Back to top

Analyst Blog

Credit rating agency A.M. Best Co. has revised upwards the issuer credit ratings (ICR) on the life/health insurance subsidiaries of CNO Financial Group, Inc. (CNO - Analyst Report) to “bbb+” from “bbb” and the ICR and existing debt ratings  to “bb+” from “bb.” The ratings carry a positive outlook.
 
Additionally, the financial strength rating (FSR) has been affirmed at “B++” and the corresponding outlook has been upped to positive from stable. However, this news failed to drive the company’s shares owing to broader market conditions. The stock price fell 1.3% in the last trading session to close at $16.83 on Aug 15, 2014.
 
The ICR ratings upgrade came on the back of CNO Financial’s strong premium growth and risk-adjusted capitalization, and the company’s execution of strategic business plans. The impressive operating results that were largely attributable to growth in revenues and cost containment measures also accounted for the ratings upgrade.
 
The ratings agency stated that all these, along with the consistent investment performance, helped CNO Financial improve its risk-adjusted capitalization, particularly in its leading operating entity, Bankers Life and Casualty Company. Business strategies executed by the company included divestiture of Conseo Life Insurance Company (CLIC) and the closed block of interest sensitive life and annuity products to Wilton Reassurance Company, and reinsurance of certain legacy blocks of long-term care (LTC) to Beechwood Re Ltd. 
 
The rating on CNO Financial also took into account the adjusted financial leverage (that has stayed below 20% since the debt restructuring) and interest coverage (that benefited from the current debt amortization). 
 
However, despite the above-mentioned positives, A.M. Best noted that the drop in new business premiums in some of the businesses like Bankers Life’s Medicare supplement, critical illness and LTC product lines raise caution. The ratings agency has held the change in market demand toward short-term care products and reduced benefits, largely responsible for the decline in LTC premiums. On the other hand, the decrease in premiums in the Bankers Life’s other health products are owing to the dearth of agent growth, as per A.M. Best. 
 
The credit rating giant has mentioned a couple of factors that could prompt an upgrade in the ratings of CNO Financial. These include continued diversification in business mix due to premium growth in core operations and consistent rise in capital and earnings. However, the ratings are subject to a downgrade if CNO Financial suffers from deterioration in risk-adjusted capitalization or significant operating or realized losses.
 
Rating affirmations or upgrades play an important part in retaining investors’ confidence on the stock as well as maintaining creditworthiness in the market. We believe that CNO Financial’s present score with the credit rating agency will help it write more business going forward.
 
At present, CNO Financial carries a Zacks Rank #3 (Hold). Better-ranked stocks that warrant a look in the multi-line insurance space include FBL Financial Group Inc. (FFG - Snapshot Report), Fortegra Financial Corp. (FRF - Snapshot Report) and Radian Group Inc. (RDN - Snapshot Report). All three stocks have a Zacks Rank #2 (Buy).

Please login to Zacks.com or register to post a comment.