Business Overview and History
CNO Financial Group, Inc. (CNO) is a leading insurance holding company that develops, markets, and administers health insurance, annuity, individual life insurance, and other insurance and financial services products. With a focus on serving middle-income pre-retiree and retired Americans, CNO has established itself as a prominent player in the insurance industry.
CNO was founded in 1979 and commenced operations in 1982 under the name Conseco, Inc. The company underwent a significant bankruptcy reorganization in 2003, emerging as CNO Financial Group, Inc. This restructuring process was crucial for CNO, allowing it to strengthen its balance sheet and refocus its business after facing challenges related to rapid growth through acquisitions, integration issues, and the need to bolster its capital position.
Since its reorganization, CNO has continued to evolve its business model and product offerings to better serve its target market. The company has made strategic acquisitions, invested in technology and distribution, and placed a heightened focus on profitability and risk management. A notable transaction in this evolution was CNO's 2018 reinsurance agreement with Wilton Reassurance Company, which helped strengthen its long-term care insurance business.
CNO has maintained a strong competitive position in its core markets despite the challenges it has faced. The company's insurance subsidiaries collectively hold licenses to market products in all fifty states, the District of Columbia, and certain U.S. territories. CNO operates through three primary brands - Bankers Life, Washington National, and Colonial Penn - which are well-recognized in the industry and have enabled the company to develop deep relationships with its agent distribution network and customers.
In 2019, the company reorganized its business units into the Consumer and Worksite Divisions, reflecting the distinct customer bases it serves. The Consumer Division focuses on individual consumers, engaging with them through various channels, including phone, virtual, online, and face-to-face with agents. The Worksite Division, on the other hand, specializes in the sale of voluntary benefit life and health insurance products in the workplace.
Over the past five years, CNO has demonstrated its ability to grow the franchise while also improving profitability. The company's sales momentum has been robust, with 10 consecutive quarters of growth as of 2024. This sales growth has translated into strong financial performance, with operating earnings per share, excluding significant items, up 40% in 2024 compared to the prior year.
Financial Overview
CNO's financial position remains solid, with a consolidated risk-based capital ratio of 383% as of the end of 2024. The company's available holding company liquidity stood at $372 million, well above its target minimum. This strong capital and liquidity position have enabled CNO to return significant capital to shareholders, with $349 million in share repurchases in 2024, a 50% increase from the prior year.
In terms of profitability, CNO's operating return on equity, excluding significant items, improved by 280 basis points in 2024, driven by growth in the business, higher interest rates, and strong insurance product margins. The company estimates its run-rate operating ROE at around 10% in 2024, and it expects to generate 150 basis points of operating ROE improvement over the next three years.
CNO's revenue streams are diversified, with contributions from annuity, health, and life insurance products, as well as fee income from its brokerage and advisory services. In 2024, the company's total revenue reached $4.45 billion, with annuity, health, and life insurance products accounting for 41%, 37%, and 22% of total premiums collected, respectively.
For the full year 2024, CNO reported net income of $404.0 million and operating cash flow of $627.7 million. The company's debt-to-equity ratio stood at 1.81, with cash and cash equivalents of $2.0 billion and an available revolving credit facility of $250 million.
In the fourth quarter of 2024, CNO generated revenue of $1.1 billion, a 2.7% decrease compared to Q4 2023. However, net income for the quarter increased significantly by 357.6% to $166.1 million, primarily due to lower non-economic accounting impacts from market volatility.
Operational Highlights
The Consumer Division, which serves individual consumers, delivered an outstanding performance in 2024, with total new annualized premium (NAP) up 5% for the full year. Highlights include a 10% increase in field agent NAP, an 18% rise in health NAP, and a 26% jump in Medicare Supplement NAP. The division's brokerage and advisory assets under management also reached a record $4.1 billion, up 28% from the prior year.
The Worksite Division, focused on the sale of voluntary benefit life and health insurance products in the workplace, also had a strong year, with insurance sales up 16% for the full year and 23% in the fourth quarter. The division's geographic expansion initiative contributed 35% of the total NAP growth for the year, and new insurance products generated double-digit sales growth in critical illness, accident, and hospital indemnity.
Product Segments
CNO operates through three main insurance product line segments - annuity, health, and life - as well as an investment and fee income segment.
The Annuity segment includes fixed indexed annuities and fixed interest annuities. Fixed indexed annuities accounted for $1.54 billion or 35% of total premiums collected in 2024, while fixed interest annuities contributed $239.1 million or 5%. The segment's insurance product margin increased to $274.2 million in 2024 from $235.0 million in 2023, driven by growth in the fixed indexed annuity block and higher net investment income.
The Health segment offers supplemental health, Medicare supplement, and long-term care insurance products. Supplemental health products generated $725.7 million or 17% of total premiums in 2024, Medicare supplement insurance accounted for $625.7 million or 14%, and long-term care insurance contributed $276.2 million or 6%. The segment's insurance product margin rose to $516.8 million in 2024 from $494.3 million in 2023, aided by favorable claims experience in the long-term care business.
The Life segment includes interest-sensitive life and traditional life insurance products. Interest-sensitive life insurance generated $244.1 million or 6% of premiums, while traditional life insurance accounted for $716.4 million or 16%. The segment's insurance product margin increased to $249.0 million in 2024 from $229.7 million in 2023, due to improved mortality experience and growth in the block.
The Investment and Fee Income segment manages the company's capital resources and includes earnings from the sale of third-party insurance products and services provided by the company's Optavise business. Investment income not allocated to the insurance product lines was $167.9 million in 2024, up from $120.2 million in 2023. The Fee Income segment generated $30.0 million in net fee income in 2024, slightly down from $31.0 million in 2023.
Geographic Performance
While CNO primarily sells its products in the United States, certain states contribute more significantly to the company's premium collection. In 2024, approximately 11% of collected premiums were from Florida, 6% from Iowa, 5% from Pennsylvania, 5% from California, and 5% from Texas.
Outlook and Risks
Looking ahead, CNO is well-positioned for continued growth and ROE expansion. The company's 2025 guidance calls for operating earnings per share between $3.70 and $3.90, with a target operating ROE of around 10.5%. This improvement is expected to be driven by several initiatives, including expanding brokerage and advisory services, launching new products, leveraging its Bermuda reinsurance platform, and modernizing its technology infrastructure.
CNO has announced a 3-year, $170 million technology modernization initiative, with $60 million expected to be incurred in 2025. This initiative is anticipated to improve the company's technology stack and enable long-term growth.
For 2025, CNO expects an expense ratio between 19.0% and 19.4%, improved results in net investment income not allocated, a modest decrease in fee income due to sales mix shift and investments in the worksite business, and excess cash flow to the holding company between $200 million and $250 million.
Risks to CNO's performance include changes in interest rates, which can impact the profitability of its insurance products, as well as regulatory changes, competition, and the ability to retain and attract agents. The company's significant exposure to the long-term care insurance market also presents potential challenges, as the line has historically experienced higher-than-expected claims.
Industry Trends
The life and health insurance industry is expected to see moderate growth, driven by improving economic conditions, increased demand for annuity and retirement planning products, and continued product innovation. These trends align well with CNO's strategic focus and product offerings, potentially providing tailwinds for the company's growth initiatives.
Conclusion
CNO Financial Group has demonstrated its ability to navigate the evolving insurance landscape, delivering strong sales growth and improved profitability. The company's diversified product portfolio, enhanced distribution capabilities, and strategic investments position it well for sustained growth and ROE expansion in the years ahead. With a clear strategy for technological modernization and a focus on improving operating ROE, CNO remains an interesting investment opportunity in the insurance sector.