Description

Long GL / Short CNO

OVERVIEW.  We are recommending a pair trade of long GL against short CNO ahead of their 2Q prints.  Both GL and CNO are mid-cap life insurers which underwrite and distribute relatively simple life insurance, health insurance, and fixed annuity products to lower-/middle-income Americans.  Both stocks are trading at similarly undemanding multiples relative to their historical ranges.  In short, we see an opportunity to own GL, one of the highest-quality franchises in U.S. life insurance, into a beat-and-raise quarter on two of their core KPIs (life sales and margins) at a time when investors are concerned about both metrics, which should drive positive revisions and re-rate.  At the same time, we see an opportunity to short CNO, one of the lower-quality franchises, into a miss-and-cut quarter on both earnings and buybacks, driven by several headwinds to their regulatory capital position which have not been fully baked into consensus expectations.  These headwinds should force CNO to pullback significantly on buybacks in 2H22 and 2023, and potentially new sales growth as well, especially if macro conditions remain challenging or deteriorate further.  If our thesis plays out, we see potential for 20%+ base case upside for the pair coming out of 2Q, supported by 10%+ relative revisions to consensus 2023 eps estimates (we are MSD% above the street for GL, and HSD% below for CNO) plus 1-2 turns of relative re-rate on Y2 PE.

Looking past the quarter, we would still prefer to own GL because GL is one of the highest-quality U.S. life insurers, with good management, good execution, a clean balance sheet, and relatively resilient earnings in a downturn (if it is any indication of business quality, Berkshire Hathaway has been one of GL’s largest shareholders since 2001).  In contrast, CNO is a low-quality business with meaningful exposure to lines of business which have structurally lower earnings growth opportunities; above-average balance sheet risks, which could emerge on both the asset and the liability sides; and substantial eps downside risk in a recession.

We see 2Q earnings as an important catalyst for this pair.  We suspect GL is benefitting from improved fundamental trends in their agent recruitment and productivity, as well as a reduction in margin headwinds related to covid and excess mortality.  This could lead GL to beat-and-raise on their life insurance sales and margins at a time when several close peers are likely struggling to grow sales and earnings.  At the same time, we believe CNO may breach their minimum regulatory capital threshold in 2Q, which, at a minimum, should lead them to miss on 2Q buybacks and significantly reduce their buyback capacity into 2023.  CNO could emerge from the quarter with one of the weakest capital positions of its peers, heading into an uncertain 2H macro tape in which capital adequacy will be paramount, and this issue should constrain CNO’s normal business activities for several quarters as the company gradually rebuilds its capital.  We suspect the magnitude of the decline in CNO’s capital may come as a surprise, and should catalyze negative revisions and re-rate because investors have recently been swift to punish lifecos where capital issues have emerged (see JXN, LNC).

The sellside is currently mis-modeling CNO’s capital adequacy and their resulting buyback capacity by at least a cumulative $200m through 2023, which should drive HSD% negative revisions to 2023 eps coming out of the print.  Additionally, if CNO ends 2Q in a precarious capital position and economic conditions soften in 2H, then we see a high likelihood that CNO will be forced to pullback on new sales growth to protect their regulatory capital, which could lead to further mid-teens % downside to 2023 eps in our bear case.  We believe CNO has asymmetric downside risk to consensus eps estimates because: (a) buybacks constitute almost the entirety of CNO’s eps growth formula, so any reduction in capital return should lead to a relatively outsized impact on eps growth; (b) there is a high degree of operating leverage in CNO’s earnings model, which leaves their eps vulnerable to any pullback in sales; and (c) CNO has relatively limited levers through which to grow sales and earnings even in normal macro environments, and we do not see a likely path for them to accelerate sales growth beyond current consensus expectations.  

Putting it altogether, we see ~15% upside in our base case price target for GL and ~10% downside for CNO.  GL currently trades at 10x 2023 eps and 6% fcf yield on street estimates, which is a bottom-decile multiple from over the last 5 and 10yrs.  We see potential for multiple re-rate to accompany good execution and positive revisions at GL, particularly at a time when close peers (including CNO) are likely struggling with agent recruitment and sales growth.  This leads us to underwrite GL to 11.5x PE and 5% fcf yield in our base case, which is still an undemanding first-quartile PE multiple from over the last 5 and 10yrs.  CNO currently trades at 7.5x 2023 eps and 9.5% fcf yield on street estimates which, like GL, is a bottom-decile multiple relative to historical levels.  We believe this multiple is appropriate in our base case given the uncertain macro climate and CNO’s weak fundamental outlook, so we see potential for ~10% base case downside reflecting our HSD% negative revisions to consensus 2023 eps.

We currently see 2x risk/reward for GL and 1x for CNO, which leads us to a 1x spread for the pair.  For GL, we see potential for 30% upside and 15% downside to the current price, which implies a range of 9.0-13.5x Y2 PE and 4-6% fcf yield on our bull/bear case estimates.  For CNO, we see 25% upside and similar downside to the current price, which implies a range of 7.0-9.5x PE and 8.5-11.5% fcf yield.  We underwrite a similar bear case for both CNO and GL, which leads to additional mid-teens % downside to our base case 2023 eps for CNO, and HSD % downside for GL.  It is worth nothing that insurance investors have increasingly shifted from PE- to fcf-based valuation methods ahead of the implementation of a new GAAP accounting standard, so any deterioration in capital return should limit CNO’s potential to re-rate on PE despite screening as optically cheap relative to its historical trading range.  

SHORT CNO.  Overview: (1) We believe CNO may breaching their minimum risk-based capital (RBC) threshold in 2Q, which, at a minimum, should lead the company to miss and guide-down on buybacks.  The street is overestimating buyback capacity through 2023 by at least a cumulative $200m, which could lead to HSD% negative revisions to consensus 2023 eps.  We see potential for further mid-teens % downside in our bear case if CNO is forced to pullback on new sales growth to protect capital.  (2) CNO has been over-earning since covid due to several tailwinds to their investment income and loss ratio.  We expect these tailwinds to have abated and/or reversed into headwinds in 2Q, which leads us to be -30% below the street on 2Q operating eps.  (3) Looking past the quarter, we think CNO is a low-quality business with several downside risks which could emerge over the near-/medium-term.

(1) Miss-and-cut on buybacks.  CNO currently targets a 375% through-the-cycle RBC ratio and a 350% minimum threshold in stress scenarios.  CNO had ended 1Q22 with an RBC of 365%, and we see potential for at least another 20pts of deterioration in 2Q.  This would leave CNO below their minimum threshold and, at the very least, force management to cut buybacks in order to protect capital.  Our capital rollforward suggests that CNO should have no buyback capacity in 2Q22 and only ~$200m cumulatively between 2Q22 and 4Q23, which are below consensus of $50m and $425m, respectively.  This delta leads to HSD% negative revisions to 2023 eps in our base case.  We see potential for further mid-teens % eps downside if CNO pulls back on new sales growth as well.

For context, the RBC ratio is one of the most important metrics that investors will care about because it represents the capitalization of CNO’s operating subsidiaries based on a set of formulas determined by insurance regulators.  Insurers with adequate RBCs are essentially allowed to return capital to shareholders via buybacks and dividends.  Insurers with inadequate RBCs will be unable to return capital, and in more extreme situations, may even be required to contribute additional capital to support their business. 

The two primary drivers of our 2Q RBC rollforward are (i) the statutory accounting for CNO’s fixed indexed annuity (FIA) reserves, which we estimate to be at least a 20pt headwind, and (ii) statutory net income, which we suspect should be another headwind in the quarter, but we conservatively underwrite as neutral to reflect the “black box”-nature of statutory accounting.  It is worth noting that the sellside community does not typically roll forward RBC or capital adequacy to inform their assumptions around CNO’s capital return, so their forecasts for buybacks do not reflect an internally consistent view of capital generation. 

With respect to (i) the statutory accounting for FIA reserves, CNO sells a simple FIA product which offers a participation rate on the S&P500, and the company fully hedges the market risk on the product by buying call options on the S&P.  Importantly, CNO accounts for their statutory FIA reserves under the CARVM method, which sets the minimum required reserve as the cash surrender value (CSV).  In equity down-market scenarios, the CARVM method creates a dynamic in which the fair market value of the FIA assets decreases as the call options used to hedge the FIA contracts are increasingly out-the-money, but there is no corresponding change in the reserves because they are floored at CSV.  In other words, CARVM leads to a de-leveraging effect on CNO’s regulatory capital position in down-market scenarios because the assets decline in value, but the liabilities do not. 

We suspect that the mechanics and magnitude of the reserve flooring impact are not well appreciated by the street.  We believe the CARVM impact had been responsible for an 8-9pt RBC headwind in 1Q to reflect a -3% average decline and a -5.5% point-to-point decline in the S&P500.  From this baseline, we estimate that CARVM should be at least a 20pt headwind to 2Q RBC to reflect an -8% average decline and a -16% point-to-point decline in the S&P500 this quarter.  

With respect to (ii) statutory net income, CNO ordinarily generates positive statutory net income each quarter, which is in turn a positive contributor to RBC as earnings are recycled into capital.  However, in this case, we expect CNO’s 2Q statutory net income to be negative due to several near-/medium-term headwinds:

·     (a) Higher FIA hedging costs.  When index option prices spike, as has been the case in 1Q and 2Q, CNO incurs the higher accounting and economic costs upfront as a drag on net income.  CNO sells a simple FIA product which includes a guaranteed lifetime withdrawal benefit (GLWB) rider designed to protect the policyholders’ principal.  Unlike most of its peers, CNO does not charge any fees on these GLWB riders to cover the costs of hedging their market risk; instead, CNO buys their hedge options at the beginning of each contract year, then prospectively adjusts their FIA participation rate to reflect their cost of hedging.  As a result, we believe CNO is relatively more exposed to higher option costs than peers because (i) CNO fully hedges their market risk on their policies, whereas peers will often partially hedge; (ii) CNO’s costs are incurred upfront, without a corresponding offset from fee income; and (iii) CNO cannot fully pass through higher hedge costs to policyholders via changes in participation rates.  

·     (b) FIA spread compression.  CNO had faced headwinds to their spread income in 1Q from higher-than-expected turnover of their investment assets into lower-yielding securities.  We suspect some of this turnover may have been driven by CNO offering lower participation rates on their FIA policies to prospectively offset the higher cost of hedging that they experienced in 1Q.  Given the sequentially higher levels of market volatility in 2Q, we suspect these headwinds may have intensified: CNO likely faced even higher hedging costs this quarter, which may have led to further reductions in participation rates, which may have then spurred even more policyholder turnover and spread compression in the quarter.

·     (c) Reduction in covid-related earnings tailwinds.  CNO had been over-earning since covid from reduced policyholder utilization in their Health division and higher policyholder mortality in their Long-Term Care division, which altogether added an average of ~$20m/qtr to earnings in each of the last 8 quarters.  Our research suggests that benefits utilization had largely normalized and covid mortality had also diminished in 2Q, so these tailwinds should have largely abated as well. 

·     (d) Headwinds from variable investment income (VII).  CNO had also been over-earning on statutory net income since covid due to favorable VII from their illiquids investment portfolio, which had added an average of ~$20m/qtr to earnings in each of the last 8 quarters.  We expect VII to reverse into a headwind in 2Q and 3Q due to negative mark-to-market adjustments on CNO’s private equity and other illiquid investments, which are accounted for on a one-quarter lag.

·     (e) Potential reduction in the level of statutory admitted DTAs.  Statutory accounting standards cap the amount of DTAs that an insurer can include in its capital calculation to those expected to be utilized over the next 3yrs; therefore, if a company’s earnings outlook declines, then the level of admitted DTAs will fall as well.  This dynamic has not been well-understood, even by insurance investors, and had recently contributed to negative surprises at several lifecos including JXN and LNC.  The DTA cap presents a significant downside risk to eps because (i) CNO has a substantial DTA balance at over 10% of its market cap; and (ii) we think CNO’s earnings outlook has substantial risk of declining in the near-/medium-term, which could lead to a reduction in their DTA balance and a consequent weakening in their regulatory capital position.  In more extreme scenarios, we could see this dynamic creating a negative feedback loop in which CNO would be forced to reduce their sales outlook to protect capital, which would lead their earnings outlook to decline, which would then reduce their DTA admissibility and negatively impact their capital position, which could then spiral into their sales outlook.  

Putting it altogether, we suspect CNO’s RBC could fall below its 350% threshold in 2Q, which would be a disappointing result for investors because (a) CNO would likely have one of the largest sequential declines in 2Q RBC of the public U.S. life insurers, and would end the quarter with one of the lowest RBCs; (b) CNO would be forced to take drastic steps to rebuild RBC back to their 375% target, which would include cutting buybacks and likely sales as well, since new policy sales are an upfront strain on capital; and (c) CNO would be in a poor position to deal with any further macroeconomic weakness and/or equity market volatility in 2H.

CNO had ended 1Q22 with $40m of excess holdco liquidity.  Based on our 2Q RBC rollforward above, as well as management’s remark from the last earnings call that they may have upstreamed too much capital to the holdco in 1Q, we suspect CNO may be forced to downstream ~$30m (or ~5pts of RBC) of holdco capital into their operating subsidiaries in 2Q to maintain their 350% minimum threshold.  We expect CNO to use the remaining $10m to pay their quarterly common dividend.  This would leave no remaining capital for buybacks in 2Q, which is below consensus of $50m.  Looking past the quarter, we believe CNO can upstream ~$300m of cumulative excess capital to the holdco between 3Q22 and 4Q23, which implies only ~$200m of cumulative buyback capacity through 2023.  This is substantially below consensus of $425m and should lead to HSD% negative revisions to 2023 eps.   

Importantly, our capital rollforward and buyback forecasts assume no further economic or market headwinds following 2Q, as we are not underwriting explicit macro forecasts into our forward estimates.  Given the macro sensitivity of CNO’s FIA hedging and statutory reserve accounting, we would expect CNO’s RBC to benefit from low-volatility, up-market scenarios.  However, to the extent that U.S. equities remain flat and volatile into 2H, or deteriorate further, we would expect these capital headwinds to persist.

(2) -30% miss on 2Q Op EPS.  Overall, we see limited positives which are likely to emerge from CNO’s 2Q results.  CNO has been over-earning since covid due to several tailwinds to their investment income and loss ratios, and we expect these tailwinds to abate in 2Q.  This leads us to a -30% miss on 2Q operating eps, driven primarily by the factors discussed above (i.e., higher FIA hedging costs, lower FIA spread income, reduction in covid-related earnings tailwinds, headwinds from VII, and lower buybacks).  In addition, our research suggests that CNO’s agent salesforce has continued to decline sequentially, which would be a headwind to sales, and we believe the bulls would prefer to see a positive inflection in agent growth before becoming more constructive on the stock. 

(3) Low-quality business with substantial downside risk.  CNO is a relatively low-quality business with (a) substantial exposure to capital-intensive and lower-multiple lines of business with structurally lower earnings growth opportunities; (b) balance sheet risks related to both their investment portfolio and their long-term care reserves; and (c) substantial eps downside risk in a recession.

·     (a) Low-quality business with structural headwinds to sales & earnings growth.  Almost a third of CNO’s earnings come from fixed annuities, which is a relatively commoditized, capital-intensive, low-ROIC, and low-multiple business.  Another 15-20% of earnings come from Medicare Supplement, which is a product that is in secular decline as policyholders increasingly shift towards Medicare Advantage (CNO does not manufacture Medicare Advantage).  CNO also has meaningful exposure to long-term care (10% of earnings), which is another low-growth and low-multiple business with some tail risk from CPI inflation.  About 20% of earnings come from life insurance, which had over-earned during covid from higher customer demand, as well as from higher ad spend as CNO took advantage of lower media costs to increase their marketing spend (CNO’s sales are highly correlated to ad spend in any particular period).  We expect these tailwinds to abate as covid-driven demand fades, CNO pulls back on their ad budget, and lower-/middle-income consumer spending tightens. 

Additionally, most of CNO’s products are distributed through their exclusive agent channel (traditional “feet-on-the-street” distribution), and CNO has struggled to recruit and retain new agents over the past year due to labor market headwinds.  At the same time, overhead costs have continued to increase due to general inflationary pressures and new investment initiatives, which could contribute to substantial operating de-leveraging in 2H22 as covid tailwinds fade and capital headwinds emerge.  We do not believe CNO is able or willing to pursue risk transfer for their annuities or LTC businesses, and we do not believe CNO to be an attractive acquisition target given limited strategic rationale.  The company has historically pursued small-scale M&A to supplement their poor organic growth profile, but we do not believe management has a particularly successful track record of M&A.  Additionally, we do not think CNO is able or willing to pull any levers around their capital structure.  So altogether, we think there is very little to be excited about with respect to CNO’s business quality and fundamental outlook. 

·     (b) Potential balance sheet risk.  On the investment portfolio side, we think CNO has above-average exposure to a potential credit downturn because (a) it has above-average exposure to riskier asset classes, including BBB-rated fixed maturities (~40% of its portfolio, vs peer average ~35%); (b) it has an above-average investment leverage on a statutory basis (~14x, vs peer average 11x); (c) it has a relatively weaker starting capital position, with potential to breach its minimum RBC threshold in 2Q; and (d) we see substantial risks to its capital generation and cash flow, particularly in an economic downturn.

On the liabilities side, we suspect CNO could face headwinds to their long-term care reserves from CPI inflation.  CNO underwrites low-face, low-duration LTC policies, with the average policy offering a maximum reimbursement of $200/day over 1-3 years.  CNO has historically reserved for these policies at less than their maximum benefit of $200/day, which is a standard industry practice.  It is unclear what the company has historically reserved as management does not disclose enough information, so it is difficult to properly quantify this risk – but with general medical inflation expected to inflect, and other inflationary trends also pressuring the cost of care (i.e., rising cost of home healthcare, nursing shortages, etc.), we see some tail risk that CNO could find itself under-reserved on LTC.

·     (c) Substantial eps downside in an economic downturn.  We are currently HSD% below the street in our base case 2023 eps estimate, and we see potential for additional mid-teens % downside in an economic downturn.  CNO would be forced to pullback on both buybacks and new policy sales in order to protect their regulatory capital during a recession, since both are sources of capital strain.  CNO’s earnings growth is tied closely to their new sales growth, and operating leverage is a key driver to their earnings model, which could lead their earnings to drop-off more quickly than the street expects.  Altogether, we believe CNO has asymmetric downside risk to eps growth in a softening economic environment because buybacks constitute almost the entirety of their eps growth formula; there is a high degree of operating leverage in their earnings model; and CNO has limited levers through which to grow operating earnings even in normal environments, and we do not see a likely path in the near-term for them to accelerate sales growth beyond current consensus expectations.

Valuation and Risk/Reward.  We are estimating approx. $2.10 of base case 2023 eps vs Bloomberg cons of $2.31, driven primarily by lower buybacks.  We apply the current PE multiple of 7.4x in our base case, which implies 10% fcf yield on our 2023 fcf estimate, as we believe this is a reasonable fcf yield on both an absolute and relative basis.  This leads to ~10% base case downside.

We see 1x r/r for CNO, reflecting 25% bull case upside and 25% bear case downside.  Our bull case reflects $2.30 of 2023 eps at 9.5x PE, or 8.5% fcf yield.  Our bear case reflects $1.90 of 2023 eps (which assumes a 20% decline in Life and Health sales, a 1% decline in policy persistency, and a further $70m decline in cumulative buybacks through 2023) at 7.0x PE, or 11.5% fcf yield.  Our range of fcf yields puts CNO in the ballpark of weaker lifeco peers such as LNC, BHF, and UNM. 

LONG GL.  Our long case for GL is relatively simple.  GL is trading at a substantial discount to its historical valuation range on both Y2 PE and fcf yield because investors are concerned about their outlook on two core KPIs (life insurance sales and margins) in an uncertain macro climate.  Our research leads us to believe that GL could beat-and-raise on both KPIs, which would reflect good execution and business momentum at a time when close peers are likely struggling to grow sales.  This provides a good entry point into owning one of the highest-quality and cleanest U.S. life insurance companies.  We see scope for modest MSD% revisions to consensus 2023 eps coming out of the print, and we think a good quarter plus positive revisions may also support at least 1-2 turns of re-rate on Y2 PE, particularly when revisions for CNO and other close peers may be flat-to-negative.  This leads us to model mid-teens % base case upside for GL.  

(1) We suspect GL should beat-and-raise on 2Q Life insurance sales.  GL’s sales are driven by agent growth and average sales per agent.  On the agent growth side, our research leads us to forecast LSD% sequential growth in agent counts across each of their distribution channels in 2Q, which investors should receive positively after GL had reported two consecutive quarters of declines in 4Q and 1Q.  We suspect GL’s strong agent trends are supported by more “warm recruitment” activity; a shift in middle-manager compensation; and the continued attractiveness of their virtual sales offering for agents, which is a somewhat unique offering amongst their peers.  We believe GL currently has the strongest agent recruitment trends of its peers, and, for comparison, we expect CNO to report another LSD% decrease.

On the productivity side, our research and modeling give us some confidence that GL’s recent productivity gains from 1Q should be trendable improvements, rather than temporary ones.  We believe some of the productivity gains in 1Q had come from the resolution of bottlenecks which had constrained sales during covid (i.e., staffing issues, tracking of medical records, etc), which should carry through into the rest of 2022.  We also believe there continues to be good momentum behind GL’s virtual sales offering, which had been an important contributor to productivity during covid.  Additionally, our data suggest that consumer demand for general life insurance, as well as Globe Life-specific products, have held up into 2Q, which should support the company’s sales productivity.

Putting it altogether, we are modeling L/MSD% upside to consensus 2Q sales expectations.  If our thesis is correct, then we would also expect management to raise their guidance for 2022 agent counts and sales because their 1Q guidance had assumed minimal growth, which would likely be too conservative in light of their 2Q results.  This would ultimately be positive for both revisions and multiple because GL has a relatively simple earnings model in which agent growth is the most important driver of sales growth, and sales growth is one of the most important drivers of earnings over time.

(2) We suspect GL should also beat and raise on 2Q Life insurance margins.  The two primary swing factors for GL’s margins are covid mortality and non-covid excess mortality, both of which have likely been trending better than expectations.  We are currently forecasting ~35k U.S. covid deaths in 2Q based on the latest CDC and IHME data, which is tracking more favorably than GL’s 1Q forecast of 90k covid deaths for 2Q22 through 4Q22.  Additionally, the mix of U.S. covid deaths has continued to shift towards the >65yo cohort, which is a further tailwind for GL’s margins because their life book is skewed towards younger cohorts, and older deaths typically have lower claims payouts.  Finally, some reinsurers have suggested that non-covid excess mortality trends have been improving since the end of March, which would be a further tailwind to GL’s margins.

Putting it altogether, we see potential for a +50bps beat on GL’s Life benefits ratio in 2Q (42.0% vs cons 42.5%), as well as a +70bps beat in 2022 (42.6% vs cons 43.3%).  If our thesis is correct, this would be positive for both revisions and multiple because it would show investors a cleaner path to resolving the covid overhang on GL’s stock.

(3) GL is one of the cleanest and highest-quality businesses in U.S. life insurance.  Looking past the near-term investor debates around sales and margins, GL is one of the highest-quality franchises in the U.S. life insurance sector.  GL has one of the simplest and most predictable earnings growth algorithms in the sector, which is supported by a good management team, a clean balance sheet, and no tail risk in their business.  Their business model has historically fared better than peers through economic downturns, and we would expect similar resiliency in the current environment based on the real-time momentum in GL’s business relative to peers’.  One area of investor concern has historically been around GL’s investment portfolio, which is relatively over-indexed to BBB credits particularly in the energy sector, but we have not identified any problem credits, and the outperformance of the energy sector YTD should be supportive of their portfolio.

As several external indicators of their high business quality: (a) insurance ratings agencies (the industry’s de facto regulators) allow GL to target a ~300% RBC ratio due to the high predictability and relatively low risk profile of their business model, whereas almost all other U.S. life insurers must target closer to 400% RBC; (b) Berkshire Hathaway has been one of GL’s top shareholders since 2001; and (c) the market has historically valued GL at a range of 4-6% fcf yield, whereas most other life insurers trade above 8%. 

(4) GL is also a good beta hedge for our CNO short, as both are mid-cap life insurers trading at undemanding valuations relative to their historical ranges.  The pair is slightly short equity markets (CNO is more equity sensitive); neutral to interest rates; and long covid recovery (GL had under-earned during covid while CNO had over-earned, so these trends should reverse as covid subsides).

Valuation and Risk/Reward.  We are estimating approx. $9.60 of base case 2023 eps vs Bloomberg cons of $9.23, driven by higher investment income and life earnings.  We apply an 11.5x multiple in our base case, which implies 5% fcf yield on our 2023 fcf estimate, which we believe is a reasonable fcf yield on both an absolute and relative basis.  This leads to ~15% base case upside. 

We see 2x r/r for GL, reflecting 30% bull case upside and 15% bear case downside.  Our bull case reflects $9.60 of 2023 eps at 13.5x PE, or 4% fcf yield.  Our bear case reflects $8.90 of 2023 eps (which assumes a 20% decline in Life sales, a 1% decline in policy persistency, and ongoing covid endemic losses which are twice as severe as annual flu losses) at 9x PE, or 6% fcf yield.  Our valuation range is in-line with GL’s historical trading range of 4-6% fcf yield.

Catalyst

 2Q earnings.  GL will report on 7/27 post-close, and CNO will report in early August.