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Rating Action:

Moody's upgrades CNO (sr debt to Ba1) following announcement of recapitalization plan; rates shelf (sr debt at (P)Ba1); stable outlook

11 May 2015

Approximately $900 million of new debt rated

New York, May 11, 2015 -- Moody's Investors Service has upgraded the credit ratings of CNO Financial Group (CNO, NYSE: CNO, senior secured to Ba1 from Ba2), as well as the insurance financial strength (IFS) ratings of its primary life insurance subsidiaries, including lead operating company Bankers Life and Casualty Company, to Baa1 from Baa2. Additionally, Moody's assigned ratings to CNO's newly filed shelf (sr. debt at (P)Ba1) and a Ba1 debt rating to the CNO's anticipated $800 million sr. debt drawdown from the shelf. Lastly, Moody's assigned a Ba1 rating to the company's new four-year senior unsecured $150 million credit facility. Proceeds from the anticipated $800 million senior debt issuance and $100 million draw from the new bank facility are expected to repay approximately $800 million of existing debt, as well as used for general corporate purposes. See a complete list of rating actions below. All the ratings have a stable outlook.

RATINGS RATIONALE

Moody's Senior Vice President, Scott Robinson, said: "The upgrade in CNO's ratings is driven by realized and expected further improvements in capital adequacy and profitability, as well as improved financial flexibility." Robinson noted, "The company's recapitalization plan allows CNO to lock in a more permanent investment grade-like capital structure." Following the recapitalization, Moody's expects CNO's adjusted financial leverage ratio to remain in the low 20% range. The rating agency added that the two tranches of senior debt, maturing in 2020 and 2025, have no financial covenants, and the company has significant cushion under the covenants of the $150 million bank credit facility, $100 million of which is expected to be drawn.

The rating agency added that the company's financial metrics, which remain solid for its Baa1 IFS rating, helped drive the ratings upgrade. CNO's combined NAIC RBC ratio, which, as with other companies, includes a diversification benefit across legal entities, was a strong 428% (company action level) at Q1 2015, compared to 410% at year-end 2013. In addition, although the company's net income has historically been volatile, this was partly due to one-time items resulting from actions that will help reduce risk over the longer term (e.g., reported loss from the sale of Conseco Life Insurance Company in 2014). Following the recapitalization, Moody's expects insurance company cash generation to remain strong, especially compared to the $40 to $50 million of anticipated holding company interest expenses.

Moody's commented that CNO's ratings are supported by its captive distribution force at Bankers Life, its focus on the less crowded and ratings sensitive middle-income market, where the company has demonstrated success. Additionally, the company maintains strong capitalization at its main operating companies and has demonstrated an ability to generate cash to build liquidity.

The rating agency added, however, that these strengths are offset by the adverse impact of low interest rates on profitability, risks associated with the company's book of long term care (LTC) insurance, and the challenges of balancing capital growth and policyholder needs with shareholder friendly activities, including share repurchases and common stock dividends. Moody's noted that although the operating companies have historically received regulatory permission to pay dividends, negative unassigned surplus at a key intermediate life insurance company constrains financial flexibility because its presence requires regulatory approval for dividend payments.

Moody's said that the following could result in a subsequent upgrade of CNO's and its operating subsidiaries' ratings: a transaction that meaningfully reduces the uncertainty associated with the LTC block, consistent return on capital (ROC) of at least 6%; consistent earnings coverage of six times; and sustained combined NAIC RBC ratio (without diversification benefit) of at least 400% (company action level). Conversely, the following could result in a downgrade of CNO's and its operating subsidiaries' ratings: Significant LTC charge or deterioration in claims experience; ROC of less than 4%; adjusted financial leverage of over 30%, earnings coverage of less than four times; and a combined NAIC RBC ratio (without diversification benefit) of less than 350%.

The following ratings were upgraded with a stable outlook:

CNO Financial Group, Inc.—LT corporate family rating to Ba1 from Ba2, senior secured debt rating to Ba1 from Ba2

Bankers Life and Casualty Company—insurance financial strength rating to Baa1 from Baa2;

Colonial Penn Life Insurance Company—insurance financial strength rating to Baa1 from Baa2;

Washington National Insurance Company—insurance financial strength rating to Baa1 from Baa2.

The following ratings have been assigned with a stable outlook:

CNO Financial Group, Inc.— Senior unsecured debt -- Ba1; Senior unsecured bank credit facility -- Ba1; Senior unsecured shelf -- (P)Ba1; Senior subordinate shelf -- (P)Ba2; Subordinate shelf -- (P)Ba2; Preferred Stock shelf -- (P)Ba3

CNO Financial Group is a specialized financial services holding company that operates primarily in the life and health insurance sectors through its subsidiaries. At March 31, 2015, CNO, which is headquartered in Carmel, Indiana, reported total assets of approximately $31.6 billion and shareholders' equity of $4.8 billion.

The principal methodology used in this rating was Global Life Insurers published in August 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to pay punctually senior policyholder claims and obligations.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Scott Robinson
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert L Riegel
MD - Insurance
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's upgrades CNO (sr debt to Ba1) following announcement of recapitalization plan; rates shelf (sr debt at (P)Ba1); stable outlook
No Related Data.
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