Fitch Ratings reiterated the issuer default rating ("IDR") of
CNO Financial Group Inc.
Concurrently, the rating agency affirmed the insurer financial
strength ("IFS") at 'BBB' of Bankers Life and Casualty Company,
Bankers Conseco Life Insurance Company, Colonial Penn Life
Insurance Company and Washington National Insurance Company, the
company's insurance subsidiaries. Also, Conseco Life Insurance
Company's IFS was affirmed at 'BB+.'
Additionally, Fitch Ratings also reiterated the debt ratings of
$293 million 7% due 2016 at 'B+,' senior secured bank credit
facility due 2016 at 'BB' and $275 million senior secured note 9%
due 2018 at 'BB.'
The outlook for all ratings remains stable.
CNO Financial Group has solid earnings generation as well as
capitalization. The company's statutory earnings in the first
quarter of 2012 was $94 million, up 9% from the year-ago period.
Total adjusted statutory capitalization was $1.8 billion at March
31, 2012, with risk based capitalization (RBC) of 335% at March 31,
Operating leverage also improved to 13x at March end from 14.7x
at 2011 end. The rating agency believes that with the company
continuing to deliver strong statutory earnings, capital will will
show signs of improvement.
Also, the rating agency remains optimistic on the company's
improving financial flexibility. CNO Financial paid dividend in the
first quarter of 2012 for the first time since 2002 and also
lowered the debt level.
Fitch noted that the company has been generating quarterly
earnings over the past three years, reflecting lower investment
losses and steady flow of earnings. Though net income in the first
quarter of 2012 decreased year over year, the decline was due
largely to lawsuits and regulatory settlements. Therefore, Fitch
considers these resolutions to be favorable. Fitch estimates the
GAAP interest coverage ratio to be approximately 5x in 2012.
Fitch stated that a rating upgrade is likely if CNO Financial
continues to generate strong earnings, maintains GAAP interest
coverage ratio above 6x and NAIC RBC above 350% and has a debt
structure comparable with peer life insurance companies.
However, the rating will be subjected to downgrade if
operational performance declines, credit related impairments shoots
up, NAIC RBC ratio falls below 300%, operating leverage crosses the
20x mark, financial leverage moves above 30% and total financings
and commitments ratio goes beyond 0.65x.
CNO Financial competes with
We retain our Neutral long term recommendation on CNO Financial.
The quantitative Zacks #3 Rank (short term Hold rating) for the
company indicates no clear directional pressure on the stock over
the near term.
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