CNO Financial (CNO) Suffers From Pricing Pressure, High Debt
Zacks Investment Research | Jul 03, 2017 08:51AM ET
Despite being a top-tier Multi-line insurer, CNO Financial Group, Inc’s (NYSE:CNO) financial results are highly susceptible to low market share in some product lines that limit business opportunities, high debt level and pricing pressure.
The company faces underwriting and pricing challenges in the long-term care business. The low interest rate environment resulted in spread compression and put pressure on margins. Although the company’s strategic priorities include reduction of exposure to long-term care business, we do not expect any significant improvement in this front in the coming quarters as the pricing pressure is expected to persist for a while.
CNO Financial funds its operations and repays debt very frequently. The cash required for these mostly comes from its debt funds. The debt-to-capital ratio has also been deteriorating over the years due to the decline in capital from losses associated with the sale of CLIC and debt repayments. The high level of debt not only increases financial risk but also makes additional borrowing costly in the future.
Despite occupying the ninth position in the list of the top writers in the individual long-term care insurance business, CNO Financials’ market share is limited to only 3% compared with the top eight writers that hold almost 87%.
The stock also looks overvalued. Over last one year, its price to earnings (PE) ratio has been 15%, above the industry’s level of 13%. Apart from being overvalued compared to the broader industry, this is at the upper end of its own range of 10.95-15.87 over the same time frame.
Reflective of these headwinds, shares of CNO Financial have gained 20% over last one year, underperforming the Zacks categorized Zacks Investment Research
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