Executive Summary / Key Takeaways

• CNO Financial Group is strategically focused on expanding its operating return on equity (ROE), targeting a 150 basis point improvement over the 2025-2027 period from a 2024 run rate of approximately 10%.
• The company delivered strong operating results in Q1 2025, with operating earnings per diluted share up significantly year-over-year, enabling the reaffirmation of full-year 2025 guidance, including expected EPS of $3.70 to $3.90 (excluding significant items).
• Sustained sales momentum and producing agent growth across both Consumer and Worksite divisions, fueled by new products and strategic initiatives like geographic expansion and digital marketing, are translating into growing insurance product margins and driving top-line performance.
• A significant three-year technology modernization initiative, commencing in Q2 2025, represents a key investment in future growth and operational agility, aiming to enhance agent and customer experience and leverage new capabilities like AI.
• CNO maintains a strong capital position, exceeding target RBC and Holdco liquidity levels, supporting robust shareholder returns through share repurchases and a recently increased quarterly dividend, while managing leverage within its target range.

A Strategic Pivot Towards Optimized Growth

CNO Financial Group operates as a holding company for a portfolio of insurance companies dedicated to serving the distinct needs of middle-income pre-retiree and retired Americans. This demographic, often underserved by larger financial institutions, represents a significant market opportunity for CNO's core offerings: health insurance, annuities, and individual life insurance products. The company reaches this market through a diversified distribution model encompassing exclusive agents, independent producers, and direct marketing channels.

CNO's journey has seen a deliberate strategic evolution. An earlier phase prioritized fortifying the balance sheet, culminating in key transactions like the long-term care reinsurance agreement and achieving investment-grade ratings. This laid the groundwork for the subsequent phase, initiated around 2020, focused on reigniting sales growth through a strategic realignment into the Consumer and Worksite divisions. Having successfully built sales momentum, CNO is now in a phase focused on optimizing results and driving profitability, with a clear mandate to expand its operating return on equity.

In the competitive landscape, CNO operates alongside larger, more diversified financial institutions and specialized insurance providers. While competitors like Old National Bancorp (ONB), Trustmark Corp (TRMK), International Bancshares Corporation (IBOC), Aflac Incorporated (AFL), and Lincoln National Corporation (LNC) may possess greater scale, brand recognition, or broader financial ecosystems, CNO has carved out a niche through its targeted focus and distribution model. Its strength lies in reaching the middle-income senior market effectively, particularly through its dedicated agent force, which fosters long-term relationships and supports persistency – a key differentiator against competitors who may rely more heavily on transactional models. This niche focus, coupled with the inherent difficulty and cost for new entrants to build a comparable distribution infrastructure in this market, provides CNO with a natural moat. However, CNO faces competitive pressures related to operational efficiency and the speed of digital innovation compared to some rivals who have invested heavily in integrated technology platforms and faster processing capabilities.

Technological Enablement and the Path to Modernization

Technology is increasingly central to CNO's strategy, serving both as an operational enabler and a competitive differentiator. The company has already implemented several technological enhancements that yield tangible benefits. For instance, its accelerated underwriting process for simplified life products demonstrates efficiency, achieving an 87% instant decision rate on submitted policies in Q1 2025, an 11% improvement over Q4 2024. This speeds up the sales process and improves the agent and customer experience. Furthermore, CNO has successfully diversified its direct-to-consumer marketing beyond traditional television, with web and digital channels now accounting for over 36% of sales generated by D2C leads in Q1 2025, representing a 28% year-over-year increase. This shift reflects an adaptation to changing consumer habits and a focus on optimizing advertising efficiency, particularly relevant during periods of high competition for TV ad space like presidential election cycles. The myhealthpolicy.com platform also streamlines Medicare Advantage policy processing, handling nearly 90% of sales during the Annual Enrollment Period.

Recognizing the need to build upon this foundation and address potential competitive disadvantages related to legacy systems, CNO is embarking on a significant three-year technology modernization initiative. Commencing in Q2 2025, this project is expected to cost approximately $170 million over its duration, with about $60 million allocated for 2025. The primary goal is to convert legacy policy administration and foundational systems from mainframe to cloud-based Software-as-a-Service (SaaS) solutions. This is not primarily a cost-saving play, but rather an investment aimed at creating a more stable and agile technology stack capable of leveraging emerging capabilities like Artificial Intelligence (AI). The strategic intent is to position CNO for faster product development, enhanced agent experience, and improved customer service, thereby strengthening its competitive standing and enabling long-term growth. The substantial majority of the costs associated with this initiative will be treated as discrete, one-time expenses excluded from operating earnings, highlighting their strategic investment nature.

Operational Momentum and Financial Performance

CNO's strategic focus on growth has translated into consistent operational momentum. The company has achieved ten consecutive quarters of consolidated sales production growth and nine consecutive quarters of growth in producing agent counts across its divisions.

In the Consumer Division, this momentum is evident in health product sales, with Health NAP up 9% in Q1 2025, marking the eleventh consecutive quarter of growth. Medicare Supplement NAP saw a significant 24% increase, while Medicare Advantage policies sold surged by 42% in Q1 2025, demonstrating strong demand and effective distribution, despite accounting complexities under ASC 606 causing volatility in fee income recognition. Annuity collected premiums were up 12% in Q1 2025, the seventh consecutive quarter of growth, with account values rising 7%. This reflects the growing need for retirement income solutions in the target market and the stability provided by CNO's captive distribution. Brokerage and advisory services also continue their growth trajectory, with client assets up 16% in Q1 2025, reaching over $16 billion when combined with annuity account values. While Life production in the Consumer D2C channel faced headwinds from elevated advertising costs in Q1 2025, the strategic pivot to web and digital channels is mitigating this impact.

The Worksite Division has also been a consistent growth engine, posting its twelfth consecutive quarter of insurance sales growth with an 11% increase in Q1 2025. Key drivers include new products like Critical Illness (up 37% in Q1 2025) and Accident insurance (up 4%), alongside strategic initiatives. The geographic expansion program contributed a significant 32% to Worksite NAP growth in Q1 2025, while an initiative focused on acquiring new employer groups saw NAP from these clients increase by a robust 134%. Producing agent count in the Worksite division was up 8% in Q1 2025, continuing a trend of growth. The recent launch of Optavise Clear, a bundled service offering including Medicare advocacy and enhanced technology, aims to further strengthen the Worksite value proposition.

Financially, CNO's operating performance reflects the benefits of this growth and disciplined management. Operating earnings per diluted share were $0.79 in Q1 2025 ($0.74 excluding significant items), a substantial increase from Q1 2024. Total insurance product margin increased to $248.9 million in Q1 2025 ($242.1 million excluding a traditional life model refinement), up from $229.6 million in Q1 2024. This improvement is driven by business growth, favorable morbidity in health segments (Supplemental Health and Long-term Care), and increased investment income allocated to products. Net investment income overall rose 16% in Q1 2025 to $298.7 million, benefiting from sustained new money rates exceeding 6% and portfolio optimization efforts, as well as improved alternative investment performance compared to the prior year. The expense ratio showed a slight improvement in Q1 2025 compared to Q1 2024, reflecting continued expense discipline, although expenses are seasonally higher in the first quarter. Organizational efficiency improvements implemented in Q3 2024, including workforce reduction and outsourcing, are expected to contribute to improved run rate expenses.

Capital Strength and Shareholder Returns

CNO maintains a robust capital position, providing a solid foundation for its strategic initiatives and shareholder returns. As of March 31, 2025, the estimated consolidated RBC ratio for its U.S.-based insurance subsidiaries stood at 379%, comfortably above the target of 375%. Available holding company liquidity was $250.3 million, well exceeding the minimum target of $150 million, partly bolstered by proceeds from the May 2024 issuance of 2034 Notes, a portion of which is earmarked for the repayment of the $500 million 2025 Notes maturing in May 2025. Adjusting for this expected repayment, the debt to total capital ratio (excluding AOCI) would be 26.1%, within the target range of 25% to 28%.

The company's strong free cash flow generation, which exceeded prior guidance in 2024, supports its commitment to returning capital to shareholders. In Q1 2025, CNO returned $117 million through share repurchases ($99.9 million) and common stock dividends ($16.4 million). The company repurchased 2.5 million shares in the quarter and had remaining repurchase authority of $640.4 million as of March 31, 2025. The quarterly common stock dividend was increased to $0.17 per share in May 2025, marking the twelfth consecutive year of dividend increases. CNO also continues to explore opportunities to enhance capital efficiency, including leveraging its Bermuda reinsurance platform. Effective October 1, 2024, the company began retaining 100% of new Long-term Care business, discontinuing a prior 25% cession arrangement, reflecting confidence in the product's economics and contributing to future earnings and capital generation.

Outlook and the Path to Higher ROE

CNO has reaffirmed its full-year 2025 guidance, signaling confidence in its ability to execute against its strategic priorities despite macroeconomic uncertainties. The company expects operating earnings per diluted share (excluding significant items) to be in the range of $3.70 to $3.90. The expense ratio is projected to be between 19.0% and 19.4%, with a typical seasonal pattern. Net investment income not allocated is expected to improve compared to 2024, assuming alternative investments perform in line with long-term targets. A modest decrease in fee income is anticipated, primarily due to the timing of Medicare Advantage revenue recognition and investments in the Worksite service business. Excess cash flow to the holding company is guided to be between $200 million and $250 million. Capital targets (375% RBC, $150 million minimum Holdco liquidity, 25-28% leverage ex-AOCI) remain unchanged.

The core of CNO's forward-looking strategy is the commitment to expand run rate operating ROE by 150 basis points over the 2025-2027 period, building from a 10% run rate in 2024. This target includes an approximate 50 basis point improvement expected in 2025. Management views this as achievable through a combination of continued sales growth, favorable investment spreads, disciplined expense management, optimization of the in-force book, strategic pricing, and efficient capital deployment, including leveraging the Bermuda platform and the benefits expected from the technology modernization initiative. While macroeconomic visibility is acknowledged as deteriorating, CNO's business model has demonstrated resilience, and stress testing indicates the ability to absorb severe economic impacts without falling below target capital levels.

Risks and Challenges

Despite the positive momentum and strategic clarity, CNO faces several risks. Macroeconomic volatility, particularly concerning interest rates, could impact investment performance and product profitability. While the company's investment portfolio is managed with a long-term perspective, significant market fluctuations could affect asset values and earnings. Litigation, such as the ongoing Burnett and Platinum Partners cases, poses potential financial and reputational risks, although the company believes its provisions are adequate. Regulatory changes, particularly concerning capital requirements (like RBC framework adjustments or asset adequacy analysis for reinsurance), could impact the financial affairs of insurance subsidiaries and their ability to pay dividends. The realization of deferred tax assets is dependent on future taxable income projections, and potential ownership changes could limit the utilization of net operating losses. Counterparty risk on derivatives and the potential failure of reinsurers to perform also remain considerations. The execution of the significant technology modernization project carries inherent risks related to implementation challenges, timeline adherence, and achieving the intended benefits.

Conclusion

CNO Financial Group has successfully navigated phases of balance sheet strengthening and sales growth, establishing a solid foundation for its current strategic focus on optimizing results and expanding operating ROE. The company's differentiated business model, centered on serving the middle-income senior market through a unique distribution network, provides a competitive advantage. Recent performance demonstrates tangible progress, with sustained sales momentum translating into improved insurance product margins and overall profitability, supported by strong investment results and disciplined expense management.

The commitment to a 150 basis point ROE improvement by 2027, underpinned by specific 2025 guidance and a clear set of strategic levers including investments in technology modernization and capital efficiency initiatives like leveraging the Bermuda platform, signals a clear path forward. While macroeconomic uncertainty and execution risks associated with large-scale projects like the tech initiative warrant careful monitoring, CNO's robust capital position and demonstrated ability to generate free cash flow provide resilience. For investors, the story is one of a company leveraging its niche expertise and operational momentum, supported by strategic investments in its future capabilities, to drive enhanced profitability and shareholder value over the coming years.