A.M. Best Upgrades Ratings of CNO Financial Group, Inc. and Its Key Life/Health Subsidiaries
December 23, 2010 by N/A
OLDWICK, N.J. December 22 (BestWire) — A.M. Best Co. has upgraded the financial strength rating (FSR) to B+ (Good) from B (Fair) and issuer credit ratings (ICR) to “bbb-” from “bb” for Bankers Life and Casualty Company (Chicago, IL), Bankers Conseco Life Insurance Company (Jericho, NY), Colonial Penn Life Insurance Company (Philadelphia, PA) and Washington National Insurance Company (WNIC) (Carmel, IN).
A.M. Best also has upgraded the ICR to “bb-” from “b-” and the existing senior debt rating to “bb-” from “b-” for the group’s ultimate holding company, CNO Financial Group, Inc. (CNO)(formally known as Conseco, Inc.) (Carmel, IN) [NYSE: CNO]. The outlook for the ICRs and debt ratings has been revised to stable from positive, while the outlook for the FSR is stable.
Additionally, A.M. Best has assigned a debt rating of “bb-” to the new senior secured notes of CNO. The assigned outlook is stable. (See below for a detailed listing of companies and ratings.)
The upgrades reflect CNO’s more focused operating profile, enhanced financial flexibility and improved risk-adjusted capitalization. Over the past few years, the company has been proactive in streamlining and simplifying its focus on markets where true competitive advantages are achievable while, at the same time, prudently managing risk. This strategy has encompassed significant reinsurance transactions, considerable expense reductions and the exiting of non-core product lines. Additionally, A.M. Best views favorably the recent merger of Conseco Health Insurance Company and Conseco Insurance Company into WNIC to improve operational efficiencies. These actions have facilitated CNO’s ability to maintain solid profitability and foster capital growth, driven by the diverse revenue streams of its insurance subsidiaries.
The rating actions also reflect CNO’s improved financial flexibility due to its debt restructuring plan, which was completed December 21, 2010. The company recently finalized a new $375 million senior secured credit facility due September 2016, with more flexibility and slightly more favorable covenants and issued $275 million of 9.0% senior secured notes due January 2018. These proceeds, in addition to cash on its balance sheet, have been used to retire the $652 million of debt outstanding under its existing senior credit facility. A.M. Best views favorably the successful completion of CNO’s debt restructuring plan, noting that the date of maturity for most of the company’s debt has been extended to 2016 and later. Moreover, the company’s recent performance has better positioned it with respect to its financial covenants, and A.M. Best has no immediate concerns at this time.
Consistent with some of CNO’s peers, A.M. Best has observed generally declining premium trends across the group’s operating subsidiaries. Depressed sales within the fixed annuity marketplace and increasing competition within the Medicare supplement and supplemental health insurance markets have pressured CNO’s ability to grow these lines of business. Additionally, despite the improvements in CNO’s business profile, A.M. Best remains concerned regarding the long-term earnings potential of key product lines given low interest rates and the likelihood of significant premium rate increases, as well as the company’s ability to improve the performance of its “Other CNO Business” segment, which houses primarily closed blocks. A.M. Best believes that CNO’s ability to maintain a healthy cushion on certain ratios or measures within its new debt covenants is largely dependent upon its ability to continue to grow profitably.
Although CNO’s investment portfolio has improved significantly during 2010, the potential for additional asset impairments remains given its exposure to commercial mortgages, commercial mortgage-backed securities (CMBS) and below investment grade bonds. A.M. Best notes that CNO’s direct mortgage loans are fairly well diversified and that the collateral underlying its CMBS portfolio is performing better than the overall universe with respect to delinquencies and cumulative losses. A.M. Best believes it is vital for CNO to continue to actively manage its legacy blocks of business, including the challenge of getting re-rates, in order for those lines of business to be profitable.
A.M. Best also has revised the outlook to stable from negative and affirmed the FSR of B- (Fair) and ICR of “bb-” of Conseco Life Insurance Company (CLIC) (Carmel, IN). The revised outlook recognizes CLIC’s improved investment performance as well as the settlement of some regulatory issues, partially offset by the company’s modest statutory capitalization, declining premiums and decreasing net investment income as the company has been placed in run off. As such, A.M. Best believes the level of support that CNO will provide to CLIC in the future remains unclear.
The FSR has been upgraded to B+ (Good) from B (Fair) and the ICRs to “bbb-” from “bb” for the following key life/health subsidiaries of CNO Financial Group, Inc. The outlook for the ICRs has been revised to stable from positive.
— Bankers Life and Casualty Company
— Colonial Penn Life Insurance Company
— Bankers Conseco Life Insurance Company
— Washington National Insurance Company
The following debt ratings have been upgraded and the outlook revised to stable from positive:
Conseco, Inc.—
— to “bb-” from “b-” on $176.5 million 7.0% senior unsecured convertible debentures, due 2016
— to “bb-” from “b-” on $64.0 million 7.0% senior unsecured convertible debentures, due 2016
— to “bb-” from “b-” on $52.5 million 7.0% senior unsecured convertible debentures, due 2016
The following debt rating has been assigned with a stable outlook:
Conseco, Inc.—
— “bb-” on $275 million 9.0% senior secured notes, due 2018
The principal methodology used in determining these ratings isBest’s Credit Rating Methodology — Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Life and Health Insurers”; “Rating Health Insurance Companies”; “A.M. Best’s Ratings & the Treatment of Debt”; and “Rating Members of Insurance Groups.” Methodologies can be found at http://www.ambest.com/ratings/methodology.BN-NJ-12-22-2010 1308 ET #
