A.m. best affirms ratings of cno financial group, inc. and its
subsidiaries
Oldwick, n.j.--(business wire)--a.m. best co. has affirmed the financial strength rating (fsr) of b+ (good) and issuer credit ratings (icr) of “bbb-” 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 (washington national). concurrently, a.m. best has affirmed the icr and debt ratings of “bb-”as well as the outstanding senior debt securities for the group’s ultimate holding company, cno financial group, inc. (cno) [nyse: cno]. the outlook for all ratings is stable. all companies are domiciled in carmel, in, unless otherwise specified. (see below for a detailed listing of the debt ratings.) the ratings for cno reflect its consistent operating results, good capitalization and improved financial flexibility. the company has been successful in streamlining and simplifying its focus on markets where it feels it has competitive advantages. a.m. best favorably views the more focused business strategy within each of cno’s subsidiaries. this strategy has encompassed considerable expense reductions and the exiting of non-core product lines, which has facilitated solid profitability for cno for 12 consecutive quarters as well as capital growth. the ratings also reflect cno’s improved financial flexibility due to the company’s recent amendment of its senior secured credit facility, in which annual interest costs were reduced by a total of 125 basis points. a.m. best views this amendment favorably, noting that the holding company will have more flexibility with respect to investments and will foster utilization of the tax benefits from its non-life insurance operating losses carried forward. a.m. best also views favorably cno’s declining debt-to-capital ratio (currently below 18%), which is well below the 30% maximum in its bank facility covenant and sufficient for its interest coverage ratio that is in the range of 4 to 5 times. while cno and its subsidiaries have reported consistent earnings and improved capitalization, a.m. best remains cautious about future top-line growth within the group. increased competition and regulatory threats within the medicare supplement and supplemental health insurance markets have pressured cno’s ability to grow these lines of business. a.m. best believes cno will be challenged to improve profitability on its closed blocks of business. additionally, a.m. best remains concerned regarding the future impact of a continued low interest rate environment on its spread-based products. a.m. best notes that cno has been able to maintain its annuity spreads despite the difficult operating environment. although the company’s investment portfolio has improved, the potential for any additional asset impairments remains given cno’s exposure to commercial mortgages, commercial mortgage-backed securities (cmbs) and below investment grade bonds. a.m. best notes that in an effort to maintain interest spreads on its life and annuity products, cno may be forced to invest in riskier assets to achieve its targeted net yield. furthermore, a double-dip recession could cause credit deterioration and additional impairments within cno’s investment portfolio. however, a.m. best notes the company’s direct commercial loan portfolio is fairly well diversified and that the collateral underlying its cmbs portfolio is performing better than many of its peers with respect to delinquencies and cumulative losses. a.m. best also has affirmed the fsr of b- (fair) and icr of “bb-” for conseco life insurance company (clic). the outlook for both ratings is stable. clic’s ratings recognize its modest operating profitability and the recent settlement of some regulatory issues, tempered by its declining premiums and decreasing net investment income as the company has been placed in run off. a.m. best believes it is important for clic to continue to actively manage its legacy blocks of business, including the challenge of getting rerates, in order for its run-off lines of business to be profitable. additionally, a.m. best believes the level of support that cno will provide to clic in the future remains unclear, noting that clic’s current level of risk-adjusted capitalization is satisfactory for its ratings. the following debt ratings have been affirmed: cno financial group, inc.— -- “bb-” on $176.5 million 7.0% senior unsecured convertible debentures, due 2016 -- “bb-” on $64.0 million 7.0% senior unsecured convertible debentures, due 2016 -- “bb-” on $52.5 million 7.0% senior unsecured convertible debentures, due 2016 -- “bb-” on $275 million 9.0% senior secured notes, due 2018 the principal methodology used in determining these ratings is best’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”; “rating members of insurance groups”; and “a.m. best’s ratings & the treatment of debt.” methodologies can be found at www.ambest.com/ratings/methodology. founded in 1899, a.m. best company is the world's oldest and most authoritative insurance rating and information source. for more information, visit www.ambest.com. copyright © 2011 by a.m. best company, inc. all rights reserved.
