Business Context and Reporting Period
CNO Financial Group, Inc. filed this Form 8-K on April 19, 2012, to disclose a tentative settlement regarding the Nicholas putative class action litigation involving its subsidiary, Conseco Life Insurance Company. The litigation concerns cost of insurance increases implemented in late 2011 for certain universal life policies (Valulife and Valuterm).
Key Financial Metrics
- Expected Pre-tax Charge: Approximately $20 million to be recorded in the Other CNO Business segment for the quarter ended March 31, 2012.
- Capital Impact: The tentative settlement is expected to reduce the Company's consolidated risk-based capital ratio by approximately six percentage points.
- Other Metrics: The filing does not provide specific values for revenue, profit, cash flow, margins, debt, or liquidity.
Material Changes and Settlement Terms
The tentative settlement includes the following material terms for current and former policyholders:
- Reduction of the cost of insurance increase implemented in November 2011.
- Provision of certain policy benefit enhancements.
- Option for terminated policyholders to reinstate policies with similar changes or elect a cash settlement.
- A moratorium on increasing cost of insurance or expense charges for this block of policies for five years.
Outlook, Risks, and Contingencies
Final approval of the settlement is contingent upon court designation of a nationwide class and a subsequent fairness hearing. The judge in the Nicholas case has taken under advisement requests for class designation and an injunction to stay related litigation, with a hearing scheduled for May 18, 2012. Management notes that while the estimated liability is based on best estimates, it is subject to significant judgment and may prove insufficient to cover actual costs if the settlement is approved.
Investor Verification Checklist
- Confirm the final court approval status of the tentative settlement and the class designation.
- Verify the actual pre-tax charge recorded in the Q1 2012 financial statements against the $20 million estimate.
- Monitor the impact on the consolidated risk-based capital ratio following the liability establishment.
- Review the outcome of the May 18, 2012 hearing regarding pending motions and related litigation stays.