Bankers Life and Casualty Company, a subsidiary of CNO Financial Group, has secured reinsurance on its long-term care policies written prior to 2003, with reserves of approximately $2.7 billion, through 100% indemnity coinsurance.
Wilton Re, a U.S life re/insurer that specialises in the acquisition of in-force portfolios, has agreed to take on the block and will be paid a ceding commission of $825 million by Bankers Life, 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 Gary Bhojwani, Chief Executive Officer of CNO Financial Group.
The transaction is expected to be closed no later than the end of 2018 and, in anticipation of the reinsurance agreement, CNO will reorganise its business segments to move the block from the Bankers Life segment to the Long-term care in run-off segment, in Q3 2018.
“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,” added Bhojwani.
“More importantly, this allows management to focus its time on accelerating profitable growth and serving the needs of the fast-growing middle-income market.”
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 is a highly-rated and well-capitalised counterparty and CNO has a strong relationship with its management team, having previously executed three other important transactions together,” said Bhojwani.
Furthermore, 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.
