CNO Boosts Oversight on Deal With Platinum-Linked Reinsurer

  • Finance Chief Helding says ‘concerned’ about news reports
  • CFO says Beechwood appears to be in compliance with agreements

CNO Financial Group Inc. said it’s scrutinizing a risk-transfer arrangement with Beechwood Re, the reinsurer linked to embattled hedge fund Platinum Partners.

“In recent weeks, we actually have increased a level of review and oversight related to this important relationship,” CNO Chief Financial Officer Erik Helding said Wednesday in a conference call discussing second-quarter results.

The CFO was responding to an analyst’s question about a Wall Street Journal article this week that outlined a history of ties between Beechwood and Platinum, including the ownership by some hedge fund executives’ family-member trusts of a stake in the reinsurer. Davidson Goldin, a spokesman for Beechwood, said family members of Platinum executives no longer hold investments in the reinsurer.

‘Counterparty Risk’

Platinum was raided by federal agents in June after prosecutors alleged that a manager bribed a union chief. Helding said that CNO is “concerned” about the report. Beechwood reached a deal in 2014 to take on some risks tied to long-term care policies initiated by CNO. Carmel, Indiana-based CNO agreed to cede more than $500 million in reserves tied to the contracts as part of the transaction.

Helding said Wednesday that the assets are held in a trust that is subject to rigorous guidelines and over-collateralized by 7 percent.

“Those facts there give us some comfort about the structure of the deal, and help to mitigate some of the counterparty risk that we would have had going in,” Helding said. As of the end of June, “Beechwood appears to be in compliance with the agreements.”

Ryan Krueger, an analyst at Keefe, Bruyette & Woods, wrote in a note Wednesday that “at this point it appears everything is fine.” He also addressed the possibility that “issues” at Platinum could cause a spillover effect at Beechwood, leading to insurance risks being transferred back to CNO.

“This is not an outcome that CNO wants, as it would increase the company’s $4.4 billion of long-term care liabilities by $550 million,” Krueger said. The analyst wrote there may be no need for that to happen.

CNO dropped 4.7 percent to $17.56 at 4:15 p.m. in New York.

‘No Financial Harm’

Goldin, the spokesman for Beechwood, also addressed the Wall Street Journal’s accounts of a former Platinum employee moving to Beechwood and agreeing to deals to buy part of the hedge fund’s investment portfolio.

“There was no financial harm from these transactions that have already been substantially reallocated, were independently valued and were always a small portion of the firm’s assets,” Goldin said. Platinum has said it has cooperated with authorities.

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