CNO Financial Group, Inc. Q1 FY2025 Earnings Call

Good morning, everyone, and thank you for being here for the CNO Financial Group First Quarter 2025 Earnings Call. My name is Colin, and I will be leading the discussions today. Now, I would like to turn it over to our host, Adam Auvil.

Good morning, and thank you for joining us on CNO Financial Group's First Quarter 2025 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. 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 presentation, we'll be making performance comparisons, and unless otherwise specified, any comparisons made will be referring to changes between first quarter of 2025 and first quarter of 2024. And with that, I'll turn the call over to Gary.

Good morning, everyone, and thank you for joining us. CNO is off to a solid start in the quarter, building on strong 2024 performance. Our first quarter results enable us to reaffirm our full year 2025 and three-year ROE guidance. Operating earnings per diluted share were $0.79, up 52% and $0.74 up 42%, excluding significant items. Our first quarter performance reinforces our commitment to grow earnings while improving profitability. CNO also delivered our 11th consecutive quarter of strong sales momentum and our ninth consecutive quarter of growth in producing agent compensation. I'll cover these results in more detail in each division's comments. Earnings continue to benefit from favorable insurance product margin and strong investment results, reflecting growth in the business and expansion of the portfolio book yield. New money rates have exceeded 6% for nine consecutive quarters now. Capital and liquidity remain well above target levels after returning $117 million to shareholders. Book value per diluted share, excluding AOCI was $37.03, up 6%. Paul will go into greater detail on our financial performance. Most importantly, the core areas of our business continue to perform well, including production, agent force metrics, policyholder persistency, underwriting margin, capital management and overall investment management. Visibility into macroeconomic drivers such as interest rates is deteriorating. However, our track record demonstrates our ability to navigate volatility. As we look to the balance of the year, we remain squarely focused on leveraging our business model to enable sustained profitable growth, executing on our strategic priorities and driving ROE expansion. Turning to Slide 5. All but one of our growth scorecard metrics were up for the quarter. As a reminder, our growth scorecard focuses on three key drivers of our performance: production, distribution, and investments in capital. I will discuss each division in the next 2 slides, Paul will cover investments and capital in more detail during his remarks. Beginning with the Consumer division on Slide 6. Consumer division posted another solid start to the year. Our capabilities to reach the underserved middle-income market remain a key differentiator for our Consumer business. We marry a virtual connection with local agents who deliver the last mile of sales and service to build lasting relationships with our customers. This personal interaction is especially valuable to customers during times of uncertainty and market volatility. Our agents maintained positive sales momentum in the quarter with financial and health products continuing their consistent strong performance. Annuity collected premiums were up 12%, our seventh consecutive quarter of growth. Account values were up 7% and premium per policy was up 19%. Our strong annuity performance comes on the heels of a record 2024. Our captive distribution and the long-term relationships that our agents build with their clients enable stability in our block of business. We delivered our eighth consecutive quarter of brokerage and advisory growth. Client assets in brokerage and advisory were up 16% for the quarter. New accounts were up 13% and average account size was up 3%. Persistency remains strong with our investment clients. When combined with our annuity account values, our clients now entrust us with more than $16 billion of their assets, up 9%. Sustained growth in brokerage and advisory and annuities reflects a critical but largely unmet need within our market for retirement income solutions. It has long been our position that middle-income customers need and deserve access to professional guidance and retirement products as do more affluent customers. We continue to consider it a great privilege to serve this market. Total NAP was flat for the quarter. Health NAP was up 9%, the 11th consecutive quarter of growth. Supplemental health NAP was up 8%. Sustained growth in our health results demonstrate strong consumer demand for ways to cover out-of-pocket gaps in medical coverage and safeguard against the growing cost of health care. Our Medicare portfolio continues to deliver strong sales growth. Medicare Supplement NAP was up 24%, and Medicare Advantage policies were up 42%. Recall that Medicare Advantage sales are not reflected in NAP. As a reminder, we manufacture Med Supp products and distribute MA policies from third-party carriers. The strategic choice to optimize our Medicare portfolio adds balance and diversification and enables us to offer more coverage options for our customers' health care needs. With more than 11,000 people in the U.S. turning 65 every day, Medicare is a year-round business for CNO. Persistency in both Med Supp and Med Advantage continues to benefit from the client relationships our agents establish. Long-term Care NAP was down in the quarter on a strong comparable as the current product first launched in late 2023. Long-term care remains a strong product in our portfolio and fills a critical retirement care need. We continue to see a growing need for practical long-term care solutions within our target market. Life production was down in the quarter, primarily driven by lower lead volumes in our direct-to-consumer business. Lower D2C leads were due in part to elevated TV advertising costs and an intentional pullback in marketing spend to optimize production with expense. This seasonal fluctuation is consistent with previous first quarter results following the presidential election. Our second quarter results will confirm if the prior trend persists. Over the last several years, we have proactively diversified our non-television direct marketing to include more web and digital channels. Web and digital now accounts for over 36% of sales generated by D2C leads, up 28% year-over-year. Looking ahead, we remain confident in our ability to generate direct-to-consumer sales at an attractive rate of return. We continue to see long-term value in our diversified and integrated approach to reach middle-income consumers. Finally, producing agent count was up 2%, marking our ninth consecutive quarter of growth. Our customers look for technology to supplement, not replace human interaction. Investments in technology continue to enable customer experience and drive operational efficiency. Accelerated underwriting on a portion of our simplified life products remains a prime example. It delivered an 87% instant decision rate on submitted policies in the quarter, up 11% over fourth quarter 2024. Next, Slide 7 and our Worksite Division performance. Our Worksite Division is also off to a solid start to the year. Worksite insurance sales were up 11%, our 12th consecutive quarter of growth. Highlights included critical illness insurance up 37%, life insurance up 17% and accident insurance up 4%. Our Critical illness product was launched in the fall of 2023 and still shows strong momentum. We have also experienced steady growth in life sales, which now make up 28% of our total Worksite insurance sales. Strategic growth initiatives also contributed significantly to our Worksite NAP performance. Our geographic expansion initiative delivered 32% of the NAP growth in the quarter. This is the sixth consecutive quarter of growth generated by this program. NAP from new group clients was up 134%. As a reminder, this program helps agents cultivate and acquire new employer groups for insurance sales. Producing agent count was up 8%, marking our 11th consecutive quarter of growth, agent productivity was up 10%. Over the past year, our Worksite leadership team has implemented new training and sales technology tools to enhance our agent experience and productivity. We expect these programs to further bolster the attractiveness of the strong career opportunity we offer. The sales were down for the quarter off a small base. The first quarter is historically a life selling period for our Worksite fee products. We expect to see improvement in the second and third quarters. In late February, we introduced a new product called Optavise Clear. Optavise Clear enhances our services offerings in three ways. It brings together our benefits advocacy, education and employee communications services into a single package for employers. Second, it adds new capabilities such as our new Medicare advocacy services. And finally, it offers an enhanced technology experience to help make it easier for employees to navigate their benefits. Optavise Clear can be purchased as a stand-alone product or in combination with our benefits administration technology and voluntary insurance benefits. Early feedback from our brokers and clients has been positive. And with that, I'll turn it over to Paul.

Thank you, Gary and good morning, everyone. Turning to the financial highlights on Slide 8. Operating earnings per share, excluding significant items, were up 42% in the quarter, reflecting growth in the business, stable insurance product margins, sustained new money rates above portfolio rates, resulting in increased book yields, alternative returns still a bit below our long-term run rate expectations, but much improved year-over-year. And lastly, continued discipline in expense and capital management. Fee income was adversely impacted in the quarter by ASC 606 revenue recognition accounting for the sale of third-party Medicare Advantage policies by Bankers Life agents in our consumer division. The underlying dynamics of that business are actually quite healthy. As Gary mentioned, the MA policies sold in the quarter increased 42%. The accounting rules, however, create volatility in the timing of revenue recognition. I expect the adverse impacts noted in the first quarter of this year to be largely offset by anticipated increases in fee revenue recognition in some future periods. We continue to manage our capital and Holdco liquidity targets, while in the quarter deploying $100 million of excess capital on share repurchases, contributing to a 7% reduction in weighted average diluted shares outstanding. On a trailing 12-month basis, operating return on equity, excluding significant items, was 11.9%. Turning to Slide 9. Insurance product margin was up across all three product categories and each of the underlying products with total insurance product margin, excluding significant items, up 8%. The results continue to benefit from growth in the business, solid persistency and higher investment returns. Turning to Slide 10. Net investment income remained strong in the quarter. This was the 11th consecutive quarter of growth in book yield and invested assets. The new money rate was 6.43%, the ninth consecutive quarter above 6%. The average yield on allocated investments was 4.87%, up 17 basis points year-over-year. The increase in yield along with growth in the business, drove a 6% increase in net investment income allocated to products for the quarter. Investment income not allocated to products was up considerably, primarily due to improved alternative investment income versus the prior year. Total investment income was up 16% for the quarter, marking the sixth consecutive quarter of growth. Our new investments in the quarter comprised approximately $1 billion assets with an average rating of A and an average duration of seven years. Our new investments are summarized in more detail on Slide 22 of the presentation. Turning to Slide 11. The market value of invested assets grew 11% in the quarter, with roughly 60% of the increase a result of growth in the business and market appreciation on the investment portfolio and the remainder due to recent FABN issuances. Approximately 96% of our fixed maturity portfolio at quarter end was investment-grade rated with an average rating of A, reflecting our up and quality bias over the last several years. Our portfolio is high quality, liquid and delivering durable results. Turning to Slide 12. Our capital position remains strong. At quarter end, our consolidated risk-based capital ratio was 379%. Available Holdco liquidity was $250 million, well above our target minimum. Leverage at quarter end was 32.7% as reported. Adjusting for the senior notes that will be paid off at maturity in May of this year, leverage at quarter end was 26.1% within our target range of 25% to 28%. Turning to Slide 13 and our 2025 guidance. As Gary mentioned, we are reaffirming all guidance announced in February as summarized on this slide. Certainly, economic conditions today are more volatile than they were back in February, and the outlook is far less certain. That admittedly creates additional risk, perhaps skewed to the downside in the near-term that one can also envision upside scenarios. The bottom line is our balance sheet and business model position us well to navigate through uncertainty as demonstrated most recently in the strong performance of our business through the COVID-19 pandemic. In addition, our stress testing indicates that we could absorb the impact of a severe recession, if that were to come to pass, without dropping below our target capital and liquidity levels. Longer-term, we remain very focused and committed to improving run rate ROE by 150 basis points over the 2025 to 2027 period from about 10% in 2024. And with that, I'll turn it back to Gary.

Thanks, Paul. Our financial health is strong, and our business model is resilient. During times of uncertainty, our customers and clients need professional guidance and financial security products more than ever. Our associates, agents, and independent partners are here to help. Our track record has demonstrated our ability to navigate market events from a position of strength. We remain confident in our capabilities to deliver profitable growth and drive ROE expansion in 2025 and beyond. Before we open up the line for questions, I'm pleased to share a program update. Starting in June, we will launch a new series of CNO investor briefings. These programs will focus on one area of CNO's business provide a deeper look at that area's strategy and approach and offer an opportunity for Q&A with members of management and their leadership teams. Our first investor briefing will feature a one-hour virtual session on CNO investments, led by our Chief Investment Officer, Eric Johnson. Program registration will open in May. Event details will be announced soon, so please ensure that you are signed up to receive our email alerts. We thank you for your support of and interest in CNO Financial Group. We will now open it up to questions.

Our first question comes from Wes Carmichael of Autonomous. Your line is now open.

Hi, good morning. Just on buybacks, they were a bit higher this quarter at $100 million. And just thinking ahead to the second quarter and maybe a little bit of pressure on the stock today, would you expect kind of in the current more choppy macro environment you might want to lean into the buyback again? Or is this maybe a little bit of a time to be more cautious, given potential recession fears and volatility in markets.

Hi, Wes, good morning it's Paul. So the short answer is that we're inclined to continue to lean in. As you know, our share buyback levels have been somewhat elevated in the last 2 quarters, $90 million in 4Q, $100 million in this first quarter. We're still sitting on $250 million of cash flow at the Holdco against our minimum of $150 million. So that creates some capacity that would suggest the potential for some continuation of these elevated levels.

That's helpful. Thank you Paul. And just switching to the fee revenue topic that we talked about with Medicare Advantage and the timing there. I know you said some of that is likely to reverse in future periods. Is there any color you can share on how the GAAP accounting revenue recognition differs from the cash flow from fees in the period?

Sure. So Wes, I think this is a question that's pretty common across all of our sell-side coverage and I think probably with our investors as well. So let me give you a fairly long-winded response just to provide some information and context. So I'm sure you appreciate under ASC 606 accounting, we are required to estimate lifetime revenue and expenses from each issued Med Advantage policy that we sell for third parties. And we base that estimate on our experience and the related data that we have with each of the carriers that issue the policies. We have more experience and related data with three primary carriers of the roughly 21 Med Advantage carriers that we represent. The sale of a policy to one of those three primary carriers translates to higher revenue and income than a sale to any of the other carriers because with those other carriers, we apply a constraint on our estimated lifetime revenue and income due to the more limited experience and related data we have with those carriers. In the first quarter, we saw a significant increase in the percentage of new sales with these other carriers and also in the percentage of exchanges where policyholders are shifting from one of our three primary carriers to one of the other carriers. And this dynamic drove the decline in fee income year-over-year, notwithstanding the increase in the number of Med Advantage policies that we sold and issued in the quarter. As we develop more credible experience with the newer carriers, we anticipate the assumptions between the three primary carriers and the newer carriers would converge. In other words, you would expect to relax the constraints we are currently applying to the newer carriers. So if it plays out like we expect, we would see a reversal in some future period of some of the adverse impacts we experienced in the first quarter of this year. The final point I think worth making is that we’re not seeing an increase in the number of exchanges as a percentage of the total policies issued. So this is a healthy and growing part of our business, but there’s some noise in the timing of revenue and income recognition under GAAP accounting, driven by a changing mix of sales between the three primary carriers and the newer carriers. So I’ll stop there. I know that was a lot, but hopefully, that provides some helpful information and context.

Thank you very much. Our next question comes from John Barnidge of Piper Sandler. John, your line is now open.

Good morning, thank you for the opportunity. Just kind of following up on that fee income commentary, Paul, you said there would be a reversal possibly in a future period. Does that reversal like occur possibly intra-year? Or is it over a multiyear period? Thank you.

John, it's hard to say. It certainly could. We certainly could see some of that inside of calendar 2025. It could extend beyond that. But the thing I would emphasize, John, is that our guidance hasn't changed, right? We are reaffirming our full year guidance. Fee income is a small piece of that, or guidance for fee income was that it would be in '25, a bit below what it was in 2024, largely because of this dynamic, which we foreshadowed back in February, we anticipated this sales mix and the impact that it would have. It is a bit more pronounced. It's actually quite a bit more pronounced than we had anticipated. And I think that's a dynamic not just with us, but more broadly in this market. Again, we haven't seen an increase in the exchanges as a percentage of the total sales issues. So in that context, it's stable. So our guidance for fee income hasn't changed. I still expect it to be a bit lower than it was in 2024, maybe by a bit more than we thought back in February. But again fee income is a small component of the overall earnings, and we reaffirm our full year guidance for earnings in total on a per share basis.

Thank you for that. And my other question, you talked about the Optavise Clear product launch. Can you maybe discuss how you view the opportunity set within that for arguably a customer set that has demographic tailwinds? Thank you.

Yes. John, this is Gary. So as you might imagine, we're really bullish on this. This really lets us bring together a bunch of services that we have historically offered to the Worksite customers and bring them together in one consolidated offering. Now there's one exception to that. There's a new Medicare advice service that we're also providing and relatively speaking, that's new to us. But we're really encouraged by the early reactions. Now it's early that's why we are sounding a little bit cautious. But we're very encouraged by the early reactions we think that the demand for this will grow, and we're very bullish on what the future potential is.

Thank you.

Our next question comes from Ryan Krueger of Keefe, Bruyette, & Woods. Ryan, your line is now open.

Good morning. I had a question about direct-to-consumer life sales. I understand the challenges you've faced from the political election and increased advertising costs. However, do you expect to see a recovery in both advertising spending and sales for direct-to-consumer for the remainder of the year?

Thank you for the question, Ryan. At a high level, yes, but I want to add one caveat. In my time at CNO, which includes three elections, I've noticed a significant shift from broadcast television to streaming. This makes it difficult to predict how much of a recovery we will see in traditional media. Without this shift, my answer would be a definitive yes; however, we're unsure about how to manage that. On a positive note, we've anticipated this trend and have increasingly focused our advertising efforts on social media platforms. As I mentioned earlier, 36% of our sales now come from non-traditional broadcast areas. So, while I have that caveat, we've been preparing for it and seeing success in these alternative media channels.

Got it. Thanks. And then could you give a little bit more color on the trends you're seeing in consumer agent recruiting and retention, kind of a good stream of growth you're still optimistic about continued growth from here?

Short answer is yes. We remain optimistic on our ability to give a good career path to these folks that are interested in this. Historically, we've seen that when unemployment pressure rises, our agent recruiting picks up. So if there is going to be an increase in unemployment, we would expect that to help us. But even without that, as you pointed out, we've shrunk together many, many quarters now. So we think we've got an offering in a model here that really resonates with people that are willing to consider this as a career. So we expect our agent counts to grow, and we expect our productivity to grow certainly over a longer time frame.

Great. Thank you.

Great. Thank you very much. Next question comes from Suneet Kamath of Jefferies. Your line is now open.

Hi, thanks. Maybe just a follow up on Ryan's second question. It looks like the consumer pack was down maybe 3% from the fourth quarter and maybe lower than third and fourth quarter of last year, maybe flat to 2Q. So I know you just talked about recruiting growth, but what is the outlook for PAC in the Consumer division? Thanks.

I expect us to continue to grow. We experienced some fluctuations from quarter to quarter, so there may be some bumps on a sequential basis. However, I believe that when looking at annual performance, particularly comparing similar periods from year to year, we will continue to show growth. Certainly, over a longer timeframe, such as the full year, there may be some minor bumps, but nothing significant. We aren't seeing any indicators that suggest our models are failing when it comes to the long-term projections for both growth in agent numbers and productivity.

Got it. Regarding your target market, how do you assess their interest in insurance products? Do you expect a greater impact from rising tariffs and costs or a potential recession? Can you provide insights on the overall health of that market?

Yes. Overall, look if we go into a recession, it, of course, depends on just how deep that is, right? It's very hard to predict that. But the things that don't change in a recession, 11,000 people still turn 65 every day. That doesn't change. Those people are living longer. The life spans are growing. Medical costs are going upward. And there are fewer alternatives. For those reasons, recession or not, we expect there to be continued strong interest in our products. Now are we immune to a recession or an economic downturn? Of course not we will be impacted but I don't think we will be impacted nearly as significantly as manufacturers of other hard goods, as an example, or these other discretionary purchases. I think we'll weather that much better than others have. And I would point to recent experiences, not least of which is the pandemic. We came through that, I think, relatively well. And even with the period of prior inflation that we had over the last year or 2, we came through that quite well. So I think that supports our view that the demand and need for these products is relatively resilient not immune, but relatively resilient to some of these macroeconomic pressures.

Got it. Thank you.

Thank you very much. Our next question comes from Jack Matten from BMO. Jack, your line is now open.

Hi, good morning. Just a question on your Medicare business. A big health and share recently flagged some margin issues with Medicare Advantage. I'm wondering if you expect consumers to shift toward Medicare supplement there's higher pricing on the Medicare Advantage side? And any impacts we could see on your Medicare Advantage into if those carriers are raising rates.

Jack, thanks for the question. So first, there has been a couple of other questions about our Medicare Advantage business. And I just want to emphasize one thing. I would love to have another quarter like the one we just had. 42% growth in policies and the only bump here was the timing of that fee recognition. I want to make sure that really came across clear and loud. I would love to have another quarter like the one we just had. It was absolutely a fantastic quarter. Now to your point, I think that some demand will be impacted on MA, we may see, I don't know if we'll see them shifting back to Med Supp or other types of plans or it's a little early to call that. But there's been a long secular trend away from Med Supp towards Med Advantage. And I think that will abate somewhat because I think carriers are going to start reeling in some of the benefits that they had in the MA space. So I do expect to see that. I don't think that will have a material impact on us because our view is that those consumers that may have considered MA to the extent they consider Med Supp, especially with us, frankly, I would rather sell the Med Supp because we manufacture and collect the distribution margin on that, whereas with MA it's just simply a distribution market. So we view ourselves as being in a good position if that happens. And remember, if those MA underwriting results worsen, those don't impact us because we're strictly a distributor on the MA side. So whatever happens on the shift between that demand, we regard it, generally speaking, as left pocket, right pocket. If they want to buy MA from us, we're thrilled to sell it to them. We like the margin we get on that. It's great. If they want to shift to buy Med Supp instead, we are happy to sell them that too. We enjoy that product. So we don't see that having a material impact if that transition materializes.

That's helpful. And just a follow-up on the slide back you referenced a potential the RBC ratio, variability. Just wonder if you could elaborate on that, like what you're seeing? And would you expect any potential impacts in the second quarter given the market volatility you've seen in April?

Sure, Jack. It's Paul. I'll address that. We finished the quarter with an RBC of 379, exceeding our target of 375. The 379 figure was influenced by a couple of timing issues that are likely to reverse over time. Specifically, there are two factors I'd like to highlight. First, there's been an increase in non-admitted assets, which will definitely reverse. Second, we have the accounting for the statutory accounting for FIAs. When equity markets decline, as they did in the first quarter, it negatively affects our statutory net income and capital because of the one-year call options we use to hedge our equity exposure. This situation creates a slight disconnect in our accounting because the mark-to-market on those options is mostly counterbalanced by changes in the liability, but not completely. Thus, there can be some discrepancies from an accounting perspective, even though, economically, it's almost a perfect hedge. This impacted the first quarter, reversing some of the positive effects from previous quarters when equities were rising, as this hedging moves in both directions. So, those are the two points I wanted to mention regarding the quarter.

Appreciate it. Thank you.

Thank you very much. Our next question comes from Wilma Burdis from Raymond James. Wilma, your line is now open.

Hi, good morning. Could you give us a little bit more color on the geographic expansion and Worksite? Thanks.

Yes, hi Wilma, this is Gary. We have been working on this for about one to one and a half years now. We've seen significant growth in our sales as a result, and we anticipate that this trend will continue. We're exploring new geographical areas, but we're proceeding cautiously and with discipline. We are pleased with the progress we’re making and expect this trend to persist in our existing new markets, while also looking for additional opportunities.

It seems like you still feel confident on delivering 50 bps of ROE improvement in 2025. Can you talk about what is ongoing there to just this year that's going to help improve on the expense side? And any risks that you are seeing to that figure. Thanks.

Sure. Wilma, it's Paul. So as I've said in the past, there is a multitude of things that are contributing to the improvement in our ROE. Expenses is one, growth in the business is another which contributes to the growth in our insurance product margin. The higher interest rates, we've been putting new money to work above portfolio yields for the last several quarters, nine I think, is the number. We're looking at the in-force business and levers we pull there, the pricing of new business, the management of capital including the capital dynamics of the reinsurance treaty with our new Bermuda company, all of those things are contributing to ROE improvement in 2025, and we expect we'll continue to drive our ROE improvement over the next couple of years, along with other things that we're currently contemplating to some degree more of the same, but some other things likely on the margin as well. So hopefully, that's helpful Wilma. There's not really any single silver bullet. It is all of those things in aggregate.

Thank you.

Our next question comes from Tom Gallagher of Evercore ISI. Tom, your line is now open.

Good morning Paul, I wanted to follow up on your comment about the impact of the equity market weakness on the fair value of the derivatives. What was the magnitude of that impact? I'm also asking because the markets seem to be weaker heading into the second quarter; should we anticipate a similar or greater impact?

In the first quarter, the impact was about $25 million. If we were to see another 5% decline, similar to the equities being down about 5% this quarter, that would also result in a $25 million impact. This amount primarily reflects a reversal of the gains we experienced in prior quarters when the markets were performing well. For a comparable effect in the second quarter, we would need a decline of about 15%. The impact of decreases from our current position compared to December will largely depend on the specific circumstances. Additionally, it's important to note that this is all about timing. If you consider it over the course of a one-year option, the total net effect would equate to zero. So, it really comes down to timing.

Got it, Paul. So you'll earn some of that back over the balance of the year. Is that the right way to think about it as the options expire?

I mean in the context of a single option, yes, in the context of the entire portfolio, it is going to move up and down with equities with varying degrees of magnitude. But if you put the thing in run-off, yes, it would all unwind to 0 if you're looking at calendar year.

I have a similar question regarding the Med Advantage revenue recognition drag on GAAP. Are there also comparable effects on cash flows, and how should we consider that?

Yes. So the cash flows are much simpler, right? You sell a policy and the cash flows that you would expect emerge from there. This is just pure accounting, right? You've got to predict estimate what the lifetime cash flows will be? And on that basis, you book your revenue and your expenses and your income.

So you would have had stronger cash flows than as reported from a GAAP perspective in Q1. Is that a fair conclusion?

Yes, for sure. I mean what's happening in Q1 is by virtue of going from the three primary carriers where we don't apply any constraint to smaller carriers where we do, there is an experience adjustment that's translating to the result that we booked in the quarter.

Thank you very much. We currently have no further questions. So I'd like to hand back to Adam Auvil for any further remarks.

Thank you, operator, and thank you all for participating in today's call. As a reminder, if you are interested in receiving details on our upcoming investor briefing, please ensure that you are signed up to receive our email list. Have a great rest of your day.

As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.