CNO Financial Group, Inc. (CNO - Free Report) recently announced the completion of its pending long-term care reinsurance transaction with Wilton Reassurance Company (Wilton Re). Under this deal, CNO Financial’s wholly-owned subsidiary, Bankers Life and Casualty Company (Bankers Life) has ceded all of its legacy (dating back to prior 2003) comprehensive and nursing home long-term care policies including statutory reserves of around $2.7 billion to Wilton Re through 100% indemnity coinsurance.
The ceded blocks include 100% of Bankers Life legacy comprehensive and nursing home policies, representing 51% of CNO Financial’s statutory long-term care reserves. Bankers Life made a payment of $825 million to reinsure the block, paid through existing excess capital in the insurance subsidiaries and holding company.
With this divestment, Bankers Life will transfer assets for backing the statutory liabilities of the yielded blocks apart from the ceding commission to Wilton Re. Parent company CNO Financial is thus aimed at lowering its risk profile through this sell-off. The transaction is also expected to improve the return on equity and cash flows going forward. Moreover, it will allow management to focus on executing its strategic initiatives for accelerating profitable growth for the company and meeting requirements of its targeted growing middle-income market, which holds a lot of opportunity.
The company will recognize a charge incurred in the third quarter related to the deal of around $660 million, net of taxes and the profit earned on the assets transferred to Wilton Re. This is mainly attributable to the block’s loss of recognition due to the ceding commission.
Other than the reinsurance contract, Bankers Life or another CNO Financial unit will enter into other agreements with Wilton Re, which includes a trust deal, an administrative services agreement and a transition services agreement.
Shares of this Zacks Rank #3 (Hold) company have lost 14.1% year to date, wider than the industry’s decline of 6.2%.
Stocks to Consider
Investors interested in the insurance sector might take a look at a few better-ranked stocks like The Navigators Group, Inc. (NAVG - Free Report) , Alleghany Corporation (Y - Free Report) and First American Financial Corporation (FAF - Free Report) .
Navigators Group underwrites marine, property and casualty plus professional liability insurance products and services in the United States as well as globally. The company sports a Zacks Rank #1 (Strong Buy) and managed to deliver positive results in three of the trailing four quarters with an average four-quarter positive surprise of 19.54%.You can see the complete list of today’s Zacks #1 Rank stocks here.
Operating in the Reinsurance and Insurance segments, Alleghany Corporation offers related services in the United States as well as internationally. The company has a Zacks Rank of 1 and came up with an average three-quarter earnings surprise of 26.02%.
First American Financial and its subsidiaries provide financial services to its customers. The stock carries a Zacks Rank #2 (Buy) and pulled off an average four-quarter beat of 8.22%.
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