CNO Financial Group Inc (CNO) 2017 Q3 法說會逐字稿

Good morning, my name is Megan, and I will be your conference operator today. At this time, I would like to welcome everyone to the CNO Financial Group's Third Quarter 2017 Earnings Results Conference Call. (Operator Instructions) Thank you. Mr. Adam Auvil, you may begin your conference.

Good morning, and thank you for joining us on CNO Financial Group's Third Quarter 2017 Earnings Conference Call. Today's presentation will include remarks from Ed Bonach, Chief Executive Officer; Gary Bhojwani, President and CEO successor; 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 could 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-Q and post it on our website on or about November 2.

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'll 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. Unless otherwise specified, any comparisons made will be referring to changes between third quarter 2016 and third quarter 2017.

And with that, I'll turn the call over to Ed.

Thank you, Adam, and good morning, everyone. The strength of our business and disciplined management approach was again evident with our strong earnings, margins, free cash flow generation and increases in capital. Operating earnings per share were $0.45, up 22%, leading to continued growth in book value per diluted share, which was up 11%.

Our growth scorecard this quarter was mixed with first-year collected premium and new annualized premium or NAP down 5% and 10%, respectively. Annuity account values were up 4%, fee revenue was up 10%, primarily due to growth at our broker-dealer and registered investment adviser. Results in the quarter were somewhat impacted by the recent hurricanes and varied by segment. Gary will go into more detail shortly. We returned $43 million in capital to shareholders in the quarter and have now returned $185 million year-to-date.

With that, I'll now turn the call over to Gary to discuss our segment results. Gary?

Thanks, Ed. Moving to Slide 6, Bankers Life total collected premiums decreased 4% driven by the runoff of older, more comprehensive long-term care policies and a decrease in annuity collected premiums. Annuity account values increased 5% from the prior year, driven by strong annuity sales over the last 12 months and persistency. Life and health NAP decreased 18% and 11%, respectively.

The hurricanes affected our operations in both Florida and Texas, including our ability to recruit new agents and to sell insurance products in September. We estimate the impact of the hurricanes on sales to be approximately 2% on life and health NAP and annuity collected premium.

Average producing agents in the last 12 month declined 7% with average first- and second-year agents down 11% and average agents in the third year or later flat. We continue to pilot initiatives to counteract the decline in new agent contracts by increasing new agent retention and production and have seen encouraging early results in those efforts. We are taking steps to accelerate these types of initiatives with the goal to drive retention of more productive and longer-tenured agents.

We continue to see growth in our broker-dealer business in both the number of registered advisers and our customer account values. This business is an important part of our strategy to provide complete health and wealth advising to the underserved middle-income market.

Turning to Washington National. Total collected premiums were flat with a 3% increase in supplemental health, offset by the continued runoff of the closed Medicare Supplement block. Total NAP was up 1% despite sales being negatively impacted by approximately 5% due to the hurricanes in Florida, Texas and Puerto Rico. We will continue to assess future impacts related to these disasters, but it is reasonable to assume similar level of lost sales in 4Q '17, particularly with respect to the operations of a key independent partner in Puerto Rico.

Supplemental health NAP was flat while life NAP was up 18% in the quarter, driven by 33% growth in the PMA worksite channel. This channel continues to benefit from recent initiatives to drive stronger recruiting and improved productivity. Individual NAP was up by 1%. New agent recruiting and the PMA worksite channel contributed to an overall increase of 1% in the last 12 months average producing agent count for the quarter.

Moving on to Slide 8 and to Colonial Penn. Totally collected premiums were up 3% due to prior year sales growth and stable persistency. First year collected premiums were down 12%, and NAP was down 13%. These results were in line with expectations and reflect reduced marketing spend in the quarter as high demand for television, advertising continue, resulting in a limited inventory of cost-effective television spots. We remain both disciplined and opportunistic with our marketing expenses and will invest as attractive advertising opportunities become available.

Due to our nationwide direct response model and marketing approach, Colonial Penn did not experience any material sale disruption due to the recent hurricanes. We are maintaining our full year EBIT guidance range of $15 million to $20 million for Colonial Penn, excluding the significant item in the quarter.

I'll now turn the call over to Erik to discuss our financial results. Erik?

Thanks, Gary. CNO posted another strong quarter on the earnings and capital fronts. We reported net income of $0.59 per share, up significantly from the prior year. Operating earnings per share were $0.45, up 22%. Third quarter 2017 results were impacted by favorable underwriting margins and investment results, partially offset by higher corporate segment expenses. Excluding significant items, net operating earnings per share was $0.44, up 26%. Lastly, operating return on equity was 9.3%.

Turning to Slide 10 and our segment results. CNO posted combined EBIT, excluding significant items, of nearly $125 million, up 19%. Results in the quarter reflect favorable long-term care margins and higher call/prepayment income at Bankers Life, higher supplemental health margins at Washington National, lower direct marketing spend and growth in in-force earnings at Colonial Penn, LTC and runoff business reported a small loss, but was in line with our expectations. Lastly, corporate segment results were impacted by higher expenses related to DOL implementation, incentive compensation accruals and legal expenses.

Turning to Slide 11 and our key health benefit ratios. Bankers Life Medicare Supplement benefit ratio was 72% in the quarter, in line with expectations when we continue to expect this benefit ratio to be in 70% to 73% range in the fourth quarter. Bankers Life long-term care interest-adjusted benefit ratio was 72.9%, slightly better than expectations due to lower persistency and favorable incurred plans.

As a reminder, the 2017 interest-adjusted benefit ratio reflects no additional future loss reserve accrual as a result of year-end 2016 loss recognition testing results. We continue to expect the LTC interest adjusted benefit ratio to be in the 75% to 80% range in the fourth quarter.

Washington National supplemental health interest-adjusted benefit ratio was 59%, in line with the expectations, and we continue to expect this ratio to be in the 58% to 61% range in the fourth quarter.

Before moving on, let me make a few comments about year-end loss recognition testing for our long-term care businesses. For our runoff business, recall that since there is 0 testing margin on this block, changes and assumptions resulting in deficiencies will flow through the income statement. That said, given the relatively small size of this block and stable results over the course of 2017, based on what we know today, we're not expecting any change in assumptions that will result in a material charge.

For our Bankers Life LTC business, first recognize that we are in a significantly better position now than we were a year ago. As of year-end 2016, we had $320 million of positive margin, up from $180 million at year-end 2015, and this provides a significant buffer against the likelihood of a charge. Through 2017, experience has largely been in line with expectations, if not slightly better.

Interest rates continue to be a headwind, but past changes in those assumptions have typically not resulted in significant changes to margin. So based on what we know today, we are not expecting a change in margin that would result in a charge in the fourth quarter. With regards to new NAIC rules regarding statutory cash flow testing for LTC, CNO was not expected to be impacted as the new guidelines are consistent with our current practices and procedures.

Turning to Slide 12 on our investment results for the quarter. We put money to work at 5.38%, somewhat higher than in recent periods and primarily due to new money allocations to esoteric ABS, direct credit, corporate high-yield and some lengthening in investment-grade securities to match liabilities and longer-duration lines of business.

Call/prepayment activity was very heavy in the quarter due to a large volume of corporate bond and commercial real estate refinancing activity. We continue to experience solid alternative investment results, especially in credit-driven strategies. Realized gains were elevated in the quarter as we took advantage of tighter spreads to move out of some higher-beta names. Credit performance continues to be good across most sectors, and we have realized no losses to date due to hurricane-related catastrophes. As of September 30, we had approximately $33 million of recaptured assets remaining, down from $75 million at the end of the second quarter.

Turning to Slide 13 and our capital position. Estimated consolidated risk-based capital was 450%, down 8 points from the second quarter of 2017 but in line with our target ratio. Results reflect approximately $91 million of statutory income and $110 million of dividends to the holding company. Leverage was steady at 18.8%. Book value per diluted share increased to $23.19, up 11% over the prior year. Holding company cash and investments was $380 million, up from the second quarter due to the higher level of statutory dividends paid and a lower level of common stock repurchases.

We opportunistically executed on an amend, extend and upsize of our revolving credit facility. The amended facility has a 5-year maturity date, provided that our 2020 notes are refinanced at least 6 months prior to maturity. As it is customary practice to refinance notes 6 to 12 months prior to maturity, we don't view this [bringing] maturity as an issue.

Also, we were able to upsize the revolver from $150 million to $250 million while leaving the drawn portion at $100 million. This provides the company with access to an additional $100 million of contingent capital plus an incremental $50 million via the accordion.

We repurchased $28 million of common stock at an average price of $22.19. This lower level of repurchases reflect the somewhat elevated price of the stock for a significant portion of the third quarter. As we have said in the past, we are price sensitive when it comes to repurchasing our common stock. When the stock trades below book value, we tend to repurchase more. And when the stock trades closer to or above book value, we tend to purchase less.

Through the third quarter, we have repurchased $140 million of common stock. Given this lower level of repurchases, we are lowering 2017 repurchase guidance to $175 million to $225 million. How much we repurchase in the fourth quarter will be dependent on the stock price and what other compelling alternatives might be available.

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

Thanks, Erik. We are making progress on our long-term growth initiatives and are encouraged by the early results of pilots currently underway. It is important to remember that it will take time before these initiatives appear in our results due to the scale and complexity of testing and implementation. We remain committed to disciplined growth over the long term. Reducing our relative exposure to long-term care remains a priority, and we continue to have active conversations with interested parties.

Lastly, this call marks Ed's final earnings call with CNO. I would like to thank Ed for his service and tremendous leadership while he was a member of the CNO family. His track record stands for itself, but I would like to note a few of the key highlights. Under Ed's leadership, CNO earned 13 ratings upgrades. The company implemented a common stock dividend in 2012 followed by 5 consecutive annual increases. Finally, CNO recorded a total shareholder return of over 350%. His shoes will be hard to fill, and he will be missed. We all wish him well in his future endeavors.

And with that, I'll turn the call back to Ed for closing comments.

Thank you, Gary. it's been an amazing 10 years at CNO. I remain bullish on our leadership team, franchise and focus on driving shareholder value while meeting the needs of the underserved middle-income market. It's been a privilege and an honor to serve as CNO's CEO for the last 6 years. I will seek to earn the rest of my salary as I complete the year and remain a confident shareholder that Gary and the leadership team will achieve even greater heights in the future. Thank you to all of you for your support.

And with that, I'll now open it up for your questions. Operator?

(Operator Instructions) Our first question comes from the line of Randy Binner with FBR.

Yes. First, just congrats, Ed, all you've accomplished there, and we'll miss working with you, but best of luck going forward.

Thanks, Randy.

And then -- so on buybacks. I understand the commentary there on the call that your preference is to buy below book value, and I understand that from a accounting perspective. But I guess, the question is twofold. One, I mean, is that any kind of indication you don't think the stock should trade at some multiple to book value? And two, what would the compelling alternatives look like because, while the stock price may not be optimal that if the money just sits in cash, then the return's lower than the earnings yield that you buy the stock at? So I'd like to kind of understand the dimensions of that a little bit better.

Yes, Randy. This is Erik. So I think to answer your first question, I think my prepared remarks mentioned that we tend to buy more when the stock trades below book value unless when it's at or above book value. So I don't know -- I mean, we certainly -- in terms of being accretive for shareholders, it's certainly more preferred to buy back stock below book value. But it doesn't necessarily imply that we're not going to buy back stock when it's above book value. So I think I just want to make that clarification. And when you look at what we bought back year-to-date, where the stock trades today and what we have put out there for 2017 repurchase guidance, which was updated yesterday, I think that comes through. So in terms of compelling alternatives, I think we've talked about this numerous times. There are lots of things that we can do with our excess capital. One of them is to pay a common stock dividend and increase that common stock dividend over time if it is warranted. Another one of those is to repurchase our common stock, and we've got a proven track record of doing that. Other things that we can do and we've talked about this are reinvestments in our business. And indeed, we're doing that, as Gary noted and as we discussed at the Investor Day back in June. We have also talked about a compelling alternative for our capital would be to fund a negative ceding commission on potential long-term care reinsurance transactions. So that kind of gives you a flavor of sort of what we view as the compelling alternatives.

Sure. And just a follow-up there would be, is this -- I mean, should we read this as that -- the potential for the LTC transactions is closer? And can you kind of characterize where the market is for that?

Randy, Ed here. As we've said in the past and we said in our remarks today, we continue to be in dialogue with interested parties. There still is interest there, and we continue to have those conversations.

Your next question comes from the line of Erik Bass with Autonomous Research.

First, Ed, congratulations and want to echo Randy's best wishes to you in retirement. And then Gary, in the release, you commented that you're encouraged by some of the progress on the initiatives to spur growth. And I realize it's going to take some time to show up in consolidated results. So I was just hoping you could provide maybe some more detail or examples of where you're seeing successes at this point.

Sure. So first of all, Erik, thanks for the questions, thanks for the support and thanks for the recognition that these things take some time to show through. There's a few different examples that I would point to -- a few different details I would give you. The first would actually be something that's already starting to pay dividends from work that's been done over several quarters, and that's some of the life sales at Washington National. Now I want to emphasize it's coming off of a very small base, but we have been working for quite some time to diversify the offerings by our field force, particularly at PMA, to look at products beyond the supplemental health that they've historically looked at. And I'm very encouraged by the good work they're doing relative to the life sales, and we've got some other things going on that aren't yet material enough to comment in a setting like this, but there are things that are actually happening, specifically at Washington National. Now the other one, the bigger one, is at Bankers Life. And here, this will take more time just given the scale and the complexity of the organization. It's coming off of a much larger base, so any efforts there -- it's a much battleship to turn, it'll take more time. In the case or Bankers Life, we're really doing a number of different things particularly aimed at the recruiting. And if you think about what we're doing there, our efforts fall into 4 broad categories. We're trying some pilots with different methods of sourcing agents. We're trying some efforts with different methods of selecting agents. We're trying some different things as respects training and as respects compensating. And on each of those 4 broad categories -- and again, I'm being very general by design because I'm sure you can also appreciate some of this as a competitive issue. We've seen some early encouraging results in a couple of those 4 buckets. And we are actually doubling down on some of those things even in this, the fourth quarter of 2017. So where we see encouraging signs, we will invest further and try and move the efforts along more quickly. But I would, again, point back to Washington National as a good example of some early results that are actually showing up even today. Erik, did that speak to your concern or your question if you...

Yes, that's helpful. And then there's just another question for either Erik Helding or Eric Johnson. It looks like you've made some progress on exiting some of the assets acquired in the Beechwood recapture, and maybe that drove some of the gains this quarter. I'm just wondering if there was also a capital benefit associated with that. And maybe if you could just provide an update on kind of where you stand with the Beechwood portfolio?

This is Erik Helding. I'll talk a little bit about the capital implications of what happened in the quarter and then hand it off to Eric to cover the rest. So as we noted, we worked the balance down from about $74 million to $33 million in the quarter. That did result in about $15 million of freed up capital, and some of that is residing in the Washington National and the New York entity. I would say, a portion of that was actually used though to sort of execute on achieving the 5.38% new money rate in the quarter. So we used a fair bit of that $15 million to produce sort of an outsized new money rate result in the quarter.

Got it. Just because of higher capital charges on the securities acquired?

Yes, yes. If you look at some of the things we did, there were some below investment grade purchases and things like, and they're going to have a net capital charge, which is a little bit higher than NAIC 1, NAIC 2 type stuff.

Your next question comes from the line of Sean Dargan with Wells Fargo.

I'd also wish to extend my congratulations to Ed. It's been a pleasure working with you over the years. I have a question on Colonial Penn. You're keeping the EBIT guidance intact, but can you just remind us, is the fourth quarter typically -- or is the ad spend more expensive or less expensive? Or how should we think about that?

This is Erik Helding. So seasonally speaking, we tend to spend the least amount in the fourth quarter. So the rationale for maintaining the $15 million to $20 million EBIT guidance was if you back out the $3 million significant item in the quarter, I think we're about $14 million year-to-date. So if you look at what our results have been in prior fourth quarters, it's probably been around $5 million or $6 million of EBIT in that quarter when we're spending less. So the high end of the range would sort of represent if we spent something that was in line with prior fourth quarters. The lower end of the range recognizes that, again, we may be opportunistic. We may have the opportunity to increase spending if it's out there. And so the low end of the range just simply reflects an opportunity to be more opportunistic and more aggressive in the fourth quarter if it exists.

Okay. And then just getting back to the holdco cash and what you're going to do with it, I suppose you're not going to tell us what you think the intrinsic value of your stock is?

Yes, fair question. I think the statement that I'm comfortable making is that I think all of us believe that intrinsic value of the stock is higher than the book value of the stock. But beyond that, intrinsic value is -- there's a lot of subjectivity that goes into that, and so it can be difficult to pin down. But I believe, and I think all of us do believe, that the intrinsic value of the stock is higher than book value.

You next question comes from the line of Humphrey Lee with Dowling & Partners.

Once again, congratulations to you, Ed, and I enjoyed -- really enjoyed working with you and wish you the best in retirement.

Thanks, Humphrey.

A question for Gary. So you touched upon some of the initiatives in Washington National and Bankers. Looking at Colonial Penn, sales definitely kind of coming off a bit given the lower ad spending. You talked about some of the initiatives in the past in terms of advertising or more targeted alternative solutions for -- to advertising. Can you maybe talk about some of the initiatives there? And when do you expect we'll see a kind of better top line results in Colonial Penn?

Sure. So Humphrey, thanks for the support and thanks for the question. The first thing that I would want to emphasize with Colonial Penn, the single largest impediment to greater sales at Colonial Penn is us. I think it's really important to remember that the reduced level of sales you're seeing at Colonial Penn is a choice that we are consciously making because we are not comfortable with the yield we get from spending more ad dollars. We could tomorrow turn up the sales at CP. If you look at our past track record, we can dial this in pretty precisely. When we spend more, we know how much more we get in sales. So I think it's important to remember that this is a conscious choice on our part to manage the sales level against the profitability yield. That's the first thing I want to point out. Now in terms of our opportunities to grow sales at Colonial Penn, there are handful of things that we have had underway for some time and some things are new. Things that we've had underway for some time, the first and probably most significant is a continued diversification of our sales leads away from television. Television is the most costly. And if you believe what the press says about where people will be making buying decisions over the next 10, 20, 30 years, it's really critical that we continue to diversify away from television. Historically, we've been about 2/3 television in terms of lead source, 1/3 others, specifically web and old media and so on. We need to continue to do that. That work's been underway and if it continues -- but that's frankly a slow progression. The second thing we can do, and we've seen some interesting results in different ways of doing it is there are various technological solutions that we've been playing with the Colonial Penn that allow us to impact the timeliness with which a buyer makes a decision, being able to take an order over a phone, a verbal signature, if you will, as opposed to having to deal with paperwork. There are other efficiency-related processes like that, that we have implemented, and we've seen marked increases from those types of efforts. Now beyond that, the more substantive things we need to do that will really move the needle at Colonial Penn fall into 2 buckets and they're related. The first is putting more products into the Colonial Penn portfolio to see how that brand really extends and will consumers give this brand credibility and buy other products beyond what we currently offer. That one is the slowest moving one. And to be honest, we haven't found the right product yet that we're really comfortable piloting in an extensive way. We've done a couple of things in a small way but nothing that I would be comfortable talking about in a larger way. The second area that's the most significant in terms of growing Colonial Penn is as we build out new products than what we refer to internally is moving to the right. In other words, being still focused on the middle-income market but appealing to a slightly more affluent consumer than we presently do with our current product mix. Those 2 things, product mix and consumer mix, are obviously related. But that's really what we're working on and that will frankly take, I think, a couple of years to get that formula right. But we're pleased with the franchise we have at Colonial Penn. We're pleased with our ability to drive demand in sales, and we remain disciplined about doing so in a profitable way. When we believe there's a way to grow that business profitably with the current mix, we will do it. When we're not as comfortable with the returns, we won't do it and that's the discipline that you've seen over these last couple of quarters.

That makes sense, and I appreciate that. And shifting onto Bankers' annuity, it's a little bit softer this quarter. I don't know how much of that is related to -- just a difficult comparison because you have a kind of a full-year comparison -- a full year launch of the product. Or how much of that was related to the hurricane impact? And if it is the former, do you think that you have to kind of refresh the product a little bit in order to attract new business?

I'm not yet at the point where I believe we need to refresh the product. I think there are a number of things at play and just so it doesn't sound like we're making excuses. I want to be clear, we would have liked to have sold more annuity. There's no question about that. But when we look at the comparables, I think that's the first issue you touched on, and I think that's right. Q3 last year was our full first quarter selling these annuities. And we believe there was a lot of pent-up demand. We believe that our consumers and our distribution force were really waiting for this product, so it makes it a tougher comparable. There's no question that, that's an issue. The hurricanes absolutely were an issue. We currently estimate that at Bankers Life in September, we were impacted by roughly 2%, our sales were impacted there. So there's no question that was a factor. There's a broader factor that's also at play. Now the industry data is not yet out for the third quarter. But through the second quarter, the industry was down over 9% on FIA sales. So we ended our third quarter down 4% on our annuity sales. Again, I don't have the industry data yet, but there was also an industry trend at play, and I'm sure that impacted us. But the bottom line is, Humphrey, I don't believe we're yet at a point where we need to make major modifications. I want to see a couple more quarters of how we perform. And then the other thing that we're really keeping an eye on is how the consumers respond to this and does this let us to move into that space where we can be adviser to the consumers for income accumulation and longevity, because for us, that's really the long-term formula for success. When the consumers start trusting us with many more of their assets and if this is the first step in that progress, that's something that we're watching very, very carefully. So that's how I think about that.

Your question comes from the line of Thomas Gallagher with Evercore ISI.

Ed, I'll also send my congratulations and good luck. Been great working with you.

Thanks, Tom.

A couple of questions. First, Gary, just in terms of the way to think -- I heard your comments on capital return and buyback, that -- it makes sense, the philosophy. But from a modeling standpoint, if we assume that you're staying at the better end of the valuation range as we head into next year, is this sort of $30 million to $40 million quarterly buyback, kind of at least the minimum amount to think about that you'd sustain even if you -- or thinking more buyback on the lighter side? Or is it possible you'd go below that? I just want to get a better sense for kind of the range to think about.

Yes, Tom. This is Erik Helding. So I think a couple of comments. One, right now, we've only given our share repurchase guidance for the remainder of 2017 essentially and -- at this particular point in time. And it's really our practice. We're not going to go beyond that, again, at this particular time. That's something that we would look to provide guidance on when we report fourth quarter earnings in early to mid-February. So there's that. I think as a general comment, what I'd say is with respect to what we bought back in the quarter, I think there's a little fundamental thing to make sure -- there's something I want to make sure everybody understands, that there's no fundamental change in our view of the excess capital generation power of the company or our commitment to effectively and efficiently deploying our excess capital. And so the capacity to continue to effectively deploy capital is going to, at least where we stand now, persist beyond the fourth quarter. Does that make sense?

That does, Erik. And the -- I guess, the other related question is, is there -- again, assuming you remain in a better evaluation territory. Would a decision on the dividend potentially be meaningful? Or would you still be looking at potentially modest adjustments to the common dividend?

Yes, Tom. I think it's too early to tell. I mean, we typically will revisit our common stock dividend policy as we approach the annual shareholder meeting. It doesn't mean that we can't do it in another time, but that's been our practice. So I think as we exit year-end, enter 2018 and approach the annual shareholder meeting, we're going to take into consideration what we're paying for common stock, dividends, what that payout ratio is, what our dividend yield is and how that stacks up against the rest of our peers.

Got you. And then just final question. Just related to your different long-term care blocks. So it sounds like you guys are in reasonably good shape for now, both on the recaptured block and on the banker's block. Can you comment a bit about what trends you are seeing right now in terms of claims trends, lapsation? And also, are you -- have you largely gotten a lot of the rate increases you need? Or is that just an ongoing process and you still expect to get significant rate increases going forward from here?

Yes, Tom. Erik again. So just on the rate increase front, we are largely through the rate increase process that we started about 2 years ago. And so the vast majority of what we had expected to receive has been incorporated into our financial statements, our assumptions. It's really not even an assumption anymore. It's actually been realized. And so from a loss recognition testing, cash flow testing perspective, there really isn't much in terms of expected benefits of future rounds of rate -- or future rate increases. It's probably high single-digit millions to low double-digit millions. So there's not much very more that we're expecting to get. Now it tends to be the case that once you start a rate increase round, it never ends. And so there's always going to be some level of activity, but it's going to be very small. And we had a very small amount here in the third quarter. It was fairly immaterial and -- which is why we didn't even call it out. And I would expect something like that for the next several quarters. So I think that, in essence, covers kind of what we're expecting for rate increases. In terms of experience, I think the runoff business has largely been in line with expectations with respect to morbidity/mortality persistency. And I would say, generally, the same is true in our Bankers Life business, although I think we're running a little bit better on those trends than what our assumptions were. So it's too early. We have to run through the year-end process. So it's too early to claim victory and say that margins aren't going to go up because that's a very detailed calculation that we go through, and there's hundreds of assumptions that need to get updated. And so in general, I feel pretty good about where we are today going into year-end.

Your next question comes from the line of Alex Scott with Goldman Sachs.

Congrats, Ed. So just on the long-term care, I had one more quick one on that. When I think about the underwriting margin you guys are earning from long-term care, can you characterize sort of how much of the positive underwriting margin comes from the shorter-term care? And sort of on the older blocks with less caps, are you actually earning positive GAAP earnings? Or is that a drag on the underwriting margin?

Alex, it's a difficult question to answer. I know that we haven't talked about that publicly. And so I'd need to think a little bit more about that. I mean, I think I would refer everybody -- refer you and everybody else back to kind of what we have been talking about in terms of the underlying profitability of the different cohorts that we have been talking about here ever since the -- especially the Investor Day. And that is that older, more comprehensive business tends to be the business that is contributing a negative margin to our overall positive margin of $320 million. And then there is blocks of business that were issued 2003 to 2008, which -- some are positive, some are negative, some are at 0. And then you have business that has been written since 2008, and that tends to be the business that has the significant positive margin. So when you put all of that together, you end up with $320 million of positive testing margin.

Got it, okay. And one more on the investment in sort of some of the build-out of the new products. I mean, is that fully in the run rate at this point? Or do you think there will be a little more incremental spend from here?

I think, yes, I think the way to answer, that is. There is always some element of investing that we are doing as a company. And that has been the case for the last 3, 4, 5 years. And so I don't know that I really expect to see an incremental increase in what we are spending over what we have been spending. But I would say that, I think, we are expecting to be spending the dollars in different places. And so in -- a couple of years ago, when we were investing in say, consolidating our general ledgers and transforming our financial system that was heavily back-office focused and that's done now, and we've now reallocated those dollars to really be focused on things that are going to help us drive future growth. So I think it's really not necessarily incremental spending that you'll see, but a reallocation of spending amongst the various initiatives.

This ends the Q&A session. I'll now hand it back over to presenters for closing remarks.

Thank you, operator, and thanks, again, to everyone for your kind remarks relative to my service and for your continued interest and support in CNO Financial Group. This ends the call.

This ends today's call. And you may now disconnect.