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

[January 09, 2019]

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

AM Best has affirmed the Financial Strength Rating (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, AM 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 CNO Financial Group's balance sheet strength, which is categorized as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. AM Best notes that as part of its risk-reduction strategy, CNO Financial recently completed an indemnity coinsurance transaction with a highly rated counterparty in which the company reinsured most of its long-term care (LTC) legacy business, which includes all of its pre-2003 issued comprehensive and nursing home LTC policies, representing approximately $2.7 billion in statutory reserves. AM Best expects a decrease in morbidity and lower tail risk given the sensitivities of LTC insurance to policyholder behavior patterns and future interest rates. Additionally, this transaction will serve to materially reduce potential earnings volatility and related capital at risk.

CNO Financial has reported consistent profitability ratios, which are attributable to a combination of revenue growth, adequate investment returns and expense management initiatives. Moreover, the organization has maintained favorable pre- and post- transaction levels of risk-adjusted capitalization at its regulated insurance entities and on a consolidated basis. Favorable capital ratios have been supported by a trend of positive earnings and good premium growth across its core lines of business. Going forward, risk-based capital requirements will be lower given the relatively capital intensive nature of the LTC business.

AM Best notes that Bankers Life and Casualty Company (Bankers Life) (Chicago, IL), the group's lead operating entity, has seen general improvement in its risk-adjusted capitalization in recent years. Furthermore, the operating subsidiaies' capitalization has benefited from capital support from CNO Financial when needed. The operating subsidiaries also serve as a primary source of dividend capacity for the holding company to service its debt and other corporate initiatives.

CNO Financial's adjusted financial leverage ratio remains moderate at approximately 22%, although it has increased slightly, reflecting a capital charge resulting from ceding commission paid on the reinsurance transaction. Despite the modest increase in leverage, AM Best notes that the company's financial leverage and interest coverage ratios remain in line with expectations. CNO Financial also has typically maintained more-than-adequate holding company liquidity and adequate cash for management of interest expenses and general corporate expenses.

Finally, CNO Financial's overall first-year premium levels have increased modestly over the last year, driven by strong indexed annuity sales growth, partially offset by lower premium trends in the Medicare supplement and LTC product lines. The decline in LTC premium continues to be a function of the company's shift to alternative solutions, such as short-term care products and the reductions in benefits.

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 AM 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 AM 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. For information on the proper media use of Best's Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best's Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.


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