Interest Rate Hikes Turn Lead Into Helium for CNO Life and Annuity Products

Gary Bhojwani, the CEO, said one challenge has been the difficulty of recruiting agents in a tight labor market.

But productivity levels and retention levels for experienced agents have been strong, Bhojwani said.

The Rates

The Federal Reserve Board recently moved to cool the economy and hold down inflation by beginning to increase the short-term rates it controls.

Years ago, CNO, like other life and annuity issuers, locked in relatively high returns on many of the bonds and other investments supporting its benefits obligations.

But rates have been so low for so long that, for years, rates on any newly invested money have usually been lower than CNO’s average portfolio yield.

In the first quarter, Johnson said, the average portfolio yield was about 4.6%, and the average new-money rate was 3.73%.

The new-money rate was so low because CNO invested most of the cash it invested in the quarter by around mid-February, when the new-money rate was around 3.5%, Johnson said.

“During the second half of the quarter, when we didn’t really have a lot of new money to invest — basically, after the middle of February — the new-money rate was north of 4%,” Johnson said. “And, then, after the quarter ended, and up till now, you’re looking at a much higher number. Which, I will say, is north of 4.5%.”

The average portfolio yields for health and fixed annuity lines tend to be below 4%, and that means new-money rates are now enough to improve portfolio yields for those products, Johnson said.

New-money rates are just now starting to reach that crossover point for permanent life products, long-term care insurance and other long-duration products, he added.

Johnson emphasized that CNO is being careful about how and what it buys, and that it wants to have high-quality investments, with asset durations match insurance policy and annuity contract durations.

But, overall, “this quarter, perhaps you will see the new-money rate being a tailwind rather than a headwind,” Johnson said.

Gary Bhojwani and other CNO executives talked about rate increase details during the company’s latest earnings call. Pictured: Bhojwani (Photo: CNO)