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FOR IMMEDIATE RELEASE
OLDWICK - AUGUST 26, 2015 11:06 AM (EDT)
A.M. Best has upgraded the financial strength rating (FSR) to A- (Excellent) from B++ (Good) and the issuer credit ratings (ICR) to "a-" from "bbb+" for the life/health subsidiaries of CNO Financial Group, Inc. (CNO Financial) (Carmel, IN) [NYSE: CNO]. Concurrently, A.M. Best also has upgraded the ICR and existing senior issue ratings to "bbb-" from "bb+" of CNO Financial. The outlook for all ratings has been revised to stable from positive. (See below for a detailed listing of the companies and ratings.)
The ratings upgrades reflect the continuing growth trends in CNO Financial's risk-adjusted capitalization and favorable operating earnings. In addition, A.M. Best acknowledges the company's execution of its strategic business plan, which included exiting/de-emphasizing non-core product lines through divestiture and reinsurance, as well as a recapitalization of its debt structure. CNO Financial's favorable operating results have been attributable to the growth in revenue in its life/health insurance subsidiaries, as well as its ongoing expense management. Continued earnings and lower dividend obligations have 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 in recent years.
CNO Financial's adjusted financial leverage ratio increased to approximately 20% as a net result of the recent completion of its recapitalization plan. Despite the modest increase in leverage, A.M. Best notes that the company's financial leverage and interest coverage ratios remain well within A.M. Best's guidelines for its current ratings.
While CNO Financial's annuity and life insurance sales have generally increased, A.M. Best continues to observe a decline in new business premium trends within some of its core lines of business, including Bankers Life's Medicare supplement and long-term care (LTC) product lines. A.M. Best notes that the decline in LTC premium is largely a function of the continuation 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, agent headcount has recently become stagnant. A.M. Best notes that growth in annuity premiums, which is primarily driven by indexed annuities, has been able to mostly 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 sustained, profitable premium growth trends. Factors that could lead to negative rating actions include significant deterioration in risk-adjusted capitalization, material and sustained reserve strengthening within its LTC block of business and/or sizable operating or realized losses.
The FSRs have been upgraded to A- (Excellent) from of B++ (Good) and the ICRs have been upgraded to "a-" from "bbb+" for the following key life/health subsidiaries of CNO Financial Group, Inc.:
The following issue ratings have been upgraded:
CNO Financial Group, Inc.—
— to "bbb-" from "bb+" on $325 million 4.50% senior unsecured notes, due 2020
— to "bbb-" from "bb+" on $500 million 5.25% senior unsecured notes, due 2025
This press release relates to rating(s) that have been published on A.M. 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 visit A.M. Best's Ratings & Criteria Center.
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