We are downgrading our recommendation on CNO Financial Group Inc. (NYSE:CNO - News) to Underperform from Neutral given continued deterioration in the premium revenue of its Bankers Life segment as well as the poignant underwriting as well as pricing risks. The top-line performance of the Bankers Life segment has been deteriorating over the past few years. The reduced earnings from annuities as well as health products are mainly responsible for the weakening performance of the segment. While annuities premium declined as a result of reduced money interest rates, premium from health products declined due to higher lapses of long-term policies as well as reduced prescription drug benefit as well as Private-Fee-For-Service collections. Moreover, CNO Financial has a risky business profile with about $269 million balance outstanding under its senior secured credit agreement as on September 30, 2011. Also, the company has to make high principal as well as interest payments on its outstanding indebtedness. Thus, the company requires poignant amounts of cash each year to fund its operations as well as repay debt. Additionally, the results for the last few quarters reveal that CNO Financial continues to face underwriting as well as pricing challenges in the long-term care business. The current interest rate environment, which is generating spread compression, will continue to exert pressure on the bottom line. However, on the positive side, the cash position of CNO Financial has strengthened over the years. The company has been able to improve its cash position due to substantial growth in cash flow from operating as well as financing activities. Additionally, the value of CNO Financials investment portfolio is steadily increasing. While the values of certain types of securities in CNO Financials investment portfolio, such as asset-backed securities supported by residential as well as commercial mortgages, vary with changes in capital market conditions, the company holds some trading securities to neutralize! the eff ects of interest rate fluctuations on the investment portfolio. Thus, the portfolio is substantially protected from market variations as well as can be expected to continue to grow in future. The Zacks Consensus Estimate for CNO Financials fourth-quarter 2011 earnings is currently 19 cents per share, up 4% year over year. For full year 2011, the Zacks Consensus Estimate stands at 73 cents per share, up about 13% from 2010. CNO Financial competes with AFLAC Inc. (NYSE:AFL - News) as well as Torchmark Corp. (NYSE:TMK - News). Currently, the company carries a Zacks #3 Rank, which translates into a short-term Hold rating. Zacks Investment Research More From Zacks.com Read the analyst report on CNO