing that pertain to the agent force and we can point to increases in productivity, increases in the retention, increases in the average sale. We could point to a number of things and those are great, but there's a bunch of things that we can't yet point to.

As an example, when you think about our agents and the productivity and retention going up that also means that the churn is going down. So the amount of time and energy we're spending bringing on and training new agents in theory there, we're doing less of that. That hasn't yet completely made its way through the system.

Sometimes there are compliance problems when you have agents coming and going too quickly. There are customer satisfaction issues. Those things haven't yet made their way through and shown how they'll benefit us.

There are a variety of different things that over time as this continues to get scale, as we have more long tenured agents that have higher productivity, some of these other problems that result in expenses don't materialize and that starts to show itself through. So those are very different types of things that I believe will continue to show themselves through over time as these strategies continues to take -- continue to take hold and get some scale.

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Operator [26]

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Next question comes from Humphrey Lee with Dowling & Partners.

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Humphrey Lee, Dowling & Partners Securities, LLC - Research Analyst [27]

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A question for Gary. So in your prepared remarks, you talked about how share repurchases, dividend, M&A and organic growth are not mutually exclusive. It sounds like M&A continue to be a part of your capital plan, maybe can you talk about like what areas that you could use some bolt-on acquisitions to your kind of what is augmenting your growth business mix?

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Gary Chandru Bhojwani, CNO Financial Group, Inc. - CEO & Director [28]

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So our shareholders will recognize that I've shied away from providing specific guidance about share repurchases, and I stand by what I've said for a few quarters now in our prepared remarks that organic growth share repurchases, M&A, other types of investments in the business, we don't view them as mutually exclusive. We have a very strong incentive, if you look at how our tight ROE. We have a strong incentive to want to continue with share repurchases when the shares are priced at really compelling levels as they are today.

And so we've tried to walk this balance and I want to continue to emphasize that. In terms of your specific question about M&A, part of the reason I've shied away from providing specific share buyback guidance as I'd like to leave us -- room to be able to invest in growth, whether that's organic or inorganic.

Now specifically on M&A, I'm very pleased with the Web Benefits acquisition not fairly been 90 days. So it's hard to pound the table too much, but I like what I see. The integration plan is expected.

We got a lot more work to do to properly integrate Web Benefits and to really extract the full synergies from that.

And because of that -- and because it was our first acquisition and because of where our stock is trading at, when I boil all those things together, it would have to be a really compelling opportunity to get us to pull the trigger on an M&A deal right now.

I'm not saying absolutely not. I'm just saying that when you look at where we are with Web Benefits, when you look at where our stock prices, when you look at the things we have yet to do, it would have to be a very compelling opportunity for us to look at it. I want to take it off the table, but that bar is pretty high right now.

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Humphrey Lee, Dowling & Partners Securities, LLC - Research Analyst [29]

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Got it. And I appreciate that. And then a question for Paul, just looking at the Medicare supplement in bankers, like you said underwriting has been good, trending kind of within the guidance range, but probably more towards the lower end of the range. How should we think about kind of the underwriting results going into the balance of the year? Should we expect something similar or is there any other factors that would -- could come into play affecting third and fourth quarter expectation?

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Paul Harrington McDonough, CNO Financial Group, Inc. - CFO [30]

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I wouldn't want to guide you anywhere other than to the range itself. There can certainly be variation inside that range. Our expectation is that, we will stay comfortably inside of it, but I don't think, I would give you any narrower guidance than what's already there.

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Operator [31]

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(Operator Instructions) We have a question from Alex Scott with Goldman Sachs.

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Taylor Alexander Scott, Goldman Sachs Group Inc., Research Division - Equity Analyst [32]

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First question I had is on the acquisition Web Benefits Design and just could you help us think about any impact that had on the financials this quarter? You mentioned integration and so forth. Is it contributing to a little bit of a drag on expenses at the moment?

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Gary Chandru Bhojwani, CNO Financial Group, Inc. - CEO & Director [33]

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I think the -- sorry Alex, this is Gary. I'll take a high level crack and I'll let Paul speak to some of the numbers. It clearly provided a benefit relative to our fee income. And I believe we disclosed that. Again I'll let Paul talk to the numbers. As I think about Web Benefits and how it's going, I am very pleased that we are able to maintain the key personnel, the key customer, and key broker relationships. We've got a long way to go in terms of integrating their platform and really tying Washington National products to it and having our distribution force actively go out and pitch the platform.

So that has yet to come. We haven't seen those lists yet. But overall, on those basis, I'm pleased with how it's going. Paul, I hope you want to add some color on the numbers?

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Paul Harrington McDonough, CNO Financial Group, Inc. - CFO [34]

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Sure, Alex. In terms of the financials, they are running through the Washington National segments. So in our financial supplement, they're falling through the revenue line and the other operating expense line, mostly netting out. We also had some closing related costs in the quarter that are in our corporate segment in other operating costs.

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Taylor Alexander Scott, Goldman Sachs Group Inc., Research Division - Equity Analyst [35]

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Got it. And then, as a follow-up, I guess, could you provide some clarity on what you assume in terms of forward rate assumptions? I think the last time, it's been discussed in more detail was probably back before you got rid of the long-term care and I appreciate it's probably less of an issue now, that's gone. But could you help us think about what those rate assumptions are. If there is any risk, just given how much rates have declined?

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Paul Harrington McDonough, CNO Financial Group, Inc. - CFO [36]

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Sure. So Alex, in the context of loss recognition testing, our ultimate new money rates are currently ranging between roughly 5.25% and 6% depending on the product and the duration of the product. As you know, we look at that once a year for the most part, and I guess, I'd emphasize a couple of things.

#1 we have to take a very long-term view, because these are long duration products. And so if you think about how the rate assumptions are used, the new money rate doesn't actually come in until about year 5 and the ultimate new money rate in any of our models takes 20 years or more to reach.

And so from where we sit today, it seems like there is no end in sight to accommodative monetary policy. But looking out 5 -- 20 years. It doesn't seem unreasonable to expect that at some point, there's going to be some reckoning to 10 plus years now fairly easy money.

And so we have to take into account the present circumstance, but also think much further out. If we were to conclude that it's unreasonable to expect to achieve the current rate assumptions then we would lower them and just to give you a sense for the impact that would have, if we were to reduce by 50 basis points, our ultimate new money rate, the impact that would have would be #1 on our margin in the context of loss recognition testing, roughly $100 million across all of our products. The net income statement impact of the change again across all products would be less than $10 million. So hopefully that gives you some context out.

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Operator [37]

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(Operator Instructions) We do not have any questions at this time. I will turn the call over to the presenters.

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Jennifer Childe, CNO Financial Group, Inc. - VP of IR [38]

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Thanks everyone for joining us. We appreciate your interest in CNO. Look forward to speaking with you again.

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Gary Chandru Bhojwani, CNO Financial Group, Inc. - CEO & Director [39]

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Thanks, everybody.

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Operator [40]

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This concludes today's conference call. You may now disconnect.