CNO Financial reinsures legacy portfolio with Wilton Re
CNO Financial Group’s wholly-owned subsidiary, Bankers Life and Casualty Company has entered into an agreement with Wilton Reassurance Company (Wilton Re) to cede all of its legacy (prior to 2003) comprehensive and nursing home long-term care policies (with statutory reserves of approximately $2.7 billion) through 100 percent indemnity coinsurance.
Bankers Life will pay a ceding commission of $825 million to reinsure the block, funded through excess capital in the insurance subsidiaries and at the holding company.
"Completion of this reinsurance transaction achieves our stated objective to reduce our exposure to the long-term care business," said CNO CEO Gary Bhojwani.
"We expect this transaction to improve return on equity and cash flows in future periods and to materially reduce the risk profile of the company. More importantly, this allows management to focus its time on accelerating profitable growth and serving the needs of the fast-growing middle-income market.
“Wilton Re is a highly-rated and well-capitalized counterparty and CNO has a strong relationship with its management team, having previously executed three other important transactions together," Bhojwani noted.
Prior to the end of 2018, CNO expects to recognize a charge related to the transaction of approximately $650 million, net of taxes and the gain recognized on the assets transferred to Wilton Re. The charge is primarily attributable to loss recognition on the block due to the ceding commission.
In addition to the reinsurance agreement, Bankers Life or another CNO company will enter into certain other agreements with Wilton Re, including a trust agreement, an administrative services agreement and a transition services agreement.
Wilton Re will establish and maintain a trust account for the benefit of Bankers Life to secure its obligations under the coinsurance agreement. The trust account will be required to hold qualified assets with book values equal to the statutory liabilities of the block plus an additional amount, initially $500 million, which declines over time.
CNO also announced that in the third quarter of 2018, its insurance subsidiaries will cease sales of home health care only long-term care policies, and comprehensive and nursing home long-term care policies with benefit periods exceeding three years.
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