Exhibit 99.1
NEWS
For Release Immediate
Contacts (News Media) Tony Zehnder, EVP, Corporate Communications
312.396.7086
(Investors) Tammy Hill, SVP, Investor Relations
317.817.2893
Conseco Reports First Quarter Results
o Net Income applicable to common stock: $72.3 million, up 45% over 1Q04
o Net Operating Income (1): $70.3 million, up 89% over 1Q04
o Sixth consecutive quarter of strong earnings
o Bankers Life achieves record quarterly sales
o Conseco Insurance Group launches five new products, converts four
additional systems
Carmel, Ind., May 5, 2005 -- Conseco, Inc. (NYSE: CNO) today reported results
for the first quarter of 2005 - the company's sixth consecutive quarter of
strong earnings. Net Income applicable to common stock was $72.3 million, a 45%
increase versus $49.9 million in 1Q04. Net Operating Income was $70.3 million,
an 89% increase versus $37.1 million in 1Q04. Net Income per share was 44 cents
versus 50 cents in 1Q04. Net Operating Income per share was 43 cents versus 37
cents in 1Q04. All per-share results are on a diluted basis.
A comparison of results to the prior-year period is affected by the $1.6 billion
equity offering and $800 million debt refinancing completed in mid-2004, which
increased weighted average diluted shares outstanding by approximately 86
million shares, or 86%, compared to the year-earlier quarter. Earnings before
corporate interest, net realized investment gains and taxes ("EBIT") (2) are not
affected by the 2004 equity offering and debt refinancing, and were $136.1
million in 1Q05, a 13% increase versus $120.5 million in 1Q04.
President and CEO William Kirsch said, "Conseco is a vastly improved business
organization compared to just 12 months ago. At March 31, 2005, our balance
sheet reflected $3.8 billion of shareholders' equity, no goodwill and a 17%
debt-to-total capital ratio. We have a high-quality investment portfolio, with
96% of our $22.0 billion of fixed maturity investments rated investment grade.
The 89% increase in Net Operating Income was driven by our significant
transformational achievements during the last 12 months which fundamentally
improved our balance sheet, operations, product offerings, distribution systems,
internal controls and management team."
- -------------------------------------------------------------------------------
(1) Management believes that an analysis of Net Income applicable to common
stock before net realized investment gains or losses ("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 table on page 3.
(2) Management believes that an analysis of earnings before corporate interest,
net investment gains and taxes ("EBIT", a non-GAAP financial measure) is a
clearer measure of the productivity improvements of the company
quarter-over-quarter because it excludes: (i) the effects of the 2004
equity offering and debt refinancing; and (ii) net realized investment
gains that are unrelated to the company's underlying fundamentals. A
reconciliation of EBIT to Net Income applicable to common stock is provided
in the table on page 3.
-more-
Conseco (2)
May 5, 2005
Consistent execution on our key initiatives is driving enhanced productivity
across our businesses. A summary of our progress in each of our key initiatives
follows.
1. Sales and revenue growth. We continue to achieve measured sales growth
by building distribution in products where we can compete profitably
today, and which will serve as the foundation for a family of products
and distribution upon which we can continue to build after we achieve
further ratings upgrades. Key contributors to Bankers Life's strong
sales performance were the 21 branches added to captive distribution
during 2004. Conseco Insurance Group ("CIG") has continued to rebuild
its independent distribution platform by developing new IMO
relationships, recruiting new agents and launching five new products
so far in 2005.
2. Operational excellence. We are making substantial progress
implementing a best-in-class operating platform designed to provide
excellent customer service in a scalable, low-cost environment. We
have re-engineered business processes for claims, underwriting,
policyholder services and agent care, resulting in greater
productivity. We have improved our processing procedures to more
effectively adjudicate claims in accordance with the contractual
requirements of our policies.
3. Technological excellence. We are consolidating and simplifying our
data processing and management systems in order to provide better and
more cost effective service to our policyholders and distribution
partners. We have created our "One IT" organization to provide shared
services across the organization. As part of "One IT," the IT
leadership team is implementing uniform, best-in-class practices to
enhance capacity and increase flexibility. Since April 2003, we have
eliminated 14 older CIG policy administration systems.
4. Expense reductions and in-force management. In order to provide
valuable products to our customers and maximize shareholder value over
the long term, we must become a low-cost operator. Our commitment to
meet that goal is driving us to aggressively eliminate non-strategic
costs and organizational redundancies, streamline back-office
operations and improve claims adjudication processes. All operating
segments achieved or exceeded their expense savings goals for the
first quarter. Based on our progress, we remain confident that we will
achieve or exceed our previously reported expense reduction goal of
$30 million for 2005.
5. Best practices in governance and compliance. We continue to enhance
internal controls across our business activities and are making steady
progress toward best practices across all our business units. Our work
to achieve compliance with Section 404 of Sarbanes-Oxley has resulted
in improvements in the effectiveness of our internal controls and
created a framework to build best practices in compliance and controls
throughout our organization.
6. A unified performance culture. As we upgrade talent throughout the
organization, we are aligning all individual goals with our business
priorities and linking rewards to individual and business segment
performance. Since the beginning of the year, we have implemented a
2005 pay-for-performance bonus plan tied to the execution of key
initiatives, we have cemented alignment among the enterprise-wide
management group, and we have implemented a rigorous talent review
process that will become a permanent part of our culture and drive
enhanced productivity across all parts of the company.
- more -
Conseco (3)
May 5, 2005
"Since we completed our $2.4 billion recapitalization in the second quarter of
2004," Kirsch said, "we have deployed our capital and other resources to
fundamentally improve the quality and productivity of our business enterprise.
Our strong balance sheet, including our substantial net operating loss
carryforwards, provides us a competitive advantage in the marketplace. We are
delivering measured increases in sales through new product offerings and
strategic growth in captive and independent distribution. We have re-engineered
operations and simplified systems to a degree never before achieved at Conseco.
This has delivered meaningful improvements in customer service and facilitated
cost reductions. We continue to identify opportunities to improve operations and
customer service and reduce non-strategic costs as we institutionalize
operational excellence and the discipline of rigorous expense management. And
most importantly, the 15 strategically targeted additions to our leadership team
have gelled effectively with our veteran leaders to create a unified
high-performance culture aligned to accelerate our momentum on each of our key
initiatives. We are benefiting from our improved platform, which together with
continuing progress on our key initiatives, position Conseco to build on our
momentum to drive increases in sales and earnings."
2005 outlook
Based on Conseco's first quarter results, we remain confident that our earnings
for 2005 will equal or exceed $1.68 of net income per share, based on our
diluted shares outstanding at March 31, 2005. This outlook is based on numerous
assumptions and factors. If they prove incorrect, actual earnings could differ
materially from estimates. Our estimates exclude the impact of net realized
investment gains or losses. (See note on forward-looking statements below).
Operating results
Results by segment were as follows ($ in millions):
Three Months Ended Three Months Ended
March 31, 2005 March 31, 2004
-------------- --------------
EBIT:
Bankers Life $ 58.8 $ 56.4
Conseco Insurance Group ("CIG") 64.4 60.5
Other Business in Run-off 21.5 14.9
Corporate Operations, excluding corporate interest expense (8.6) (11.3)
------ ------
Total EBIT 136.1 120.5
Corporate interest expense (12.0) (27.8)
------ ------
Income before net realized investment gains and taxes 124.1 92.7
Tax expense 44.3 32.7
------ ------
Net income before net realized investment gains 79.8 60.0
Preferred stock dividends:
10.50% Class A convertible exchangeable preferred
stock (retired June 11, 2004) - 22.9
5.50% Class B mandatorily convertible preferred
stock (issued May 12, 2004) 9.5 -
------ ------
Net Operating Income 70.3 37.1
Net realized investment gains, net of related amortization and taxes 2.0 12.8
------ ------
Net Income applicable to common stock $ 72.3 $ 49.9
====== ======
- more -
Conseco (4)
May 5, 2005
Income before net realized investment gains and income taxes for the first
quarter of 2005 in our Bankers Life segment were $58.8 million, an increase of
4% compared to the first quarter of 2004. The earnings improvement reflects
overall levels of growth at Bankers Life and higher net investment income,
partially offset by higher benefit ratios in the segment's Medicare supplement
and long-term care products.
Income before net realized investment gains and income taxes in our Conseco
Insurance Group segment totaled $64.4 million in the first quarter of 2005
compared to $60.5 million in the first quarter of 2004. CIG's earnings
improvement was due to higher net investment income and improved mortality,
partially offset by a higher benefit ratio on specified disease products and
lower earnings due to the declining block of Medicare supplement in the segment.
CIG's net investment income in the first quarter of 2005 included prepayment
income on fixed maturity investments and favorable results on non-traditional
invested assets totaling approximately $3 million.
Income before net realized investment gains and income taxes in our Other
Business in Run-off segment were $21.5 million in the first quarter of 2005,
compared to $14.9 million in the year-earlier period, reflecting higher net
investment income and continued improvement in long-term care benefit ratios
from rate increases and our claims adjudication initiatives.
Corporate Operations include "40|86 Advisors," our investment advisory
subsidiary, and the expenses of our corporate operations. Corporate operations
in the first quarter of 2004 included severance expense of $4.4 million.
First Quarter Sales
First quarter new annualized premium sales of supplemental health and life
products in our Bankers Life segment (which includes our Colonial Penn direct
distribution) totaled a record $53 million, up 2% compared to 1Q04. First-year
annuity deposits at Bankers Life for the quarter were $220 million, up 25%
compared to 1Q04. In our CIG segment, new annualized premium sales of
supplemental health and life products were $11 million in the first quarter
compared to $15 million in 1Q04, driven by declines in Medicare supplement sales
which were partially offset by increases in specified disease sales. CIG's
first-year annuity deposits were $20 million in the first quarter, an increase
of $14 million compared to 1Q04.
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
www.conseco.com.
- more -
Conseco (5)
May 5, 2005
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 achieve an upgrade of the
financial strength ratings of our insurance company subsidiaries and the impact
of prior rating downgrades on our business; (ii) the ultimate outcome of
lawsuits filed against us and other legal and regulatory proceedings to which we
are subject; (iii) our ability to obtain adequate and timely rate increases on
our supplemental health products including our long-term care business; (iv)
mortality, morbidity, usage of health care services, persistency and other
factors which may affect the profitability of our insurance products; (v) our
ability to achieve anticipated expense reductions and levels of operational
efficiencies; (vi) the adverse impact of our Predecessor's bankruptcy
proceedings on our business operations, and relationships with our customers,
employees, regulators, distributors and agents; (vii) performance of our
investments; (viii) customer response to new products, distribution channels and
marketing initiatives; (ix) the risk factors or uncertainties listed from time
to time in our filings with the Securities and Exchange Commission; (x) 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; (xi) changes in the Federal income
tax laws and regulations which may affect or eliminate the relative tax
advantages of some of our products; and (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.
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 (6)
May 5, 2005
CONSECO, INC. AND SUBSIDIARIES
PRODUCT BENEFIT RATIOS ON MAJOR SUPPLEMENTAL HEALTH LINES OF BUSINESS
Three Months Three Months
Ended Ended
March 31, 2005 March 31, 2004
-------------- --------------
Bankers Life segment:
Medicare Supplement:
Earned premium........................................................................ $164 million $162 million
Benefit ratio......................................................................... 71.86% 65.56%
Long-Term Care:
Earned premium........................................................................ $138 million $131 million
Benefit ratio......................................................................... 91.78% 89.26%
Interest-adjusted benefit ratio (a non-GAAP measure)(a)............................... 63.85% 62.86%
Conseco Insurance Group segment:
Medicare Supplement:
Earned premium........................................................................ $81 million $96 million
Benefit ratio (b)..................................................................... 55.13% 61.10%
Specified Disease:
Earned premium........................................................................ $90 million $90 million
Benefit ratio......................................................................... 75.50% 70.15%
Other Business in Run-off segment:
Earned premium........................................................................ $92 million $103 million
Benefit ratio......................................................................... 94.47% 98.06%
Interest-adjusted benefit ratio (a non-GAAP measure)(a)............................... 48.18% 59.99%
<FN>
- ----------------
(a) 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.
(b) Reported benefit ratios below 65% on CIG's Medicare supplement products
include the impact of active life reserves released on lapsed policies. The
earnings impact from such decreases in reserves is generally offset by
increased amortization expense.
</FN>
CONSECO, INC. AND SUBSIDIARIES
COLLECTED PREMIUMS
(Dollars in millions)
Three Months Three Months
Ended Ended
March 31, 2005 March 31, 2004
-------------- --------------
Bankers Life segment:
Annuity products...................................................................... $221.7 $177.3
Supplemental health products.......................................................... 313.6 303.1
Life products......................................................................... 48.6 43.0
------ ------
Total collected premiums.............................................................. $583.9 $523.4
====== ======
Conseco Insurance Group segment:
Annuity products...................................................................... $ 25.3 $ 13.4
Supplemental health products.......................................................... 174.6 190.9
Life products......................................................................... 89.7 101.8
------ ------
Total collected premiums.............................................................. $289.6 $306.1
====== ======
Other Business in Run-off segment:
Long-term care products............................................................... $92.3 $98.6
Major medical products................................................................ 0.7 6.1
- more -
Conseco (7)
May 5, 2005
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
March 31, December 31,
2005 2004
---- ----
(unaudited)
ASSETS
Investments:
Actively managed fixed maturities at fair value (amortized cost:
March 31, 2005 - $21,723.2; December 31, 2004 - $20,985.8)......................... $21,992.7 $21,599.0
Equity securities at fair value (cost: March 31, 2005 - $62.3;
December 31, 2004 - $62.3)......................................................... 68.1 68.3
Mortgage loans....................................................................... 1,116.9 1,123.8
Policy loans......................................................................... 436.4 448.5
Trading securities................................................................... 858.5 902.3
Other invested assets ............................................................... 134.3 164.4
--------- ---------
Total investments.................................................................. 24,606.9 24,306.3
Cash and cash equivalents:
Unrestricted......................................................................... 287.4 776.6
Restricted........................................................................... 18.7 18.9
Accrued investment income................................................................. 324.3 308.4
Value of policies in force at the Effective Date.......................................... 2,606.4 2,629.6
Cost of policies produced................................................................. 503.2 409.1
Reinsurance receivables................................................................... 902.4 975.7
Income tax assets......................................................................... 1,017.7 967.2
Assets held in separate accounts.......................................................... 31.0 32.9
Other assets.............................................................................. 403.7 330.8
--------- ---------
Total assets....................................................................... $30,701.7 $30,755.5
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Liabilities for insurance products:
Interest-sensitive products........................................................ $12,505.7 $12,508.2
Traditional products............................................................... 11,745.7 11,741.3
Claims payable and other policyholder funds........................................ 884.9 879.8
Liabilities related to separate accounts........................................... 31.0 32.9
Other liabilities.................................................................... 553.4 498.3
Investment borrowings................................................................ 427.7 433.9
Notes payable - direct corporate obligations......................................... 758.4 758.9
--------- ---------
Total liabilities................................................................ 26,906.8 26,853.3
--------- ---------
Commitments and Contingencies
Shareholders' equity:
Preferred stock...................................................................... 667.8 667.8
Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares issued
and outstanding: March 31, 2005 - 151,057,863; December 31, 2004 - 151,057,863).... 1.5 1.5
Additional paid-in capital........................................................... 2,600.1 2,597.8
Accumulated other comprehensive income............................................... 155.4 337.3
Retained earnings.................................................................... 370.1 297.8
--------- ---------
Total shareholders' equity....................................................... 3,794.9 3,902.2
--------- ---------
Total liabilities and shareholders' equity......................................... $30,701.7 $30,755.5
========= =========
- more -
Conseco (8)
May 5, 2005
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions, except per share data)
(unaudited)
Three months ended
March 31,
------------------------
2005 2004
---- ----
Revenues:
Insurance policy income............................................ $ 727.7 $ 748.4
Net investment income:
General account assets......................................... 337.8 312.0
Policyholder and reinsurer accounts............................ (23.3) 15.7
Net realized investment gains.................................. 1.6 27.1
Fee revenue and other income..................................... 4.2 7.4
-------- --------
Total revenues................................................. 1,048.0 1,110.6
-------- --------
Benefits and expenses:
Insurance policy benefits........................................ 671.0 719.7
Interest expense ................................................ 14.7 29.1
Amortization..................................................... 94.7 98.2
Other operating costs and expenses............................... 140.4 151.2
-------- --------
Total benefits and expenses.................................... 920.8 998.2
-------- --------
Income before income taxes..................................... 127.2 112.4
Income tax expense.................................................... 45.4 39.6
-------- --------
Net income..................................................... 81.8 72.8
Preferred stock dividends............................................. 9.5 22.9
-------- --------
Net income applicable to common stock.......................... $ 72.3 $ 49.9
======== ========
Earnings per common share:
Basic:
Weighted average shares outstanding............................ 151,058,000 100,116,000
=========== ===========
Net income..................................................... $.48 $.50
==== ====
Diluted:
Weighted average shares outstanding............................ 186,764,000 100,588,000
=========== ===========
Net income..................................................... $.44 $.50
==== ====
- # # # # -