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A.M. Best Co. revised the issuer credit ratings (“ICR”) and existing senior debt ratings upwards to “bb” from “bb-” of CNO Financial Group Inc. (CNO - Analyst Report). Additionally, the rating agency upgraded the financial strength rating (“FSR”) to B++ (Good) from B+ (Good) and ICR to ‘bbb’ from ‘bbb-‘ for the primary life/health subsidiaries of CNO Financial Group.
The outlook for the ratings is stable.
Concurrently, A.M. Best provided a debt rating of “bb” with stable outlook to the upcoming issuance of $250 million senior secured notes due 2020.
The rating upgrades came on the back of CNO Financial’s solid operational profitability, core product sales and risk-adjusted capitalization. While diverse revenue avenues from its insurance subsidiaries have continued to drive earnings improvement, increase in agents, rate increase and new products fuel higher revenues.
The rating agency, however, expects continued low interest rates to weigh on the annuity sales in the near to medium term.
A.M. Best noted that solid risk-adjusted capitalization of the insurance subsidiaries have been aided by CNO Financial’s better operating results and investment results. Bankers Life and Casualty Company, the leading subsidiary, has been experiencing improving capitalization for quite some time now.
The rating action also incorporates the company’s initiatives to exit non-core business, cost containment and establish a recapitalization plan.
The rating agency remains cautious despite the de-risking of the company’s investment portfolio, as asset impairments are likely owing to the exposure to commercial mortgages, commercial mortgage-backed securities and below investment grade bonds.
Further, A.M. Best reiterated the FSR of B- (Fair) and ICR of “bb-” of Conseco Life Insurance Company (“CLIC”) with a stable outlook.
The rating affirmation reflects CLIC’s moderate operating profitability and better risk-adjusted capitalization, partially offset by lower premiums and net investment income. A.M. Best expects CNO Financial’s legacy blocks of business to be supervised effectively to aid profitability. The rating agency also remains unsure of CNO Financial’s role in CLIC.
Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence in the stock as well as maintaining creditworthiness in the market. On the other hand, rating downgrade adversely affects the business, besides increasing cost of future debt issuances. We believe strong scorings with rating agencies will help it write more business going forward.
In July, A.M. Best conferred a rating of “a-” on senior debt, “bbb+” on subordinated debt and “bbb” on preferred stock of Torchmark Corp. (TMK - Analyst Report), a close competitor of CNO Financial Group. The rating agency also provided a debt rating of “a-” to the newly issued $250 million 2.65% senior unsecured notes due 2017 of Aflac Incorporated (AFL - Analyst Report).
CNO Financial Group holds a Zacks Rank #1 (Strong Buy), indicating an upward boost on the shares over the near term.