A.M. Best Upgrades CNO Financial - Analyst Blog

The rating agency A.M. Best Co. has upgraded the issuer credit ratings (“ICR”) and the existing senior debt rating for CNO Financial Group, Inc. (CNO), along with the financial strength rating (“FSR”) and ICR for CNO Financial's operating subsidiaries - Bankers Life and Casualty Company, Bankers Conseco Life Insurance Company, Colonial Penn Life Insurance Company and Washington National Insurance Company (“WNIC”).

Additionally, A.M. Best has affirmed the FSR of B- (Fair) and ICR of “bb-” for CNO Financial's subsidiary - Conseco Life Insurance Company (“CLIC”), and has assigned a debt rating to the new senior secured notes of CNO Financial.

The outlook for the ICR and the existing debt ratings have been revised to stable from positive, while for CLIC, it has been revised to stable from negative. In addition, A.M. Best has assigned a stable outlook for the FSR and the new debt rating.

A.M. Best Co. has upgraded the ICR to “bb-” from “b-” and the existing senior debt rating to “bb-” from “b-” for CNO Financial, and upgraded the FSR to B+ (Good) from B (Fair) and ICR to “bbb-” from “bb” for the company's operating segments. Further, A.M. Best has assigned a debt rating of “bb-” to the new senior secured notes of CNO Financial.

The rating upgrades signal CNO Financial's improved financial flexibility, greater risk-adjusted capitalization and better operating efficiency, which were further facilitated by the recent merger of CNO Financial's Conseco Health Insurance Company and Conseco Insurance Company into WNIC. Additionally, the company has been able to manage risk prudently, which has resulted in significant reinsurance transactions, expense reductions and the sale of non-core product lines.

Moreover, CNO Financial has further enhanced its financial flexibility with the completion of its debt restructuring plan recently. CNO Financial has closed its $275.0 million offering of 9.0% senior secured notes due January 2018 and a $375.0 million new senior secured credit facility due in September 2016. The net proceeds from the notes offering and the new senior secured credit facility, together with available cash, will be used to repay CNO Financial's existing senior secured credit facility of $652 million.

The revised CLIC's outlook shows its 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.

Despite the improvements in CNO Financial's business profile, the rating agency A.M. Best remains concerned about the long-term earnings potential of key product lines given low interest rates and the likelihood of significant premium rate increases.

Accordingly, the rating agency expects CNO Financial to maintain a healthy cushion on certain ratios or measures within its new debt covenants, and to continue to manage its legacy blocks of business.

Besides A.M. Best, the rating agency Moody's, a unit of Moody's Corporation (MCO) also raised its debt ratings on CNO Financial recently, with the completion of the debt refinancing plan. The outlook remains stable for the company and its subsidiaries.

Moody's upgraded its ratings on CNO Financial's senior secured credit facility and senior secured notes to "B1" from "B2." The rating agency also raised its rating on CNO Financial's senior unsecured convertible debentures to "B2" from "Caa1."

We believe that the debt extension is expected to increase CNO Financial's capital flexibility and the ability to buy back stock. Moreover, it will also help the company effectively utilize funds and tap growth opportunities and enhance operating leverage.

 
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