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UPDATE: CNO ends deal with Platinum-tied insurer, to take $55M loss

September 30, 2016

Shares in Carmel-based CNO Financial Group Inc. tumbled in Friday-morning trading after the company ended a risk-transfer agreement with a reinsurer tied to embattled hedge fund Platinum Partners, taking an estimated $55 million loss on the terminated deal and suspending share buybacks.

The stock fell as much as 5.3 percent, to $14.73 per share, extending its loss for the year to 23 percent.

CNO units have filed a lawsuit against executives of Beechwood Re, according to a written statement issued Thursday by the Carmel-based insurer. CNO is suspending its share repurchase program for the rest of the year to guard capital at the holding company and is injecting about $200 million into its insurance units, the firm said.

The risk-transfer deal covered long-term care policies that were initiated by CNO, and that company was counting on Beechwood to back those obligations, a commitment that came into question after the Platinum hedge fund was raided by federal agents in New York in June. CNO said the next month that it was conducting a review of the Beechwood assets backing the deal.

CNO, along with New York and Indiana state insurance regulators, “have concluded that a significant portion of the investments do not comply with applicable regulatory requirements for assets supporting the reinsurance agreements,” CNO said in the statement. The government watchdogs have asked the company “to remedy the resultant deficiency.”

The lawsuit was filed Thursday in New York. CNO units said they were misled by Beechwood executives Mark Feuer and Scott Taylor and that the reinsurer concealed its deep ties to Platinum.

“There have been no losses, including to CNO, and Beechwood has acted properly at all times,” said Davidson Goldin, a spokesman for Beechwood. “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.”

The $55 million figure is an estimate and takes into account market value adjustments, expenses and taxes, CNO said.

“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.

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