Fitch Upgrades CNO Financial's Debt Ratings; Revises Rating Outlook to Positive

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has upgraded the ratings assigned to CNO Financial Group, Inc.'s (CNO Financial) debt. In addition, Fitch has affirmed the Issuer Default Rating (IDR) and the Insurer Financial Strength (IFS) ratings assigned to CNO Financial and its subsidiaries. The Rating Outlook for the holding company and insurance subsidiaries is revised from Stable to Positive. A full ratings list follows at the end of this release.

Today's rating action reflects the successful actions CNO Financial has taken to improve its capital structure and earnings profile, and improve its financial flexibility. The rating action also considers the stabilized economic environment and improved financial markets, which has had a positive impact on CNO Financial's investment results and portfolio valuation. The company's earnings before interest and taxes increased 7% to $361 million in 2010 and 28% to $101 million in the first quarter 2011.

Fitch believes the emerging stability of CNO Financial's earnings and ability to manage losses in its investment portfolio have played an important role in the company's ability to avoid covenant violations. The company has now produced positive quarterly net income for over two years. Fitch expects the GAAP adjusted interest coverage ratio to be in the 5 times (x) range in 2011 after reaching 4.7x in 2010. The ratio is adjusted to only include interest on corporate debt.

As of March 31, 2011, two of CNO Financial's tightest debt covenants, the statutory capital and interest coverage covenants, had minimum levels as defined in the credit agreement of $1.2 billion and 2x versus actual performance of $1.7 billion and 3.6x, respectively. Fitch is reasonably comfortable with the level of these covenants given the current amount of cushion and the company's flexibility in managing inter-company capital flows, which affect covenant calculations. CNO Financial and its non-insurance subsidiaries held unrestricted cash of $169 million at March 31, 2011.

In 2011 CNO Financial demonstrated financial flexibility by amending the terms of its $375 million senior secured bank credit facility. Fitch believes the amended facility improved the company's flexibility by easing certain restrictions and lowering borrowing costs.

The company's financial leverage at March 31, 2011 was approximately 19%, which is below Fitch's expectation of 20%-30% at the current rating level. CNO Financial's total financings and commitments (TFC) ratio is acceptable at 0.52 at March 31, 2011, although it increased from 0.44 at year-end 2009. The increase is due to new federal home loan borrowing of $750 million for a matched funding, floating rate, spread lending program that is expected to improve investment income.

The upgrade of CNO Financial's senior secured debt and senior unsecured debt reflect Fitch's updated recovery analysis. Fitch performs bespoke recovery analysis for companies with IDRs in the 'B' rating category. Improved financial performance resulted in higher Recovery Ratings of 'RR2' for senior secured debt and 'RR5' for senior unsecured debt.

Key rating drivers that could lead to an upgrade include:

--Continued generation of stable earnings free of significant special charges.

--Improved cushion versus covenant requirements, particularly interest coverage and consolidated surplus.

--Maintaining increased GAAP adjusted interest coverage ratio and consolidated surplus above 5x and $1.7 billion, respectively.

--Decreased financial leverage ratio below 15% or TFC below 0.45x.

A potential upgrade to the IDR or IFS ratings of CNO Financial or its subsidiaries may not lead to an upgrade on the ratings of their debt securities; in keeping with the application of Fitch's Global Notching Methodology and Recovery Analysis.

Fitch has upgraded the following ratings:

CNO Financial Group, Inc.

--$293 million 7% due Dec. 30, 2016 to 'B/RR5' from 'B-/RR6';

--$375 million senior secured bank credit facility due Sept. 30, 2016 to 'BB/RR2' from 'B+'/RR4';

--$275 million senior secured note 9% due Jan. 15, 2018 to 'BB/RR2' from 'B+'/RR4'.

Fitch has affirmed the following ratings and revised the Outlook to Positive:

CNO Financial Group, Inc.

--IDR at 'B+';

Bankers Life and Casualty Company

--IFS at 'BBB-'.

Conseco Life Insurance Company

Bankers Conseco Life Insurance Company

Colonial Penn Life Insurance Company

Washington National Insurance Company

--IFS at 'BB+'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (March 31, 2011);

--'Life Insurance Rating Methodology' (March 31, 2011);

--'Insurance Industry: Global Notching Methodology and Recovery Analysis' (March 31, 2011);

--'Fitch's Approach to Rating Insurance Groups' (Dec. 14, 2010).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=614266

Life Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=612905

Insurance Industry: Global Notching Methodology and Recovery Analysis

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=614265

Fitch's Approach to Rating Insurance Groups

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=586765

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