CNO Financial Group Inc

NYSE:CNO

Earnings Call Analysis

CNO Financial Group Reports Robust 2023 Performance

In 2023, CNO Financial Group showcased exceptional performance with a 9% rise in annualized premium and a 6% increase in book value per share to $33.94. Highlighting strong earnings, operating earnings per share reached $3.09. Key growth drivers included an 11% gain in Total Health NAP and a 7% climb in Total Life NAP. Contributing to a solid year were a 29% surge in life and health insurance sales and a 34% increase in accident insurance products. Fee revenue experienced growth as well, underlining the company's effective diversification strategies. A fortified capital position, complemented by a ratings upgrade to 'A' by Fitch and a successful reinsurance venture in Bermuda, further established CNO's marketplace distinction. Shareholders enjoyed over $230 million in returns, with $165 million in buybacks and a continuous dividend increase streak extending to 11 years. Moving forward, CNO aims to maintain this momentum into 2024.

Strategic Overview and Accomplishments

CNO Financial Group demonstrated robust performance with significant operating and financial achievements, indicating a strong business model and laying the groundwork for sustained growth. Full year highlights included 4 quarters of consecutive sales momentum, a 9% increase in total new annualized premium, record sales in multiple product categories, and a share price reaching an all-time high.

Financial Strength and Diversification

The full year operating earnings per diluted share stood at $3.09, with stable underlying insurance product margins supported by CNO's diversified product suite. Growth was driven in part by new money rates exceeding 6% across all four quarters, a notable turnaround from a prior decline in investment portfolio yield. Fee income also saw a rise, further highlighting the strength of financial performance.

Product and Sales Growth

Several successful product launches in 2023 fueled growth, with Total Health New Annualized Premium (NAP) growing by 11% and Total Life NAP by 7%. Fee revenue contributed to the year's success, signifying CNO's strategic initiative in expanding and diversifying its product offerings.

Operational Improvements and Shareholder Value

CNO's operational enhancements included the establishment of a new Bermuda affiliate for reinsurance transactions, which contributed to an upgraded financial strength rating by Fitch from A- to A. Over $230 million was returned to shareholders, including an 11 year trend of increasing dividends, thereby underscoring the company's commitment to providing shareholder value.

Balance Sheet and Capital Position

The company's balance sheet improved with book value per diluted share excluding AOCI (Accumulated Other Comprehensive Income) rising 6% to $33.94, reflecting CNO's solid capital position and financial strategy.

Outlook and Consumer Division Prospects

Looking forward, CNO anticipates leveraging its positive trends into 2024, with the Consumer division showing promising growth metrics including a Total NAP increase of 6%, field agent NAP growth of 16%, and significant advancements in its Medicare and annuity lines.

Investments and Client Asset Growth

Client assets in brokerage and advisory surged by 20% to a voluminous $3.2 billion, reflecting a record increase and solidified trust from clients. The agent force expanded by 9%, contributing significantly to the year's growth and setting CNO up for continued success in the following year.

Innovations and Enhancements

In its product lines, CNO pursued enhancements that increased sales, such as accelerated underwriting processes for life insurance products, resulting in around 75% of applicants receiving instant decisions. The Worksite Division also recorded strong uplifts in sales, further evidencing the company's comprehensive growth initiatives.

Product Refreshes and Launches

CNO's strategic product refreshes, such as with its accident insurance product, contributed markedly with a 34% annual increase. Additionally, newly launched products like the critical illness offering have begun receiving positive feedback, suggesting potential for future sales momentum.

2024 Financial Guidance

For the year ahead, CNO is setting a confident tone by projecting an 18% increase in operating earnings per share, targeting a range of $3.10 to $3.30, excluding significant items. This growth reflects improvements across all major operating income components. Excess cash flow to the holding company is expected to be between $140 million to $200 million, aligning with the company's solid capital and liquidity management goals.

Capital Management Strategy

CNO is committed to maintaining robust capital management, aiming to preserve a consolidated Risk-Based Capital (RBC) ratio of 375% for its U.S.-based insurance entities, uphold a minimum holding company liquidity of $150 million, and sustain a target leverage of 25% to 28%. These metrics reflect CNO's strategic approach to balancing growth and financial stability.

Earnings Call Transcript 2023-Q4

[Operator]

Hello, and welcome to today's CNO Financial Group Fourth Quarter 2023 Earnings Conference Call. My name is Bailey, and I'll be your moderator for today. [Operator Instructions]. I would now like to pass the conference over to today's host, Adam Auvil to begin. Please begin.

[Adam Auvil, executive]

Good afternoon, and thank you for joining us on CNO Financial Group's Fourth Quarter 2023 Earnings Conference Call. Today's presentation will include remarks from Gary Bhojwani, Chief Executive Officer; and Paul McDonough, Chief Financial Officer. Following the presentation, we will also have 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 cnoinc.com. This morning's presentation is also available in the Investors section of our website and was filed in a Form 8-K yesterday. We expect to file our Form 10-K and post it on our website on or before February 23. 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 the presentations, we will be making performance comparisons, unless otherwise specified, any comparisons made will be referring to changes between full year 2023 and full year 2022. And with that, I'll turn the call over to Gary.

[Gary Bhojwani, executive]

Thanks, Adam. Good afternoon, everyone, and thank you for joining us. CNO delivered strong earnings growth in the quarter and exceptional operating performance for the full year. Our results underscore the health and strength of our business model and lay the foundation for sustained profitable growth. Highlights of our full year performance include 4 quarters of sustained sales momentum. Total new annualized premium up 9%, improvement in virtually all agent metrics across both divisions, strong net investment income results, continued strong capital position and free cash flow generation, and our share price reached an all-time high. We delivered solid earnings performance for the full year with operating earnings per diluted share of $3.09. Stable underlying insurance product margins were bolstered by our diversified product suite. New money rates exceeded 6% for all 4 quarters, which drove an inflection point in our investment portfolio yield and reversed several years of decline. Fee income improved as we grew fee revenue and expanded margins. Paul will go into greater detail on our financial performance for the quarter and full year. Sales production and agent force results were strong in both divisions as we posted record sales levels in multiple product categories. A robust calendar of successful product launches in 2023 accelerated our growth. Producing agent counts were up sharply, driven by recruiting and retention initiatives. Total Health NAP was up 11% and total Life NAP was up 7% with nearly all of our product lines posting sales growth. Fee revenue was also up for the year and remains an important component in our diversification approach. Our portfolio includes both manufactured and distributed products, which enables us to offer customers a broad selection of solutions to meet their needs. Our strong capital position remains a differentiator for CNO. Notable highlights of our year include our capital and liquidity ended the year well above target levels. We established a Bermuda affiliate and executed its first reinsurance transaction and Fitch upgraded our financial strength rating from A- to A. We returned more than $230 million to shareholders in the year, including $165 million in share buybacks. We again raised our quarterly common stock dividend, marking 11 straight years with an increase. Book value per diluted share, excluding AOCI, was $33.94, up 6%. Turning to Slide 5 and our growth scorecard. Our growth scorecard metrics for the quarter and the full year reflect our continued focus on and investment in our strategic growth priorities. We expect to build on this momentum in 2024. I'll discuss each division in the next 2 slides. Beginning with the Consumer division on Slide 6. We delivered a strong production year, illustrating the value and attractiveness of our business model and approach to serving our market. Our unique capability to marry a virtual connection with our established in-person agent force who complete the critical last mile of sales and service delivery remains a key differentiator. Total NAP was up 6% for the full year, led by 16% sales growth in field agent NAP. Total life sales were up 6% with balanced production from our agent and direct-to-consumer distribution. Fields sold life was up 9%. Direct-to-consumer life was up 3%, reflecting 6 consecutive years of growth and record results in 2023. Health NAP was up 8% for the full year. Long-term Care NAP was up 27% on the strength of our new long-term care fundamental Plus product. As mentioned last quarter, this product is part of our strategy to offer plants to the middle market that cover essential costs for 1 to 2 years of care. 99% of the policies we sell have benefit periods of 2 years or less. Our long-term care product policies provide a balanced, affordable approach to funding care. We are pleased to see consumers embrace these plans and the protection that they provide. We were also pleased with the performance of our Medicare business and how we're growing this portfolio. Total Medicare policies sold were up 5% over prior year. The balance and diversification of our Medicare portfolio is central to how we serve our market. As a reminder, we offer 2 types of Medicare products, Medicare supplement products that we manufacture and third-party Medicare Advantage and Part D prescription drug plans for which we collect fees and bear no underwriting risk. Medicare Supplement NAP was up 16%, and Medicare Advantage fee revenue was up 14%. In the fourth quarter, we completed another successful Medicare annual enrollment period with a strong go-to-market approach. We expanded our MA carriers to 14 and increase the number of MA-certified agents by 14%.Our agents bring local knowledge and experience to every customer they assist. The personal sales and service provided by agents reduces churn and build relationships with potential cross sales. As I've mentioned before, our local agents represent the unique strength of our last mile distribution capabilities. Annuity account values were up 4%, and we reported record annuity collected premium in the quarter. Consistent with previous quarters, our captive agent distribution model lends stability to this block and persistency remains within expected levels. Client assets in brokerage and advisory were up 20% to a record $3.2 billion. Total accounts were up 7% for the full year. When combined with our annuity account values, our clients now entrust us with nearly $15 billion of their assets. Our consumer division had a very strong recruiting year, up 23%. We've consistently grown agent recruiting for 6 consecutive quarters, and we credit this growth to ongoing investments in agent referrals, productivity and retention. Producing agent count was up 9% and continues to build on our 4 consecutive quarters of year-over-year growth. These results contributed to the meaningful growth we reported for the year and position us well for a strong 2024. Three notable investments in 2023 contributed to our sales momentum and illustrate how our approach to technology can improve operational efficiency. First, we enhanced our life, health and annuity product lines, which bolstered sales growth. Second, we expanded the scale and capabilities of our Medicare health insurance technology platform. Nearly 9 out of 10 Medicare Advantage policies sold during the AEP were processed through our myHealthPolicy.com portal. This represents a 14% increase from 2022. Lastly, by introducing accelerated underwriting on a portion of our simplified life products, approximately 75% of those applicants received an instant decision. Next, Slide 7 and our Worksite Division performance. Our Worksite Division finished the year strong with continued insurance sales momentum and a successful fourth quarter benefits enrollment. Life and health insurance sales were up 29% for the full year and up 20% for the quarter. In 5 of the past 6 quarters, insurance sales have delivered 20% growth. This level of sustained incremental growth is exceptional and underscores the significant value that our worksite insurance offerings bring to employers and their employees. Initiatives to grow our worksite agent force generated significant gains in 2023. For the full year, recruiting was up 15% and agent productivity was up 4%. Improving agent productivity while onboarding new agents is not easy. It takes time and training to grow these metrics simultaneously. Having both of these measures up is a testament to the strength of our field leadership to attract and develop career agent talent. Producing agent count was up 27%, our seventh consecutive quarter of year-over-year growth and partially driven by agent retention, which was up 20%. Enhanced agent referral and onboarding programs also delivered double-digit growth in first year agent count, which was up 43% and first year agent productivity, which was up 40%. Multiple investments in product development, geographic expansion and sales enablement created a foundation for accelerated work site growth in 2023 and beyond. Our accident insurance product, which was refreshed in June was up 34% for the full year. And our updated critical illness product launched in the fourth quarter has already received positive early reception. Our geographic expansion initiative generated approximately 1/4 of worksites total sales growth for the year. We are pleased with this early result. As a reminder, this program targets key markets where we've identified strategic opportunities to grow our market share and footprint. We will also continue to be opportunistic in engaging third-party technology partnerships that enhance the tech-enabled services in our benefits enrollment offerings. I am pleased with our worksite insurance sales momentum and recognize that there is still a sizable opportunity for us to get more value out of our worksite fee mines. We're focused on continuing to deepen the integration across our sales channels to improve our client service capabilities and cross-sell opportunities. As we enter 2024, we remain bullish on our worksite business and confidence in our strategic path forward. And with that, I'll turn it over to Paul.

[Paul McDonough, executive]

Thanks, Gary, and good afternoon, everyone. Turning to the financial highlights on Slide 8. We finished the year strong with operating earnings, excluding significant items, up 34% year-over-year. This reflects an improvement in every major component of operating income, including insurance product margin, net investment income, fee income and expenses. Fee income in the quarter was up 31% with solid growth in Med Advantage sales despite reduced advertising and lead spend. Expenses were down year-over-year, and we posted a full year expense ratio, excluding significant items of 19.4%, in line with our prior guidance. The significant items in the quarter relate to the impact of our annual actuarial review, which I'll summarize on the next slide. For the full year, operating earnings per share were $2.72, excluding significant items as compared to $2.91 in the prior year period, with the variance driven by 2 things: #1, lower alternative investment income, which is volatile by definition, and second, elevated health claims during the second quarter, which moderated as expected during the second half of the year. The underlying trends evident in our strong third and fourth quarter results position us well for solid earnings growth going forward. We're also well positioned from a capital perspective with the recent formation of CNO Bermuda Re and the initial treaty between our Illinois-based operating company and the new Bermuda company, which settled on November 30 with an October 1 effective date. This structure materially enhances capital efficiency, which is reflected in our year-end capital and holding company liquidity metrics. Turning to Slide 9. Our annual actuarial review resulted in a $33.9 million favorable impact, driven by favorable morbidity and persistency assumption updates in our supplemental health business with smaller mostly offsetting impacts across the remaining product lines. As mentioned, we're calling this out as a significant item in the quarter and presenting the margin on this slide ex significant items. On that basis, total insurance product margin posted another strong quarter with some puts and takes across products, highlighting the value of our diverse product mix. It's worth noting that the assumption unlocking related to the annual actuarial review creates new go-forward income patterns beginning with the fourth quarter results, separate from and in addition to the $33.9 million impact reported in the quarter. In particular, Sub Health was favorably impacted by $4 million and FIAs and MedSup were unfavorably impacted by $2 million and $1 million, respectively. Turning to Slide 10. The new money rate in the quarter was 6.92%, up from 5.96% in the prior year period and 6.03% in the third quarter of this year. This is the fourth consecutive quarter of new money rates above 6% and set the high watermark for the year. The average yield on allocated investments was 4.68% in the quarter, up 8 basis points year-over-year. The increase in yield along with strong production, driving growth in net insurance liabilities and the assets supporting them contributed to 4% growth in net investment income allocated to products for the quarter and up 5% for the year. Investment income not allocated to products increased 52% in the quarter, primarily driven by an improvement in income from alternative investments. Our new investments in the quarter comprised approximately $350 million of assets with an average rating of A- and an average duration of 7.5 years. Our new investments are summarized in more detail on Slides 22 and 23 of the presentation. Turning to Slide 11. Approximately 97% of our fixed maturity portfolio at quarter end was investment-grade rated with an average rating of A, reflecting our up and quality actions over the past several years. In the last 12 months, the allocation to A rated or higher securities is up 310 basis points, the BBB allocation is down 290 basis points and the high-yield allocation is down 20 basis points. With respect to commercial real estate, our commercial mortgage loan and CMBS investments continued to perform well, reflecting conservative underwriting and proactive management. We have again included some summary metrics on Slides 24 and 25 of the presentation. Turning to Slide 12. We ended the quarter with a consolidated RBC ratio of 402%, up 18 points for the year and comfortably above our 375% target. Holdco liquidity was $256 million, above our minimum threshold of $150 million. Again, these metrics reflect the impact of the capital efficiency of our new Bermuda captive reinsurance structure. We generated $311 million in excess cash flow to the holding company for the year, slightly below our guidance, but excess capital relative to our target RBC and holdco liquidity levels was in line with our expectations. Turning to Slide 13 and our 2024 guidance. We expect operating earnings per share to be in the range of 30 -- sorry, $3.10 and $3.30 for the year, which at the midpoint represents an 18% increase from full year 2023, excluding significant items. This reflects an expectation of modest improvement in insurance product margin, an expense ratio of between 18.8% and 19.2%, a slight improvement from the 19.4% in 2023 and following a quarterly trend similar to 2023, starting on the high end in the first quarter and then grading down through the year. Significant improvement in net investment income not allocated to product, which assumes that alternative investments generate a return more in line with the long-term run rate assumption of between 9% and 10%. Fee income to be slightly down year-over-year with roughly 1/4 of the full year earnings coming in the first quarter and the balance coming in the fourth quarter with the second and third quarters roughly breakeven and no change to our expected effective tax rate of 23%. We expect excess cash flow to the holding company in the range of $140 million to $200 million. The high end of the range assumes status quo in particular, that we maintain the current pace of organic growth, we maintain the current asset mix in our investment portfolio, and there is no change to economic conditions and the related pattern of credit migration in the investment portfolio. The low end of the range assumes a departure from the status quo, in particular, that we accelerate organic growth, where we take more risk in our investment portfolio and/or economic conditions deteriorate prompting adverse credit migration. Certainly, decisions to accelerate organic growth and/or to take more risk with our assets, would consume more capital in the near term, but those decisions will be based on an expectation of enhancing value creation and free cash flow in the long term. Finally, we will continue to manage to a consolidated RBC ratio of 375% in our U.S.-based insurance companies, minimum Holdco liquidity of $150 million and target leverage of between 25% and 28%. And with that, I'll turn it back over to Gary.

[Gary Bhojwani, executive]

Thanks, Paul. Our business continued to perform well in the year, and we are proud of how the CNO team executed against our strategic growth priorities. Our sales engine has momentum, and our agent force is growing. We enter 2024 well positioned to build on our strong operating performance. Our capital position, our liquidity and the cash flow generating power of the company remain robust. We remain confident in our profitable growth and shareholder return opportunity. We thank you for your support of and interest in CNO Financial Group. We will now open it up for questions. Operator?

[Operator]

[Operator Instructions] Our first question today comes from the line of Ryan Krueger from Stifel.

[Ryan Krueger, analyst]

My first question was on the ROE. So it's been trending kind of in the 9% range, I think, ex notables recently. I'm curious where you think that can go over time? And what are some of the key opportunities to improve the ROE? And I guess, perhaps one of them, maybe what you were just mentioning in terms of accelerating growth or repositioning some of the investment portfolio.

[Paul McDonough, executive]

Sure. Ryan, it's Paul. So the -- we didn't include ROE in our guidance, and that's primarily because the nonoperating income can create some sort of unplanned noise in the ratio. But I would say assuming sort of no impact from nonoperating for the year, the guidance that we provided translates to an ROE kind of around 9.5%. So I would characterize that as the current run rate. I certainly think that we have opportunities to expand the ROE, and that's something that we're focused on as a management team over the next couple of years.

[Gary Bhojwani, executive]

Ryan, I would add [indiscernible]. This is Gary. I would add one other thing too. I just wanted to remind you and our shareholders, the senior management team, notably myself and Paul but others, we have ROE expansion in our targets. Our incentive comp is based on hitting certain ROE targets and so on. So we are very focused on this. And as Paul indicated, we believe there's an opportunity to drive this up.

[Ryan Krueger, analyst]

And then, I guess, a question on the nonvariable components of unallocated NII. It trended up kind of throughout 2023. There's a lot going on with the yield curve and the forward curve. And I'm just hoping to get maybe a little more color around what -- how that may look as we go into 2024, given all the variables that play.

[Paul McDonough, executive]

Yes, I can give a very high level comment and then Eric I'd like you to provide some color. So I guess I'd make 2 points, Ryan. #1, it's variable by definition. And so it's going to be volatile. And then the second point I'd make is, as I indicated in my earlier comments, our plan for the year and the related guidance that we've provided assumes that all generate a return that's consistent with our long-term sort of on average run rate expectation, which is around 9%, 9.5%, call it. Is that what we expect in the next 3 to 6 months? Probably not. There's probably more downside risk there than upside. But over the course of the next 12 months, I think it's not an unrealistic expectation. So I'd leave it there, Eric, what would you add?

[Eric Johnson, executive]

If I could just add. I was actually thinking more about the nonvariable components of the unallocated NII.

[Paul McDonough, executive]

Yes. Ryan, a yes. Let me jump in on you here. A couple of ingredients there. For one, higher floating rates -- short-term rates in the market flow through there as a benefit. So to the extent that, that rates stay -- short rates stay higher for longer, that works well there. Second, we've extracted higher margins in our Federal Home Loan Bank and funding agreement programs just through asset reallocation on an ongoing basis without really taking on any much greater credit risk and well within the asset liability management boundaries that we targeted when we started doing those things. And then there's just more dollars there as well, like Gary mentioned earlier about the growth of the company and a little more capital in the company. So there's more -- so you have -- there's a pounding effect of more dollars there and then higher -- marginally higher returns on the dollars. So I agree with that. This is not -- it's not going to be a steady state. There are going to be puts and takes over time, but those are some of the things that paid some benefits in 2023.

[Operator]

The next question today comes from the line of Suneet Kamath from Jefferies.

[Suneet Kamath, analyst]

I just wanted to start with the RBC 402, I guess, for the end of the year, and you're guiding to 375 million for, I guess, the plan for 2024. Is the idea that you'll kind of see that RBC decline driven largely by sales strain? Or is there an expectation that you may start to take some cash out of the operating subsidiary.

[Paul McDonough, executive]

Suneet, it's Paul. So I wouldn't say we're guiding towards $375 million or we continue to manage to $375 million as sort of a threshold level. Our practice for the last couple of years has been to manage sort of comfortably to the plus side of that $375 million, and I expect we'll continue to do that. We do actually have a minimum in our risk appetite that we share with rating agencies and regulators of $350 million. But as a practical matter, we have been and we'll continue to manage to the plus side of that $375 million. So you should expect that $402 million to come down but not necessarily come down all the way to $375 million. And you should expect that we'll continue to pay dividends out of the opcos as we manage the RBC.

[Suneet Kamath, analyst]

That makes sense. And then I guess in terms of the Medicare Supplement business, we get the question all the time when the managed health care companies report and they've been reporting Medicare Advantage claims that have gone up. And I know Supplement is different. But are you seeing anything that would cause you to think that claims kind of could increase here if what we're seeing at the managed care companies kind of persist? Or is it just a completely different exposure and you're not expecting to see any increase in claims?

[Paul McDonough, executive]

Well, they are very different, as you've pointed out. But we are seeing some pressure on claims. I think you've seen that in our own results, not anywhere to the near the same extent as you've seen from some riders of Med Advantage. But I would emphasize that with MedSup we have the opportunity to reprice the business annually. And so to the extent that there's pressure on loss cost, we're able to adjust by adjusting the price subject to regulatory approval, but typically, we get something close to what we're asking for because it's based on real experience. And the other thing I'd say is that notwithstanding the pressure, we continue to generate returns from that business that are consistent with our target returns. And then the last thing I'd say, and again, you've seen this in the results, the new MedSup product that we introduced, I think it's been a little over a year now, is not as profitable as the old MedSup product that's now running off. So that creates a little bit of a headwind for us in terms of year-over-year margin comparisons in that product.

[Operator]

The next question today comes from the line of John Barnidge from Piper Sandler.

[John Barnidge, analyst]

Great. With the completion of the first transaction for the Bermuda platform, can you talk about leveraging that for possibly other actions for your liability profile?

[Paul McDonough, executive]

Sure. John, it's Paul. That is something we're currently in the process of exploring now that we've created this platform, it's certainly there's an incentive to explore ways to leverage it further. We suspect that we'll ultimately identify specific opportunities to do that, but nothing specific to share at this time.

[John Barnidge, analyst]

Great. And then to the extent we get rate cuts, can you talk about the sensitivity of NII to floaters?

[Paul McDonough, executive]

We don't have a ton of floating rate, but Eric, I'll ask you to comment.

[Eric Johnson, executive]

As I described earlier, there is a marginal amount of sensitivity that passes through unallocated NII. But to Paul's comment, the great amount of floating rate securities that we own on the asset side are matched against floating rate liabilities on the liability side such that what we're taking out is a margin and not a variable income. So there will be probably a marginal impact. But I'd say the 90%, if not more, of the floating rate assets we hold are paired against liabilities of similar duration and index basis.

[Operator]

Our next question today comes from the line of Wilma Burdis from Raymond James.

[Wilma Jackson Burdis, analyst]

How has CNO handle pass a medication or other health care events like Leqembi which is the new Alzheimer's drug. I guess I'm talking about in your MedSup line. Could you see pressure on pricing for the first few quarters post approval, but prior to repricing? Or do you have the ability to kind of reprice first when you see an event like that coming?

[Paul McDonough, executive]

So I guess, so we've been sort of tracking Leqembi for a while now. It feels like, and we have anticipated an impact from [indiscernible] on claims in '24. So that was contemplated in the rate increase that we filed. So I think it's an example of something that can put pressure on loss costs that we respond to with rate increases. So I think it's evolving in terms of how much pressure it will put but we've anticipated some, and I think we'll be able to manage it as it evolves over the next few years.

[Wilma Jackson Burdis, analyst]

And then could you just give a little bit of color on the recruiting environment on this coming year?I mean recruiting numbers were pretty good this year. How are you guys seeing that shift in 2024?

[Gary Bhojwani, executive]

Yes. Will, this is Gary. Thanks for the question. So we were obviously very pleased with the recruiting environment, and let me start with the short answer. Based on everything we're seeing, we expect that to continue. And so there's a few points I'd make. First of all, historically, conventional wisdom says that when unemployment starts to rise, you see more people willing to try a career change and specifically try out commission-only-based position like this. So as the labor market tightens a little bit, we're going to see that. But I think what's really happened and why we've had such performance, it's a little bit like Jim Collins analogy of the flywheel. I can't point to 1 or even 2 things. I could point to half a dozen or a dozen different things that we've done to make this a more attractive career path and to simultaneously increase both recruiting and productivity. For us, that's the real trick. And if you ask me to pick, I would actually emphasize productivity. But the trick is doing both, and that's what we're very focused on. As we build out new products, as we bettered our sales enablement, as we've made clear the career path for these agents to become financial advisers, as we've done a number of different things, this literally dozens of small, small things, I think we've made this an increasingly attractive opportunity. And everything we're seeing in 2024 leads us to believe that we should be able to continue to see good results. Now as the agent population gets bigger, of course, it gets harder to match this type of percentage growth rates, but we feel very good about our opportunity to continue to drive both recruiting and productivity in both divisions.

[Operator]

There are no additional questions waiting at this time. So I'd like to pass the call back over to Adam Auvil for any closing remarks.

[Adam Auvil, executive]

Thank you, operator, and thank you all for participating in today's call. Please reach out to the Investor Relations team if you have any further questions. Have a great rest of your day.

[Operator]

This concludes today's conference call. Thank you all for your participation. You may now disconnect.