CNO FINANCIAL GROUP, INC.
Fitch Ratings has affirmed the 'A-' Insurer Financial Strength (IFS) ratings on
Fitch has also affirmed the Long-Term Issuer Default Rating (IDR) of
The Rating Outlook for
The revision of the Outlook to Positive reflects CNO's improvement and stability in earnings performance over recent periods. The company's diversified earnings mix has resulted in relatively stable insurance product margins, which, combined with strong investment returns, have delivered improved operating results. Fitch expects alternative returns to moderate in the near term, but CNO's net investment income should remain relatively stable as new money rates gradually improve portfolio yields.
Growing macroeconomic volatility and the heightened probability of a recession could constrain earnings growth, although Fitch does not expect a material impact to CNO's earnings outside of a prolonged or severe recession. The company's recent performance has exceeded metrics for the current rating level, and this trend is likely to continue despite modest deterioration of profitability in a more challenging macroeconomic environment.
Key Rating Drivers
Improved Operating Performance: CNO's earnings profile has improved over recent periods as it has delivered favorable and diversified operating results. The company has prudently grown sales of its interest-sensitive annuities, primarily consisting of fixed-indexed which have favorably contributed to overall margins.
Moderate Business Profile: CNO focuses on the underserved and underpenetrated needs of middle-income, pre-retiree and retired American consumers, where the company maintains a significant competitive advantage. This lead is driven, in part, by CNO's controlled distribution operating model. As CNO executes on growth, Fitch expects the company's overall competitive positioning in the life and health insurance industry will continue to improve.
High Quality Portfolio: CNO's investment portfolio metrics improved over the prior year, when compared to a number of Fitch's key asset risk metrics. The company's investment philosophies continue to signal improvement in quality and the company's strength in asset liability matching, decreasing its exposure to 'BBB' while increasing 'A' and better rated bond holdings over the prior year 2.9% and 3.6%, respectively.
Balance Sheet De-Risking: CNO's de-risking initiatives shed the company of undesired and extremely volatile legacy-related, long-term care (LTC) liability exposures. Fitch views this strategic divestment of risk favorably, improving CNO's overall business risk profile, while lessening its exposure to risks related to interest rates, morbidity and longevity.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Profitable, balanced growth across the company's core product offering, augmenting CNO's operating scale and competitive position;
Maintenance of conservative risk postures associated with new product development and sales initiatives;
Sustainable financial performance metrics without the presence of one-time accounting charges, consistently reporting a GAAP ROE in excess of 10%;
Prism capital model assessment approaching the 'Very Strong' threshold with an RBC ratio consistently in excess of 375%;
Financial leverage consistently below 25% with fixed-charge coverage in excess of 8x.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Shift in business profile that would lead to a departure from the company's risk postures, expanding into more price sensitive product offerings or new market segments outside of its stated risk tolerances;
Deterioration in financial performance metrics, resulting in a GAAP ROE below 5%;
Combined RBC ratio consistently below 325% and a Prism capital model assessment of 'Adequate' threshold;
Financial leverage consistently above 30% with fixed-charge coverage below 5x;
Deterioration in investment portfolio quality, leading to increased reporting of credit-related impairments.
Factors that could, individually or collectively, lead to a return to Stable Outlook:
More significant recession and credit market downturn than anticipated, which results in deterioration in financial performance metrics, including a GAAP ROE below 7%
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
(C) 2022 Electronic News Publishing, source
