Second Quarter 2007
Financial and Operating Results
For the period ended June 30, 2007
Conseco, Inc.
Forward-Looking Statements
Cautionary Statement Regarding Forward-Looking Statements. Our statements, trend analyses and other information contained in these
materials 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.
2
Non-GAAP Measures
This presentation contains the following financial measures that differ from the comparable measures
under Generally Accepted Accounting Principles (GAAP): operating earnings measures; book value
excluding accumulated other comprehensive income (loss) per diluted share; operating return measures;
earnings before net realized investment gains (losses) and corporate interest and taxes; debt to capital
ratios, excluding accumulated other comprehensive income (loss); and interest-adjusted benefit ratios.
Reconciliations between those non-GAAP measures and the comparable GAAP measures are included
in the Appendix, or on the page such measure is presented.
While management believes these measures are useful to enhance understanding and comparability of
our financial results, these non-GAAP measures should not be considered substitutes for the most
directly comparable GAAP measures.
Additional information concerning non-GAAP measures 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, www.conseco.com.
3
Significant increase of $124 million in LTC Runoff block claim
reserves
$110 million represents reserve strengthening
This action should reduce earnings volatility from loss
experience in future periods
Continued strong sales growth at Bankers Life and Colonial
Penn, better mix of business at CIG
Bankers sales up 19%, Colonial Penn’s sales up 23%
Progress on performance metrics for LTC Runoff block
Q2 2007 Summary
CNO
4
New Business
Volumes (NAP)
CNO Consolidated
(in millions)
Q2 2007 NAP up 10% vs Q2
2006, driven by increases at
Colonial Penn (23%) and
Bankers (19%)
Trailing four quarters NAP up
over 8% vs Q2 2006
New business volumes are measured by new annualized premium, which includes 6% of annuity premiums, 10%
of single-premium whole life deposits, and 100% of all other premiums. Prescription drug sales (PDP) NAP equal
to $310 per enrolled policy and private-fee-for-service (PFFS) NAP equal to $2,100 per enrolled policy.
Q2 2006
$98.3
Q3 2006
$92.6
Q4 2006
$87.8
Q2 2007
$108.0
Col. Penn
Bankers
CIG
Trailing 4 Quarters NAP: $390.4 $403.0 $401.0 $412.9 $422.6
Q1 2007
$134.2
5
Collected Premium
CNO Consolidated
($ millions)
$1,058.6
CIG*
Bankers*
Run-Off
Collected premium in Q2 2007
was essentially flat vs Q2 2006,
primarily driven by:
Lower annuity volumes at
Bankers
Lower life and Medicare
supplement collections at CIG,
offset by higher annuity volume
Trailing four quarters collected
premium up over 9% vs 6/30/06
Colonial Penn*
$1,044.5
$4,052.4
$4,060.3
$3,958.7
$3,897.8
$3,706.6
Tr. 4 Qtrs. Col. Prem.-Core Businesses*:
Q2 2007
Q1 2007
Q4 2006
Q3 2006
Q2 2006
6
Operating ROE
CNO
Operating ROE*, Trailing 4 Quarters
Operating ROE (excl. proposed litigation
settlement charges)**, Trailing 4 Quarters
*Operating return excludes net realized
investment gains (losses). Equity excludes
accumulated other comprehensive income
(loss) and the value of net operating loss
carryforwards, and assumes conversion of
preferred stock. See Appendix for
corresponding GAAP measure.
**Operating return, as calculated and defined
on the left side of this page, but before Q2 2006
charge related to the proposed litigation
settlement and refinements to such estimates
recognized in subsequent periods. See
Appendix for corresponding GAAP measure.
Conseco has set a long-term goal of improving its Operating ROE –
after-tax earnings divided by equity (excluding our NOL deferred tax
asset from equity and other adjustments below) – to 11% in 2009
7
Q2 Earnings
CNO Consolidated
*Management believes that an analysis of earnings before net realized investment gains (losses) and corporate
interest and taxes (“EBIT,” a non-GAAP financial measure) provides an alternative measure to compare the
operating results of the company quarter-over-quarter because it excludes: (1) corporate interest expense; and
(2) net realized gains (losses) that are unrelated to the company’s underlying fundamentals. The chart above
provides a reconciliation of EBIT to net income applicable to common stock.
($ millions)
8
Q2 2006
Q2 2007
Bankers Life
$63.7
$65.5
Conseco Insurance Group
64.7
43.8
Colonial Penn
6.5
6.7
Other Business in Run-Off
4.4
(133.2)
Corporate operations, excluding interest expense
(5.0)
(8.0)
EBIT, excluding costs related to the proposed litigation settlement
134.3
(25.2)
Costs related to the proposed litigation settlement
(157.0)
(35.0)
Total EBIT*
(22.7)
(60.2)
Corporate interest expense
(12.0)
(16.9)
Loss before net realized investment losses and taxes
(34.7)
(77.1)
Tax benefit
12.5
27.3
Net loss before net realized investment losses
(22.2)
(49.8)
Preferred stock dividends
9.5
4.6
Net operating loss
(31.7)
(54.4)
Net realized investment losses, net of related amortization and taxes
(0.1)
(10.1)
Net loss applicable to common stock
($31.8)
($64.5)
Operating EPS (Diluted)
CNO
Operating EPS, Before Proposed Litigation
Settlement Charges**
**Operating earnings per share, before Q2 2006
charge related to the proposed litigation settlement
and refinements to such estimates recognized in
subsequent periods. See Appendix for
corresponding GAAP measure.
Operating EPS*
*Operating earnings per share exclude net
realized investment gains (losses). See Appendix
for corresponding GAAP measure.
9
Q2 Earnings
LTC Closed Block
Q2 2006
Q2 2007
Insurance policy income
$82.1
$78.1
Net investment income
44.6
47.6
Fee revenue and other income
0.1
0.1
Total revenues
126.8
125.8
Insurance policy benefits
96.9
231.6
Amortization related to operations
3.5
5.8
Other operating costs and expenses
22.0
21.6
Total benefits and expenses
122.4
259.0
Income (loss) before net realized investment gains (losses) and income taxes
$4.4
($133.2)
10
Management believes that an analysis of income (loss) before net realized investment gains (losses), net of
related amortization (a non-GAAP financial measure), is important to evaluate the financial performance of our
business, and is a measure commonly used in the life insurance industry. Management uses this measure to
evaluate performance because realized gains or losses can be affected by events that are unrelated to a
company’s underlying fundamentals. The chart on Page 8 reconciles the non-GAAP measure to the
corresponding GAAP measure. See Appendix for a reconciliation of the return on equity measure to the
corresponding GAAP measure.
($ millions)
Segment
Performance
LTC Closed Block
*Operating earnings exclude net realized gains (losses). See Appendix for corresponding GAAP measure of
our consolidated results of operations.
Q2 2007 reflects $118 million of increases
to prior-period incurred claims estimates
Includes $110 million of strengthening
adjustments to claim reserve methods and
assumptions
Q2 2006 included $9.4 million release of
benefit reserve redundancy
Q2 2007 reflects minimal impact from rate
increase and claim processing initiatives
PTOI-Trailing 4 Quarters: $62.7 $33.3 ($41.9) ($96.8) ($234.4)
Revenues-Quarterly: $126.8 $128.1 $127.9 $126.6 $125.8
Pre-Tax Operating Income*
Revenues -Tr. 4 Quarters: $528.1 $519.6 $516.5 $509.4 $508.4
($ millions)
Collected Premiums-Quarterly: $82.4 $80.4 $76.6 $81.2 $76.2
11
Benefit Detail
Incurred claims in all periods
reflect volatility due to development
of out-of-period incurred claim
estimates
Includes reserve strengthening
adjustments of $110 million in Q2 2007
Increase in reserves for future
benefits varies with persistency; Q2
2006 included $9.4 million release
of redundant reserves
Total benefits equal incurred claims plus increase in reserve for future benefits. Verified basis incurred claims
adjust all periods for claim reserve redundancies and deficiencies.
Increase in Reserves for Future Benefits $(20.4) $(0.1) $(1.3) $3.3 $(3.3)
Verified Basis Incurred Claims $116.5 $119.6 $124.5 $114.4 $116.6
LTC Closed Block
Total Benefits
($ millions)
$234.9
$126.7
$164.0
$113.5
$117.3
Incurred Claims
12
Interest-Adjusted
Benefit Ratio*
Verified basis normalizes all
periods for impact of claim
reserve deficiencies
Prior period deficiencies
increased benefit ratio by 152
percentage points in Q2 2007
Q2 2006 benefit reserve
adjustment reduced benefit
ratio by 11 percentage points
Trailing 4 Quarter Avg.: 52.1% 60.1% 83.2% 99.0% 141.0%
Qtrly. non-int. adjusted: 118.0% 136.0% 198.2% 163.5% 296.7%
LTC Closed Block
*We calculate interest-adjusted benefit ratios by dividing insurance policy benefits less interest income on
the accumulated assets backing the insurance liabilities by insurance policy income.
Qtrly. Verified Basis non-int. adjusted: 116.9% 143.5% 147.6% 148.1% 145.1%
13
Balance Sheet Detail
Reserve increases in past four quarters relate to claim reserve
Current claim reserve is 29% of net liability
Current claim reserve reflects expectation of adverse claim development
$123.9 million increase in Q2 2007 includes $110 million of strengthening adjustments
Insurance acquisition cost balance is 5% of net liability and is declining rapidly
Balance remains recoverable under best estimate assumptions
LTC Closed Block
($ millions)
Insurance Liabilities and Intangible Assets, Net of Reinsurance
Reserve for Future Benefits
Claim Reserve
Insurance Acquisition Costs
Net Liability
Percent Change
Q2 2006
$2,413.3
731.4
(181.8)
$2,962.9
-
Q3 2006
$2,413.6
734.8
(176.2)
$2,972.2
0.3%
Q4 2006
$2,412.7
801.2
(170.9)
$3,043.0
2.4%
Q1 2007
$2,412.3
816.5
(165.2)
$3,063.6
0.7%
Q2 2007
$2,409.1
940.4
(159.5)
$3,190.0
4.1%
14
Our program for improvement is having a positive effect on
business fundamentals
Premium re-rates
Claims management
Technology and organizational design
Q2 2007 Summary
LTC Closed Block
15
Premium Re-rates
LTC Closed Block
16
Rate Increase Plan – Round Two
Program for
Improvement
LTC Closed Block
Filings
Approvals
Implementation
Additional
Premium (mil.)
$46
$28
$22
Timeline
Q2 2007 – Q1 2008
Q3 2007 – Q4 2008
Q3 2007 – Q1 2009
Round Two filings have begun
17
Claims management
Continued implementation of best practices through use of LTC
industry experts
Streamlined claims processes drive improved customer service
and compliance
Recertification of active claims has begun; program includes case
management reviews and confirmation of claimants meeting
policy requirements for benefits
Program for
Improvement
LTC Closed Block
18
Technology and Organizational Design
July 12 - announced study of systems and operational solution
from Long Term Care Group, an industry leader
Proposal under consideration would include outsourcing of:
Customer call center
Processing of continuing claims
Other transactions
Expect to complete due diligence and make decision by early fall
Program for
Improvement
LTC Closed Block
19
Financial results impacted by reserve strengthening and recent
experience
Program for improvement initiatives continue to make good
progress
Implemented billing of $28.4 million in approved rate increases,
81% of $35 million program
Studying sourcing of system and select claim functions to a
recognized industry leader
Segment Summary
LTC Closed Block
20
Book value per diluted share (excluding accumulated other comprehensive loss)
$24.90 at 6/30/07 vs $25.84 a year earlier and $25.64 at YE 2006
Debt and preferred stock to total capital ratio (excluding accumulated other
comprehensive loss)
20.3% at 6/30/07 vs 26.6% a year earlier and 28.8% at YE 2006
Consolidated RBC ratio
330% at 6/30/07 vs 331% a year earlier and 357% at YE 2006
Net investment income
$381.5 million in Q2 2007 vs $356.5 million in Q2 2006
Earned yield of 5.83% in Q2 2007 vs 5.71% a year earlier
Investment quality of fixed maturities (excluding investments from consolidated
variable interest entity)
94% of bonds investment grade at 6/30/07 vs 95% at 12/31/06 and 97% at 6/30/06
Limited exposure to subprime market
Financial Indicators*
CNO
*See appendix for detail on these indicators, including notes describing non-GAAP measures.
21
Aggregate Interest-Adjusted
Health Benefit Ratio*
CNO
Benefit ratios on core products
are very stable and consistent
with expectations
Increase from Q2 2006 primarily
driven by increase in PDP/PFFS
products, which have higher
expected loss ratios than other
products
Increase from Q1 2007 driven by
release of return-of-premium
reserve on CIG specified disease
in the prior period, offset by
improvement in Bankers long
term care
Aggregate Health Benefit Ratio – By Quarter
Core (BLC, CIG & CP) Business
*We calculate interest-adjusted benefit ratios by dividing insurance policy benefits, less interest income on the
accumulated assets backing the insurance liabilities, by insurance policy income.
Aggregate Health Benefit Ratio – By Quarter
Run-Off Business
22
Expenses
CNO
($ millions)
Gross Operating Expenses*, Trailing 4 Quarters
*Gross operating expenses before capitalization of cost of policies produced, capitalization of software
development costs and other adjustments. Costs related to the proposed litigation settlement are not included in
our gross operating expenses. This measure is used by the Company to evaluate its progress in reducing gross
operating expenses.
Higher legal fees and
settlement costs in Q1 and
Q2 2007
Back-office consolidation on
track to produce annual cost
savings of $25 million
beginning in 2008
Bankers Life policyholder
service now managed in Carmel
23
High-Quality Assets
CNO
Excludes investments from a
variable interest entity we are
required to consolidate, although
such assets are legally isolated
Only 6% of total portfolio is in below-
investment grade securities
Actively Managed Fixed Maturities by Rating at
6/30/07 (Market Value)
6/30/07
94%
3/31/07
95%
12/31/06
95%
9/30/06
97%
6/30/06
97%
% of Bonds which are Investment Grade:
24
No downgraded securities
No negative watch securities
No ABS CDO investments
No hedge fund investments
No exposure to substandard servicers
Nominal third-party CLO/structured credit exposure
Highly developed cashflow and default analytic models, along
with repeatable management oversight processes
Sub-prime Home Equity ABS
and Structured Credit
CNO
CNO
Exposure by Vintage Year (Market Value in mils.)
Sub-prime Home Equity ABS
at June 30, 2007
Only 0.03% of total portfolio exposed to 2006 vintage
26
Sub-prime Home Equity ABS
at June 30, 2007
CNO
AAA – Insured
AAA
AA
A
<=BBB
Total
$8.3
$30.7
$65.8
$169.9
$30.0
$304.7
$8.5
$31.4
$67.4
$173.1
$30.4
$310.8
2.75%
10.12%
21.67%
55.68%
9.77%
100.00%
0.03%
0.13%
0.27%
0.69%
0.12%
1.24%
100.0%
14.1%
10.7%
7.1%
5.2%
100.0%
33.5%
28.2%
15.1%
5.2%
Market
Value (mil.)
Book
Value (mil.)
% of
Subprime
% of
Portfolio
Original
Support
Current
Support
Rating
1.24% overall portfolio allocation to home equity
No exposure to “affordability products” – negative amortization, option ARM
collateral, etc.
Only 9.8% (of 1.24%) rated lower than A category
Current support in structures has met original expectations
Even in current market conditions, very limited gain/loss exposure
Sales of $76.8 million, 19% ahead of Q2 2006
Growth driven by 30% improvement in life sales and private fee-for-service
sales through our product partnership with Coventry
Higher earnings (vs Q2 2006) driven by:
Improved spreads
Higher PDP/PFFS income, offset by increased Medicare
supplement amortization expense
Q2 2007 Summary
Bankers
28
Q2 Earnings
Bankers
Q2 2006
Q2 2007
Insurance policy income
$384.6
$424.0
Net investment income
122.4
155.1
Fee revenue and other income
2.0
2.7
Total revenues
509.0
581.8
Insurance policy benefits
306.8
341.1
Amounts added to policyholder account balances
42.0
58.6
Amortization related to operations
56.8
71.3
Other operating costs and expenses
39.7
45.3
Total benefits and expenses
445.3
516.3
Income before net realized investment gains (losses), net of
related amortization and income taxes
$63.7
$65.5
29
Management believes that an analysis of income (loss) before net realized investment gains (losses), net of
related amortization (a non-GAAP financial measure), is important to evaluate the financial performance of our
business, and is a measure commonly used in the life insurance industry. Management uses this measure to
evaluate performance because realized gains or losses can be affected by events that are unrelated to a
company’s underlying fundamentals. The chart on Page 8 reconciles the non-GAAP measure to the
corresponding GAAP measure. See Appendix for a reconciliation of the return on equity measure to the
corresponding GAAP measure.
2007 YTD Return on Equity (before realized investment gains/(losses): 9.1%
($ millions)
Segment Performance
Bankers
*Operating earnings exclude net realized gains (losses). See Appendix for corresponding GAAP measure of
our consolidated results of operations.
Higher earnings (vs Q1 2007)
driven by:
Higher LTC margins due to favorable
persistency
Higher PDP/PFFS income
Q1 2007 included higher Med supp
and LTC amortization
PTOI-Trailing 4 Quarters: $239.4 $252.8 $258.4 $244.0 $245.8
Revenues-Quarterly: $509.0 $525.9 $534.3 $554.1 $581.8
Pre-Tax Operating Income*
Revenues -Tr. 4 Quarters: $1,970.3 $2,019.8 $2,077.1 $2,123.3 $2,196.1
($ millions)
30
Benefit Ratio* –
Medicare Supplement
Bankers
Slight improvement in the
Med supp benefit ratio in Q2
2007 vs Q2 2006
Trailing 4 Quarter Avg.: 69.4% 67.9% 66.6% 65.8% 65.7%
*We calculate benefit ratios by dividing insurance policy benefits by insurance policy income.
31
Benefit Ratio* –
PDP and PFFS Business
Bankers
Higher ratio in Q2 2007 (vs Q2
2006)
Significant amount of
seasonality
*We calculate benefit ratios by dividing insurance policy benefits by insurance policy income.
32
Interest-Adjusted Benefit Ratio* –
Long Term Care
Bankers
*We calculate interest-adjusted benefit ratios by dividing insurance policy benefits less interest income on
the accumulated assets backing the insurance liabilities by insurance policy income.
Q2 2007 consistent with Q2
2006
Favorable persistency resulted
in an improved benefit ratio vs
Q1 2007
Trailing 4 Quarter Avg.: 66.4% 67.4% 69.9% 71.6% 71.4%
Qtrly. non-int. adjusted: 96.2% 98.2% 106.7% 104.3% 96.8%
33
Earnings
The decrease in earnings is primarily driven by an increase in death claims
and amortization expense on interest-sensitive life products and the
continued decline in the Medicare supplement book, offset by improved
specified disease results
Sales down 18% from Q2 2006
Strong sales gains in annuities and supplemental health, offset by decreases in
Medicare supplement and life
Q2 2007 Summary
CIG
34
Q2 Earnings
CIG
Management believes that an analysis of income (loss) before net realized investment gains (losses), net of
related amortization (a non-GAAP financial measure), is important to evaluate the financial performance of our
business, and is a measure commonly used in the life insurance industry. Management uses this measure to
evaluate performance because realized gains or losses can be affected by events that are unrelated to a
company’s underlying fundamentals. The chart on Page 8 reconciles the non-GAAP measure to the
corresponding GAAP measure. See Appendix for a reconciliation of the return on equity measure to the
corresponding GAAP measure.
Q2 2006
Q2 2007
Insurance policy income
$247.4
$236.3
Net investment income
161.3
202.5
Fee revenue and other income
(0.1)
0.1
Total revenues
408.6
438.9
Insurance policy benefits
180.2
188.4
Amounts added to policyholder account balances
58.3
87.0
Amortization related to operations
36.7
47.0
Other operating costs and expenses
68.7
72.7
Total benefits and expenses
343.9
395.1
Income before net realized investment gains (losses),
net of related amortization and income taxes, excluding
costs related to the proposed litigation settlement
$64.7
$43.8
35
2007 YTD Return on Equity (before realized investment gains/(losses): 6.2%
($ millions)
Segment Performance
CIG
*Operating earnings exclude: (1) net realized gains (losses); and (2) the Q2 2006 charge related to the
proposed litigation settlement and refinements to such estimates recognized in subsequent periods. See
Appendix for corresponding GAAP measure of our consolidated results of operations.
Decrease from Q2 2006 primarily due to:
$6 million reduction in Med supp earnings due to
higher benefit ratio and smaller inforce block
$21 million reduction in universal life earnings;
adverse mortality experience and additional
amortization
$6 million increase in specified disease earnings due
to lower benefit ratio
Q1 2007 includes a $19.3 million release of
specified disease return of premium
reserve
PTOI-Trailing 4 Quarters: $232.8 $224.2 $189.0 $205.1 $184.2
Revenues-Quarterly: $408.6 $436.0 $445.7 $417.6 $439.3
Pre-Tax Operating Income*
Revenues-Tr. 4 Quarters: $1,736.6 $1,714.8 $1,729.1 $1,707.9 $1,738.6
($ millions)
36
Benefit Ratio* –
Medicare Supplement
CIG
Benefit ratio in Q2 2006
benefited from release of
policy benefit reserves related
to increase in policyholder
lapses
Trailing 4 Quarter Avg.: 59.3% 60.6% 61.9% 63.6% 66.6%
*We calculate benefit ratios by dividing insurance policy benefits by insurance policy income.
37
Interest-Adjusted Benefit Ratio* –
Specified Disease
CIG
Q4 2006 reflects correction of
valuation errors; without this
adjustment, the ratio would
have been 37.7%
Q1 2007 reflects release of
return of premium reserve;
without this adjustment, the
ratio would have been 41.8%
Q2 2007 reflects no unusual
adjustments
Trailing 4 Quarter Avg.: 46.7% 45.9% 47.0% 40.6% 38.4%
Qtrly. non-int. adjusted: 79.9% 73.6% 84.9% 53.2% 72.5%
*We calculate interest-adjusted benefit ratios by dividing insurance policy benefits, less interest income on
the accumulated assets backing the insurance liabilities, by insurance policy income.
38
Q2 Earnings
Colonial Penn
($ millions)
2007 YTD Return on Equity (before realized investment gains/(losses): 12.1%
Management believes that an analysis of income (loss) before net realized investment gains (losses), net of
related amortization (a non-GAAP financial measure), is important to evaluate the financial performance of our
business, and is a measure commonly used in the life insurance industry. Management uses this measure to
evaluate performance because realized gains or losses can be affected by events that are unrelated to a
company’s underlying fundamentals. The chart on Page 8 reconciles the non-GAAP measure to the
corresponding GAAP measure. See Appendix for a reconciliation of the return on equity measure to the
corresponding GAAP measure.
39
Q2 2006
Q2 2007
Insurance policy income
$25.6
$29.4
Net investment income
9.1
9.4
Fee revenue and other income
0.2
0.1
Total revenues
34.9
38.9
Insurance policy benefits
20.7
23.9
Amounts added to policyholder account balances
0.3
0.3
Amortization related to operations
4.1
4.9
Other operating costs and expenses
3.3
3.1
Total benefits and expenses
28.4
32.2
Income before net realized investment gains (losses) and income taxes,
net of related amortization
$6.5
$6.7
Segment Performance
Colonial Penn
*Operating earnings exclude net realized gains (losses). See Appendix for corresponding GAAP measure of
our consolidated results of operations.
Q2 2007 sales up 23%, driven by:
Increased advertising
Strong media-based lead activity
Strong and improving direct-mail-based
lead programs
Growth in direct mail reactivation
campaigns
Continued stable earnings
PTOI-Trailing 4 Quarters: $20.3 $19.5 $21.6 $21.1 $21.3
Revenues-Quarterly: $34.9 $38.4 $41.4 $39.0 $38.9
Pre-Tax Operating Income*
Revenues -Tr. 4 Quarters: $145.9 $147.9 $150.9 $153.7 $157.7
($ millions)
40
CNO Summary
Runoff LTC block
Significant steps to reduce claims reserve volatility
Continued progress in business turnaround
Core businesses
Sharper focus on driving profitable growth and delivering
value
Overall: On target to achieve $100 million improvement in
pretax earnings run-rate by year-end:
$40 million from better claims management
$35 million from LTC re-rates
$25 million from operational consolidation
41
Questions and Answers
Appendix
Premiums –
Medicare Supplement
Bankers
(in millions)
As expected, decline in
sales continued in Q2
2007, due to competition
from PFFS plans
Medicare Supplement – First-Year Premiums
Med. Supp. First-Year Prems.-Tr. 4 Qtrs: $88.1 $93.1 $97.8 $95.2 $90.7
Med. Supp. Total Premiums-Quarterly: $156.7 $146.7 $157.2 $167.0 $153.8
Med. Supp. NAP-Quarterly: $18.4 $15.3 $18.4 $14.7 $14.7
Med. Supp. NAP-Trailing 4 Quarters: $76.7 $76.2 $72.8 $66.8 $63.1
44
Premiums –
PDP/PFFS
Bankers
(in millions)
Strong sales driven by PFFS
Continued strong PFFS NAP
enabled by the continued
limited open enrollment period
PFFS VNB 2x Med supp
Less than 15% of PFFS sales
due to internal Med supp
exchanges
Q2 2006
$32.1
Q3 2006
$20.8
Q4 2006
$17.8
Q2 2007
$25.9
PDP
PFFS
PDP/PFFS – First-Year Premiums
Q1 2007
$16.0
$0.7
$4.3
$0.5
$0.7
$8.2
PDP NAP-Quarterly:
$22.2
$46.8
-
-
-
PFFS NAP-Quarterly:
45
Premiums –
Long-Term Care
Bankers
($ millions)
First-year premiums and NAP
improved in Q2 2007
New sales are meeting our
return objectives
First-Year Prems.-Tr. 4 Qtrs: $58.5 $54.6 $51.2 $48.6 $47.7
Total Premiums-Quarterly: $151.5 $145.0 $150.2 $158.2 $155.4
Long-Term Care – First-Year Premiums
NAP-Quarterly: $12.7 $12.5 $11.0 $11.7 $12.7
NAP-Trailing 4 Quarters: $52.5 $50.4 $47.6 �� $47.9 $47.9
46
Premiums –
Life Insurance
Bankers
($ millions)
Growth driven by:
Continued focus on cross-selling
into new PFFS customer base
Broader availability of SPWL
LTC rider
Q2 2007 NAP up over 30% vs
Q2 2006
First-Year Prems.-Tr. 4 Qtrs: $88.4 $90.4 $90.3 $91.0 $93.0
Total Premiums-Quarterly: $46.6 $47.8 $46.6 $48.1 $52.1
Life – First-Year Premiums
NAP-Quarterly: $11.1 $12.9 $11.4 $12.7 $14.5
NAP-Trailing 4 Quarters: $42.8 $44.7 $46.3 $48.1 $51.5
47
Premiums –
Annuity
Bankers
($ millions)
Decline in annuity sales
relates to changes in interest
rate environment increasing
the attractiveness of other
products vs annuities
First-Year Prems.-Tr. 4 Qtrs: $960.1 $1,010.7 $994.6 $973.5 $935.8
Total Premiums-Quarterly: $238.3 $278.2 $247.6 $212.2 $200.5
Annuity – First-Year Premiums
48
Premiums -
Medicare Supplement
CIG
($ millions)
Decline in sales was expected
Rollout of new product in the
Amerilife system in September
2007
Signed LOI with national company
to distribute new PFFS/Med
Advantage beginning in the fall of
2007
First-Year Prems.-Tr. 4 Qtrs: $25.6 $28.0 $30.6 $28.9 $26.2
Total Premiums-Quarterly: $61.9 $54.6 $61.8 $59.8 $56.1
Medicare Supplement – First-Year Premiums
NAP-Quarterly: $9.0 $6.2 $6.4 $4.9 $2.9
NAP-Trailing 4 Quarters: $34.3 $33.9 $32.1 $26.5 $20.4
49
Premiums –
Specified Disease
CIG
($ millions)
31% increase in NAP vs Q2 2006
Sales continue to gain
momentum from refocus of PMA
Increased non-PMA recruiting of
new IMOs and agents
Expanded product line
First-Year Prems.-Tr. 4 Qtrs: $28.8 $28.4 $28.1 $28.2 $28.9
Total Premiums-Quarterly: $88.8 $88.1 $89.4 $92.1 $89.1
Specified Disease – First-Year Premiums
NAP-Quarterly: $7.3 $7.7 $8.6 $7.8 $9.6
NAP-Trailing 4 Quarters: $27.9 $28.5 $29.8 $31.4 $33.7
50
Premiums –
Annuity
CIG
($ millions)
24% increase in first-year
premiums vs Q2 2006
Significant contributions
from Legacy and ADS, our
national partners
TSA business is significantly
ahead of last year
First-Year Prems.-Tr. 4 Qtrs: $218.6 $358.1 $415.5 $500.2 $521.5
Total Premiums-Quarterly: $92.4 $182.8 $121.9 $120.1 $113.0
Annuity – First-Year Premiums
51
Premiums –
Life Insurance
Colonial Penn
($ millions)
Growth driven by:
Increased advertising
Increased lead generation
Growth in direct mail programs
First-Year Prems.-Tr. 4 Qtrs: $21.2 $22.0 $22.9 $24.1 $25.4
Total Premiums-Quarterly: $21.6 $25.4 $26.8 $26.7 $26.0
Life – First-Year Premiums
NAP-Quarterly: $9.1 $8.3 $7.5 $10.4 $11.2
NAP-Trailing 4 Quarters: $32.2 $33.0 $33.3 $35.3 $37.4
52
Book Value Per Diluted Share*
CNO
*Book value excludes accumulated other comprehensive income (loss). Shares outstanding assumes:
(1) conversion of convertible securities; and (2) the exercise of outstanding stock options and vesting of restricted
stock (each calculated using the treasury stock method). See Appendix for corresponding GAAP measure.
Reduction in Q2 2007 reflects
the loss for the quarter
53
Debt and Preferred Stock
to Total Capital Ratio*
CNO
Decrease in Q2 2007 reflects
the conversion of preferred
stock into common shares,
partially offset by the
additional $200 million
borrowed in June 2007
Q2 2006
26.6%
Q3 2006
26.4%
Q4 2006
28.8%
Q2 2007
20.3%
Debt
Preferred
Stock
Q1 2007
28.9%
*Excludes accumulated other comprehensive income (loss). See Appendix for corresponding GAAP measure.
54
Consolidated RBC Ratio*
CNO
Continued strong capital
levels at insurance
companies
*Risk-Based Capital (“RBC”) requirements provide a tool for insurance regulators to determine the levels of
statutory capital and surplus an insurer must maintain in relation to its insurance and investment risks. The RBC
ratio is the ratio of the statutory consolidated adjusted capital of our insurance subsidiaries to RBC.
55
Net Investment Income
CNO
($ millions)
Yield remained constant from
Q1 2007, despite reduction in
prepayment income
Yield up 12 bps from Q2 2006
Net investment income from the prepayment of securities: $5.3 $0.5 $1.0 $5.0 $1.1
General Account Investment Income,
Excluding Corporate Segment
5.83%
5.83%
5.72%
5.72%
5.71%
Yield:
56
Information Related to Certain Non-GAAP Financial Measures
The following provides additional information regarding certain non-GAAP measures used in this presentation. A non-GAAP measure is a
numerical measure of a company’s performance, financial position, or cash flows that excludes or includes amounts that are normally excluded or
included in the most directly comparable measure calculated and presented in accordance with GAAP. While management believes these
measures are useful to enhance understanding and comparability of our financial results, these non-GAAP measures should not be considered as
substitutes for the most directly comparable GAAP measures. Additional information concerning non-GAAP measures 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,
www.conseco.com.
Operating earnings measures
Management believes that an analysis of net income applicable to common stock before net realized gains or losses (“net operating income”, a
non-GAAP financial measure) is important to evaluate the 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.
In addition, our results were affected by an unusual and significant charge related to a proposed litigation settlement in Q2 2006 and refinements
to such estimates recognized in subsequent periods. Management does not believe that a similar charge is likely to recur within two years, and
there were no similar charges recognized within the prior two years. Management believes an analysis of operating earnings before this charge is
important to evaluate the performance of the Company prior to the effect of this unusual and significant charge.
57
Information Related to Certain Non-GAAP Financial Measures
A reconciliation of net income applicable to common stock to the net operating income, excluding Q2 2006 charge related to proposed litigation settlement and
refinements to such estimates recognized in subsequent periods (and related per share amounts) is as follows (dollars in millions, except per share amounts):
Q2 06
Q3 06
Q4 06
Q1 07
Q2 07
Net income (loss) applicable to common stock
(31.8)
$
38.9
$
(3.7)
$
0.9
$
(64.5)
$
Net realized investment losses, net of related
amortization and taxes
0.1
13.9
9.4
13.7
10.1
Net operating income (loss) (a non-GAAP
financial measure)
(31.7)
52.8
5.7
14.6
(54.4)
2Q2006 charge related to the proposed litigation
settlement and refinements to such estimates
recognized in subsequent periods, net of taxes
102.1
-
-
8.5
22.8
Net operating income before Q2 2006 charge related
to the proposed litigation settlement
and refinements to such estimates
recognized in subsequent periods
(a non-GAAP financial measure)
70.4
$
52.8
$
5.7
$
23.1
$
(31.6)
$
Per diluted share:
Net income (loss)
(0.21)
$
0.26
$
(0.02)
$
0.01
$
(0.38)
$
Net realized investment losses, net of related
amortization and taxes
-
0.09
0.06
0.09
0.06
Net operating income (loss) (a non-GAAP
financial measure)
(0.21)
0.35
0.04
0.10
(0.32)
Q2 2006 charge related to the proposed litigation
settlement and refinements to such estimates
recognized in subsequent periods, net of taxes
0.67
-
-
0.05
0.13
Net operating income before Q2 2006 charge related
to the proposed litigation settlement
and refinements to such estimates
recognized in subsequent periods
(a non-GAAP financial measure)
0.46
$
0.35
$
0.04
$
0.15
$
(0.19)
$
58
Information Related to Certain Non-GAAP Financial Measures
Book value, excluding accumulated other comprehensive income, per diluted share
This non-GAAP financial measure differs from book value per diluted share because accumulated other comprehensive income has been
excluded from the book value used to determine the measure. Management believes this non-GAAP financial measure is useful because it
removes the volatility that arises from changes in accumulated other comprehensive income. Such volatility is often caused by changes in the
estimated fair value of our investment portfolio resulting from changes in general market interest rates rather than the business decisions made
by management.
59
Information Related to Certain Non-GAAP Financial Measures
A reconciliation from book value per diluted share to book value per diluted share, excluding accumulated other comprehensive income (loss) is
as follows (dollars in millions, except per share amounts):
Q2 06
Q3 06
Q4 06
Q1 07
Q2 07
Total shareholders' equity
4,296.6
$
4,712.7
$
4,713.1
$
4,724.0
$
4,375.3
$
Less accumulated other comprehensive income (loss)
(445.6)
(71.8)
(72.6)
(41.8)
(329.9)
Total shareholders' equity excluding
accumulated other comprehensive income (loss)
(a non-GAAP financial measure)
4,742.2
$
4,784.5
$
4,785.7
$
4,765.8
$
4,705.2
$
Diluted shares outstanding for the period
183,554,073
185,354,251
186,665,776
188,784,663
188,962,041
Book value per diluted share
23.41
$
25.43
$
25.25
$
25.02
$
23.15
$
Less accumulated other comprehensive income (loss)
(2.43)
(0.38)
(0.39)
(0.22)
(1.75)
Book value, excluding accumulated other
comprehensive income (loss), per diluted share
(a non-GAAP financial measure)
25.84
$
25.81
$
25.64
$
25.24
$
24.90
$
60
Information Related to Certain Non-GAAP Financial Measures
Operating return measures
Management believes that an analysis of return before net realized gains or losses (“net operating income”, a non-GAAP financial measure) is
important to evaluate the 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.
In addition, our returns were affected by an unusual and significant charge related to a proposed litigation settlement in Q2 2006 and refinements
to such estimates recognized in subsequent periods. Management does not believe that a similar charge is likely to recur within two years, and
there were no similar charges recognized within the prior two years. Management believes an analysis of return before this charge and
subsequent refinements is important to evaluate the performance of the Company prior to the effect of this unusual and significant charge.
This non-GAAP financial measure also differs from return on equity because accumulated other comprehensive income (loss) has been excluded
from the value of equity used to determine this ratio. Management believes this non-GAAP financial measure is useful because it removes the
volatility that arises from changes in accumulated other comprehensive income (loss). Such volatility is often caused by changes in the
estimated fair value of our investment portfolio resulting from changes in general market interest rates rather than the business decisions made
by management.
In addition, our equity includes the value of significant net operating loss carryforwards (included in income tax assets). In accordance with
GAAP, these assets are not discounted, and accordingly will not provide a return to shareholders (until after it is realized as a reduction to taxes
that would otherwise be paid). Management believes that excluding this value from the equity component of this measure enhances the
understanding of the effect these non-discounted assets have on operating returns and the comparability of these measures from period-to-
period. Equity in all periods assumes the conversion of our 5.5% Class B Mandatorily Convertible Preferred Stock (which occurred in May 2007).
In addition, the Company plans to change the way compensation for its executives is determined in the future. Operating return measures will be
the primary manner of measuring the performance of our business units and will be used as a basis for incentive compensation.
All references to segment operating return measures assume a 25% debt to total capital ratio at the segment level. Additionally, corporate
expenses have been allocated to the segments.
61
Information Related to Certain Non-GAAP Financial Measures
A reconciliation of return on common equity to operating return (less Q2 2006 charge related to the proposed litigation settlement and
refinements to such estimates recognized in subsequent periods) on common equity (excluding accumulated other comprehensive income (loss)
and net operating loss carryforwards) is as follows (dollars in millions, except per share amounts):
(continued on next page)
Q2 06
Q3 06
Q4 06
Q1 07
Q2 07
Net income (loss) applicable to common stock
(31.8)
$
38.9
$
(3.7)
$
0.9
$
(64.5)
$
Net realized investment (gains) losses, net of related amortization and taxes
0.1
13.9
9.4
13.7
10.1
Net operating income (loss) (a non-GAAP financial measure)
(31.7)
52.8
5.7
14.6
(54.4)
Q2 2006 charge related to the proposed litigation settlement and refinements
to such estimates recognized in subsequent periods, net of taxes
102.1
-
-
8.5
22.8
Add preferred stock dividends, assuming conversion
9.5
9.5
9.5
9.5
4.6
Net operating income before Q2 2006 charge related to the proposed
litigation settlement and refinements to such estimates recognized
in subsequent periods (a non-GAAP financial measure)
79.9
$
62.3
$
15.2
$
32.6
$
(27.0)
$
Total shareholders' equity
4,296.6
$
4,712.7
$
4,713.1
$
4,724.0
$
4,375.3
$
Less preferred stock
667.8
667.8
667.8
667.8
-
Common shareholders' equity
3,628.8
4,044.9
4,045.3
4,056.2
4,375.3
Add preferred stock, assuming conversion
667.8
667.8
667.8
667.8
-
Less accumulated other comprehensive income (loss)
(445.6)
(71.8)
(72.6)
(41.8)
(329.9)
Common shareholder's equity, excluding accumulated other comprehensive
income (loss) (a non-GAAP financial measure)
4,742.2
4,784.5
4,785.7
4,765.8
4,705.2
Add Q2 2006 charge related to the proposed litigation settlement and refinements
to such estimates recognized in subsequent periods
102.1
102.1
102.1
110.6
133.4
Less net operating loss carryforwards
1,346.6
1,346.7
1,340.0
1,334.1
1,349.8
Common shareholders' equity, excluding accumulated other comprehensive
income (loss) and refinements to such estimates recognized in subsequent
periods and net operating loss carryforwards (a non-GAAP financial measure)
3,497.7
$
3,539.9
$
3,547.8
$
3,542.3
$
3,488.8
$
62
Information Related to Certain Non-GAAP Financial Measures
(continued from previous page)
63
Q2 06
Q3 06
Q4 06
Q1 07
Q2 07
Average common shareholders' equity
3,622.2
3,836.9
4,045.1
4,050.8
4,215.8
Average common shareholder's equity, excluding accumulated other
comprehensive income (loss) (a non-GAAP financial measure)
4,624.9
4,763.4
4,785.1
4,775.8
4,735.5
Average common shareholders' equity, excluding accumulated other
comprehensive income (loss), the Q2 2006 charge related to the
proposed litigation settlement and refinements to such estimates
recognized in subsequent periods, and net operating loss
carryforwards (a non-GAAP financial measure)
3,446.6
3,518.8
3,513.9
3,545.1
3,515.6
Return on equity ratios:
Return on common equity
-3.5%
4.1%
-0.4%
0.1%
-6.1%
Operating return (less Q2 2006 charge related to the proposed
litigation settlement and refinements to such estimates
recognized in subsequent periods) on common equity,
excluding accumulated other comprehensive income (loss)
(a non-GAAP financial measure)
6.9%
5.2%
1.3%
2.7%
-2.3%
Operating return (less Q2 2006 charge related to the proposed
litigation settlement and refinements to such estimates
recognized in subsequent periods) on common equity,
excluding accumulated other comprehensive income (loss)
and net operating loss carryforwards (a non-GAAP
financial measure)
9.3%
7.1%
1.7%
3.7%
-3.1%
Information Related to Certain Non-GAAP Financial Measures
A reconciliation of pretax operating earnings (a non-GAAP financial measure) to segment operating income (loss) and consolidated net income
(loss) for the six months ended June 30, 2007, is as follows (dollars in millions):
Other Business
CIG
Bankers
Colonial Penn
in Run-off
Corporate
Total
Pretax operating earnings (a non-GAAP financial measure)
101.8
$
108.3
$
11.3
$
(164.1)
$
(49.2)
$
8.1
$
Allocation of interest expense, excess capital and corporate
expenses
(26.3)
(21.7)
(1.8)
(4.9)
��
54.7
-
Income tax (expense) benefit
(24.3)
(27.9)
(3.1)
54.6
(1.8)
(2.5)
Segment operating income (loss)
51.2
$
58.7
$
6.4
$
(114.4)
$
3.7
$
5.6
Refinements made to Q2 2006 charge related to the proposed
litigation settlement, net of taxes
(31.3)
Net realized investment losses, net of related amortization and taxes
(23.8)
Net income
(49.5)
$
64
(Continued on next page)
Information Related to Certain Non-GAAP Financial Measures
A reconciliation of common shareholders’ equity, excluding accumulated other comprehensive income (loss), the Q2 2006 charge related to the
proposed litigation settlement and refinements to such estimates recognized in subsequent periods, and less income tax assets and assuming
conversion of the convertible preferred stock (a non-GAAP financial measure) to common shareholders’ equity is as follows (dollars in millions):
Other Business
CIG
Bankers
Colonial Penn
in Run-off
Corporate
Total
December 31, 2006
Common shareholders' equity, excluding accumulated other comprehensive
income (loss), the Q2 2006 charge related to the proposed litigation
settlement and refinements to such estimates recognized in subsequent
periods, and less income tax assets representing net operating loss
carryforwards and assuming conversion of convertible preferred
stock (a non-GAAP financial measure)
1,648.6
$
1,274.3
$
103.6
$
290.3
$
231.0
$
3,547.8
$
Q2 2006 charge related to the proposed litigation settlement and
refinements to such estimates recognized in subsequent periods
(102.1)
-
-
-
-
(102.1)
Net operating loss carryforwards
1,340.0
-
-
-
-
1,340.0
Accumulated other comprehensive income (loss)
(25.6)
(41.6)
(1.2)
(7.3)
3.1
(72.6)
Allocation of capital
515.5
424.8
34.6
96.8
(1,071.7)
-
Total shareholders' equity
3,376.4
$
1,657.5
$
137.0
$
379.8
$
(837.6)
$
4,713.1
Less preferred stock
667.8
Common shareholders' equity
4,045.3
$
June 30, 2007
Common shareholders' equity, excluding accumulated other comprehensive
income (loss), the Q2 2006 charge related to the proposed litigation
settlement and refinements to such estimates recognized in subsequent
periods, and less income tax assets representing net operating loss
carryforwards and assuming conversion of convertible preferred
stock (a non-GAAP financial measure)
1,653.2
$
1,326.7
$
109.4
$
206.9
$
192.6
$
3,488.8
$
Q2 2006 charge related to the proposed litigation settlement and
refinements to such estimates recognized in subsequent periods
(117.7)
-
-
-
(15.7)
(133.4)
Net operating loss carryforwards
1,349.8
-
-
-
-
1,349.8
Accumulated other comprehensive income (loss)
(137.8)
(133.2)
(5.5)
(58.1)
4.7
(329.9)
Allocation of capital
551.0
442.2
36.5
68.9
(1,098.6)
-
Total shareholders' equity
3,298.5
$
1,635.7
$
140.4
$
217.7
$
(917.0)
$
4,375.3
Less preferred stock
-
Common shareholders' equity
4,375.3
$
65
(Continued from previous page)
(Continued on next page)
Information Related to Certain Non-GAAP Financial Measures
Other Business
CIG
Bankers
Colonial Penn
in Run-off
Corporate
Total
Average common shareholders' equity, excluding accumulated other
comprehensive income (loss), the Q2 2006 charge related to the
proposed litigation settlement and refinements to such estimates
recognized in subsequent periods, and less income tax assets
representing net operating loss carryforwards and assuming
conversion of convertible preferred stock (a non-GAAP
financial measure)
1,642.9
$
1,295.7
$
106.1
$
262.0
$
223.6
$
3,530.3
$
Average proposed litigation settlement charges and refinements
to such estimates recognized in subsequent periods
(114.2)
Average net operating loss carryforwards
1,339.5
Average accumulated other comprehensive income (loss)
(121.5)
Average total shareholders' equity
4,634.1
Average preferred stock
500.9
Average common shareholders' equity
4,133.2
$
Return on equity ratios:
Return on equity
-2.4%
Operating return on equity, excluding accumulated other
comprehensive income (loss), the 2Q 2006 charge related to
the proposed litigation settlement and refinements to such
estimates recognized in subsequent periods, and less income
tax assets representing net operating loss carryforwards
and assuming conversion of convertible preferred stock
(a non-GAAP financial measure)
6.2%
9.1%
12.1%
-87.3%
3.3%
0.3%
66
(Continued from previous page)
A reconciliation of average common shareholders’ equity, excluding accumulated other comprehensive income (loss), the Q2 2006 charge
related to the proposed litigation settlement and refinements to such estimates recognized in subsequent periods, and less income tax assets
and assuming conversion of the convertible preferred stock (a non-GAAP financial measure) to average common shareholders’ equity at June
30, 2007, is as follows (dollars in millions):
Information Related to Certain Non-GAAP Financial Measures
Debt to capital ratio, excluding accumulated other comprehensive income (loss)
This non-GAAP financial measure differs from the debt to capital ratio because accumulated other comprehensive income has been excluded
from the value of capital used to determine this measure. Management believes this non-GAAP financial measure is useful because it removes
the volatility that arises from changes in accumulated other comprehensive income. Such volatility is often caused by changes in the estimated
fair value of our investment portfolio resulting from changes in general market interest rates rather than the business decisions made by
management.
67
Information Related to Certain Non-GAAP Financial Measures
Reconciliations of the: (i) debt to capital ratio to debt to capital, excluding accumulated other comprehensive loss; and (ii) debt and preferred
stock to capital ratio to debt and preferred stock to capital, excluding accumulated other comprehensive loss, are as follows (dollars in millions):
Q2 06
Q3 06
Q4 06
Q1 07
Q2 07
Corporate notes payable
805.5
$
805.6
$
1,000.8
$
999.3
$
1,197.8
$
Total shareholders' equity
4,296.6
4,712.7
4,713.1
4,724.0
4,375.3
Total capital
5,102.1
5,518.3
5,713.9
5,723.3
5,573.1
Less accumulated other comprehensive loss
445.6
71.8
72.6
41.8
329.9
Total capital, excluding accumulated other
comprehensive loss
(a non-GAAP financial measure)
5,547.7
$
5,590.1
$
5,786.5
$
5,765.1
$
5,903.0
$
Corporate notes payable
805.5
$
805.6
$
1,000.8
$
999.3
$
1,197.8
$
Preferred stock
667.8
667.8
667.8
667.8
-
Total notes payable and preferred stock
1,473.3
$
1,473.4
$
1,668.6
$
1,667.1
$
1,197.8
$
Corporate notes payable to capital ratios:
Corporate debt to total capital
15.8%
14.6%
17.5%
17.5%
21.5%
Corporate debt to total capital, excluding
accumulated other comprehensive loss
(a non-GAAP financial measure)
14.5%
14.4%
17.3%
17.3%
20.3%
Corporate debt and preferred stock
to total capital
28.9%
26.7%
29.2%
29.1%
21.5%
Corporate debt and preferred stock
to total capital, excluding accumulated
other comprehensive loss (a non-GAAP
financial measure)
26.6%
26.4%
28.8%
28.9%
20.3%
68