Reuters logo
Fitch Removes CNO's Ratings From Rating Watch Negative; Affirms IDR at 'BBB-'
January 12, 2017 / 10:00 PM / 8 months ago

Fitch Removes CNO's Ratings From Rating Watch Negative; Affirms IDR at 'BBB-'

(The following statement was released by the rating agency) CHICAGO, January 12 (Fitch) Fitch Ratings has removed CNO Financial Group Inc.'s ratings (CNO) from Rating Watch Negative, and affirmed the 'BBB-' Issuer Default Rating (IDR) and the Insurer Financial Strength (IFS) ratings for CNO's core insurance subsidiaries at 'BBB+'. The Rating Outlook is Stable. A full list of rating actions follows at the end of this release. Today's rating actions follow the company's announcement that it has recaptured the approximately $550 million closed-block long-term care business that was reinsured by Beechwood Re Ltd. (Beechwood) since late 2013, and has completed the audit of trust assets associated with the reinsured business, with final results generally in line with the $55 million net loss estimate provided in a Form 8-K filed by the company on Sept. 29, 2016. The 8-K also disclosed a $200 million capital contribution from CNO to insurance subsidiaries affected by the recapture. In a press release issued on Sept. 30, 2016, Fitch indicated that CNO's ratings would likely be affirmed with a Stable Outlook if the final outcome of the company's asset audit resulted in no material variance from those estimates. KEY RATING DRIVERS The affirmation of CNO's ratings reflects the company's strong balance sheet fundamentals, solid capitalization and financial flexibility, and recent financial performance which remains in line with Fitch's expectations. Primary rating concerns include CNO's large exposure to its legacy individual long-term care (LTC) insurance business and challenges associated with the ongoing low interest rate environment. The low interest rate environment continues to pressure CNO's earnings, but the company has been able to manage spread compression through lower crediting rates on interest-sensitive products, although the availability of this tool is diminishing as crediting rates move closer to contractual minimums. Fitch considers CNO's statutory capitalization to be strong for its current rating. The consolidated risk-based capital (RBC) ratio under Fitch's consolidation methodology increased to 435% at year-end 2015, up from 415% at year-end 2014. The company estimated its RBC ratio to be approximately 458% at Sept. 30, 2016. Total adjusted capital growth has been consistent over the past two years, increasing 4.2% in both 2014 and 2015. Fitch expects CNO's RBC ratio to remain above 400% over the intermediate term. CNO's earnings profile continues to generally show stability, despite pressure from low interest rates, and some upward pressure on medicare supplement benefit and supplemental health loss ratios in 2016. The company reported pre-tax operating earnings of $275 million through the first nine months of 2016, excluding the charge related to the recapture, essentially stable relative to the same period in 2015. Profitability as measured by return on equity (ROE) is seen as within expectations for the company's ratings as reflected by the company's operating ROE of 6.4% for the first three quarters of 2016. CNO's operating interest coverage is viewed as strong at 9.0x for the first nine months of 2016, down slightly from 9.1x for the same period in 2015. Fitch considers CNO's overall investment credit quality to be good with slightly less than 6% of bonds below investment grade at Sept. 30, 2016 on a statutory basis. This is generally in line with the life insurance industry average of 6%. However, nearly half of the investment-grade bond portfolio is 'BBB' level rated securities (47% of the portfolio at Sept. 30, 2016) compared to roughly a third for the broader industry. The elevated allocation to the 'BBB' category makes the portfolio potentially more vulnerable to ratings migration in an adverse economic scenario. RATING SENSITIVITIES Key rating triggers that could lead to an upgrade for all ratings include: --Consistent earnings without significant special charges and with operating return on equity above 8%; --No material deterioration in other credit metrics; --Significant reduction in exposure to the company's legacy individual LTC insurance business. Key rating triggers that could lead to a downgrade include: --Combined NAIC RBC ratio less than 325% and operating leverage above 20x; --Deterioration in operating results; --Decline in fixed charge coverage to below 5x; --Significant increase in credit-related impairments; --Financial leverage above 30%. FULL LIST OF RATING ACTIONS Fitch has removed from Rating Watch Negative and affirmed the following ratings with a Stable Outlook: CNO Financial Group, Inc. --IDR at 'BBB-'; --4.50% senior unsecured notes due May 30, 2020 at 'BB+'; --5.25% senior unsecured notes due May 30, 2025 at 'BB+'. Bankers Life and Casualty Company Bankers Conseco Life Insurance Company Colonial Penn Life Insurance Company Washington National Insurance Company --IFS at 'BBB+'. Contact: Primary Analyst Bradley S. Ellis, CFA Director +1-312-368-2089 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Nelson Ma, CFA Director +1-212-908-0273 Committee Chairperson Martha Butler, CFA Senior Director +1-312-368-3191 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: hannah.james@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1017488 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below