A.M. Best Upgrades Issuer Credit Ratings of CNO Financial Group, Inc. and Its Life/Health Subsidiaries
August 15, 2014 by Best's News Service
Oldwick – A.M. Best has upgraded the issuer credit ratings (ICR) to “bbb+” from “bbb” with a positive outlook for the life/health subsidiaries of CNO Financial Group, Inc. (CNO Financial) (Carmel, IN) [NYSE: CNO]. Concurrently, A.M. Best has affirmed the financial strength rating (FSR) of B++ (Good) with a revision in the outlook to positive from stable. A.M. Best has also upgraded the ICR and existing senior debt rating to “bb+” from “bb” of CNO Financial with a positive outlook. (See below for a detailed listing of the companies and ratings.)
The ICR upgrades reflect the continuing favorable trends in CNO Financial’s overall premium growth and risk-adjusted capitalization. In addition, A.M. Best acknowledges CNO Financial’s ongoing success in executing its strategic business plan. CNO Financial continues to report premium growth in its life and annuity business segments, enabled in part by the addition of new office locations and improved agent productivity. Its enhanced operating results have been attributable to the growth in revenue in its life/health insurance subsidiaries, as well as its ongoing expense management. Improved revenue across several business segments, especially its life products, has been driven by agent growth, timely rate increases, the introduction of new products and the modification of some existing products. The premium growth and enhanced operating results, combined with its consistent investment performance, has resulted in improved risk-adjusted capitalization for the 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 over the past few years.
The ratings also reflect the success CNO Financial has had in executing its business strategy, which included exiting/de-emphasizing non-core product lines through divestiture and reinsurance. This included the sale of Conseco Life Insurance Company and its closed block of interest-sensitive life and annuity products to Wilton Reassurance Company and reinsuring some of its legacy blocks of long-term care (LTC) to Beechwood Re Ltd, both announced earlier this year. The business strategy also included building its distribution, reducing expenses and focusing on markets where true competitive advantages are achievable while, at the same time, actively managing risk.
CNO Financial’s adjusted financial leverage has remained under 20% since its debt restructuring. Financial leverage continues to improve due to its scheduled debt amortization. The organization’s interest coverage has also benefited from the ongoing amortization of debt. Both ratios remain well within A.M. Best’s guidelines for the organization’s current ratings.
While CNO Financial’s life insurance and annuity sales have generally increased, A.M. Best has observed declining new business premium trends within some of its core lines of business, including Bankers Life’s Medicare supplement, critical illness and LTC product lines. A.M. Best notes that the decline in LTC premium is largely a function of an overall market shift to short-term care products, in addition to offering reduced benefits, including the elimination of lifetime benefits, for newly issued long-term care policies. However, the premium decrease in Bankers Life’s other health products is partially attributable to the lack of agent growth. While agent productivity continues to improve, agents’ headcount has recently become stagnant. A.M. Best notes that growth in life and annuity new business premiums, the latter of which is primarily driven by indexed annuities, has been able to offset the decrease in health sales during the first half of the year.
Factors that could result in favorable rating actions for CNO Financial and its life/health operating companies over the near to medium term include continued diversification in business mix driven by premium growth in their core lines of business, together with sustained earnings and capital growth. Factors that could lead to negative rating actions include significant deterioration in risk-adjusted capitalization and/or sizable operating or realized losses.
The FSR of B++ (Good) has been affirmed and the ICRs have been upgraded to “bbb+” from “bbb” for the following key life/health subsidiaries of CNO Financial Group, Inc.:
o Bankers Life and Casualty Company
o Colonial Penn Life Insurance Company
o Bankers Conseco Life Insurance Company
o Washington National Insurance Company
The following debt rating has been upgraded:
CNO Financial Group, Inc.—
— to “bb+” on $275 million 6.375% senior secured notes, due 2020
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.
