Get up to speed on the latest news, stories and insights from CNO – from company announcements to a peek into the company culture to profiles of our team in action.
CEO Gary C. Bhojwani
To my fellow shareholders:
It is my honor to write to you in my fifth shareholder letter as chief executive officer of CNO Financial Group. As I reflect on the past five years, my belief in CNO’s purpose and my admiration for the people who work for your company have only deepened. I’ve spent my entire career in insurance—nearly 30 years. I joined CNO because I believed in the products and the life-changing impact that financial protection can have on middle-income Americans. I still do. Now more than ever.
Two turning points define our experience from the past five years: our strategic transformation and the COVID-19 pandemic. Unpredictably, they happened at nearly the same time. First, in early 2020, we successfully reorganized our business to align with the customers we serve: Consumer and Worksite. This transformation provided the foundation for our growth momentum (more on this later). Through tremendous luck, we could not have been better timed in our realignment. The new structure enabled us to navigate the pandemic from a position of strength.
Second, the pandemic was a humanitarian and economic crisis never seen in our lifetimes. Our agents and associates stepped up as “financial first responders” during the crisis. They delivered on the promises of our products and services when our customers needed it most. The pandemic forcefully reminded us of the manner in which insurance and financial services help people—often at the hardest times in their lives.
Today, our people and purpose continue to make the difference. I thank our associates, agents, and independent partners for their dedication. We remain proud of how CNO delivered solid results in 2022 while navigating continued pandemic impacts and economic headwinds. Highlights of the year include:
- Paid $2. 0 billion in claims to our policyholders.
- Delivered operating earnings per share (EPS)1 of $2. 33.
- Grew book value per diluted share1,2 11% from 2021, to $29. 90.
- Returned $245 million to shareholders in the form of share repurchases and dividends.
- Received an upgrade by AM Best on our financial strength rating from A- to A.
- Launched Optavise, our new, unified Worksite brand.
- Earned the Great Place to Work® certification for the third year.
- Named as one of Forbes’ Best Midsize Employers.
- Named as one of Forbes’ Best Employers for Diversity for the third year.
- Recognized as one of the Healthiest 100 Workplaces in America® for the ninth year.
I thank Board Chair Dan Maurer and the CNO Board of Directors for their continued stewardship and balanced counsel. I also look forward to working with Mr. Archie Brown and Ms. Adrianne Lee, who are nominated to stand for election to the CNO Board at our annual shareholders’ meeting on May 10, 2023. Archie is president and chief executive officer of First Financial Bancorp (Nasdaq: FFBC) and Adrianne is chief financial officer of Overstock. com, Inc. (Nasdaq: OSTK).
In December 2022, I was pleased to elevate two CNO senior leaders to my executive management team: Ms. Jean Linnenbringer as chief operations officer and Mr. Mike Mead as chief information officer. Both leaders bring in-house experience and significant insurance industry expertise to their elevated roles.
2022 was a strong, yet challenging year. Our focus remained squarely on delivering growth and executing on our strategic priorities. We navigated continued uncertainty from the lingering impacts of the pandemic and shifting macroeconomic conditions (inflation, a potential recession, market volatility, the ongoing war in Ukraine, and a tight labor market, among others).
Our balanced business model provided strength, stability, and resilience to our overall results. We generated stable earnings and solid free cash flow. Book value per diluted share1,2 grew 11% to nearly $30.
Net investment income benefited from rising new money rates. We continued to maintain our strict expense discipline, balancing growth investments and technology expenditures against operating efficiency.
Against this backdrop, I have been asked, “How do I view CNO’s performance in 2022?” My perspective is generally positive. Here’s how I think about it.
First, our most significant headwinds were largely outside of our control. Most notably, macroeconomic conditions that resulted in noise in reported annuity results and a reduction in variable net investment income. For a variety of reasons, we expect these results to improve. Second—and most importantly—the majority of what went well in 2022 occurred in areas that are within our influence and repeatable: sales production, new products, agent recruiting, policyholder persistency, overall investment management, and capital management. These factors represent significant leading indicators on the future health of our business. They’re moving in the right direction.
Within our Consumer Division, our integrated distribution model is a competitive strength and a productive, resilient, and repeatable way to serve the middle market. We own a leading direct-to-consumer (D2C) life insurance business that reaches millions of prospective customers each year and, last year, delivered sales growth above most industry peers. Our exclusive national agent sales force is large and well-established. It operates at a scale that would be difficult, if not impossible, to create anew today. Local agents live in the communities that they serve and build lasting relationships with our customers.
Customers can engage with us online, over the phone, virtually, or in-person with an agent. Our unique ability to marry a virtual connection with our in-person agents who complete the critical “last mile” of sales and service delivery is a key differentiator. In 2022, our integrated D2C and agent capabilities continued to drive growth for our Consumer Division. We delivered a strong production year with double-digit growth in D2C life insurance (up 10%) and annuities (up 15%), supplemental health growth (up 9%), and a solid Medicare Annual Enrollment Period (AEP).
Agent recruiting generated positive momentum throughout the year. Steady improvement across all four quarters suggests that we are at or near an inflection point in producing agent counts. Our strategy to prioritize targeted recruiting and agent productivity over simply recruiting a greater number of new agents has proven successful and remains unchanged.
Within our Worksite Division, we deepened the integration of our business with the launch of our new Optavise brand. Under Optavise, we unified our Worksite capabilities into a one-stop-shop for employers and employees to access expert guidance, voluntary benefits, year-round communications and advocacy services, and benefits administration technology. The reception from the employer and broker market, and our agents, was positive. Our Worksite market opportunity now focuses on two client profiles: National and Regional. We offer a compelling value proposition for each market and expect to capitalize on our approach in 2023 and beyond.
Worksite sales momentum in 2022 benefited from more employers reopening their offices, which enabled our agents to return to scheduling more in-person benefits enrollments. Recent investments in our hybrid enrollment platform also provided agents with greater flexibility to connect with employees wherever they are, including by video or over the phone.
Although the recovery of our Worksite business continues, we are encouraged by the steady progress—insurance sales were up 20% for the full year. We remain pleased—but not yet satisfied—with the attractiveness, competitiveness, and growth potential of this business.
Solid Investments and Capital Management
Our portfolio remains well-positioned for a potential recession and credit cycle. In 2022, our investments performed well compared to the majority of benchmarks we use, with minimal levels of credit impairments. The strength of our position can be attributed to up-in-quality actions over the last few years and the leadership of our experienced investments team.
At year-end, our statutory capital and surplus were $1. 8 billion. Our consolidated RBC ratio and holding company liquidity were above our stated target levels. We generated $163 million of free cash flow in 2022.
We returned $245 million to shareholders in 2022, demonstrating our commitment to capital return. In the past five years, we returned $1. 5 billion to shareholders in the form of securities repurchases ($1. 2 billion) and dividends ($0. 3 billion) and reduced our share count by 31% during this time.
In May of 2022, we raised our dividend to $0. 14 per share per quarter, our tenth consecutive annual increase.
Why Invest in CNO
CNO is a growth story. We offer one of the more compelling, sustainable growth stories among our peer group. Our focus remains exclusively on the middle-income market. This segment is large, growing, and presents considerable, long-term market opportunity for us. With few companies still offering pensions, the rising cost of healthcare, inflation, and people living longer in retirement, we believe that middle-income customers have the greatest need for financial protection products and services. Yet, they remain underserved. Our distribution model and products are built to serve this market.
CNO’s diverse and integrated distribution sets us apart in the market. After nearly three decades in the insurance industry, I have yet to see another company with CNO’s mix of exclusive agent, D2C, and independent agent distribution. Most insurers have one, or at most two, of those distribution channels. We have all three. How we integrate the channels—within both our Consumer and Worksite Divisions—is unique and valuable. We have several growth initiatives in place to optimize results in our Consumer Division, Worksite Division, and investments. Most importantly, our increasing expertise with this integration creates tremendous potential.
Our broad portfolio of insurance and securities includes both manufactured and distributed products. We want customers to have access to the right products to meet their needs, whether it is ours or one that we distribute for others. With our manufactured products, we have decades of product management and underwriting experience. With our third-party products, we rigorously select our partners and earn fees. Our products are straightforward, profitable, and designed for the middle-market consumer.
The diversity of our business model—in products, distribution channels, and markets—lowers our risk profile and creates natural hedges. This balance lends strength, stability, and resilience to our overall results. Consider our performance throughout the pandemic. When our life products were pressured, our health products provided a counterbalance. Though pandemic conditions impacted the number of producing agents in our sales organization, our D2C sales growth accelerated and agent productivity improved. When offices were closed to Worksite agents to conduct in-person benefits enrollments, our Consumer Division agents were successfully serving customers through virtual and direct-to-consumer access.
We continue to deliver a solid balance sheet, strong cash flows, and disciplined capital management, as reflected in the 2022 upgrade of our financial strength rating from AM Best. Our diversified product suite produces strong and stable underlying insurance product margins, with the mix of earnings from life, health, and annuities remarkably balanced over time. This is an important point of differentiation for our company and forms a solid foundation for earnings.
At our recent Investor Day in February 2023, an investor complimented us on the caliber of CNO’s management team. As good as our executive leadership group is (and they do a fantastic job), our dedicated associates and agents in our corporate and sales offices are even better. Our people put CNO’s purpose into action every day to serve the needs of our customers and their families. They are another important reason we believe CNO is an excellent investment.
Commitments to ESG and Our Associates
At CNO, the core of our business is helping people. We don’t think about our commitment to environmental, social and governance (ESG) principles as being separate from our operations. Making a difference is what we do. As I shared in last year’s letter, MSCI upgraded our ESG rating in early 2022 by two notches from BB to A. This upgrade places CNO in the top quartile of our domestic life insurance peers. I encourage you to learn more by reading our Corporate Social Responsibility Report, which is available on our website www.CNOinc.com.
Responsible companies not only provide good paying jobs, but also help make employees’ lives better. We continue to prioritize and invest in associate programs, including:
- Expanding our nationally recognized well-being program with additional mental health and caregiver resources.
- Continuing to invest in our diversity, equity and inclusion (DE&I) commitment to build an inclusive, representative workforce.
- Fostering a flexible, hybrid work environment that blends new, reimagined office facilities with remote-work technology.
- Enhancing our 401(k) match to assist our associates save more for retirement and continuing to offer every associate a performance-based cash bonus to share in our success.
What to Expect in 2023
As we look ahead, market volatility, inflation, a possible recession, and the war in Ukraine continue to create macroeconomic disruption. It is also too soon to fully understand the long-term impact that the recent banking crisis may have on markets and the U. S. economy. Even in the face of this uncertainty, we remain optimistic about our prospects. Our performance and track record of execution over the past several years demonstrates our strength and resilience.
Prior to the pandemic, we posted six consecutive quarters of sales growth. As COVID-19 transitions from a pandemic to an endemic state, we are well-positioned to accelerate our profitable growth in 2023 and beyond.
Our sales momentum is strong and provides a solid foundation for future earnings. As referenced earlier, the leading indicators of the future health of our business are trending positively and are within our influence—sales production, new products, agent recruiting, policyholder persistency, overall investment management, and capital management. Our robust cash flow is a cornerstone of our financial strength. We remain disciplined in our approach to expense management.
It is my privilege to serve as chief executive officer of CNO Financial Group. We remain committed to the opportunities ahead to serve our customers and generate long-term value for our shareholders.
In closing, I offer my profound appreciation to Ms. Ellyn Brown and Mr. Fred Sievert, who will retire from the CNO Board of Directors in May 2023. Ellyn joined CNO’s Board in May 2012 and serves as chair of the Governance and Nominating Committee and as a member of the Human Resources and Compensation Committee. Fred joined our Board in May 2011 and is a member of the Governance and Nominating Committee. He is also a current member and a past chair of the Human Resources and Compensation Committee. For more than a decade, CNO turned to Ellyn and Fred for sage counsel, steadfast leadership, and deep knowledge of the insurance and financial services industries. I am honored to count both Ellyn and Fred as collaborative, insightful colleagues. On behalf of my fellow directors and the CNO management team, we wish them both the very best.
Please take care of yourself and your fellow neighbor. Thank you for your continued support of, and interest in, CNO Financial Group.
Gary C. Bhojwani
Chief Executive Officer
CNO Financial Group, Inc.
March 20, 2023
For more information about CNO's Annual Report, visit here.
1 A non-GAAP measure. See “Information Related to Certain Non-GAAP Financial Measures” beginning on page 91 of our Proxy Statement filed on March 29, 2023, with the Securities and Exchange Commission for a description of this measure and a reconciliation to the corresponding GAAP measure.
2 Excluding accumulated other comprehensive income (loss).
This letter contains forward-looking statements. These statements are subject to significant risks and uncertainties, including those described in our Annual Report on Form 10-K that accompanies this letter.