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TMCNet:  A.M. Best Affirms Credit Ratings of CNO Financial Group, Inc. and Its Life/Health Subsidiaries

[February 08, 2017]

A.M. Best Affirms Credit Ratings of CNO Financial Group, Inc. and Its Life/Health Subsidiaries

A.M. Best has affirmed the Financial Strength Ratings (FSR) of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of "a-" of the life/health subsidiaries of CNO Financial Group, Inc. (CNO Financial) (headquartered in Carmel, IN) [NYSE: CNO]. Concurrently, A.M. Best has affirmed the Long-Term ICR and the Long-Term Issue Credit Ratings (Long-Term IR) of "bbb-" of CNO Financial. The outlook of these Credit Ratings (ratings) is stable. (See below for a detailed listing of the companies and ratings.)

The ratings reflect the maintenance of strong operating earnings and profitability ratios, premium growth, and favorable levels of risk-adjusted capitalization, despite the recent one-time impact of the Beechwood Re Ltd. (Beechwood) long-term care (LTC) recapture, which occurred in late 2016. While CNO Financial reported an operating loss for third-quarter 2016 due largely to costs associated with the Beechwood transaction, this was offset by another one-time item, related to the settlement of an IRS dispute, which positively impacted fourth-quarter results. Combined with strong underlying operating results in the quarter, CNO Financial reported favorable operating results for the full year ending December 2016. CNO Financial also reported strong profitability ratios, which are attributable to a combination of growth in revenue at its core life/health insurance subsidiaries and its ongoing expense management initiatives. Continued earnings and lower dividend obligations also have contributed to strong risk-adjusted capital ratios on a consolidated basis, as well as for the individual core insurance operating companies. A.M. Best notes that Bankers Life and Casualty Company (Bankers Life) (Chicago, IL), the group's lead operating entity, has seen considerable improvement in its risk-adjusted capitalization in recent years. Furthermore, the operating subsidiaries' capitalization has benefited from capital support from CNO Financial when needed.

CNO Financial's adjusted financial leverage ratio remains appropriate at just over 20% and has not changed much since the completion of its recapitalization plan several years ago. Despite the modest increase in leverage at that time, A.M. Best notes that the company's financial leverage and interest coverage ratios remain within A.M. Best's guidelines for its current ratings. A.M. Best would like to see interes coverage stay in a minimum range of 3 to 5 times. While CNO Financial typically has maintained more-than-adequate holding company liquidity, A.M. Best notes that liquidity was strained somewhat in the last half of 2016. This was the result of the company managing through the Beechwood recapture, and the strategic capital/cash management required to support asset write-downs and capital bolstering requirements at its insurance subsidiaries. This led to a temporary reduction in holding company cash, as well as the suspension of CNO Financial's stock repurchase program and dividends from some subsidiaries to the holding company. A.M. Best notes that the organization continued to hold adequate cash for management of interest expenses and general corporate expenses during this time, and that the cash position normalized somewhat by year-end 2016.

Finally, while CNO Financial's annuity and life insurance sales generally have increased, A.M. Best notes the continued lower new business premium trends in some of its core lines of business, including the Medicare supplement and LTC product lines. A.M. Best recognizes the decline in LTC premium is largely a function of the company's shift to short-term care products, in addition to offering reduced benefits. However, the premium decrease in Bankers Life's other health products is attributable partially to the low agent growth, in the low, single digit range. While agent productivity has improved, agent headcount has remained relatively stagnant for several years. A.M. Best notes that growth in annuity premiums, which is driven primarily by indexed annuities, has been able to mostly offset the decrease in health sales at Bankers Life during recent periods. Furthermore, individual and group accident and health product premium has increased somewhat at Colonial Penn Life Insurance Company and Washington National Insurance Company, and combined have allowed CNO Financial to report good overall consolidated premium growth across its brands and product offerings.

The FSRs have been affirmed at A- (Excellent) and the Long-Term ICRs have been affirmed at "a-" for the following key life/health subsidiaries of CNO Financial Group, Inc.:

  • Bankers Life and Casualty Company
  • Colonial Penn Life Insurance Company
  • Bankers Conseco Life Insurance Company
  • Washington National Insurance Company

The following Long-Term IRs have been affirmed:

CNO Financial Group, Inc.-

-- "bbb-" on $325 million 4.50% senior unsecured notes, due 2020

-- "bbb-" on $500 million 5.25% senior unsecured notes, due 2025

This press release relates to Credit Ratings that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best's Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best's Credit Ratings.

A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2017 by A.M. Best Rating Services, Inc. and/or its subsidiaries. ALL RIGHTS RESERVED.


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