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CNO Financial Group Inc  (NYSE:CNO)
Q3 2018 Earnings Conference Call
Nov. 01, 2018, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Stephanie and I will be your conference operator today. At this time, I would like to welcome everyone to the CNO Financial Group Incorporated Third Quarter 2018 Earnings Conference Call. All lines have been placed on mute to avoid any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

Jennifer Childe, Vice President of Investor Relations, you may begin your conference.

Jennifer Childe -- Vice President of Investor Relations

Thank you, Stephanie. Good morning everyone and thank you for joining us on CNO Financial Group's Third Quarter 2018 Earnings Conference Call. Today's presentation will include remarks from Gary Bhojwani, Chief Executive Officer, and Erik Helding, Chief Financial Officer. Following the presentation, we will also have several other business leaders available for the Q&A 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 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-Q and posted on our website on or before November 5. 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 presentations contain a number of non-GAAP measures, which should not be considered as substitutes for the most directly comparable GAAP measures. You'll find a reconciliation of the non-GAAP measures to the corresponding GAAP measures in the appendix. Throughout the presentations, we will be making performance comparisons and unless otherwise specified, any comparisons made will be referring to the changes between third quarter 2017 and third quarter 2018.

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

Gary C. Bhojwani -- Chief Executive Officer

Thanks, Jennifer. Beginning with Slide 5. I am very pleased with our performance in the third quarter, which reflects the continued progress our team has made, executing on our strategic priorities. All three of our segments posted sales growth in the quarter and drove all growth scorecard metrics up over the prior period. While we would like to see a few more quarters of this growth before calling it a trend, our results reconfirm our faith in our strategy.

Operating earnings per share were $0.53, up 18%, reflecting benefits from tax reform. Book value per share -- per diluted share was $19.28, down 10% from year-end 2017, due to the impact from the previously announced reinsurance transaction. This quarter we closed on the transformative long-term care reinsurance transaction. Following the close, Moody's upgraded CNO to investment grade, which reflects our significantly derisked balance sheet as well as our ability to fund the transaction within the capacity of our existing balance sheet, while maintaining capital metrics that are at or better than what we disclosed as part of our 2Q earnings call. Moody's also highlighted our expectations for annual free cash flow generation of approximately $350 million. With the long-term care transaction now complete, our full attention is focused on growing the franchise.

Turning to Slide 6, I want to take a moment to discuss the updated growth scorecard. You'll see that we have divided our measures into categories of drive growth and expand to the right, to more clearly allow our stakeholders to track our progress against our growth strategy. As CNO expands to the right, refers to our goal of reaching customers still within the middle market that are slightly younger and have higher income and wealth.

During the third quarter, we delivered growth in life and health NAP and total collected premium. Tied to our initiatives to drive growth and expand to the right, Bankers Life annuity collected premiums, client assets at our broker dealer registered investment advisor and fee revenue, all generated double-digit growth this quarter.

Now let's move to Slide 7 in our segment results. Starting with Bankers Life, where we are pleased to report meaningful progress across our major initiatives and strong results for the quarter. Life and health NAP increased 2%, which was driven by a 6% increase in health sales. Total collected premiums increased 7%, driven by a 14% increase in annuity collected premiums. These strong annuity sales, coupled with higher persistency, drove a 5% year-over-year increase in annuity account values.

We also made progress in our effort to expand to the right. You will recall that in 2016, we launched our own broker-dealer and registered investment advisor. I'm pleased to announce that these businesses are now entrusted with over $1 billion in client assets. Net client inflows totaled $70.5 million this quarter and $185 million year-to-date. Our fee revenue was up 15% over the comparable quarter, due to growth in securities, sales and fee-based investment management services, combined with an increase in Medicare Advantage sales.

The number of Bankers Life financial advisors has grown 25% over the prior year. Currently, 13% of our agent force is duly registered, which leaves us with significant runway for growth. Insurance agents that become duly registered as financial advisors are able to offer more services to our clients, manage a greater share of their assets and ultimately build deeper relationships. And because they are able to offer more asset accumulation and income protection products, they help drive sales of our retirement products, such as annuities. In fact, these duly registered agents were responsible for 48% of the Bankers Life annuity sales during the quarter.

Our producing agent count increased 1% this quarter. This growth was generated from gains made in first year agent retention, which reduces our reliance on new agent recruiting and is consistent with our strategy to build a more tenured and productive agent force.

Moving to Slide 8. Washington National has generated growth in six of the past seven quarters, due to the success of our strategic initiatives. Total NAP in the third quarter was up 2%, driven by a 28% increase in worksite life sales. Total collected premiums were up 2%, driven by increases in supplemental health sales. Our geographic expansion efforts have delivered over $3 million of incremental NAP in 2018, while our diversification initiatives are showing promising results. Life sales were up 25% in the third quarter, while our short-term care pilot delivered its best results to date. The short-term care initiative is particularly encouraging, since it leverages the breadth of the diverse CNO product portfolio and distribution capabilities.

Total worksite sales were up 12%, driven by a record-breaking quarter in the PMA worksite channel, which posted its sixth consecutive quarter of double-digit growth. Successful new agent recruiting, combined with strong experienced agent retention, contributed to an overall increase of 3% in the average producing agent count in the quarter.

Turning to Slide 9. Colonial Penn delivered its strongest rate of sales growth in more than three years. NAP was up 19% due to increased cost-effective advertising spend and strong sales productivity. We always remain price disciplined in our approach and acted on attractive lead investment opportunities during the third quarter. Total collected premiums were up 2%, driven by growth in the block and stable persistency.

We continue to see success with our initiatives to diversify our lead sources. Web and digital sales were up 40% in the third quarter, driven by investments in enhancing our website and expanding our online lead generation activities. We've also implemented various technologies to enhance lead processing, improve the customer experience and speed the sales closing process. This has led to higher quality lead generation, improved tele sales agent productivity and stronger sales conversion rates. Finally, we are committed to expanding our product offerings within Colonial Penn and plan to pilot new products in 2019.

I'll now turn the call over to Erik to discuss our financial results. Erik?

Erik Helding -- Chief Financial Officer

Thanks, Gary. CNO had a strong quarter of earnings. While we reported a net loss per share of $3.22, the loss was driven by a one-time charge of $4.01 per share related to the LTC reinsurance transaction that was completed in the third quarter. Excluding this loss, net income per share was $0.79, up from $0.59 in the prior year.

We reported operating earnings per share of $0.53, up 18% from the prior year. Operating return on equity was 10.2%, an increase from 2017 levels, primarily reflecting lower corporate tax rates. Holding company cash and investments were $166 million, down from the second quarter, as a result of the $265 million contribution made to the insurance companies to fund the LTC reinsurance transaction. As this utilized most of our excess capital at the holding company, we have a desire to run the holding company balance comfortably above our stated minimum of $150 million. We currently expect no incremental excess capital deployment in the fourth quarter.

CNO's estimated consolidated risk-based capital ratio was 450%, up from the second quarter and slightly higher than expectations as a result of higher statutory income and a slightly lower impact from the LTC reinsurance transaction. As we head into the fourth quarter, it is worth noting that as a result of recent changes made by the NAIC, primarily reflecting the impact of tax reform into the RBC calculation, we expect our consolidated RBC ratio to be reduced by approximately 25 points when we report fourth quarter results.

With the LTC reinsurance transaction behind us, strengthened capital metrics and expectations for annual free cash flow generation of approximately $350 million, we are optimistic about the opportunities to serve more of the middle-income market and accelerate profitable growth.

Turning to Slide 11 and segment earnings. It is worth noting that our segment earnings have been adjusted in all periods to reflect the movement of the reinsured LTC business out of the Bankers Life segment and into the LTC and run-off segment, consistent with what was described when we announced the transaction. However, beginning in the fourth quarter, earnings in the LTC and run-off segment will represent only the non-reinsured closed block LTC business that has been reported in this segment since 2016.

Bankers Life earnings reflect favorable mortality investment results. Medicare supplement margins were lower due to higher incurred claims. Washington National's earnings reflect higher supplemental health margins, as we continue to experience lower levels of incurred claims. Colonial Penn's EBIT was flat to prior year with favorable mortality and growth in in-force EBIT, being offset by higher cost effective advertising spend, which resulted in increased sales. Based on results of the first three quarters of the year, we expect Colonial Penn's EBIT to be in the $12 million to $18 million range for 2018.

Earnings in the LTC and run-off segment were in line with expectations, but lower than prior year due to favorable claims experience in the Bankers Life ceded block in the third quarter of 2017. Beginning in the fourth quarter, we expect this segment to generate breakeven earnings as this segment will only include the non-reinsured closed block of business. Lastly, Corporate segment results were slightly better than the prior year, due to favorable investment results and lower expenses.

Turning to slide 12 and our key health benefit ratios. Bankers Life Medicare supplement benefit ratio was 75.6%, higher than expectations, due in part to elevated costs related to physician-administered drug treatments. Despite the higher level of claims in the quarter, we continue to expect that the Medicare supplement benefit ratio will be in the 71% to 74% range for the fourth quarter. Bankers Life long-term care interest adjusted benefit ratio for the retained block of business was 79%, slightly elevated, but still in line with our expectations. We expect the interest adjusted benefit ratio for this block to be in the 74% to 79% range for the fourth quarter.

Washington National's supplemental health interest adjusted benefit ratio was 56.9%, in line with recent experience and expectations. We expect the interest adjusted benefit ratio to be in the 56% to 59% range for the fourth quarter.

And with that, I'll turn it back over to Gary.

Gary C. Bhojwani -- Chief Executive Officer

Thanks, Erik. CNO is squarely focused on accelerating long-term profitable growth. The diversity of the franchise, the depth and breadth of our product offerings and our commitment to the middle-income market forms a solid foundation for sustainable growth and sets us apart from our competitors.

At the same time, our robust free cash flow generation and strong balance sheet gives us the flexibility to pursue investments that advance our strategic initiatives and generate incremental long-term shareholder value. For example, the significant investments we've made in pilot programs at Bankers Life to improve agent retention and build our broker-dealer, have been key drivers of our recent sales growth. These investments, align with our efforts to expand to the right.

Investments in technology, such as our automated underwriting and platform consolidation, are simplifying and improving customer experience, while boosting the productivity of our agents. Similarly, the investment we made in Tennenbaum Capital Partners in 2016 was at the time an alternative use of excess capital and an opportunity to boost our investment returns. We sold our minority interest during the third quarter at a substantial gain, which demonstrates our willingness and ability to be thoughtful, methodical and disciplined in our approach to corporate development and M&A.

In closing, I am very encouraged by our recent financial and operational performance and remain bullish about our prospects. Through continued execution of our strategic priorities, we expect to boost sales -- sales and earnings, generate strong free cash flow and improve our ROE, all while continuing to drive value for all of our stakeholders.

Thank you for your continued interest in CNO Financial Group. We will now open it up for questions. Operator?

Questions and Answers:

Operator

(Operator Instructions) Your first question comes from Randy Binner with B Riley FBR. Please go ahead.

Randy Binner -- B. Riley FBR -- Analyst

Thanks, good morning. I wanted to ask a question about the Medicare supplement loss activity, and I apologize if I missed it, but I think you said it was physician registered medical claims. I didn't quite catch that terminology. So, could you please clarify that and talk a little bit through kind of what that dynamic was, because in general, I think of this as being a more predictable line.

Erik Helding -- Chief Financial Officer

Sure, Randy. Thanks for the question. This is Erik. Yeah, it was -- what I mentioned was physician administered drug treatments, and so what this pertains to is, in the quarter we just saw, in general there's an elevated level of claims, but the one acute thing that sort of stuck out to us was an elevated level of activity related to chemotherapy and arthritis drug treatments.

Randy Binner -- B. Riley FBR -- Analyst

So is this -- this is something -- those would be activities, though, that would be contemplated within Medicare sup. So I guess the question is, is it something where the product set written in this -- for this cohort of risk for this year, didn't anticipate this. This is an unusual kind of spike in that activity. And I guess the follow-up there will be, what would give you the confidence that it would settle back down in the fourth quarter?

Erik Helding -- Chief Financial Officer

Yeah, it was more the latter Randy, it was more just an unusual spike. Certainly the product design and pricing provides for things like this, but we just saw an elevated level of activity in the quarter. And so, having not seen that to this extent in the past that sort of what gives us some comfort that it's not going to repeat, but certainly only time will tell and we'll see how things play out in the fourth quarter.

Randy Binner -- B. Riley FBR -- Analyst

Is it something that others have seen in that product area?

Erik Helding -- Chief Financial Officer

I'm not aware of anyone else having this particular issue in the quarter, but that's something we'll be looking at as well.

Randy Binner -- B. Riley FBR -- Analyst

And when do you sell most of your Medicare supplement?

Erik Helding -- Chief Financial Officer

It's sold throughout the year, there is a heavy level of activity, actually, right now, which -- because they are in open enrollment and those have policy effective dates of January 1, and so there is a heavy level of activity now. So the bulk of the sales on an annual basis do occur in the fourth quarter.

Randy Binner -- B. Riley FBR -- Analyst

Okay. So, yeah, I guess the last piece on that is then there's -- whatever you underwrote for this next year is already kind of in the -- it covers what it covers. So the thought there again is that this is just an unusual spike and there's nothing that needs to be changed throughout the product?

Erik Helding -- Chief Financial Officer

Not at this particular point in time. And so I think where you're headed is, you're correct, pricing has been set for the 2019 policy year, so that will be what it is. The benefit that we have with Medicare supplement is that -- is annually renewable and we can rerate every year. And so to the extent we see kind of a continuation of these trends, it's something that we can build into the repricing of the product for the 2019 year.

Randy Binner -- B. Riley FBR -- Analyst

Right. Okay, got it. I'll leave it there. Thank you.

Operator

Your next question comes from Erik Bass with Autonomous Research. Please go ahead.

Erik Bass -- Autonomous Research -- Analyst

Hi, thank you. First, Gary, as you expand to the right, does this change who you're competing with, are the market and pricing kind of competitive dynamics? And is it the same agents for you who are targeting the more affluent market as your traditional core market or is it really more of the provinces, the duly registered agents?

Gary C. Bhojwani -- Chief Executive Officer

So, Erik, first of all, thanks for the question and thanks for the continued support. We do not expect to see a material difference in our competitors as we expand to the right. I would remind all of you that we still are staying focused squarely in the middle market, and in many cases, these are customers we already had, say, with the Med Sup policy or what have you, and now that we're able to offer more complete services it's just another thing we're offering them. So the answer to your first question is, we do not expect a material change in our competitors. Could that change a couple of years from now as we increase our penetration? Sure, but our market share in relative terms is so low that it's going to be a long time before I get really worried about that. So we're staying squarely in the middle market and don't see a material change in our competitor list.

In terms of the agents, it is generally the same agents that are producing the growth you saw this quarter. Now that said, our hope is that as we have a greater percentage of our traditional insurance agents become financial advisors that more of the sales of these more complicated accumulation and income-oriented products will end up coming from them. Even in this quarter, as you'll recall from my comments, almost 50% of the annuity sales came from the agents with a securities license and I would expect that trend to grow with anything. So we'll continue to see that, but as we build out the agent force and as we continue to train and develop them, we're really focused on those agents that have that ability to be able to provide services at that level and have that aptitude. So we think we've got a lot of runway here with the number of agents that we have and we have a relatively small percentage so far that have that securities license.

Erik Bass -- Autonomous Research -- Analyst

Got it. The financial advisor recruiting dynamics, any different from traditional insurance agents, and would you expect, since -- I mean, you have a wider product set and potentially the opportunity to earn higher commissions that you could kind of expand the pool or have better retention than you've seen historically?

Gary C. Bhojwani -- Chief Executive Officer

I think one of the things that makes our model unique, if you think about some of the other firms out there that are in this business and that recruit existing financial advisors, there's a lot of those companies that are competing one against another and you'll see financial advisors move from brand x to brand y. In our case, the majority of our advisors, I don't have the stats in front of me, but the majority of our advisors started out in our system as insurance agents and they've grown up with us and they've learned the insurance business with us and then we are teaching them the financial advisor business.

So we're not competing with the traditional firms that you would think of for those financial advisors. Now, over time, could that change a few years from now? Sure. But right now our focus is on bringing people into our system as insurance agents, teaching them the insurance business and then the ones that have the right qualifications and ambition and so on, helping them become financial advisors and really expanding our system that way.

Erik Bass -- Autonomous Research -- Analyst

Thank you. And then just one for Erik. I heard your comment, I think you said no real plans to deploy excess capital in the fourth quarter and I know you've traditionally wanted to build a buffer and holding company liquidity above the $150 million level. Do you have sort of a target in mind of how much buffer you'd like to hold going forward?

Erik Helding -- Chief Financial Officer

We've typically, Erik -- yeah, thanks for the question. I mean, we've typically talked about having something comfortably above $200 million. I think it's a little bit more complicated than just setting a number. I think it depends on kind of what's going on in -- with respect to internal company dynamics, what's going on with respect to kind of global/macro conditions. And so we have to assess that in broader terms than just in the context of just kind of a hard and fast number. And so, the simple answer is above $200 million, but that's caveated with what else is going on that we need to be aware of.

Erik Bass -- Autonomous Research -- Analyst

Got it. Thank you.

Operator

Your next question comes from Ryan Krueger with KBW. Please go ahead.

Ryan Krueger -- KBW -- Analyst

Good morning. I had a question about just overall capital deployment priorities now that you've completed the long-term care transaction. Can you talk a little bit about how you're thinking about M&A opportunities relative to buyback and what types of M&A you'd be interested in?

Gary C. Bhojwani -- Chief Executive Officer

Yeah. Ryan, this is Gary. Thanks for the question. So, first of all, I want to make sure we communicate this in the clearest way possible. So there's just a handful of things I'd like to say, first about our buyback position. Number one, I want to make sure everyone understands, the authorization for buybacks, we still have that from our Board. Number two, we did buy back significant amount of shares in the first quarter of this year, about $62 million, I believe -- sorry, second quarter, not the first quarter, second quarter, and we haven't changed our general view that we want to put capital to work at its highest and best use. Obviously, now that the reinsurance transaction has come to light in Q3, everyone understands some of the measures we took there.

Similarly, though, we do see other opportunities right now in the marketplace, we've been looking, we think we've got an ability to invest in this business and grow. We are equally open to both distribution and manufacturing types of opportunities. We have some thoughts and to be blunt, Ryan, we're still working through our 2019 plan and having discussions with our Board as to what types of entities we'll be most interested in. But I also want to be clear, if we don't find the right opportunities that buyback authorization remains in place. I want to make sure everyone understands. That's not completely off the table. We just have a bias to want to grow the business and invest in the business. Now whether that comes in the form of organic, investing back into the business with things like the broker-dealer as an example that we did a couple of years ago, or if it comes in the form of inorganic. And if those opportunities don't present themselves, buybacks remain an option for us.

Ryan Krueger -- KBW -- Analyst

Okay, great. Appreciate the comments. Thanks.

Operator

Your next question comes from Alex Scott with Goldman Sachs. Please go ahead.

Alex Scott -- Goldman Sachs -- Analyst

Hi. I just was interested to get an update on the CLO exposure, just in light of Tennenbaum Capital Partners departing. How much in CLO exposure do you hold now and how much of it's equity charges versus the investment grade charges and if there's any plans to do anything with that?

Erik Helding -- Chief Financial Officer

Thanks, Alex. This is Erik. So I think I want to clarify. So the investment in TCP really wasn't necessarily tied to what we do on CLOs. The investment that we made in Tennenbaum Capital Partners, as Gary said, was an alternative use of excess capital for us. That was convenient at the time, because we were looking to expand our exposure into alternative investments. And that was specifically what Tennenbaum Capital Partners had expertise in. So that was sort of a different animal than CLOs that we manufacture and administer now. The exposure there is, I believe still about $1.5 billion and it's typical that we retain about 10% of that in the form of equity and so that would be about $150 million.

Alex Scott -- Goldman Sachs -- Analyst

Got it. Okay, thanks. And the short-term care pilot product that was mentioned, can you provide any color like what are the terms of the product look like? How much in sales do you think you could get that up to et cetera?

Gary C. Bhojwani -- Chief Executive Officer

Yeah, Alex. Thanks for the question. So a couple of comments, again just to set some context. As you know, we engaged in a long-term care reinsurance transaction where we got rid of the most difficult or most problematic portions of the business. We still remain very active in what is technically referred to as long-term care business. But some 90% of the policies we're selling today have benefit periods of two years or less. So it's really important to remember that. The stuff we're talking about, while it shares the name, is a very different animal. We believe that there is a significant need in the marketplace, the data tells us that.

So the short-term care pilot in particular that we've been running has been over at Washington National, where at Washington, we're selling at the present time Bankers Life branded product, because we've got a great outfit there called PMA that has access to a tremendous number of households and clients and so on, and we think there's an opportunity. So we've been very pleased with those sales. We're not providing sales guidance. But the short-term care pilot for the moment is really focused at Washington National.

Now, along with that, we see an opportunity to do more of it at Bankers Life. Bankers Life has traditionally had access to that product. But we've undertaken a much more dedicated and robust training program, because we think there's so much opportunity there. And again, I want to emphasize, it's called long-term care, but it's nothing like the kind of long-term care that's currently in the media. 90-some-odd-percent have benefit periods less than two years and a very significant portion, I want to say in the 60s or 70s, has a benefit period less than one year. So it's really important to remember that despite the name it is nothing like what you're reading about. So we feel very good about that and the early market reactions are very strong. Erik, did you want to --?

Erik Helding -- Chief Financial Officer

Yeah. And Alex, just a couple more points in that. So the short-term care product that Gary was referring to is something that we're very comfortable with. And as Gary mentioned, serves a critical need for the middle-income market and this is a product that has been redesigned and repriced over multiple iterations, over multiple years. And so it is essentially price for experience that we have seen. And so that includes most recent experience related to persistency, morbidity, mortality, interest rates. And so it is the most current version that we are selling. And so, the tail risk there is pretty minimal, it continues to be reinsured 25% to RGA. And so -- on top of that we have higher capital requirements for that product when we're doing product pricing and we have a higher internal rate of return hurdle rate for that product as well. So all of those things give us comfort about the design and profitability and risk characteristics of that STC product.

Alex Scott -- Goldman Sachs -- Analyst

Thank you.

Operator

Your next question comes from Dan Bergman with Citi. Please go ahead.

Dan Bergman -- Citi -- Analyst

Thanks, good morning. I guess to start just with the sizable increase in the Colonial Penn sales, I was hoping to get a little more color around the current environment for sales and lead generation in that business and whether you think the recent strength is sustainable. And then just related to that with web and digital up a lot, any sense of how big that is now as a proportion of kind of segment sales and any sense how big that could get over time?

Gary C. Bhojwani -- Chief Executive Officer

Yeah. So Dan, thanks for the question. So first of all, we saw an opportunity in the third quarter, based on where advertising rates were, to go in and get much more aggressive with our investment. And in Q4 we don't expect to have the same opportunity, because we see that the election cycle will take up some of the ad rates. But if we do find the right opportunity, we'll absolutely jump on it. So that was part of what happened. We saw an opportunity, we took it. We remain disciplined and we'll do that again. It's a little hard for me to tell you how much more that will happen every quarter, because we just really have to react to what the ad rates allow us to do. And our belief is that in Q4 it won't be as attractive, because of the election. So that's the first thing to note. It's too hard for me to predict what will happen in Q1 '19 and so on. In terms of the web leads, I'm just going to look at Erik here, we disclosed -- I know what the numbers are, but we disclosed how much of that is --

Erik Helding -- Chief Financial Officer

We've talked in pretty general terms, I mean, the mix of web, digital versus DRTV is. Again, we're still heavily weighted toward direct response television, but that mix is slowly moving more toward web, digital and direct mail. And so, it's more in the 20-ish percent range for direct mail and web digital.

Gary C. Bhojwani -- Chief Executive Officer

And we think that there continues to be an opportunity there to migrate more and more of that. That's where our consumers are going, that's where advertising is going. So we believe there's an opportunity and we've been piloting a variety of different techniques. We've been very pleased with the results, early results of some of those. Some of those haven't worked, but some have worked really well. So we'll continue to do that. I feel good about our ability to continue to grow Colonial Penn, but if pricing of advertising changes on us, we will pull back. The discipline of maintaining that profitable growth is very important to us.

Erik Helding -- Chief Financial Officer

Yeah, Dan, and this is Erik. And that was part of the reason why the guidance range for EBIT for 2018 was -- it was narrower, but it's still fairly wide. So the way we think about it is, if there is an opportunity to being more aggressive and procure cost effective leads, then we'll go after that. And that would probably result in us coming in at the low end of the range. But if that opportunity does not exist, then we're not going to chase it and that would result in us probably coming in toward the high end of the range.

Dan Bergman -- Citi -- Analyst

Got it, that's very helpful. And then maybe just shifting gears a little bit. Just with some of the recent volatility in the markets and the rise in interest rates, just wanted to see if there's any update you can provide really on the investment side, both in terms of where you're seeing good opportunities to invest new money and also if you're seeing any particular areas of potential concern, whether in your specific investment portfolio or just the markets overall.

Erik Helding -- Chief Financial Officer

Yeah, Dan, this is Erik Helding. I would say we're obviously monitoring the conditions pretty closely. I would say on the margins, nothing specifically changing with respect to our philosophy around investment management. Notice that our new money rate here in the quarter was below 5%, that's been below 5% for a couple of quarters. And so we are being a little bit wary about what's going on in the marketplace and have an eye toward when the current credit cycle is going to end. So I'd say on the margins, we are taking a bit of a more defensive posture when it comes to deploying new money. But again, I would say there is no wholesale changes in anything that we're doing, it's more at the margins.

Dan Bergman -- Citi -- Analyst

Got it. It's very helpful. Thank you.

Operator

(Operator Instructions) Your next question comes from Humphrey Lee with Dowling & Partners. Please go ahead.

Humphrey Lee -- Dowling & Partners -- Analyst

Good morning and thank you for taking my questions. Looking at the -- in your prepared remarks you talk about Bankers Life having some new or enhanced products moving from pilot to scale. Are you just referring to the STC product or is there something else? And if so how should we think about the reaction to these kind of newer products?

Gary C. Bhojwani -- Chief Executive Officer

Yeah, so Humphrey, this is Gary. Thanks for the questions. We have a number of different products that we've been working on with Bankers Life. We've had some riders that we put onto our easy issue Universal Life policies and so on. And all of them have done quite well. So we have a number of different things that we're looking at. The short-term care, I want to be clear on that, that's not a new product for Bankers Life. Bankers Life has had access to that for some time. We've just redoubled our training and marketing efforts, because we believe there is an opportunity. The short-term care is new at Washington National. So again, that product has been in the family for quite some time. We're quite experienced with it, but it's new to the Washington National distribution. So it's important to keep those separate.

Humphrey Lee -- Dowling & Partners -- Analyst

Got it. And then looking at your broker-dealer RIA business, you have $1.2 billion of client assets. What portion of that do you earn a fee on versus those just being annuities? And how should we think about the fee income opportunity on those kind of fee-based assets?

Gary C. Bhojwani -- Chief Executive Officer

Yes, Humphrey. So really the fee opportunity is on the RIA business, which is roughly a third of that number, and now, obviously there's in the broker-dealer, there's transaction-based commissions and other things that we can generate earnings on as well. But the fee income opportunity really is on the RIA business, which is about a third of it. I think the important thing and probably the more key message that we want to get across is, It's less about the income potential and having that grow over time and we certainly want that to happen, but it's more about the ability to interact with our customers when it comes to helping them plan for the rest of their retirement. And so when you think about the trillions of dollars in retirement plans that are going to be needing to get rolled over, over the course of the next 10-plus years, the fact that we now have the ability to move those assets in-house gives us enormous opportunity to help our customers when it comes time to helping them make these financial decisions for themselves. And that by itself, I think, is a huge opportunity to help us grow and ultimately increase revenue and income.

Humphrey Lee -- Dowling & Partners -- Analyst

Got it. Thank you.

Operator

There are no further questions at this time.

Jennifer Childe -- Vice President of Investor Relations

Thank you, operator, and thank you everyone for joining us on this call.

Operator

Thank you. This concludes today's conference call. You may now disconnect.

Duration: 37 minutes

Call participants:

Jennifer Childe -- Vice President of Investor Relations

Gary C. Bhojwani -- Chief Executive Officer

Erik Helding -- Chief Financial Officer

Randy Binner -- B. Riley FBR -- Analyst

Erik Bass -- Autonomous Research -- Analyst

Ryan Krueger -- KBW -- Analyst

Alex Scott -- Goldman Sachs -- Analyst

Dan Bergman -- Citi -- Analyst

Humphrey Lee -- Dowling & Partners -- Analyst

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