(The following statement was released by the rating agency)
CHICAGO, May 05 (Fitch) Fitch Ratings has upgraded CNO Financial
(CNO Financial) Issuer Default Rating (IDR) to 'BB+' from 'BB'
and all its
securities by one-notch. Fitch has affirmed the Insurer
Financial Strength (IFS)
ratings of CNO's core insurance subsidiaries at 'BBB'. The
Rating Outlook is
Positive for all ratings.
Concurrently, Fitch has maintained the 'BB+' IFS on Rating Watch
Conseco Life Insurance Company (Conseco Life). A full list of
follows at the end of this release.
Key Rating Drivers
The CNO Financial upgrade reflects a move to normal notching
company and insurance operating subsidiary ratings per Fitch's
Favorable operating performance and improved capitalization have
cushion in key debt covenants and thus enhanced the company's
Fitch's Positive Outlook on all ratings is driven by CNO
profitability and fixed charge coverage as well as lower
volatility. Successful completion of the pending Conseco Life
also viewed favorably.
CNO Financial's profitability rebounded in 2013 to a double
digit ROE of 11.9%
and operating return on assets (ROA) improved to 79 basis points
Operating results are more stable for the largest operating
Life and Casualty Company (Bankers Life) and Washington National
Company, benefiting from strong annuity, Medicare supplement and
health margins. Going forward, operating profitability and
stability is expected
to benefit from CNO Financial's disposal of the large majority
underperforming interest-sensitive life insurance and long-term
insurance, reported in the OCB GAAP segment previously.
Fitch views CNO Financial's statutory capitalization as strong
leverage as moderate. Consolidated RBC ratio improved to 427% at
March 31, 2014,
after increasing to 410% at yearend 2013 from 367% at yearend
company's financial leverage was 17.6% at March 31, 2014 with
the booking of the
$298 million loss on the sale of Conseco Life after declining to
year-end 2013 and from 21% for Dec. 31, 2012.
CNO Financial's debt service capabilities measured by GAAP based
coverage improved to 6.3x for 2013 versus 2.1x for full-year
2012. Fitch expects
fixed charge coverage to range from 6-8x excluding unusual items
CNO Financial's overall bond quality is good, with approximately
13% of bonds
below investment grade at Dec. 31, 2013 on a GAAP basis.
investment-grade bond portfolio is dominated by 'BBB' level
rated securities at
48% of the portfolio making it potentially more vulnerable in a
economic scenario to downgrade risk. CNO Financial has low
exposure to directly
placed commercial mortgages and alternative assets.
Conseco Life remains on Rating Watch Positive pending the close
of its sale to
Key rating triggers that could lead to an upgrade for all
--Continued generation of stable earnings free of significant
--GAAP interest coverage ratio above 6x;
--NAIC risk based capital (RBC) ratio above 350%;
--Close of Conseco Life sale at expected terms.
Key rating triggers that could lead to a return to stable
outlook or downgrade
--Combined NAIC RBC ratio less than 300% and operating leverage
--Deterioration in operating results;
--Failure to close the Conseco Life sale
--Significant increase in credit-related impairments;
--Financial leverage above 30%
Fitch expects that over the next few years, CNO Financial will
migrate its capital structure away from secured senior debt to
debt. During this transition, the mix of secured versus
unsecured debt may
fluctuate. Fitch would expect to narrow the notching of CNO
unsecured debt relative to the IDR as the mix in secured debt
25%. Currently, CNO Financial's senior unsecured debt is one
notch lower than
standard due to the large level of secured debt in the capital
RATING SENSITIVITIES FOR CONSECO LIFE INSURANCE COMPANY:
Fitch would upgrade the IFS rating of Conseco Life following the
close of the
transaction with the final rating based upon its evaluation of
capitalization, strategic importance to Wilton Re and degree of
Fitch could affirm the current 'BB+' IFS rating or reevaluate if
fails to close.
Fitch has upgraded the following ratings:
CNO Financial Group, Inc.
--IDR upgraded to 'BB+' from 'BB';
--$4 million 7% senior unsecured convertible note due Dec. 30,
2016 upgraded to
'BB-' from 'B+';
--Senior secured bank credit facility (tranches of $250 million
and $425 million
due Sept. 30, 2016 and 2018, respectively) upgraded to 'BB+'
--$275 million senior secured note 6.375% due Oct. 1, 2020
upgraded to 'BB+'
The Rating Outlook is Positive.
Fitch has affirmed the following ratings:
Bankers Life and Casualty Company
Bankers Conseco Life Insurance Company
Colonial Penn Life Insurance Company
Washington National Insurance Company
--IFS at 'BBB'.
The Rating Outlook is revised to Positive from Stable.
Fitch maintained the Rating Watch Positive on the following
Conseco Life Insurance Company
--Insurer Financial Strength 'BB+'.
Andrew Davidson, CFA
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Julie A. Burke, CPA, CFA
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Nov. 13, 2013).
Applicable Criteria and Related Research:
Insurance Rating Methodology
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