CNO Financial's (CNO) CEO Ed Bonach on Q4 2016 Results - Earnings Call Transcript

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CNO Financial Group, Inc. (NYSE:CNO) Q4 2016 Results Earnings Conference Call February 8, 2017 11:00 AM ET

Executives

Adam Auvil - IR

Ed Bonach - CEO

Erik Helding - CFO

Gary Bhojwani - President

Analysts

Erik Bass - Citi

Sean Dargan - Macquarie Research

Ryan Krueger - KBW

Dan Bergman - UBS Securities

Humphrey Lee - Dowling & Partners Securities

Yaron Kinar - Deutsche Bank

Operator

Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter 2016 Earnings Results Conference Call. [Operator Instructions] Thank you.

Adam Auvil, sir you may begin your conference.

Adam Auvil

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.

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

Ed Bonach

Thanks Adam and good morning.

I'm pleased to report that 2016 was another notable year of solid results for CNO as we continue to grow and diversify the franchise. Our growth this year was due to a mix of new sales, expanded customer reach through new products and services, and successfully retaining customers. Most of our growth metrics showed increases for the year.

First year collected premiums were up 12% and total collected premiums grew 6%, both a 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-force.

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 $258 million to shareholders for managing through an unexpected recapture of the closed block of long-term care business.

The recapture demonstrated our balance sheet strength and resiliency as we were able to absorb the associated financial impact while maintaining strong capital metric. We concluded our year-end actuarial assumption reviews and I am pleased to report that we experienced another year of growth in aggregate margin. 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 incumbent to alternative investment, a long-term opportunity to ownership in a growing platform and further utilization of our valuable tax asset.

Lastly, we made significant progress on advancing our technology and business solutions and customer experience initiative. Much of the areas 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 advisory.

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

Gary Bhojwani

Thanks Ed.

Before turning to 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 the colonial 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 effective 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 product 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 and 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 customer's 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 course. Trailing four quarters third-party fee income primarily derived from the sale of Medicare Advantage plan 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 runoff of the closed Medicare supplement loss.

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 count. 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'll now turn the call over to Eric to discuss our financial results.

Erik Helding

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 in 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 adjustment related to year-end assumption reviews. Income was negatively impacted by approximately $5.5 million of higher corporate segment expenses related to our legacy lawsuit dating back to 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 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 maintain strength in its key capital measures and as disclosed on January 12, we concluded the independent third-party audit of the recaptured closed block long-term care assets. The conclusion of the audit resulted in no material valuation adjustments. We have made good progress on reposition 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 base 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 and retained earnings. Book value per diluted share excluding AOCI was $22.02 up 10% from the prior year.

Holding company cash and investment 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 not fully utilized, we expect to start paying a 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 201,7absent compelling alternatives.

Turning to Slide 11 in our segment earnings, Bankers Life earnings reflect favorable Medicare supplement in LTC margin partially offset by higher expenses related to the full rollout of our broker-dealer and Registered Investment Adviser.

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 EBITDA between $5 million and $15 million reflecting growth and in-force earnings, an opportunistic marketing cost management. The LTC and one-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.

Our higher expenses in the current quarter were largely attributable to DOL implementation cost and true-ups to various employee compensation and benefits accruals based on a strong performance in 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 7%1 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 and expected future loss reserve accruals.

Washington National 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 and 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 a recapture of the closed block LTC assets and the ongoing repositioning of that portfolio. Alternative investment income results were strong continue to benefit from our increased allocation to that asset class.

Asset turnover remains low as we seek to defend portfolio yields in this low interest rate environment. Post real life 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 runoff of older less profitable business run out of new business and the most recent round of rate increases, updated mortality, morbidity and lactation resulted in a small increase to margins and we experienced some improvement related to interest rates.

We continue to assume a 6.5% ultimate new money rate but margins benefitted from asset allocation changes and portfolio rebalancing that occurred in 2016.

Turning to Slide 15, as noted in our 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 the distinct product categories, including standalone nursing home coverage, comprehensive coverage, home healthcare and short-term care.

We further dissect the block by issue here with vintages of products sold prior to 2003, products sold between 2003 and 2007 and products sold after 2007. The product and issue cohort 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 yearend 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 assumption and recorded a pretax charge of $2.6 million to reflect relatively minor refinements and 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'll now hand the call back over to Ed.

Ed Bonach

Thanks Eric.

A new year bring energy in 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 insight 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 offering or through more traditional means of context.

We continue to be committed to reducing our relative long-term care exposure over the next two to five years and understand the reinsurance is a likely piece to accomplish as subjective. We know that middle-income Americans are underserved in regards to insurance and retirement services. CNO understands this market as we have been serving as our primary focus for many years.

We are uniquely positioned to serve the middle market with our mix of control distribution channel along with the breadth of products and services created separately to adjust this customer segment's needs.

With that, we'll now open it up for questions. Operator? Melissa?

Question-and-Answer Session

Operator

[Operator instructions] And your first question comes from Erik Bass.

Erik Bass

Hi. Thank you. Just first for Eric, 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 the corporate in 2017?

Erik Helding

Sure Erik, this is Erik. So 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 about $2.3 million in our COLI asset which we did not audit - it's 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 to $4 million and it's difficult to say which one of those are going to sort of normalize out and not recur. I think the big question is of DOL.

So I would expect though that our corporate segment EBIT loss would be in approximate $12 million range on a run rate basis.

Erik Bass

Okay, thanks. And then on long-term care and your outlook for the benefits ratio for 2017. Is there any of it experience related or it sounds like it's primarily that you’re assuming a lower FLR accrual. I guess are you still accruing any future loss reserve at this point?

Erik Helding

Well the lower expectation for future loss reserve accrual is driven by experience. So that's 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 $329 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. So, there will be very little if any future losses or accrual in 2017 at this point.

Erik Bass

Got it. And maybe 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 however is it can right to think that accumulating more claims data and seeing progress on rerating and claims initiatives is probably even more impactful and would it be correct to think that completing another year of review with positive reserve development should help close the bid asks spread?

Ed Bonach

Erik, this is Ed. In general I agree with the factors that have the biggest influence and rephrase it 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, given the target market that we've served being largely those in their mid to - upper mid 60s as an issue age average, we've got more claims data and then most companies in the industry. Now another year of experience certainly should help but I don't think that's necessarily a gating factor.

Erik Bass

Okay. Thank you.

Operator

And your next question comes from Randy Binner.

Unidentified Analyst

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

Erik Helding

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

Unidentified Analyst

Okay. Thank you. And then why was the COLI mark-to-market weaker. It seems like it would have been more positive.

Erik Helding

Yes, fair question. A little bit more than half of the COLI 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.

Unidentified Analyst

Okay. Got it. Thank you.

Operator

And your next question comes from Sean Dargan.

Sean Dargan

Yes, thanks. Just following up on the topic of potential LTC reinsurance over the next two to five years. You break out on Slide 15 the four distinct product coverage categories and issuer 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 issue here that you're looking to reenter with.

Ed Bonach

Yes Sean, Ed. 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. So we believe in order to do that in a meaningful way, we have to include blocks where there are negative margin.

I won't say it would only include those black but in order to meaningfully reduce risk, they need to be part of any transaction or transactions.

Sean Dargan

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

Ed Bonach

You'll have to make your own assumptions. We have disclosed that our business issued prior to '03 largely negative margins and prior to '03. We weren't really selling any meaningful amount of short-term care. So it held primarily in the other three product kind or product feature.

Sean Dargan

Okay. Thank you very much.

Operator

And your next question comes from Ryan Krueger

Ryan Krueger

Hi thanks. Good morning. I was just hoping to dig into the improved LTC margin a little bit more -- I guess there are $55 million from the run on -- runoff you, give us 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?

Erik Helding

Sure Ryan, this is Erik. I think about $15 million to $20 million was related to the net run-on and runoff. What's running through that $55 million was also the impact, the building related to the shock lapses and just overall building FLR and that was a little bit over $30 million for the year.

Ed Bonach

With that Ryan, I'll just add, remind everyone that we did not have all the shot collapse reserve release flow into the bottom line. We had based on expected margins a portion of that shot collapse reserve go into the FLR as Erik mentioned.

Ryan Krueger

Got it. Okay. So even though you had projected in the rate increases, that the current -- the last round of rate increases into your margin last year, the positive impact from shock was better than you expected?

Erik Helding

Well we actually did not incorporate any shock lapses into the margins function, that's a differentiator.

Ryan Krueger

Got it. Okay. And then in the slide deck, you have the -- you estimated present value of the tax assets in the $425 million compared to $520 million last quarter. I know you utilized I am sure some of the tax assets on the quarter but I think a larger drop in one quarter than I would've expected. Do you have any -- can you provide any color on that.

Erik Helding

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

Ryan Krueger

Got it. Okay. And then just last one, thinking about long-term care reinsurance, can you given the experience of how you're thinking about hurdle rates required for counterparties and if you have changed your level of what's the hurdle rates required for a counter party on additional transaction going forward?

Ed Bonach

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

Ryan Krueger

Okay. What about in terms of the recapture block, is that a block that you could look to reinsure I guess again?

Ed Bonach

Yes, definitely not necessarily though putting it at the top of our list and 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 liability in our run-off block are 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 a big of an impact as some of the pre-03 Bankers Life business.

Ryan Krueger

Okay. All right, thanks a lot guys.

Operator

And your next question comes from Dan Bergman.

Dan Bergman

Hi, good morning. To follow-up on the Bankers long-term care, I believe in the past you talked about an expectation for the benefit ratio increased gradually for the flock over time. Supposed this step down in the 2017 benefit ratio guidance, should we start back a similar path or gradual increases in the benefit ratio going forward from this lower level or lower base? I guess as big picture, how should we expect that to transpose 2017?

Erik Helding

Hi Dan, this is Erik. Yes, that expectation remains the same. I mean the benefit ratio will increase over time.

Dan Bergman

Okay, great. Thanks. And maybe just switching gears, Bankers age and recruiting and average producing agent trend both negative in the quarter. Is there any additional color you can give on the main drivers and the outlook for when we might expect to a positive inflection? I guess I’m just trying to get a sense of how much of this trend is due to the macro backed up at low unemployment and kind of what steps you might be able to take to improve this that we stay in that type of environment in the near term?

Gary Bhojwani

Hi Dan, this is Gary, thanks for the question. I think there's a lot of different factors that are going on. You put your finger on a critical issue, we saw a significant macroeconomic recovery in the fourth quarter and that clearly had an impact on this.

As you look forward, they're 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 loans on if you think about Bankers Life securities.

So we're constantly working with those three levers. I was not happy with what we saw on the fourth quarter but I also didn't get too worked up about it because of the seasonality. The other thing that that we continue to feel good about is what we define is our recurring agents, the folks that have 10 year or three years removal, those are our most productive agents and you can see on the chart we provided a relatively good trend particularly over the longer-term, it's been stable the last couple of years but certainly over the longer term it's a nice trend.

So we're looking at different ways to continue to refine the recruiting models, the three levers are the ones that I talked about. Those are the ones that had the most impact and we don't have any particular thing we're seeing around the corner that gives us a lot of concern, we're continuing to work on this.

Dan Bergman

It’s very helpful color. Thank you.

Operator

And your next question comes from Humphrey Lee.

Humphrey Lee

Good morning, and thank you for taking my question. Just to follow up on the distribution front about the shipping to Washington National, I noticed 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 some quite a bit of challenges over the past two years or so. I think in part because of the - the customer base and then probably because of recruiting.

Can you talk about the - what you just see in this quarter and should we think about that as a turnaround going forward?

Erik Helding

In terms of what we're looking at, we see the independent channel as an opportunity, it's 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.

Ed Bonach

Humphrey let me add, this is Ed, on the individual side, we have still expanded into different states, that certainly causes us to move different management and there was some 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're encouraged by it, but I wouldn't declare victory yet.

You know what, I think I misunderstood your question just on further reflection, I think what you maybe more complete response is we benefited from the ACA open enrollment window and some of these product allow us to fill the gap in coverage and I apologize for misunderstanding your question initially. So that explains what went on here in the Q4.

Humphrey Lee

Okay. So it's just a little of a seasonality plus a little bit on com. Okay. And then on Bankers, looking at the productivity gain on a full year basis, it was like 1%, given some of the investments you've put in place to enhance the productivity when would be a realistic timeframe to see a more meaningful improvement?

Is it just a factor of the agents the more recent recruited agents continue to ramp up or is there some other levers that has yet to come through the pipeline?

Ed Bonach

I would be reticent to give you a specific timeframe. As you know we don't give you sales guidance but maybe what I'd 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 '14 and '15 and we started to get some of those levels back.

So as we do that, that will continue to have an impact. Now the one thing I would tell you and this is we're literally in the process of thinking about our recruiting differently, what's happening in the marketplace and the way candidates use things like monster.com and the impact from the other macroeconomic conditions in terms of the job market improvement, 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 clean about it I'm much more interested and much more focused on those agents that we for three years and longer because that's where the productivity lift really is. Now clearly to grow that number you have to have agents that have been here for one and 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 and I'm not as focused on 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're productive because we really do see a significant difference after three years.

Erik Helding

Sorry let me add to that, not sure how you're 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. So that's another thing that factor into how do you look at productivity.

Humphrey Lee

Okay. If I can sneak in one more. I think for the past year or so you talked about expanding your recruiting efforts towards college graduate and with the broker-dealer channel rollouts that will probably help your effort in that. So with roughly a year under the belts, can you talk about your recruiting effort in the college graduates channel and are you seeing the results that you're hoping for?

Ed Bonach

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

We've got a few other pilots running right now where we're targeting certain professions or we're 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 in insurance agent and have an interest in expanding their expertise into the securities area.

Humphrey Lee

All right. Thank you.

Operator

And your last question comes from Yaron Kinar.

Yaron Kinar

Thanks for taking my call. 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 Bankers testing margin sensitivities, so you pointed $26 million of improvement given on the net experience. Is that driven by the initiatives that you put in place to better monitor utilization?

Erik Helding

Hi Yaron, this is Erik. No, that really was very little incremental impact from what I think you're speaking of our claims initiatives that we've been testing. I think it was either last year or the year before that we actually did install a benefit of roughly $30 million related to one specific initiative.

So I know there's no incremental benefit from additional initiatives at this point in time but we continue to look at different ways to improve accuracy, billing, detect fraud do things like that.

Yaron Kinar

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

Erik Helding

Yes, I would say net-net they were slightly positive, maybe to the tune of $10 million or $12 million, I mean - and that's a really small number when you’re talking about $3.5 billion of active life reserves.

So 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 recall a couple of years ago, we actually saw deterioration there and this is really just sort of - what two years moreover the data, just the slight rollback of some of that deterioration.

Ed Bonach

And let me add to that Yaron, the book that carries the largest liabilities is largely a year old or two. So the remaining duration is somewhat less so therefore the sensitivity would be somewhat less.

Yaron Kinar

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

Operator

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

Ed Bonach

Just thank everyone for your interest in CNO. That ends the call.

Operator

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

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