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Change to regulatory calculation could cut CNO Financial's capital ratio in 2018

CNO Financial Group Inc. faces a drop in its risk-based capital ratio if certain regulatory changes are enacted in 2018, company executives explained during the fourth-quarter 2017 earnings call.

CFO Erik Helding said if the National Association of Insurance Commissioners implements its plan to change the calculation of acquired capital for companies, CNO could face an increase of about $80 million in required capital, resulting in a corresponding decrease in its consolidated risk-based capital ratio of about 65 basis points.

The risk-based capital ratio, or RBC ratio, is a requirement on insurance companies to retain a certain amount of capital relative to their size and risk profile. It was designed to limit the amount of risk a company can take in order to prevent overexposure.

The body of state regulators updated its risk-based capital ratio standards in 2017 to be implemented in 2018. It is unclear whether the regulators will implement the changes all at once or gradually over the year, Helding said during the call.

If it happens all at once, Helding affirmed, then the company will incur a 65-point reduction in its ratio. But, he said, whenever the regulators get around to implementing the standards, rating agencies must react and re-evaluate how they "view the financial conditions" of insurance companies in light of the changes.

Still, Helding maintained, the company is increasing its cash flows over the near, intermediate and long term.

"Over time, [CNO] should be able to run at lower levels of capital," he said.