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Conseco Reports Third Quarter Results
PRNewswire-FirstCall
CARMEL, Ind.
(NYSE:CNO)

CARMEL, Ind., Oct. 31 /PRNewswire-FirstCall/ -- Conseco, Inc. (NYSE: CNO) today reported results for the third quarter of 2007.

"Third Quarter results reflect a number of significant events, as progress on our program to position Conseco for future profitability and growth is increasingly evident," CEO Jim Prieur said. "We saw continued strong growth in both our Bankers Life and Colonial Penn businesses, while Conseco Insurance Group, even with a decline in sales during the quarter, produced new business expected to be more profitable. Importantly, continued progress also was evident on the turnaround in our run-off long-term care block, with our claims reserve volatility reduced this quarter following the reserve strengthening of the previous quarter. With only a small loss in the quarter, we are on target for that block to become profitable next year."

"The majority of our organizational realignment is now complete as well, with all of our customer service calls now being handled in our Carmel, Indiana offices," Prieur said.

"Our just announced agreement in which we will invest $63 million to recapture a block of Colonial Penn life insurance business comprising approximately $50 million annual premium that had been ceded in 2002 to a subsidiary of Swiss Re, is a significant investment in the growth of this high-return core business," said Chief Financial Officer Ed Bonach. "This transaction is expected to be immediately accretive to earnings and return on equity. Our October 12, 2007, announcement that we completed the 100% coinsurance of an older block of fixed and equity-indexed annuities is another important step in improving Conseco's performance."

"Conseco also further executed on its share repurchase program in the third quarter," Bonach said, "with the purchase of 2.4 million shares at an average price of $14.22 per share, for a total of $34.7 million."

  Third quarter 2007 results:
  -- Net operating income (loss) (1):  $(25.6) million, compared to $52.8
     million in 3Q06
  -- Net operating income (loss) per diluted share:  (14) cents, compared to
     35 cents in 3Q06
  -- Net income (loss) applicable to common stock:  $(53.7) million,
     compared to $38.9 million in 3Q06 (including $28.1 million of net
     realized investment losses in 3Q07 vs. $13.9 million of net realized
     investment losses in 3Q06)
  -- Net income (loss) per diluted share:  (29) cents, compared to 26 cents
     in 3Q06 (including 15 cents of net realized investment losses in 3Q07
     vs. 9 cents of net realized investment losses in 3Q06)
  -- Income (loss) before net realized investment losses, corporate interest
     and taxes ("EBIT") (2):  $(23.4) million, compared to $110.4 million in
     3Q06
  -- Sales (3): $86.0 million, down 7% from 3Q06

  Nine-month 2007 results:
  -- Net operating income (loss) (1):  $(65.4) million, compared to $76.9
     million in the first nine months of 2006
  -- Net operating income (loss) per diluted share:  (39) cents, compared to
     50 cents in the first nine months of 2006
  -- Net income (loss) applicable to common stock:  $(117.3) million,
     compared to $62.2 million in the first nine months of 2006
  -- Net income (loss) per diluted share: (69) cents, compared to 41 cents
     in the first nine months of 2006
  -- EBIT (2):  $(30.3) million, compared to $202.3 million in the first
     nine months of 2006
  -- Sales (4): $328.2 million, up 5% over the first nine months of 2006

  Financial strength at September 30, 2007:
  -- Book value per common share, excluding accumulated other comprehensive
     income (loss) (4), was $24.79, compared to $27.06 at December 31, 2006
  -- Book value per diluted share, excluding accumulated other comprehensive
     income (loss) (4), was $24.77, compared to $25.64 at December 31, 2006
  -- Debt-to-total capital ratio, excluding accumulated other comprehensive
     income (loss) (4), was 20.6%, compared to 17.3% at December 31, 2006

  Operating results

Our segments reflect the addition of Colonial Penn as a separate segment. All prior period segment disclosures have been restated to conform to our new presentation. Results by segment for the quarter were as follows ($ in millions, except per share data):

                                                     Three Months Ended
                                                        September 30,
                                                     2007          2006
  EBIT (2), excluding costs related to a
   litigation settlement and loss related
   to a coinsurance transaction:
    Bankers Life                                  $ 66.3          $ 68.4
    Conseco Insurance Group                          (.4)           58.5
    Colonial Penn.                                   7.0             4.6
    Other Business in Run-off                       (2.9)          (13.0)
    Corporate Operations, excluding corporate
     interest expense                                (.5)           (8.1)
      EBIT, excluding costs related to a
       litigation settlement and loss related to a
       coinsurance transaction                      69.5           110.4
  Costs related to a litigation settlement         (16.4)              -
  Loss related to a coinsurance transaction        (76.5)              -
    Total EBIT                                     (23.4)          110.4
  Corporate interest expense                       (20.2)          (12.5)
    Income (loss) before net realized
     investment losses and taxes                   (43.6)           97.9
  Tax expense (benefit)                            (18.0)           35.6
    Net income (loss) before net realized
     investment losses                             (25.6)           62.3
  Preferred stock dividends:
    5.50% Class B mandatorily convertible
     preferred stock                                   -            (9.5)
    Net operating income (loss)                    (25.6)           52.8
  Net realized investment losses, net of
   related amortization and taxes                  (28.1)          (13.9)
    Net income (loss) applicable to common stock  $(53.7)         $ 38.9
  Per diluted share:
    Net operating income (loss)                   $ (.14)          $ .35
    Net realized investment losses, net of
     related amortization and taxes                 (.15)           (.09)
    Net income (loss) applicable to common stock  $ (.29)          $ .26

In our Bankers Life segment, pre-tax operating earnings were $66.3 million in the third quarter of 2007, compared to $68.4 million in the third quarter of 2006. The slight decrease in earnings is driven by lower margins in our long-term care business, partially offset by improved spreads in our life and annuity business and higher income from our marketing and quota-share agreements with Coventry Health Care.

In our Conseco Insurance Group segment, pre-tax operating loss was $0.4 million in the third quarter of 2007, compared to earnings of $58.5 million in the third quarter of 2006. Significant factors affecting the segment's earnings in these periods included:

  -- An $11 million reduction in universal life earnings in the third
     quarter of 2007. This block has experienced adverse mortality and we
     are projecting break-even earnings in the future.
  -- An $18.3 million out-of-period reduction in specified disease earnings
     identified by our material control weakness remediation procedures.
  -- An $11 million reduction in earnings for charges related to operational
     initiatives and consolidation activities.

Our Colonial Penn segment achieved pre-tax operating earnings of $7.0 million in the third quarter of 2007, compared to $4.6 million in the third quarter of 2006.

In our Other Business in Run-off segment, we recognized a pre-tax operating loss of $2.9 million in the third quarter of 2007, compared to a loss of $13 million in the third quarter of 2006. Results in the third quarter of 2007 were positively impacted by a net $6.6 million reserve reduction (reflecting an out-of-period release of active life reserves of $20.1 million identified by remediation procedures and $13.5 million reserve increase due to changes to certain actuarial estimates).

The Corporate Operations segment includes our investment advisory subsidiary and corporate expenses.

Net realized losses of $28.1 million (net of taxes) in the third quarter of 2007 consisted of losses from market value declines on the assets transferred pursuant to our 100% annuity coinsurance transaction, and from sales of mortgage-backed securities collateralized by sub-prime residential mortgage loans. In the third quarter of 2007, we recorded a charge of approximately $76.5 million related to the coinsurance transaction. The results from the third quarter of 2007 reflect additional pre-tax costs of $16.4 million related to the litigation settlement we entered into in the second quarter of 2006.

Sales results

In addition to the sales of proprietary products, Bankers Life, through a partnership with Coventry, distributes risk-share Medicare PDP and private- fee-for-service plan (PFFS) through their career agents.

At Bankers Life (career distribution), total sales in 3Q07 were $56.5 million, down 2% from 3Q06. Bankers' sales were up 11% for the first nine months of 2007.

At Conseco Insurance Group (independent distribution), total sales, including sales of PDP through Coventry, in 3Q07 were $18.1 million, down 31% from 3Q06, with strong gains in specified disease sales offset by decreases in Medicare supplement and annuities.

At Colonial Penn (direct distribution), total 3Q07 sales were $11.4 million, up 38% over 3Q06 as we continue to benefit from our investment in marketing.

Conference Call

The company will host a conference call to discuss results at 10:00 a.m. Eastern Daylight Time on November 1, 2007. The webcast can be accessed through the Investors section of the company's website as follows: http://investor.conseco.com/. Listeners should go to the website at least 15 minutes before the event to register and download any necessary audio software. During the call, we will be referring to a presentation that will be available Thursday morning through the investors section of the company's website.

About Conseco

Conseco, Inc.'s insurance companies help protect working American families and seniors from financial adversity: Medicare supplement, long-term care, cancer, heart/stroke and accident policies protect people against major unplanned expenses; annuities and life insurance products help people plan for their financial futures. For more information, visit Conseco's web site at http://www.conseco.com/.

(1) Management believes that an analysis of Net Income (Loss) applicable to common stock before net realized investment gains or losses, net of related amortization and income taxes, ("Net Operating Income," a non-GAAP financial measure) is important to evaluate the financial performance of the company, and is a key measure commonly used in the life insurance industry. Management uses this measure to evaluate performance because realized investment gains or losses can be affected by events that are unrelated to the company's underlying fundamentals. A reconciliation of Net Operating Income to Net Income applicable to common stock is provided in the tables on page 2 and 8. Additional information concerning this non-GAAP measure is included in our periodic filings with the Securities and Exchange Commission that are available in the "Investor - SEC Filings" section of Conseco's website, http://www.conseco.com/.

(2) Management believes that an analysis of earnings or loss before net realized investment gains (losses), corporate interest and taxes ("EBIT," a non-GAAP financial measure) provides a clearer comparison of the operating results of the company quarter-over-quarter because it excludes: (i) corporate interest expense; and (ii) net realized investment gains (losses) that are unrelated to the company's underlying fundamentals. A reconciliation of EBIT to Net Income applicable to common stock is provided in the tables on page 2 and 8.

(3) Measured by new annualized premium, which includes 6% of annuity and 10% of single premium whole life deposits and 100% of all other premiums, PDP sales equal $310 per enrolled policy, PFFS sales equal $2,100 per enrolled policy.

(4) The calculation of this non-GAAP measure differs from the corresponding GAAP measure because accumulated other comprehensive income (loss) has been excluded from the value of capital used to determine this measure. Management believes this non-GAAP measure is useful because it removes the volatility that arises from changes in the unrealized appreciation (depreciation) of our investments. The corresponding GAAP measures for debt- to-total capital and book value per common share were 21.7% and $23.10, respectively, at September 30, 2007, and 17.5% and $26.58, respectively, at December 31, 2006.

Cautionary Statement Regarding Forward-Looking Statements. Our statements, trend analyses and other information contained in this press release relative to markets for Conseco's products and trends in Conseco's operations or financial results, as well as other statements, contain forward- looking statements within the meaning of the federal securities laws and the Private Securities Litigation Reform Act of 1995. Forward-looking statements typically are identified by the use of terms such as "anticipate," "believe," "plan," "estimate," "expect," "project," "intend," "may," "will," "would," "contemplate," "possible," "attempt," "seek," "should," "could," "goal," "target," "on track," "comfortable with," "optimistic" and similar words, although some forward-looking statements are expressed differently. You should consider statements that contain these words carefully because they describe our expectations, plans, strategies and goals and our beliefs concerning future business conditions, our results of operations, financial position, and our business outlook or they state other ''forward-looking'' information based on currently available information. Assumptions and other important factors that could cause our actual results to differ materially from those anticipated in our forward-looking statements include, among other things: (i) our ability to obtain adequate and timely rate increases on our supplemental health products including our long-term care business; (ii) mortality, morbidity, usage of health care services, persistency, the adequacy of our previous reserve estimates and other factors which may affect the profitability of our insurance products; (iii) changes in our assumptions related to the cost of policies produced or the value of policies inforce at the Effective Date; (iv) our ability to achieve anticipated expense reductions and levels of operational efficiencies including improvements in claims adjudication and continued automation and rationalization of operating systems; (v) performance of our investments; (vi) our ability to identify products and markets in which we can compete effectively against competitors with greater market share, higher ratings, greater financial resources and stronger brand recognition; (vii) the ultimate outcome of lawsuits filed against us and other legal and regulatory proceedings to which we are subject; (viii) our ability to remediate the material weakness in internal controls over the actuarial reporting process that we identified at year-end 2006 and to maintain effective controls over financial reporting; (ix) our ability to continue to recruit and retain productive agents and distribution partners and customer response to new products, distribution channels and marketing initiatives; (x) our ability to achieve an upgrade of the financial strength ratings of our insurance company subsidiaries as well as the potential impact of rating downgrades on our business; (xi) the risk factors or uncertainties listed from time to time in our filings with the Securities and Exchange Commission; (xii) regulatory changes or actions, including those relating to regulation of the financial affairs of our insurance companies, such as the payment of dividends to us, regulation of financial services affecting (among other things) bank sales and underwriting of insurance products, regulation of the sale, underwriting and pricing of products, and health care regulation affecting health insurance products; (xiii) general economic conditions and other factors, including prevailing interest rate levels, stock and credit market performance and health care inflation, which may affect (among other things) our ability to sell products and access capital on acceptable terms, the returns on and the market value of our investments, and the lapse rate and profitability of policies; and (xiv) changes in the Federal income tax laws and regulations which may affect or eliminate the relative tax advantages of some of our products.

Other factors and assumptions not identified above are also relevant to the forward-looking statements, and if they prove incorrect, could also cause actual results to differ materially from those projected. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement. Our forward-looking statements speak only as of the date made. We assume no obligation to update or to publicly announce the results of any revisions to any of the forward- looking statements to reflect actual results, future events or developments, changes in assumptions or changes in other factors affecting the forward- looking statements.

                      CONSECO, INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEET
                          (Dollars in millions)

                                              September 30,     December 31,
                                                  2007              2006
                                               (unaudited)
  ASSETS
  Investments:
    Actively managed fixed maturities
     at fair value (amortized cost:
     September 30, 2007 - $21,073.6;
     December 31, 2006 - $22,946.9)              $20,511.7      $22,802.9
    Investments to be transferred
     pursuant to annuity coinsurance
     transaction                                   2,585.1              -
    Equity securities at fair value
     (cost: September 30, 2007 - $34.3;
     December 31, 2006 - $23.9)                       35.5           24.8
    Mortgage loans                                 1,914.3        1,642.2
    Policy loans                                     368.5          412.5
    Trading securities                               691.2          675.2
    Other invested assets                            180.5          178.8

      Total investments                           26,286.8       25,736.4

  Cash and cash equivalents:
    Unrestricted                                     392.3          385.9
    Restricted                                        25.8           24.0
  Accrued investment income                          346.3          344.5
  Value of policies inforce at the
   Effective Date                                  1,740.2        2,137.2
  Cost of policies produced                        1,359.4        1,106.7
  Reinsurance receivables                          3,666.2          850.8
  Income tax assets, net                           1,992.3        1,786.9
  Assets held in separate accounts                    28.3           28.9
  Other assets                                       324.0          316.0
      Total assets                               $36,161.6      $32,717.3

  LIABILITIES AND SHAREHOLDERS' EQUITY
  Liabilities:
    Liabilities for insurance products:
      Interest-sensitive products                $13,214.0      $13,018.0
      Traditional products                        12,445.1       12,094.1
      Claims payable and other policyholder
       funds                                         901.4          832.3
      Liabilities related to separate accounts        28.3           28.9
  Liability for assets to be transferred
   pursuant to annuity coinsurance transaction     2,594.1              -
  Other liabilities                                  565.6          611.8
    Investment borrowings                            913.7          418.3
    Notes payable - direct corporate
     obligations                                   1,195.7        1,000.8
      Total liabilities                           31,857.9       28,004.2

  Commitments and Contingencies

  Shareholders' equity:
    Preferred stock                                      -          667.8
    Common stock ($0.01 par value,
     8,000,000,000 shares authorized,
     shares issued and outstanding:
     September 30, 2007 - 186,345,515;
     December 31, 2006 - 152,165,108)                  1.9            1.5
    Additional paid-in capital                     4,094.6        3,473.2
    Accumulated other comprehensive loss            (316.0)         (72.6)
    Retained earnings                                523.2          643.2

      Total shareholders' equity                   4,303.7        4,713.1

      Total liabilities and shareholders' equity $36,161.6      $32,717.3



                      CONSECO, INC. AND SUBSIDIARIES
                   CONSOLIDATED STATEMENT OF OPERATIONS
               (Dollars in millions, except per share data)

                              Three months ended        Nine months ended
                                 September 30,             September 30,
                               2007         2006         2007         2006
  Revenues:
  Insurance policy income    $ 822.0      $ 748.5     $2,352.6     $2,242.9
  Net investment income:
    General account assets     392.6        360.6      1,152.7      1,069.2
    Policyholder and
     reinsurer accounts
     and other
     special-purpose
     portfolios                  3.2         26.2         50.4         26.6
  Net realized investment
   losses                      (51.1)       (21.8)      (114.3)       (28.6)
  Fee revenue and other
   income                        8.5          4.8         17.5         14.0

      Total revenues         1,175.2      1,118.3      3,458.9      3,324.1

  Benefits and expenses:
  Insurance policy benefits    888.8        772.6      2,621.0      2,204.6
  Interest expense              33.3         17.8         84.8         51.3
  Amortization                  93.3        104.2        325.8        320.4
  Costs related to a
   litigation settlement        16.4            -         64.4        174.7
  Loss related to
   coinsurance
   transaction                  76.5            -         76.5            -
  Other operating costs
   and expenses                153.7        147.0        449.7        430.2

      Total benefits and
       expenses              1,262.0      1,041.6      3,622.2      3,181.2

      Income (loss) before
       income taxes            (86.8)        76.7       (163.3)       142.9

  Income tax expense
   (benefit) on
   period income               (33.1)        28.3        (60.1)        52.2

      Net income (loss)        (53.7)        48.4       (103.2)        90.7

  Preferred stock
   dividends                       -          9.5         14.1         28.5

      Net income (loss)
       applicable to
       common stock          $ (53.7)      $ 38.9     $ (117.3)      $ 62.2

  Earnings per common
   share:
  Basic:
    Weighted average
     shares outstanding  187,733,000  151,663,000  169,270,000  151,566,000

    Net income (loss)         $ (.29)       $ .26       $ (.69)       $ .41

  Diluted:
    Weighted average
     shares outstanding  187,733,000  152,529,000  169,270,000  152,547,000

    Net income (loss)         $ (.29)       $ .26       $ (.69)       $ .41



                      CONSECO, INC. AND SUBSIDIARIES
                            OPERATING RESULTS

Results by segment for the nine months ended September 30 were as follows ($ in millions):

                                                          Nine Months Ended
                                                            September 30,
                                                          2007        2006
  EBIT (2), excluding costs related to a
   litigation settlement and loss related
   to a coinsurance transaction:
    Bankers Life                                        $ 174.6     $ 189.3
    Conseco Insurance Group                               101.4       173.9
    Colonial Penn                                          18.3        16.2
    Other Business in Run-off                            (167.0)       15.4
    Corporate Operations, excluding corporate
     interest expense                                     (16.7)      (17.8)

      EBIT, excluding costs related to a
       litigation settlement and a loss related
       to a coinsurance transaction                       110.6       377.0

  Costs related to the proposed litigation settlement     (64.4)     (174.7)
  Loss related to a coinsurance transaction               (76.5)          -

      Total EBIT                                          (30.3)      202.3

  Corporate interest expense                              (53.2)      (36.9)

      Income (loss) before net realized investment
       losses and taxes                                   (83.5)      165.4

  Tax expense (benefit)                                   (32.2)       60.0

      Net income (loss) before net realized investment
       losses                                             (51.3)      105.4
  Preferred stock dividends:
   5.50% Class B mandatorily convertible preferred stock  (14.1)      (28.5)

      Net operating income (loss)                         (65.4)       76.9

  Net realized investment losses, net of related
   amortization and taxes                                 (51.9)      (14.7)

      Net income (loss) applicable to common stock      $(117.3)     $ 62.2

  Per diluted share:
      Net operating income (loss)                        $ (.39)      $ .50

      Net realized investment losses, net of
       related amortization and taxes                      (.30)       (.09)

      Net income (loss) applicable to common stock       $ (.69)      $ .41



                      CONSECO, INC. AND SUBSIDIARIES
                            COLLECTED PREMIUMS
                          (Dollars in millions)
                                                    Three months ended
                                                       September 30,
                                                     2007         2006
  Bankers Life segment:
    Annuity                                         $250.9       $278.2
    Supplemental health                              402.8        315.1
    Life                                              49.1         47.8
    Total collected premiums                        $702.8       $641.1
  Conseco Insurance Group segment:
    Annuity                                         $ 77.5       $182.8
    Supplemental health                              145.6        145.5
    Life                                              71.3         78.3
    Total collected premiums                        $294.4       $406.6
  Colonial Penn segment:
    Life                                            $ 29.3       $ 25.4
    Supplemental health                                2.6          3.0
    Total collected premiums                        $ 31.9       $ 28.4
  Other Business in Run-off segment:
    Long-term care                                  $ 75.2       $ 79.6
    Major medical                                       .5           .8
    Total collected premiums                        $ 75.7       $ 80.4


    BENEFIT RATIOS ON MAJOR SUPPLEMENTAL HEALTH LINES OF BUSINESS

                                                    Three Months Ended
                                                       September 30,
                                                     2007         2006
  Bankers Life segment:
  Medicare Supplement:
    Earned premium                              $160 million   $162 million
    Benefit ratio(a)                                 69.4%        65.6%
  PDP and PFFS:
    Earned premium                               $97 million    $22 million
    Benefit ratio(a)                                 85.4%        82.1%
  Long-Term Care:
    Earned premium                              $156 million   $151 million
    Benefit ratio(a)                                105.8%        98.2%
    Interest-adjusted benefit ratio
     (a non-GAAP measure)(b)                         74.5%        68.8%
  Conseco Insurance Group (CIG) segment:
  Medicare Supplement:
    Earned premium                               $57 million    $62 million
    Benefit ratio(a)                                 68.6%        66.8%
  Specified Disease:
    Earned premium                               $90 million    $89 million
    Benefit ratio(a)                                103.2%        73.6%
    Interest-adjusted benefit ratio
     (a non-GAAP measure)(b)                         70.3%        41.2%
  Other Business in Run-off segment:
    Earned premium                               $77 million    $83 million
    Benefit ratio(a)                                137.4%       136.0%
    Interest-adjusted benefit ratio
     (a non-GAAP measure)(b)                         75.1%        83.1%

  (a) The benefit ratio is calculated by dividing the related product's
      insurance policy benefits by insurance policy income.
  (b) The interest-adjusted benefit ratio (a non-GAAP measure) is calculated
      by dividing the product's insurance policy benefits less interest
      income on the accumulated assets backing the insurance liabilities by
      insurance policy income.  Interest income is an important factor in
      measuring the performance of longer duration health products.  The net
      cash flows generally cause an accumulation of amounts in the early
      years of a policy (accounted for as reserve increases), which will be
      paid out as benefits in later policy years (accounted for as reserve
      decreases).  Accordingly, as the policies age, the benefit ratio will
      typically increase, but the increase in the change in reserve will be
      partially offset by interest income earned on the accumulated assets.
      The interest-adjusted benefit ratio reflects the interest income
      offset.  Since interest income is an important factor in measuring the
      performance of these products, management believes a benefit ratio,
      which includes the effect of interest income, is useful in analyzing
      product performance.  Additional information concerning this non-GAAP
      measure is included in our periodic filings with the Securities and
      Exchange Commission that are available in the "Investor - SEC Filings"
      section of Conseco's website, http://www.conseco.com/.

SOURCE: Conseco, Inc.

CONTACT: News Media, Jim Rosensteele, Corporate Communications,
+1-317-817-6363, or Investors, Joe Clarke, Investor Relations,
+1-317-817-2893, both of Conseco, Inc.

Web site: http://www.conseco.com/