Exhibit 99.1
NEWS
For Release Immediate
Contacts (News Media) Jim Rosensteele, SVP, Corporate Communications
317.817.4418
(Investors) Tammy Hill, SVP, Investor Relations 317.817.2893
Conseco Reports Third Quarter Results
Indianapolis, Ind., November 18, 2003 - Conseco, Inc. (NYSE:CNO) today reported
financial results for the quarter and nine months ended September 30, 2003, the
company's first earnings report since emerging from Chapter 11 on September 10,
2003. The results for periods following our emergence from Chapter 11 reflect
fresh-start accounting adjustments as required by generally accepted accounting
principles ("GAAP"). Accordingly, our financial results for periods following
our emergence from bankruptcy are not comparable to our results for prior
periods. For purposes of accounting convenience, we have established a
convenience fresh start date of August 31, 2003.
Operating results
For the two-month period of July-August 2003, Conseco ("predecessor company")
reported net income of $2,241.3 million, which included the following unusual
items related to our emergence from bankruptcy: (i) a gain on the discharge of
pre-petition liabilities of $3,151 million; (ii) adjustments to the value of our
assets and liabilities related to the adoption of fresh-start accounting of
$(950) million; and (iii) $(38) million related to professional fees.
For the month of September 2003, Conseco ("successor company") reported net
income (after dividends on convertible exchangeable preferred stock) of $18.9
million, or 17 cents per diluted common share. Results included after-tax
realized investment gains and venture capital income of $2.6 million, or 2 cents
per diluted common share.
Total collected premiums for the quarter, for the predecessor and successor
companies combined, were $1,003 million, compared with $1,101 million in the
third quarter of 2002. By product line, collected premiums in 3Q03 were:
o $231 million in annuity products, vs. $270 million in 3Q02.
o $578 million in supplemental health products, vs. $588 million in 3Q02.
o $194 million in life and all other products, vs. $243 million in 3Q02.
- more -
Conseco (2)
November 18, 2003
Loss ratios on major supplemental health lines of business were as follows:
Successor | Predecessor
--------- | --------------------------------------------
One Month | Two months Three months
Ended | ended ended
September 30, | August 31, September 30,
2003 | 2003 2002
---- | ---- ----
Medicare Supplement: |
Earned premium $85 million | $169 million $253 million
Loss ratio 67.15% | 60.54% 64.07%
|
Long-Term Care: |
Earned premium $77 million | $151 million $224 million
Loss ratio 96.07% | 167.18% 144.82%
Interest-adjusted loss ratio 66.35% | 141.26% 122.44%
|
Specified Disease: |
Earned premium $30 million | $60 million $92 million
Loss ratio 60.68% | 82.48% 71.50%
Fresh-start balance sheet
Under fresh-start accounting, Conseco's capital structure and resulting common
book value were effectively set by the Plan of Reorganization approved by the
bankruptcy court. As such, Conseco's agreed-upon enterprise value of $3.8
billion at emergence consisted of $1.3 billion of bank debt, approximately $860
million of convertible exchangeable preferred stock and common shareholders'
equity, or book value, of $1.64 billion, or $16.39 per common share.
Fresh-start accounting also required Conseco to revalue, on a mark-to-market
basis, all assets and liabilities as of the reorganization date. The value of
policies in force - the discounted value of the projected cash flows from all
insurance business on the books - was $2.84 billion at emergence.
The mark-to-market required by fresh-start accounting resulted in an increase to
the Conseco Insurance Group's aggregate long-term care reserves of approximately
$1.2 billion. After the fresh-start adjustment, future loss ratios on this
business (excluding investment income earned on reserves) are projected at 100%
to 120% over the next several years. Projected loss ratios on the Bankers Life
and Casualty ("Bankers") long-term care business (excluding investment income
earned on reserves) are 65% to 85%. The value of policies in force includes
approximately $200 million and $400 million for long-term care business at the
Conseco Insurance Group and Bankers, respectively.
Conseco established a full valuation allowance for deferred tax assets of
approximately $2.6 billion at emergence and, accordingly, the fresh-start
balance sheet does not reflect the value of our deferred tax assets. Goodwill,
the value remaining after revaluing all assets and liabilities that do appear on
the balance sheet, was $1.1 billion at emergence. Future utilization of net
operating loss (NOL) carryforwards and additional deferred tax attributes
reduces the goodwill asset in future periods.
At Sept. 30, 2003, the company's actively managed fixed maturity investment
portfolio had unrealized gains of $467 million and the average credit quality of
the portfolio was "A." Below investment grade bonds comprised 4.2% of the
portfolio at Sept. 30, 2003, compared with 7.6% at Dec. 31, 2002.
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Conseco (3)
November 18, 2003
Earnings guidance
Conseco said it expects year one net income applicable to common stock
(excluding realized investment gains/losses) to be in the range of $175 million
to $200 million, for the twelve months beginning October 1, 2003. The company's
initial return on equity (ROE) target is 9%-10%, and its initial target for
annual net income growth is 7%-10%. The company expects net income growth to
come from a combination of new sales and expense reductions.
Comments from Conseco CEO Bill Shea
"With our emergence from Chapter 11 and the accomplishments we have achieved
during our restructuring, we have a new, stronger balance sheet. Our sole focus
is on our insurance business. And we have new priorities. Our primary business
objective is to improve our ratings as quickly as possible. Achieving improved
ratings is the key to building the value of our company. It will allow us to
compete for new business on much more favorable terms, and it will support our
policyholders' continuing trust in us.
"In order to earn the ratings we need and set the stage for profitable and
predictable growth, we are managing the company against three key measures:
o Combined statutory earnings and cash-flow capacity from our insurance
subsidiaries. Statutory earnings build the capital adequacy required
by ratings agencies and regulators. Statutory earnings also combine
with fees and interest paid by the insurance companies to the parent
company to create the "cash flow capacity" the parent company needs to
meet its obligations, including debt service. Conseco's combined
statutory operating earnings (before realized gains and losses)
totaled $222 million for the first nine months of 2003, a $180 million
increase over the same period in 2002. The 2003 period included
several positive operating income items resulting from the sale of the
General Motors Building. Going forward, our reorganized holding
company capital structure and reduced operating expenses should allow
us to retain a substantial portion of future "cash-flow capacity" at
the insurance companies to support growth.
o Combined statutory capital and surplus and combined risk-based capital
(RBC) ratio. As a result of operating profits and realized gains from
the sale of the GM Building, Conseco's insurance companies at
September 30, 2003, had over $1.4 billion of combined capital and
surplus to protect policyholders, and an estimated combined RBC ratio
of over 250%, up from 166% at year-end 2002. The RBC ratio is one of
the most important measures used by rating agencies and regulators to
assess the financial strength of insurance companies. Conseco's
long-term goal is to operate with an RBC ratio between 250% and 300%,
a level that not only protects policyholders, but also supports higher
ratings while allowing Conseco to meet its ROE objectives.
o Holding company debt level and debt-to-total-capital ratio. At Sept.
30, 2003, our holding company debt amounted to $1.3 billion, or 34% of
our total capital. Our goal is to reduce the debt-to-total-capital
ratio to 30% by the end of 2004. Longer-term, our goal is to operate
with a debt-to-total-capital ratio commensurate with an
investment-grade credit rating.
"We were very pleased with how well most of our insurance distribution held
together during the bankruptcy process. We are especially proud of the
performance of our career distribution force at Bankers Life and Casualty, which
generally maintained sales levels year over year, despite significant ratings
downgrades. At Conseco Insurance Group, we deliberately cut back sales of
annuity and life products to conserve capital, and we discontinued long-term
care sales. Thanks to our strong relationships with many key independent
marketing organizations, collected premiums for core supplemental health
products were down only slightly, and we feel that we have a good base to grow
from as we begin to earn higher ratings.
- more -
Conseco (4)
November 18, 2003
"With the active support of our 4,400 employee associates, we are continuing to
execute our turnaround program. We have much left to do, but we are making
progress. Our reorganization and other actions have removed many of the
"surprise" risks from our balance sheet - fresh-start accounting required us to
reset of all our assumptions about the future of our business to reflect all
that we know today. We are now working very hard to eliminate the "surprise"
risks from our income statement, many of which have been holdover issues:
o We are working to further reduce operating expenses and improve the
efficiency of our operations across all business functions.
o We are working to stem current losses and avoid future losses in
selected product segments, including acquired long-term care and
certain universal life blocks.
o We are also working to streamline our back-office systems, many of
which, especially in Carmel, are too complicated and cumbersome.
Complexity adds unnecessary cost, and it gets in the way of providing
the excellent service our agents and customers expect.
"In sum, we're simplifying the way we think about our business. Like all
life/health insurance companies, we have three core disciplines:
o We take in cash primarily from the renewal of insurance policies that
we sold in prior years, and secondarily from the sale of new policies.
o We invest that cash in bonds and other securities that will earn a
predictable, competitive return until it is needed to pay customer
claims and benefits.
o We pay out cash to administer our business, including claims and
benefits; to provide service to agents and customers; and to support
our operations.
"In our `back to basics' approach, we're working hard to execute with excellence
on each of those core disciplines, while laying the foundation for sustained
growth."
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 future.
Note on forward-looking statements: Some of the statements contained in this
press release are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements include those that
use words such as "anticipate," "believe," "plan," "estimate," "expect,"
"project," "intend," "may," "will," "would," "contemplate," "possible,"
"attempts," "seeks," "should," "could," "goal," "target," "on track,"
"comfortable with," "optimistic," and other similar expressions. Forward-looking
statements are subject to known and unknown risks, uncertainties and other
factors which may cause actual results, performance or achievements to be
materially different from the future results, performance or achievements
expressed or implied by the forward-looking statements. 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) the potential lingering adverse impact of the Chapter 11 petitions on
Conseco's business operations and relationships with our customers, employees,
regulators, distributors and agents; (ii) our ability to operate our business
under the restrictions imposed by our senior bank credit facility; (iii) our
ability to improve the financial strength ratings of our insurance subsidiaries
and the impact of recent ratings downgrades on our business; (iv) 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) Conseco's ability to sell its products, access
capital on acceptable terms, the market value of Conseco's investments, and the
lapse rate and profitability of policies; (v) Conseco's ability to achieve
anticipated synergies and levels of operational efficiencies; (vi) customer
response to new products, distribution channels and marketing initiatives; (vii)
mortality, morbidity, usage of health care services and other factors which may
affect the profitability of Conseco's insurance products; (viii) performance of
our investments; (ix) changes in the Federal income tax laws and regulations
which may affect the relative tax advantages of some of Conseco's products; (x)
increasing competition in the sale of insurance and annuities; (xi) regulatory
changes or actions, including those relating to regulation of the financial
affairs of our insurance companies (including the payment of dividends to our
holding company), 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; (xii) the ultimate outcome of lawsuits filed against
Conseco; and (xiii) the risk factors or uncertainties listed from time to time
in Conseco's filings with the Securities and Exchange Commission. 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 (5)
November 18, 2003
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
ASSETS
Successor | Predecessor
---------------------------------- | ---------------
September 30, August 31, | December 31,
2003 2003 | 2002
---- ---- | ----
(unaudited) |
Investments: |
Actively managed fixed maturities at fair value (amortized cost: |
September 30, 2003 - $18,885.5; August 31, 2003 - $18,701.0; |
December 31, 2002 - $18,989.8)..................................... $19,352.7 $18,701.0 | $19,417.4
Equity securities at fair value (cost: September 30, 2003 - $104.6; |
August 31, 2003 - $101.4; December 31, 2002 - $161.4).............. 107.5 101.4 | 156.0
Mortgage loans....................................................... 1,154.1 1,159.7 | 1,308.3
Policy loans......................................................... 514.2 515.8 | 536.2
General Motors building.............................................. - 1,336.3 | -
Trading securities................................................... 944.9 952.1 | -
Venture capital investment in AT&T Wireless Services, Inc. at fair |
value (cost: September 30, 2003 - $36.4; August 31, 2003 - $36.4; |
December 31, 2002 - $14.2)......................................... 33.7 36.4 | 25.0
Other invested assets ............................................... 308.7 321.5 | 340.8
--------- --------- | ---------
|
Total investments................................................ 22,415.8 23,124.2 | 21,783.7
|
Cash and cash equivalents: |
Unrestricted....................................................... 1,724.3 1,215.9 | 1,268.9
Restricted......................................................... 22.1 - | -
Accrued investment income............................................... 316.0 304.6 | 389.8
Value of policies in force at the Effective Date........................ 2,770.4 2,836.9 | -
Cost of policies purchased.............................................. - - | 1,170.0
Cost of policies produced............................................... 23.2 - | 2,014.4
Reinsurance receivables................................................. 933.6 932.3 | 934.2
Income tax assets....................................................... 86.7 88.0 | 101.5
Goodwill................................................................ 935.4 1,102.8 | 100.0
Other intangible assets................................................. 173.8 174.8 | -
Assets held in separate accounts and investment trust .................. 37.5 87.7 | 447.0
Assets of discontinued operations....................................... - - | 17,624.3
Other assets............................................................ 421.1 545.7 | 675.2
--------- --------- | ---------
|
Total assets..................................................... $29,859.9 $30,412.9 | $46,509.0
========= ========= | =========
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Conseco (6)
November 18, 2003
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, continued
(Dollars in millions)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Successor | Predecessor
---------------------------- | ---------------
September 30, August 31, | December 31,
2003 2003 | 2002
---- ---- | ----
(unaudited) |
|
Liabilities: |
Liabilities for insurance and asset accumulation products: |
Interest-sensitive products........................................... $12,851.5 $12,837.9 | $13,469.5
Traditional products.................................................. 10,727.5 10,701.0 | 7,971.4
Claims payable and other policyholder funds........................... 873.1 886.7 | 909.2
Liabilities related to separate accounts and investment trust......... 37.5 87.7 | 447.0
Other liabilities....................................................... 748.5 875.2 | 673.5
Liabilities of discontinued operations.................................. - - | 17,624.3
Investment borrowings................................................... 524.4 1,224.4 | 669.7
Notes payable - direct corporate obligations............................ 1,300.0 1,300.0 | -
--------- --------- | ---------
|
Total liabilities not subject to compromise....................... 27,062.5 27,912.9 | 41,764.6
--------- --------- | ---------
|
Liabilities subject to compromise....................................... - - | 4,873.3
--------- --------- | ---------
|
Total liabilities................................................. 27,062.5 27,912.9 | 46,637.9
--------- --------- | ---------
|
Minority interest: |
Company-obligated mandatorily redeemable preferred securities |
of subsidiary trusts.................................................... - - | 1,921.5
|
Shareholders' equity (deficit): |
Preferred stock......................................................... 865.0 859.7 | 501.7
Common stock and additional paid-in capital ($0.01 par value, |
8,000,000,000 shares authorized, shares issued and outstanding: September |
30, 2003 - 100,098,119; August 31, 2003 - 100,098,119; no par value, |
1,000,000,000 shares authorized, shares issued and |
outstanding at December 31, 2002 - 346,007,133)....................... 1,640.3 1,640.3 | 3,497.0
Accumulated other comprehensive income.................................. 273.2 - | 580.6
Retained earnings (deficit)............................................. 18.9 - | (6,629.7)
--------- ---------- | ---------
|
Total shareholders' equity (deficit).............................. 2,797.4 2,500.0 | (2,050.4)
--------- ---------- | ---------
|
|
Total liabilities and shareholders' equity (deficit).............. $29,859.9 $30,412.9 | $46,509.0
========= ========= | =========
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Conseco (7)
November 18, 2003
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions, except per share data)
(unaudited)
Successor | Predecessor
-------------- | -------------------------------
One month | Two months Three months
ended | ended ended
September 30, | August 31, September 30,
2003 | 2003 2002
---- | ---- ----
|
Revenues: |
Insurance policy income........................................... $256.2 | $ 516.8 $ 902.6
Net investment income: |
General account assets.......................................... 106.0 | 237.3 373.0
Policyholder and reinsurer accounts............................. (2.1) | 6.8 (32.6)
Venture capital income (loss) related to investment in |
AT&T Wireless Services, Inc................................... (2.7) | 2.0 (6.6)
Net realized investment gains (losses) ......................... 6.7 | (35.8) (261.1)
Fee revenue and other income...................................... 2.2 | 7.8 15.5
------ | -------- ---------
|
Total revenues................................................ 366.3 | 734.9 990.8
------ | -------- ---------
|
Benefits and expenses: |
Insurance policy benefits......................................... 243.3 | 407.4 883.4
Provision for losses.............................................. - | 24.5 59.9
Interest expense (contractual interest of $73.7 for the two months |
ended August 31, 2003).......................................... 7.0 | 55.4 84.5
Amortization...................................................... 26.9 | 44.8 200.2
Other operating costs and expenses................................ 51.3 | 106.8 180.8
Goodwill impairment............................................... - | - 500.0
Special charges................................................... - | - 34.9
Reorganization items.............................................. - | (2,163.0) -
------ | -------- ---------
|
Total benefits and expenses................................... 328.5 | (1,524.1) 1,943.7
------ | -------- ---------
|
Income (loss) before income taxes, minority interest, |
and discontinued operations................................ 37.8 | 2,259.0 (952.9)
|
Income tax expense (benefit): |
Tax expense (benefit) on period income (losses)................... 13.6 | 17.7 (154.8)
Valuation allowance for deferred tax assets....................... - | - 311.4
------ | -------- ---------
|
Income (loss) before minority interest and discontinued |
operations................................................. 24.2 | 2,241.3 (1,109.5)
|
Minority interest: |
Distributions on Company-obligated mandatorily redeemable |
preferred securities of subsidiary trusts, net of income taxes. - | - 29.2
------ | -------- ---------
|
Income (loss) before discontinued operations.................. 24.2 | 2,241.3 (1,138.7)
|
Discontinued operations, net of income taxes......................... - | - (630.3)
------ | -------- ---------
|
Net income (loss)............................................. 24.2 | 2,241.3 (1,769.0)
|
Preferred stock dividends............................................ 5.3 | - 0.2
------ | -------- ---------
|
Net income (loss) applicable to common stock.................. $ 18.9 | $2,241.3 $(1,769.2)
====== | ======== =========
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Conseco (8)
November 18, 2003
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS, continued
(Dollars in millions, except per share data)
(unaudited)
Successor |
------------- |
One month |
ended |
September 30, |
2003 |
---- |
Earnings per common share: |
Basic: |
Weighted average shares outstanding........................ 100,098,000 |
=========== |
|
Net income................................................. $0.19 |
===== |
|
Diluted: |
Weighted average shares outstanding........................ 144,671,000 |
=========== |
|
Net income................................................. $0.17 |
===== |
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Conseco (9)
November 18, 2003
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions, except per share data)
(unaudited)
Successor | Predecessor
------------- | ---------------------------------
One month | Eight months Nine months
ended | ended ended
September 30, | August 31, September 30,
2003 | 2003 2002
---- | ---- ----
Revenues: |
Insurance policy income........................................... $256.2 | $2,204.3 $ 2,726.2
Net investment income: |
General account assets.......................................... 106.0 | 933.3 1,164.2
Policyholder and reinsurer accounts............................. (2.1) | 25.2 (106.3)
Venture capital income (loss) related to investment in |
AT&T Wireless Services, Inc................................... (2.7) | 10.5 (106.6)
Net realized investment gains (losses) ......................... 6.7 | (5.4) (493.9)
Fee revenue and other income...................................... 2.2 | 34.3 56.1
------ | -------- ---------
|
Total revenues................................................ 366.3 | 3,202.2 3,239.7
------ | -------- ---------
|
Benefits and expenses: |
Insurance policy benefits......................................... 243.3 | 2,138.7 2,469.9
Provision for losses.............................................. - | 55.6 199.9
Interest expense (contractual interest of $268.5 for the eight |
months ended August 31, 2003)................................... 7.0 | 202.5 248.8
Amortization...................................................... 26.9 | 341.4 635.2
Other operating costs and expenses................................ 51.3 | 422.3 510.1
Goodwill impairment............................................... - | - 500.0
Special charges................................................... - | - 103.1
Extraordinary gain on extinguishment of debt...................... - | - (1.8)
Reorganization items.............................................. - | (2,130.5) -
------ | --------- ---------
|
Total benefits and expenses................................... 328.5 | 1,030.0 4,665.2
------ | --------- ---------
|
Income (loss) before income taxes, minority interest, |
discontinued operations and cumulative effect of |
accounting change.......................................... 37.8 | 2,172.2 (1,425.5)
|
Income tax expense (benefit): |
Tax expense (benefit) on period income (losses)................... 13.6 | (13.5) (316.1)
Valuation allowance for deferred tax assets....................... - | - 1,314.4
------ | -------- ---------
|
Income (loss) before minority interest, discontinued |
operations and cumulative effect of accounting change...... 24.2 | 2,185.7 (2,423.8)
|
Minority interest: |
Distributions on Company-obligated mandatorily redeemable |
preferred securities of subsidiary trusts, net of income taxes. - | - 87.6
------ | -------- ---------
|
Income (loss) before discontinued operations and cumulative |
effect of accounting change................................. 24.2 | 2,185.7 (2,511.4)
|
Discontinued operations, net of income taxes......................... - | 16.0 (686.6)
Cumulative effect of accounting change for goodwill impairment, |
net of income taxes............................................... - | - (2,949.2)
------ | -------- ---------
|
Net income (loss)............................................. 24.2 | 2,201.7 (6,147.2)
|
Preferred stock dividends............................................ 5.3 | - 2.1
------ | -------- ---------
|
Net income (loss) applicable to common stock................. $ 18.9 | $2,201.7 $(6,149.3)
====== | ======== =========
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Conseco (10)
November 18, 2003
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS, continued
(Dollars in millions, except per share data)
(unaudited)
Successor |
------------- |
One month |
ended |
September 30, |
2003 |
---- |
Earnings per common share: |
Basic: |
Weighted average shares outstanding........................ 100,098,000 |
=========== |
|
Net income................................................. $0.19 |
===== |
|
Diluted: |
Weighted average shares outstanding........................ 144,671,000 |
=========== |
|
Net income................................................. $0.17 |
===== |
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