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CARMEL, Ind., Aug. 6 /PRNewswire-FirstCall/ -- Conseco, Inc. (NYSE: CNO) today reported results for the second quarter of 2007.
"Results for the second quarter reflect a significant strengthening of our claim reserves in our other business in run-off segment," CEO Jim Prieur said. "While this strengthening should reduce the volatility of the loss experience in future periods, progress in the turnaround of that block of business will take several quarters before improvements in claims management and our re-rate program show significant impact as we position Conseco for future growth."
"During the second quarter, we strengthened run-off long-term care claim reserves by $110 million," said Ed Bonach, Chief Financial Officer. "We have made every effort to ensure that our claim reserves are appropriate and forward looking. This action, which primarily relates to claims incurred in prior quarters, reflects our efforts to improve our reserving process, using more detailed data and reserving techniques, and carefully evaluating new experience emerging in recent periods."
"Sales overall grew 10% over the second quarter of 2006, boosted by continued strong performance at both our Bankers Life and Colonial Penn businesses, while the sales mix at Conseco Insurance Group again improved," Prieur said. Bankers Life total sales increased 19% year-over-year, with strong life production and private fee-for-service sales, while Colonial Penn's total sales grew 23% with heightened marketing efforts."
Second quarter 2007 results:
* Net operating loss (1): $54.4 million, compared to $31.7 million in
2Q06 (including after-tax costs related to the proposed litigation
settlement of $22.8 million and $102.1 million in 2Q07 and 2Q06,
respectively)
* Net operating loss per diluted share: 32 cents, compared to 21 cents
in 2Q06 (including after-tax costs related to the proposed litigation
settlement of 13 cents and 67 cents per share in 2Q07 and 2Q06,
respectively)
* Net loss applicable to common stock: $64.5 million, compared to $31.8
million in 2Q06 (including $10.1 million of net realized investment
losses in 2Q07 vs. $.1 million of net realized investment losses in
2Q06)
* Net loss per diluted share: 38 cents, compared to 21 cents in 2Q06
(including 6 cents of net realized investment losses in 2Q07 vs. nil
net realized investment losses in 2Q06)
* Loss before net realized investment losses, corporate interest and
taxes ("EBIT") (2): $60.2 million, compared to $22.7 million in 2Q06
(including pre-tax costs related to the proposed litigation settlement
of $35.0 million and $157.0 million in 2Q07 and 2Q06, respectively)
* Sales (3): $108.0 million, up 10% over 2Q06 (includes sales from
Medicare Advantage Plans through our partnership with Coventry Health
Care (Coventry))
Six-month 2007 results:
* Net operating income (loss) (1): $(39.8) million, compared to $24.1
million in the first six months of 2006
* Net operating income (loss) per diluted share: (25) cents, compared to
16 cents in the first six months of 2006
* Net income (loss) applicable to common stock: $(63.6) million,
compared to $23.3 million in the first six months of 2006
* Net income (loss) per diluted share: (40) cents, compared to 15 cents
in the first six months of 2006
* EBIT (2): $(6.9) million, compared to $91.9 million in the first six
months of 2006
* Sales (4): $242.2 million, up 10% over the first six months of 2006
Financial strength at June 30, 2007:
* Book value per common share, excluding accumulated other comprehensive
income (loss) (4), was $24.93, compared to $27.06 at December 31, 2006
* Book value per diluted share, excluding accumulated other comprehensive
income (loss) (4), was $24.90, compared to $25.64 at December 31, 2006
* Debt-to-total capital ratio, excluding accumulated other comprehensive
income (loss) (4), was 20.3%, compared to 17.3% at December 31, 2006
Operating results
Our segments reflect the addition of Colonial Penn as a separate segment. All prior period segment disclosures have been restated to conform to our new presentation. Results by segment for the quarter were as follows ($ in millions, except per share data):
Three Months Ended
June 30,
2007 2006
EBIT (2), excluding costs related to
the proposed litigation settlement:
Bankers Life $65.5 $63.7
Conseco Insurance Group 43.8 64.7
Colonial Penn. 6.7 6.5
Other Business in Run-off (133.2) 4.4
Corporate Operations, excluding
corporate interest expense (8.0) (5.0)
EBIT, excluding costs
related to the proposed
litigation settlement (25.2) 134.3
Costs related to the
proposed litigation settlement (35.0) (157.0)
Total EBIT. (60.2) (22.7)
Corporate interest expense (16.9) (12.0)
Loss before net
realized investment
losses and taxes (77.1) (34.7)
Tax benefit 27.3 12.5
Net loss before net realized
investment losses (49.8) (22.2)
Preferred stock dividends:
5.50% Class B mandatorily
convertible preferred stock (4.6) (9.5)
Net operating loss (54.4) (31.7)
Net realized investment losses,
net of related amortization and taxes (10.1) (.1)
Net loss applicable to common stock $(64.5) $(31.8)
Per diluted share:
Net operating loss $(.32) $(.21)
Net realized investment losses,
net of related amortization and taxes (.06) -
Net loss applicable to common stock $(.38) $(.21)
In our Bankers Life segment, pre-tax operating earnings were $65.5 million in the second quarter of 2007, compared to $63.7 million in the second quarter of 2006. Results for the current period were in line with our expectations.
In our Conseco Insurance Group segment, pre-tax operating earnings were $43.8 million in the second quarter of 2007, compared to $64.7 million in the second quarter of 2006. Significant factors affecting the segment's earnings in these periods included:
* A $21 million reduction in universal life earnings in the second
quarter of 2007. This block experienced adverse mortality and we were
required to recognize additional amortization expense since our current
estimate of future profits on this block indicated that a portion of
our insurance acquisition costs were not recoverable.
* A $6 million reduction in Medicare Supplement earnings in the second
quarter of 2007 due to a higher benefit ratio and a smaller inforce
block. This reduction was offset by a $6 million increase in specified
disease earnings in the second quarter of 2007 due to a lower benefit
ratio.
Our Colonial Penn segment achieved pre-tax operating earnings of $6.7 million in the second quarter of 2007, compared to $6.5 million in the second quarter of 2006.
In our Other Business in Run-off segment, we recognized a pre-tax operating loss of $133.2 million in the second quarter of 2007, compared to earnings of $4.4 million in the second quarter of 2006. Significant factors affecting the segment's earnings in these periods included:
* A $118 million reduction in earnings in the second quarter of 2007
(compared to a $20 million reduction in 2006) for increases to our
estimates of claims incurred in prior periods. The reduction for the
second quarter of 2007 includes $110 million of reserve strengthening
resulting from improvements to our reserving methods and assumptions to
better reflect emerging trends.
* A $31 million reduction in earnings in the second quarter of 2007 for
increases to the benefit ratio estimated for claims incurred in the
quarter, compared to such benefit ratio estimated in the second quarter
of 2006 for claims incurred in that quarter.
* A $9.4 million increase in earnings in the second quarter of 2006 due
to release of certain reserve redundancies.
The Corporate Operations segment includes our investment advisory subsidiary and corporate expenses.
Net realized losses of $10.1 million in the second quarter of 2007 primarily consisted of impairment losses on those assets expected to be transferred at the close of our previously announced sale of a block of fixed and equity-indexed annuities through a 100 percent coinsurance agreement. Upon closing the transaction, we expect to record a charge of approximately $63 million plus after tax earnings on this block from July 1, 2007 through the close of the transaction.
Results in both quarters reflect the impact of the proposed litigation settlement we entered into in the second quarter of 2006 (including the additional cost of $35 million in the current quarter we announced in our June 29 release). Our accrual for the cost of the settlement now reflects the final benefit options selected by all applicable policyholders.
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 2Q07 were $76.8 million, up 19% over 2Q06, reflecting strong growth in our life product line and PFFS sales through our partnership with Coventry. Partly offsetting these gains were lower annuity and medicare supplement sales.
At Conseco Insurance Group (independent distribution), total sales, including sales of PDP through Coventry, in 2Q07 were $20.0 million, down 18% from 2Q06 reflecting lower sales of PDP and Medicare Supplement, partly offset by higher sales of annuities and specified disease.
At Colonial Penn (direct distribution), total 2Q07 sales were $11.2 million, up 23% over 2Q06 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 August 7, 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 Tuesday 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 21.5% and $23.19, respectively, at June 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.
- Tables Follow -
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
June 30, December 31,
2007 2006
(unaudited)
ASSETS
Investments:
Actively managed fixed maturities
at fair value (amortized cost:
June 30, 2007 - $23,414.1;
December 31, 2006 - $22,946.9) $22,824.6 $22,802.9
Equity securities at fair value
(cost: June 30, 2007 - $38.9;
December 31, 2006 - $23.9) 40.2 24.8
Mortgage loans 1,736.6 1,642.2
Policy loans 410.3 412.5
Trading securities 800.6 675.2
Other invested assets 203.5 178.8
Total investments 26,015.8 25,736.4
Cash and cash equivalents:
Unrestricted 522.5 385.9
Restricted 29.8 24.0
Accrued investment income 353.7 344.5
Value of policies inforce
at the Effective Date 1,998.7 2,137.2
Cost of policies produced 1,296.7 1,106.7
Reinsurance receivables 855.7 850.8
Income tax assets, net 1,966.6 1,786.9
Assets held in separate accounts 28.6 28.9
Other assets 369.8 316.0
Total assets $33,437.9 $32,717.3
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Liabilities for insurance products:
Interest-sensitive products $13,060.1 $13,018.0
Traditional products 12,352.9 12,094.1
Claims payable and other policyholder funds 847.4 832.3
Liabilities related to separate accounts 28.6 28.9
Other liabilities 706.9 611.8
Investment borrowings 868.9 418.3
Notes payable - direct corporate
obligations 1,197.8 1,000.8
Total liabilities 29,062.6 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:
June 30, 2007 - 188,699,343;
December 31, 2006 - 152,165,108) 1.9 1.5
Additional paid-in capital 4,126.4 3,473.2
Accumulated other comprehensive loss (329.9) (72.6)
Retained earnings 576.9 643.2
Total shareholders' equity 4,375.3 4,713.1
Total liabilities and shareholders'
equity $33,437.9 $32,717.3
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions, except per share data)
Three months ended Six months ended
June 30, June 30,
2007 2006 2007 2006
Revenues:
Insurance policy income $767.8 $739.7 $1,530.6 $1,494.4
Net investment income:
General account assets 382.2 357.3 760.1 708.6
Policyholder and reinsurer
accounts and other special-
purpose portfolios 42.3 (13.7) 47.2 .4
Net realized investment losses (28.3) (3.7) (63.2) (6.8)
Fee revenue income 5.2 4.5 9.0 9.2
Total revenues 1,169.2 1,084.1 2,283.7 2,205.8
Benefits and expenses:
Insurance policy benefits 930.9 705.2 1,732.2 1,432.0
Interest expense 27.9 17.1 51.5 33.5
Amortization 116.3 97.6 232.5 216.2
Costs related to the
proposed litigation settlement 35.0 157.0 48.0 174.7
Other operating costs
and expenses 151.8 142.1 296.0 283.2
Total benefits and expenses 1,261.9 1,119.0 2,360.2 2,139.6
Income (loss) before
income taxes (92.7) (34.9) (76.5) 66.2
Income tax expense (benefit)
on period income (32.8) (12.6) (27.0) 23.9
Net income (loss) (59.9) (22.3) (49.5) 42.3
Preferred stock dividends 4.6 9.5 14.1 19.0
Net income (loss) applicable
to common stock $(64.5) $(31.8) $(63.6) $23.3
Earnings per common share:
Basic:
Weighted average shares
outstanding 169,139,000 151,514,000 160,038,000 151,518,000
Net income (loss) $(.38) $(.21) $(.40) $.15
Diluted:
Weighted average shares
outstanding 169,139,000 151,514,000 160,038,000 152,556,000
Net income (loss) $(.38) $(.21) $(.40) $.15
CONSECO, INC. AND SUBSIDIARIES
OPERATING RESULTS
Results by segment for the six months ended June 30 were as follows
($ in millions):
Six Months Ended
June 30,
2007 2006
EBIT (2), excluding costs related to
the proposed litigation settlement:
Bankers Life $108.3 $120.9
Conseco Insurance Group 101.8 115.4
Colonial Penn 11.3 11.6
Other Business in Run-off (164.1) 28.4
Corporate Operations, excluding
corporate interest expense (16.2) (9.7)
EBIT, excluding costs related
to the proposed litigation settlement 41.1 266.6
Costs related to the proposed
litigation settlement (48.0) (174.7)
Total EBIT (6.9) 91.9
Corporate interest expense (33.0) (24.4)
Income (loss) before net
realized investment
losses and taxes (39.9) 67.5
Tax (expense) benefit 14.2 (24.4)
Net income (loss) before net
realized investment losses (25.7) 43.1
Preferred stock dividends:
5.50% Class B mandatorily
convertible preferred stock (14.1) (19.0)
Net operating income (loss) (39.8) 24.1
Net realized investment losses,
net of related amortization
and taxes (23.8) (.8)
Net income (loss) applicable
to common stock $(63.6) $23.3
Per diluted share:
Net operating income (loss) $(.25) $.16
Net realized investment losses,
net of related amortization
and taxes (.15) (.01)
Net income (loss) applicable to common stock $(.40) $.15
CONSECO, INC. AND SUBSIDIARIES
COLLECTED PREMIUMS
(Dollars in millions)
Three months ended
June 30,
2007 2006
Bankers Life segment:
Annuity $200.5 $238.3
Supplemental health 356.6 342.6
Life 52.1 46.6
Total collected premiums $609.2 $627.5
Conseco Insurance Group segment:
Annuity $113.0 $ 92.4
Supplemental health 147.4 153.3
Life 70.0 78.3
Total collected premiums $330.4 $324.0
Colonial Penn segment:
Life $ 26.0 $21.6
Supplemental health 2.7 3.1
Total collected premiums $ 28.7 $24.7
Other Business in Run-off segment:
Long-term care $75.6 $80.2
Major medical .6 2.2
Total collected premiums $76.2 $82.4
BENEFIT RATIOS ON MAJOR SUPPLEMENTAL HEALTH LINES OF BUSINESS
Three Months Ended
June 30,
2007 2006
Bankers Life segment:
Medicare Supplement:
Earned premium $161 million $164 million
Benefit ratio(a) 67.4% 67.8%
PDP and PFFS:
Earned premium $47 million $16 million
Benefit ratio(a) 77.6% 80.9%
Long-Term Care:
Earned premium $155 million $148 million
Benefit ratio(a) 96.8% 96.2%
Interest-adjusted benefit ratio
(a non-GAAP measure)(b) 66.0% 66.8%
Conseco Insurance Group (CIG) segment:
Medicare Supplement:
Earned premium $58 million $64 million
Benefit ratio(a) 68.9% 56.9%
Specified Disease:
Earned premium $90 million $89 million
Benefit ratio(a) 72.5% 79.9%
Interest-adjusted benefit ratio
(a non-GAAP measure)(b) 39.7% 48.2%
Other Business in Run-off segment:
Earned premium $78 million $82 million
Benefit ratio(a) 296.7% 118.0%
Interest-adjusted benefit ratio
(a non-GAAP measure)(b) 236.7% 64.4%
(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, Tony Zehnder, Corporate Communications, of Conseco,
Inc., +1-312-396-7086; Investors, Investor Relations, +1-317-817-2893
Web site: http://www.conseco.com/