Concurrently, Fitch has maintained the 'BB+' IFS on Rating Watch Positive for
Key Rating Drivers
The CNO Financial upgrade reflects a move to normal notching between holding company and insurance operating subsidiary ratings per Fitch's rating criteria. Favorable operating performance and improved capitalization have increased the cushion in key debt covenants and thus enhanced the company's financial flexibility.
Fitch's Positive Outlook on all ratings is driven by CNO Financial's increased profitability and fixed charge coverage as well as lower expected earnings volatility. Successful completion of the pending Conseco Life divestiture is 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 (bps). Operating results are more stable for the largest operating companies,
Fitch views CNO Financial's statutory capitalization as strong and financial leverage as moderate. Consolidated RBC ratio improved to 427% at
CNO Financial's debt service capabilities measured by GAAP based interest 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 for 2014.
CNO Financial's overall bond quality is good, with approximately 13% of bonds below investment grade at
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 ratings include:
--Continued generation of stable earnings free of significant special charges;
--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 include:
--Combined NAIC RBC ratio less than 300% and operating leverage above 20x;
--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 attempt to migrate its capital structure away from secured senior debt to unsecured senior debt. During this transition, the mix of secured versus unsecured debt may fluctuate. Fitch would expect to narrow the notching of CNO Financial's unsecured debt relative to the IDR as the mix in secured debt declines below 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 structure.
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 Conseco Life's capitalization, strategic importance to
Fitch could affirm the current 'BB+' IFS rating or reevaluate if the transaction fails to close.
Fitch has upgraded the following ratings:
CNO Financial Group, Inc.
--IDR upgraded to 'BB+' from 'BB';
--Senior secured bank credit facility (tranches of
The Rating Outlook is Positive.
Fitch has affirmed the following ratings:
--IFS at 'BBB'.
The Rating Outlook is revised to Positive from Stable.
Fitch maintained the Rating Watch Positive on the following rating:
--Insurer Financial Strength 'BB+'.
Additional information is available at 'www.fitchratings.com'.
--'Insurance Rating Methodology' (
Insurance Rating Methodology
Source: Fitch Ratings
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