CNO Financial Group Inc (CNO) 2016 Q4 法說會逐字稿

Good morning, my name is Melissa. I will be your conference operator today. I would like to welcome everyone to the fourth-quarter 2016 earnings results conference call.

(Operator Instructions)

Adam Auvil, sir, you may begin your conference.

Good morning, and thank you for joining us on CNO Financial Group's fourth-quarter 2016 earnings conference call. Today's presentation will include remarks from Ed Bonach, Chief Executive Officer; Gary Bhojwani, President; and Erik Helding, 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 yesterday's press release. You can obtain the release by visiting the media section of our website at www.cnoinc.com. This morning's presentation is also available in the investors section of our website and was filed in a Form 8-K earlier today.

We expect to file our Form 10-K and post it to our website on February 21. Let me 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 presentation contains a number of non-GAAP measures, which should not be considered as substitutes for the most directly comparable GAAP measures.

You will find a reconciliation of the non-GAAP measures to the corresponding GAAP measures in the appendix. Throughout this presentation, we will be making performance comparisons, and unless otherwise specified, any comparisons made will be referring to changes between fourth quarter 2015, and fourth quarter 2016. With that, I will turn the call over to Ed.

Thanks, Adam, and good morning. I am pleased to report that 2016 was another notable year of solid results for CNO, as we continued to grow and diversify the franchise. Our growth this year was due to a mix of new sales, expanded customer reach through new product and services, and successfully retaining customers.

Most of our growth metrics showed increases for the year. First-year collected premiums were up 12%. Total collected premiums grew 6%.

Both the result of strong annuity sales during the year. NAP, however, was down 2%, while in-force policies were up 1%, including a 6% increase in third-party policies in the quarter. Bankers Life annuity account values grew 3%.

We posted another year of solid financial results, with meaningful increases to both net income and earnings per share. Book value per diluted share was up 10% from the prior year. Our financial strength and ability to generate cash flow was evident yet again in 2016, as we were able to return to $258 million to shareholders, while managing through an unexpected recapture of a closed block of long-term care business.

The recapture demonstrated our balance sheet's strength and resiliency, as we were able to absorb the associated financial impacts while maintaining strong capital metrics. We concluded our year-end actuarial assumption reviews, and I am pleased to report that we experienced another year of growth in aggregate margins. Erik will cover the specifics around our long-term care testing later in the presentation, but I will note that our Bankers LTC margins increased again this year.

On the deal front, CNO made a strategic investment in Tennenbaum Capital Partners, an investment management firm with over $6 billion in committed capital under management. This transaction is a great fit for many reasons, including diversification of our income into alternative investments, a long-term opportunity through ownership in a growing platform, and further utilization of our valuable tax assets.

Lastly, we made significant progress on advancing our technology and business solutions, and customer experience initiatives. Much of the year was focused on completing and implementing several projects that will enhance future profitable growth. Of special note, was launching our in-house broker-dealer and registered investment advisor.

I will now turn the call over to Gary to discuss our segment results. Gary?

Thanks, Ed. Before turning to the segment results, I would like to address the Department of Labor Fiduciary Standards rule in light of the recent executive memorandum requesting a review of the rule. It is important to reiterate how the rule in its current state will impact our segments.

Namely, that Colonial Penn will not be impacted, and Washington National will be immaterially impacted due to the low-volume products currently distributed that are subject to the rule. Bankers Life could be the most affected segment. However, we do not anticipate any material adverse impacts to our business at Bankers Life, or our recently launched broker-dealer product portfolios.

As previously discussed, the diversity of our distribution channels and products, and our robust compliance culture have lessened any meaningful disruption to our business model as a result of adopting the rule. Our core strategy for implementation remains, with no material deviations expected until changes, if any, are definitive. Turning to slide 6 in our segment results, Bankers Life first-year collected premiums were up 18% in the quarter, driven by strong annuity sales, which grew 26%.

For the full year, annuity first-year collected premiums were up 21%, demonstrating our customers' desire for these retirement products. Annuity account values on which spread income is earned increased 3% to $7.8 billion. Total collected premiums were up 9% for the quarter, and 7% for the full year, due to strong annuity sales and persistency in the in-force block.

Bankers Life NAP was down 6%, driven by lower sales of life insurance, Medicare supplement, and long-term care plans. Partially offset by the higher annuity sales previously discussed. As a reminder, NAP includes 6% of annuity sales, 10% of single premium whole life deposits, and 100% of all other new premiums on an annualized basis.

New agent recruiting decreased 12% for the quarter, but was up 3% for the year. The average number of producing agents was down 5%, driven by a decline in new agent retention.

We continue to evaluate all aspects of our recruiting model, including our candidate sourcing channels, recruiting activities, onboarding and training processes, and retention strategies necessary to develop and support our experienced and successful agent force. Trailing fourth quarter's third-party fee income, primarily derived from the sale of Medicare Advantage plans, was up 6%.

Turning to Washington National, first-year collected premiums were down 4%, reflecting lower sales over the past several quarters. Total collected premiums were up 1% with a 3% increase in supplemental health, partially offset by the continued run-off of the closed Medicare supplement block.

Total NAP was up 3%, worksite NAP up 5%, benefited from an increase in the new group activity and growth in our PMA producing agent comp. Individual market NAP was up 2%, driven by supplemental health policies sold as GAAP coverage for ACA participants enrolled during the fourth quarter. New agent recruiting at PMA increased 7%, contributing to an increase of 8% in the average producing agent count in the quarter.

Moving on to slide 8 and to Colonial Penn, first-year collected premiums were up 2% for the quarter and 6% for the full year, reflecting higher levels of sales in recent periods. Total collected premiums were up 6% for the quarter and 7% for the full year, due to continued growth, both in first-year premiums from new sales, and steady persistency in the in-force block. NAP was down 6% for the quarter, reflecting lower lead volume, primarily due to reduced television advertising as a result of the 2016 elections.

However, on a full-year basis, Colonial Penn's NAP was up 3% versus 2015, due to continued lead source diversification in direct mail and Web and digital activities. I will now turn the call over to Erik to discuss our financial results.

Thanks, Gary. CNO had a strong quarter on the earnings front. We reported net income per diluted share of $1.34, up from $0.73 in the prior year.

Fourth-quarter 2016 net income was favorably impacted by $119 million from the previously announced IRS tax settlement. We reported net operating income per diluted share of $0.49, down slightly from the prior year. Fourth-quarter 2016 operating earnings reflect $41 million of positive adjustments, related to year-end assumption reviews.

Income was negatively impacted by approximately $5.5 million of higher corporate segment expenses related to a legacy lawsuit dating back to the early 2000s. Excluding the significant items mentioned above, net operating earnings per diluted share were $0.35. This is down slightly and largely attributable to a higher-investment income in the prior year, and higher expenses in the current period.

Operating return on equity was 8.7% in the quarter. CNO continues to main strength in its key capital measures. As disclosed on January 12, we concluded the independent third-party audit of the recaptured close block long-term care assets.

The conclusion of the audit resulted in no material valuation adjustments. We have made good progress on repositioning the portfolio, and have sold and reinvested nearly $400 million of the $500 million of total assets. We expect to continue repositioning the remaining portfolio over the next several quarters.

We reported estimated consolidated risk-based capital of 459%, flat from the third quarter, but up 10 points from the prior year. Leverage decreased to 19.1%. The result of higher net income in retained earnings.

Book value per diluted share, excluding AOCI, was $22.02, up 10% from the prior year. Holding company cash and investments was $264 million, up from $189 million in the third quarter. Cash flows in the second half of the year were favorably impacted by the IRS tax settlement.

With the life NOLs now fully utilized, we expect to start paying meaningful cash taxes in the first quarter of 2017. But still expect free cash flow generation to be approximately $75 million per quarter.

With the conclusion of the independent audit, continued strength in our key capital measures and holding company cash now north of $250 million, we are in position to resume excess capital deployment. We expect to repurchase between $200 million and $275 million of common stock in 2017, absent compelling alternatives.

Turning to slide 11 in our segment earnings, Bankers Life earnings reflect favorable Medicare supplement and LTC margins, partially offset by higher expenses related to the full rollout of our broker-dealer and registered investment advisor. Washington National's earnings reflect higher expenses related to the recent deployment of agent productivity tools, partially offset by increased margins in our supplemental health business. Colonial Penn's results were in line with seasonal expectations.

We reported full-year EBIT of just under $2 million, consistent with prior guidance. Looking forward to 2017, we expect to report EBIT between $5 million and $15 million, reflecting growth in in-force earnings and opportunistic marketing cost management. The LTC and run-off segment reported a slight loss in the quarter, consistent with expectations.

Lastly, corporate segment results were down year over year, primarily due to favorable investment performance and higher asset balances in the prior year, and a negative mark-to-market on our COLI investment and higher expenses in the current quarter. The higher expenses in the current quarter were largely attributable to DOL implementation costs and true-ups to various employee compensation and benefit accruals, based on the strong performance of the fourth quarter.

Turning to slide 12 in our key health benefit ratios, Bankers Life Medicare supplement benefit ratio was 71.2%, down from the last couple of quarters due to favorable incurred claims. For 2017, we expect the Medicare supplement benefit ratio to be in the 71% to 74% range, which is consistent with 2016 experience and pricing expectations. Bankers Life long-term care interest adjusted benefit ratio was 76% on a reported basis, and reflects a $3 million impact from policyholder actions, following the implementation of rate increases.

Excluding these impacts, the interest adjusted benefit ratio was 78.4%, favorable to expectations and reflecting lower incurred claims. For 2017, we expect the interest adjusted benefit ratio, excluding the impact of rate increases, to be in the 77% to 82% range. The improvement from 2016 is driven by favorable loss recognition testing results, and a significant decrease in expected future loss reserve accruals.

Washington National's supplemental health interest adjusted benefit ratio was 57%, down from previous quarters due to lower incurred claims. For 2017, we expect the interest adjusted benefit ratio to be in the 58% to 61% range, largely consistent with 2016 experience. Turning to slide 13, in our investment results, we put money to work at just over 5%, down a bit from the prior quarter, and due to a higher level of cash as a result of the recapture of the closed block LTC assets, and the ongoing repositioning of that portfolio.

Alternative investment income results were strong, as we continue to benefit from our increased allocation to asset class. Asset turnover remains low, as we seek to defend portfolio yield in the slow interest rate environment. Gross realized gains and losses continue to be moderate and impairments were minimal.

Slide 14 details the results of year-end loss recognition testing for our Bankers Life LTC business. Margins increased to $320 million from $180 million at the end of 2015.

Margins benefited from the continued run-off of older, less profitable business, run-on of new business, and the most recent round of rate increases. Updated mortality, morbidity and lapsation resulted in a small increase to margins.

We experienced some improvement related to interest rates. We continue to assume a 6.5% ultimate new money rate, but margins benefited from asset allocation changes and portfolio rebalancing that occurred in 2016.

Turning to slide 15, as noted on the previous page, we have $320 million of testing margin in our Bankers Life LTC block, but it's important to note that the block itself is far from homogeneous. We tend to look at our LTC book in terms of distinct product categories, including standalone nursing home coverage, comprehensive coverage, home healthcare and short-term care.

We further dissect the block by issue year, with vintages of products sold prior to 2003, products sold between 2003 and 2007, and products sold after 2007. The product and issue-year cohorts each have distinct profitability and risk profiles. When looking at testing margins on a disaggregated basis, the older, more comprehensive business has negative margins, and the newer business has positive margins.

Slide 16 details the results of year-end loss recognition testing results for our recently recaptured closed block of long-term care business. This business is in loss recognition and has zero margin. During the fourth quarter, we conducted comprehensive reviews of all assumptions and recorded a pretax charge of $2.6 million to reflect relatively minor refinements in experience and interest rates.

Consistent with the Bankers Life LTC block, we do not incorporate any future rounds of rate increases and do not assume any morbidity or mortality improvement for loss recognition testing purposes. And with that, I will now hand the call back over to Ed.

Thanks, Erik. A new year brings energy on what can be accomplished. In 2017, we expect to continue to grow the franchise, and increase our customer base through a number of approaches.

New products and services remain a leading priority and opportunity. Including expansion of our broker-dealer and registered investment advisor, with the goal of providing the right solution at the right time for our customers. Additionally, our agent and customer interactions provide valuable insights into the customer needs that we strive to address.

Differentiated customer insight and service are at the core of our strategy. We aim to deliver an exceptional experience, be it through our products and services, self-service offerings, or through more traditional means of contact. We continue to be committed to reducing our relative long-term care exposure over the next 2 to 5 years, and understand that reinsurance is a likely piece to accomplish as objective.

We know that middle-income Americans are underserved in regards to insurance and retirement services. CNO understands this market as we have been serving it as our primary focus for many years. We are uniquely positioned to serve the middle market with our mix of control distribution channels, along with the breadth of products and services created specifically to address this customer segment's needs.

With that, I will now open it up for questions. Operator? Melissa?

(Operator Instructions)

Erik Bass.

First for Erik, you mentioned that corporate expenses are a bit higher this quarter, and I know you called out a number of specific items in the press release. Can you just talk about which of these are nonrecurring, and what you see as an approximate run rate for corporate in 2017?

Sure, Erik. This is Erik.

We reported a loss of $23 million in the quarter. We did note the one item, the $5.5 million related to the jury verdict from the legacy lawsuits.

We also had a negative mark-to-market of about $2.3 million in our [Coley] asset, which we did not normalize out. It is not our practice to do so. But when you adjust for those two items, you get to about a loss of $15 million.

And so, I would say all other expenses, including the items that I mentioned, that was worth probably $3 million or $4 million, and it's difficult to say which one of those are going to normalize out and not recur. I think the big question is the DOL. So, I would expect, though, that our corporate segment EBIT loss would be approximately the $12 million on a run-rate basis.

Okay, thanks. And then on long-term care in your outlook for the benefits ratio for 2017, is any of it experience related, or it sounds like it is primarily that you are assuming a lower FLR accrual? Are you still accruing any future loss reserve at this point?

Well, the lower expectation for future loss reserve accrual is driven by experience, so that's the first thing I want to point out. So, what happened is we conducted our year-end assumption reviews, we had items that I noted break largely favorable, which increased margins to $320 million. And when you calculate your new pattern of future profits followed by future losses, and present value that back, and then compare that to what you have on the balance sheet, which is $191 million of the future loss reserve, what it tells you is that you don't need to accrue anything on a go-forward basis. There will be very little, if any, future losses or accrual in 2017 at this point.

Okay, and just final question on long-term care. As we think about the factors that could affect your ability to execute a potential transaction clearly, higher interest rates should help, but is it right to think that accumulating more claims date and seeing progress on re-rating and claims initiatives is probably even more impactful? And would it be correct to think that completing another year of review with positive reserve developments should help close the bid/ask spread?

Erik, this is Ed. In general, I agree with factors that have the biggest influence and refer you back to the sensitivities on our margin testing page that, while interest rates certainly do impact margins, it's not as big of a factor as claim experience.

That said, you know, given the target market, that we have served being largely those in their mid to upper mid-sixties as a issue-age average, we've got more reclaim data than most companies in the industry. Another year of experience certainly should help, but I don't think that is necessarily a gating factor.

Okay. Thank you.

Randy Binner.

This is Luke on for Randy. I just had a question about the expenses related to the DOL rule. If the rule gets delayed and materially changed, how much does it cost to unwind all that?

Hey, Luke. This is Erik. I don't think there's -- I don't have an estimate on what it's going to take to unwind at this particular point in time. I'm not sure we have to unwind anything, given where we are right now.

Okay, thank you. And then, why was the Coley mark-to-market weaker? It seems like it would have been more positive.

Yes, fair question. A little bit more than half of the Coley assets are invested in fixed income securities with the big jump in rates that obviously impacted the asset value of about half of that portfolio.

Okay, got it. Thank you.

Sean Dargan.

Just following up on the topic of potential LTC reinsurance over the next 2 to 5 years. You break out on slide 15, the four distinct product coverage categories and the issue-year categories.

Is your goal to try to reinsure the way the blocks that you have positive margin on now? I mean, what is the goal here? What do you think would be the first blocks, both from our product coverage and issue year, that you're looking to reinsure away?

Yes, our objective is in looking at reinsurance and reducing the relative size of LTC, is to reduce tail risk, volatility, and overall risk in our balance sheet. We believe in order to do that in a meaningful way, we have to include blocks where there are negative margins. I won't say it would only include those blocks, but in order to meaningfully reduce risk, they need to be part of any transaction.

Okay. Just as we look at nursing home, comprehensive home healthcare and short-term cares, should we assume that nursing home has the least margin or negative margin? And improves as you move down the list?

You will have to make your own assumptions. We have disclosed that it's our business issued prior to 2003, largely negative margins.

Prior to 2003, we weren't really selling any meaningful amount of short-term care. So, it's primarily in the other three product kinds or product features.

Okay. Thank you very much.

Ryan Krueger.

I was just hoping to dig into the improved LTC margin a little bit more. The $55 million from the run-on/run-off, can you give us a sense for how much of that was generated by new business from the year? And how much reflected other changes on the existing block?

Sure, Ryan. This is Erik. I think about $50 million to $20 million was related to the net run-on/run-off.

What's running through that $55 million is also the impact, the build in FLR related to shock lapses. And just the overall build in FLR, and that was a little over $30 million for the year.

Yes, with that, Ryan, I will just add, to remind everyone, that we did not have all of the shock lapse reserve release flow into the bottom line. We had, based on expected margins, a portion of that shock lapse reserve go into the FLR, as Erik mentioned.

Got it. Okay.

So, even though you had projected in the rate increases that you have [the current] the last round of rate increases in to your margin last year, the positive impact from shock lapses was better than you expected?

We actually did not incorporate any shock lapses into the margin assumption. That is the differentiator.

Okay, got it. Then in the slide deck, you have your estimated present value of the tax assets, I think it's $420 million up or $425 million, compared to $520 million last quarter.

I know you utilized, I'm sure, some of the tax assets in the quarter, but it seemed like a larger drop in one quarter than I would have expected. Can you provide any color on that?

Yes, we use a fair amount of it here in the fourth quarter. We also utilized it, if you recall, on the recapture of the closed block long-term business. We generate a taxable gain in which we use some of that NOL, as well.

Got it. Last one, thinking about long-term care, reinsurance. Can you talk about, given the experience with Beechwood, how you are thinking of hurdle rates for counter parties and if you had changed your level of the hurdle rate required for a counterpart on additional transaction going forward.

Yes, Ryan. Ed.

The short answer is no, we haven't changed, but that is because we always expected, with looking at reinsurance on the Bankers Life block, which is a much larger block, and reinsurance is likely to be greater than the amount transaction transacted with Beechwood previously. That we would be working with a more mainstream, longer standing highly-rated reinsurer.

Okay. What about in terms of the recaptured block? Is that a block that you could look to reinsure again?

Yes, definitely. Not necessarily, though, putting it at the top of our list. The reason is, a lot of what led us to transact with a more relative startup, lower-rated or unrated company in the past was that the liabilities in our run-off block aren't quite aged and mature, and not as volatile, so if you look at meaningful long-term risk reduction, it's not necessarily going to give us as big of an impact as some of the pre-2003 Bankers Life business.

Okay. Thanks a lot, guys.

Dan Bergman.

Follow up on the Bankers long-term care. I believe in the past you have talked about an expectation for the benefit ratio to increase gradually for this block over time. Supposed to step down in the 2017 benefit ratio guidance.

Should we still expect a similar path of gradual increases in the benefit ratio going forward from this lower level or lower base? Big picture, how should we expect that to transpose 2017?

This is Erik. Yes, that expectation remains the same. The benefit ratio will increase over time.

Okay, great. Maybe just switching gears.

With Bankers, agent recruiting and average producing agent trends both negative in the quarter, is there any additional color you can give on the main drivers and the outlook for when you might expect a positive inflection? I'm trying to get a sense of how much of this trend is due to the macro backdrop of low unemployment, and what steps you might be able to take to improve this if we stay in that type of environment in the near term.

Hello, Dan. This is Gary. I think there's a lot of different factors going on.

You put your finger on a critical issue. We saw significant macroeconomic recovery in the fourth quarter and that clearly had an impact on us. As we look forward, there are really three levers the way we think about it. We can continue to adjust and refine our recruiting and selection processes. We can continue to refine our compensation processes. And we can continue to refine the product and the role and so on, if you think about Bankers Life securities.

We are constantly working with those three levers. I was not happy with what we saw in the fourth quarter, but I also didn't get too worked up about it because of the seasonality. The other thing that we continue to feel good about is what we define as our recruiting agents, the folks that have tenure of three years or more, those are our most productive agents.

And you can see on the chart we have provided a relatively good trend, particularly over the longer term. It has been stable the last couple of years, but certainly on the longer term it's a nice trend. We're looking at different ways to continue to refine the recruiting model.

The three levers are the ones that I talked about. Those are the ones that had the most impact.

We don't have any particular thing we're seeing around the corner that gives us a lot of concern. We are continuing to work on this.

That's very helpful color, thank you.

Humphrey Lee.

Just to follow up on the distribution front, [about distributing to] Washington National, I noticed that the independent channel saw a positive sales growth this quarter. I mean, net growth for this quarter. I think this is a channel that had seen quite a bit of challenges over the past two years or so.

I think in part because of the customer base, and part of it because of recruiting. Can you talk about what you are seeing in this quarter, and should we think about that as a turnaround going forward?

In terms of what we are looking at, we see the independent channel as an opportunity. It is something where we need to continue to build out product and refine our recruiting processes, but we're not expecting any material changes here in the near future.

Humphrey, sorry. Let me add to this. On the individual side, we have still expanded into different states, that certainly causes us to move different management, and there was some, I will say recalibration there.

And the year-over-year increase in the fourth quarter, part of that is we have easier comparables, given the prior years where we did not see that growth. So, we are encouraged by it, but I wouldn't declare victory yet.

Humphrey, I think I misunderstood your question on further reflection. I think may be a more complete response is we benefited from the ACA open enrollment window, and some of these products allow us to fill a gap in that coverage.

I apologize for misunderstanding your question initially. That explains what went on here in Q4.

Okay, so it's just a little bit of seasonality plus a little on the EC column. Okay. And then on Bankers, looking at the productivity gain on the full-year basis, it was like 1%. Given some of the investments you have put in place to enhance productivity, when would be a realistic timeframe to see a more meaningful improvement? Is it just simply a factor of the agents, the more recent recruiter agents continuing to ramp up? Or is there some other leverage that has yet to come through the pipeline?

Humphrey, I would be reticent to give you a specific timeframe. As you know, we don't give you sales guidance, but maybe what I would like to do is just explain a little bit of the context in terms of how at least I think about it. So, you have the data in front of you.

You saw that we saw a bit of a dip in our recruiting in 2014 and 2015, and we have started to get some of those levels back. As we do that, that will continue to have an impact. The one thing I would tell you, and this is how we are literally in the process of thinking about our recruiting differently, what's happening in the marketplace and the way candidates use things like www.monster.com, and the impact from the other macroeconomic conditions in terms of the job market improving, there's a lot of different forces that are pushing on how we recruit agents.

So fundamentally, we need to think very differently, and to be very plain about it, I am much more interested and much more focused on those agents that we've had for three years and longer, because that's where the productivity lift really is. To grow that number, you have to have agents who have been here for longer than two years by definition, so we need to keep the recruiting pipeline, but the emphasis really needs to be on the productivity of the veteran agents, because that's where we see it the most consistently. So, that is the area of focus for us.

I guess to be really plain about it, I am not as focused on did the first year of brand-new agents in a given quarter go up or down a lot? That's not my main focus. My main focus is bringing in a reasonable pipeline, getting a reasonable retention number and then getting them to the point where they are productive, because we really do see a significant difference after three years.

Sorry, let me add to that. Not sure how you are measuring or calculating productivity, but important to also recognize that as consumer needs continue to be more in that accumulation, as well as decumulation phases of their retirement years, the broker-dealer registered investment advisor we believe will be playing an increasing role in serving their needs.

A lot of serving their needs is not going to show up in new annualized premium, or for that matter, potentially even collected premiums on our balance sheet. That's another thing to factor into how do you look at productivity.

Okay. If I could sneak in one more.

I think for the past year or so, you have talked about expanding your recruiting effort toward college graduates, and with the broker-dealer channel rollouts that will probably help your effort in that. With roughly a year under the belt, can you talk about your recruiting efforts in the college graduates channel and are you kind of seeing the result that you were hoping for?

Humphrey, we have seen the greatest lift more recently in our more experienced insurance agents that have been referred in to us and that are really interested in focusing on becoming financial advisors. That's the area where we have seen a lift.

We have got a few other pilots running right now where we are targeting certain professions, or we are targeting certain criteria, or this type of thing, but I would tell you that the biggest lift has been those folks that are referred in, that have some experience as insurance agents, and have an interest in expanding their expertise into the securities area.

All right, thank you.

Yarin Kinar.

Can you hear me?

Yes.

My question was, and I apologize if I may have missed it. I jumped on a little late.

But if I turn to slide 14 and Bankers testing margin sensitivities, you point to $26 million of improvement given on the net experience. Is that driven by the initiatives that you put in place to better monitor utilization?

This is Erik. Now, there really was very little incremental impact from what I think you're speaking of, our claims initiatives, that we have been testing.

I think it was either last year or the year before that where we actually did install a benefit of roughly $30 million related to one specific initiative. No, there is no incremental benefit from additional initiatives at this point in time, but we continue to look at different ways to improve accuracy of billing, detect fraud, do things like that.

Okay. And then, if I look at the sensitivities that you offer at the bottom of that slide, it seems like the lapse in mortality sensitivity came in a bit, year over year. Can you explain the dynamics there?

Yes, I would say net-net, they were slightly positive maybe to the tune of $10 million or $12 million. That's a really small number when you're talking about $3.5 billion of active life reserves. I would say largely, our experience was basically in line.

We did see a little bit of improvement in some of our older-age morbidity. If you will recall a couple of years ago, we actually saw some deterioration there. This was really just sort of with two years more worth of data, just a slight rollback of some of that[deterioration.

Let me add to that. The book that carries the largest liabilities is largely, I hear, older, too. The remaining duration is somewhat less, so therefore the sensitivity would be somewhat less.

Got it. That's very helpful. I appreciate the color.

This concludes today's question-and-answer session. Speakers, please continue with any closing remarks.

Thank you, everyone, for your interest in CNO. That ends the call.

This does conclude today's conference call. You may now disconnect.