CNO Falls as Botched Risk-Transfer Forces Halt of Buybacks

  • Insurer ends Beechwood deal, bringing back long-term care risk
  • Company filed lawsuit against Beechwood executives Thursday

CNO Financial Group Inc. fell in New York trading after the company ended a risk-transfer agreement with a reinsurer tied to embattled hedge fund Platinum Partners, taking a loss on the terminated deal and suspending share buybacks.

The insurer slumped 28 cents, or 1.8 percent, to $15.27 at 4:03 p.m. in New York, extending its loss for the year to 20 percent. Carmel, Indiana-based CNO said Thursday that it would recapture about $550 million of long-term care obligations that it had ceded to Beechwood Re.

The 2014 deal to offload liabilities to Beechwood sent CNO’s stock climbing at the time because the transfer was designed to limit its risk from higher-than-expected claims costs or low interest rates. However, CNO boosted its scrutiny in July over whether Beechwood had sufficient assets to back the commitments after Platinum Partners was raided by federal agents in June. CNO units sued Beechwood executives Thursday saying they misled the insurer and concealed ties to Platinum.

“A material monetary recovery for CNO is unlikely,” even if that company prevails in the legal clash, Ryan Krueger, an analyst at Keefe Bruyette & Woods, said in a note to clients, citing Beechwood’s ties to the struggling hedge fund. “There is some remaining uncertainty” for CNO, as the insurer continues its audit of assets that Beechwood used to back its obligations, he added.

Market Value Adjustments

CNO estimated that it would have a $55 million loss tied to the terminated deal, a figure that takes into account market value adjustments, expenses and taxes. The company said that watchdogs in New York and Indiana determined that investments backing the obligations didn’t meet regulatory standards. CNO will inject about $200 million into its insurance units and suspend buybacks for the rest of this year to guard capital.

Davidson Goldin, a spokesman for Beechwood, said the reinsurer has acted properly.

“There have been no losses, including to CNO,” he said. “Beechwood will take every possible step to refute these false claims and regrets CNO’s inappropriate decision to file a meritless lawsuit filled with baseless innuendo as a method of gaining leverage in a business negotiation.”

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