Nuova obbligazione subordinata di CNO Financial Group, Inc.
New York , November 18, 2020 -- Moody's Investors Service ("Moody's") has assigned a Ba1(hyb) debt rating to the anticipated $150 million of subordinated debentures to be issued by CNO Financial Group, Inc. (CNO, senior debt at Baa3, stable outlook). The notes will be drawn under an existing shelf registration maturing in 2060. The net proceeds of the issuance will be used for general corporate purposes. The outlook on CNO and its insurance subsidiaries remains stable.
RATINGS RATIONALE
The Baa3 senior unsecured debt rating on CNO and the A3 insurance financial strength (IFS) ratings of its insurance company subsidiaries are based on the CNO's improved financial profile through consistent earnings (both statutory and GAAP), sustained capital adequacy in its three core operating companies, as well as a solid investment portfolio. The ratings also reflect the company's lower risk profile by improving capital adequacy in a severe stress scenario, the lower company tail risk given the capital-intensive nature of the group's LTC business, multiple distribution channels, and lower risk product offering.
These strengths are mitigated by the challenges that the company faces in growing its market presence, increasing profitability, developing its distribution systems, managing its retained shorter duration long-term care (LTC) business and interest sensitive liabilities, as well as balancing capital growth and policyholder needs with shareholder friendly activities.
The Ba1(hyb) rating on the subordinated debentures reflects Moody's typical notching for instruments issued by insurers relative to their IFS and senior debt ratings. Because of equity-like features contained in the subordinated debentures, the security will receive partial equity treatment in Moody's leverage calculation and adjusted financial leverage will improve as a result of the transaction.
Moody's believes that the coronavirus-driven economic downturn and ultra-low interest rates will stress most aspects of life insurers' financials, including those of CNO. This includes sales, investment income, reserves and capital adequacy. Most life insurers, including CNO, start with healthy capital and asset quality to weather this storm over the near term, but these conditions will weaken their creditworthiness if they persist.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The following factors could lead to an upgrade of the ratings: 1) Steady profitability with a return on capital of at least 8% on a consistent basis excluding one-time items; 2) Consistent earnings coverage of 6x; 3) Sustained combined NAIC RBC ratio (Company Action Level, without diversification benefit) of at least 400%; 4) Profitable sales growth and well balanced between life insurance and annuities; and 5) Increased market share in life insurance and annuity businesses, without increasing the risk profile of the liabilities
Conversely, the following factors could lead to a downgrade of the ratings: 1) Return on Capital of less than 4%; 2) Adjusted financial leverage consistently over 30%; 3) Earnings coverage of less than 4x; and 4) Combined NAIC RBC ratio (Company Action Level, without diversification benefit) of less than 350%.
AFFECTED RATINGS
The following rating was assigned:
CNO Financial Group, Inc.: subordinated debentures, assigned Ba1(hyb)
The outlook on CNO and its affiliates remains stable.
The principal methodology used in this rating was Life Insurers Methodology published in November 2019 and available at
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187348 . Alternatively, please see the Rating Methodologies page on
www.moodys.com for a copy of this methodology.
CNO is headquartered in Carmel, Indiana. As of September 30, 2020, CNO reported total assets of $34.6 billion and total equity of $5.1 billion.
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