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 Record Second Quarter Net Income
o Net income applicable to common stock: a record $78.6 million, up 76%
over 2Q04
o Net Operating Income (1): $74.1 million, up 58% over 2Q04
o Seventh consecutive quarter of strong earnings
o Consolidated new annualized premium up 10% over 2Q04
o Bankers Life achieves record quarterly sales
Carmel, Ind., August 4, 2005 - Conseco, Inc. (NYSE: CNO) today reported results
for the second quarter of 2005 - the company's seventh consecutive quarter of
strong earnings. Net income applicable to common stock was a record $78.6
million, a 76% increase versus $44.6 million in 2Q04. Net Operating Income (1)
was $74.1 million, a 58% increase versus $46.9 million in 2Q04. Net Income per
share was 48 cents versus 34 cents in 2Q04. Net Operating Income per share was
45 cents versus 36 cents in 2Q04. All per-share results are on a diluted basis.
Earnings before corporate interest, net realized investment gains and taxes
("EBIT") (2) were $146.2 million in 2Q05, an 11% increase versus $131.5 million
in 2Q04.
President and CEO William Kirsch said, "During the past 12 months, Conseco has
achieved steady and consistent progress on each of our key initiatives. We have
fundamentally strengthened our balance sheet, expense management, operations,
product offerings, distribution systems, internal controls and, most
importantly, our management team. Building on these accomplishments, we have now
posted a record quarter and our seventh consecutive quarter of strong earnings.
We continue to build our financial strength with a debt-to-total capital ratio,
excluding accumulated other comprehensive income, of 17% (3) and a book value
per share, excluding accumulated other comprehensive income, of $20.21 (3).
"We will continue to deliver on our key initiatives, and will invest in building
a strong platform as we reduce costs, grow sales and provide excellent customer
service," Kirsch said.
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(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.
(3) This non-GAAP measure differs from the corresponding GAAP measure for debt
to total capital of 15% and book value per common share of $23.35 because
accumulated other comprehensive income has been excluded from the value of
capital used to determine this measure. Management believes this non-GAAP
measure is useful because it removes the volatility that arises from
changes in accumulated other comprehensive income.
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Conseco (2)
August 4, 2005
Highlights of the quarter include consistent execution on a number of key
initiatives to accelerate Conseco's future top- and bottom-line growth:
1. Sales and revenue growth. We are achieving measured sales growth in
products where we can compete profitably today, and which will serve
as the foundation for a family of future products. Our total
consolidated sales were up 10% over the year ago second quarter. We
are positioned to capitalize on growth opportunities across three
distribution channels, including captive, independent and direct
sales.
At Conseco Insurance Group (independent channel), total new annualized
premium sales were up 6% over 2Q04 (valuing first year annuity
deposits at 6% of the deposit amount). This increase is comprised of a
1% increase in supplemental health and life sales, and a 92% increase
in first-year annuity deposits. Three new products, The Conseco
Patriot, a flexible premium indexed annuity, the True Level Choice 5,
a short-term multi-year guarantee fixed annuity, and a Worksite
Universal Life product were launched this quarter. Additionally, we
are actively identifying new commitments and opportunities for future
products as we position our product portfolio for 2006. To support our
new product offerings, we are making further additions to the annuity,
life and health sales teams, increasing our penetration of the
independent channel.
At Bankers Life (career distribution), total new annualized premium
sales were up 12% over 2Q04 (valuing first year annuity deposits at 6%
of the deposit amount). This increase is comprised of a 14% increase
in supplemental health and life sales, and a 4% increase in first-year
annuity deposits. At Colonial Penn (direct channel), total sales were
up 9% over the year-ago quarter.
2. Operational excellence. We continue to make substantial progress
implementing a more efficient operating platform designed to provide
excellent customer service in a scalable, low-cost environment that
can be leveraged to accommodate anticipated revenue growth over the
next several years. Highlights for the quarter include positive
results from an independent customer survey that puts Bankers Life
among the top quartile of participants in terms of customer
satisfaction. In addition to substantial improvements in call center
support and transaction processing, Conseco Insurance Group continues
to make progress on delivering its "Transformational Roadmap" program,
a group of projects designed to establish a more efficient operating
platform. Highlights include delivering three key projects by year-end
2005, including the installation of an enterprise-wide workflow
automation system, implementing enhanced call center technologies, and
deploying improvements in cash management.
3. Technological excellence. We are consolidating and simplifying data
processing and management systems in order to provide better and more
cost effective service to policyholders and distribution partners. In
the second quarter, we further simplified the environment by retiring
an annuity payout system. We now are focusing on systems conversions
in our health platform to improve processing new and existing business
and to facilitate tighter claims management. We also strengthened our
capabilities by recruiting a senior IT executive responsible for
Service Delivery, and cemented plans for enlarging the capacity of our
owned offshore development center by the announcement of construction
of new facilities now re-branded Conseco Data Services (India) Pvt.
Ltd.
4. Expense management. Through dedicated and accelerated cost-cutting
efforts, we are on track to exceed our 2005 expense reduction goal of
$30 million. Consistent with our commitment to becoming a low-cost
operator, we are continuing to aggressively eliminate non-strategic
costs. All operating segments achieved or exceeded their expense
savings goals this quarter through initiatives that have reduced
redundancies, streamlined back-office operations and improved claims
processes, and we are looking for additional expense reductions.
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.
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Conseco (3)
August 4, 2005
6. A unified performance culture. During the quarter we continued
strengthening our leadership team with the addition of outstanding
proven executives, including Mike Dubes, president of Conseco
Insurance Group, and Sue Menzel, executive vice president and head of
human resources. We have now added 19 new key executives to our team
since August 2004, who individually and collectively are expanding
Conseco's expertise and growth prospects. As we continue to upgrade
and develop our talent, we are also aligning all individual goals with
our business priorities and linking rewards to individual and business
segment performance.
2005 outlook
Based on Conseco's first half results, the Company remains confident that
earnings for 2005 will equal or exceed $1.68 of net income per share. This
outlook is based on numerous assumptions and factors. If they prove incorrect,
actual earnings could differ materially from estimates. Estimates exclude the
impact of net realized investment gains or losses. (See note on forward-looking
statements below).
Operating results
Results by segment were as follows ($ in millions):
Three Months Ended Three Months Ended
June 30, 2005 June 30, 2004
------------- -------------
EBIT:
Bankers Life $ 68.4 $ 53.7
Conseco Insurance Group ("CIG") 66.1 68.6
Other Business in Run-off 21.4 15.6
Corporate Operations, excluding corporate interest expense (9.7) (6.4)
------ ------
Total EBIT 146.2 131.5
Corporate interest expense (13.1) (21.1)
------- -------
Income before net realized investment gains (losses) and taxes 133.1 110.4
Tax expense 49.5 39.8
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Net income before net realized investment gains (losses) 83.6 70.6
Preferred stock dividends:
10.50% Class A convertible exchangeable preferred
stock (retired June 11, 2004) - 18.4
5.50% Class B mandatorily convertible preferred
stock (issued May 12, 2004) 9.5 5.3
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Net Operating Income 74.1 46.9
Net realized investment gains (losses), net of related
amortization and taxes 4.5 (2.3)
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Net Income applicable to common stock $ 78.6 $ 44.6
====== ======
In our Bankers Life segment, income before net realized investment gains and
income taxes for the second quarter of 2005 was $68.4 million, an increase of
27% compared to the second quarter of 2004. Bankers Life earnings improvement
reflects the overall growth of the business, reduced operating expenses and
increased investment income, partially offset by higher benefit ratios in the
segment's health lines. Bankers Life income in the second quarter of 2005 also
included $1 million of prepayment investment income on fixed maturity
investments and a $6.4 million favorable adjustment resulting from refinements
in long-term care reserve calculations.
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Conseco (4)
August 4, 2005
In our Conseco Insurance Group segment, income before net realized investment
gains and income taxes totaled $66.1 million in the second quarter of 2005
compared to $68.6 million in the second quarter of 2004. As previously reported,
CIG's results in the second quarter of 2004 were favorably impacted by a
reduction to amortization expense of $7.7 million for the adjustment of
assumptions related to the value of policies inforce. CIG's earnings in the
second quarter of 2005 reflect higher net investment income, lower expenses and
higher benefit ratios in the segment's health lines. CIG's net investment income
in the second quarter of 2005 included $6 million of prepayment income on fixed
maturity investments and mortgage loans.
In our Other Business in Run-off segment, income before net realized investment
gains and income taxes was $21.4 million in the second quarter of 2005, compared
to $15.6 million in the year-earlier period, reflecting higher net investment
income and reduced expenses.
Corporate Operations include "40|86 Advisors," our investment advisory
subsidiary, and the expenses of our corporate operations.
The company will host a conference call to discuss results later this morning.
Management's conference call will begin at 10:00 a.m. Eastern Daylight Time. The
webcast can be accessed through the Investors section of the company's website
as follows:
https://www.conseco.com/conseco/selfservice/about/investors/webcasts.jhtml.
Listeners should go to the website at least 15 minutes before the event to
register, download and install any necessary audio software.
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.
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 (5)
August 4, 2005
CONSECO, INC. AND SUBSIDIARIES
PRODUCT BENEFIT RATIOS ON MAJOR SUPPLEMENTAL HEALTH LINES OF BUSINESS
Three Months Three Months
Ended Ended
June 30, 2005 June 30, 2004
------------- -------------
Bankers Life segment:
Medicare Supplement:
Earned premium........................................................................ $164 million $161 million
Benefit ratio......................................................................... 72.4% 69.0%
Long-Term Care:
Earned premium........................................................................ $140 million $133 million
Benefit ratio......................................................................... 92.6% 89.1%
Interest-adjusted benefit ratio (a non-GAAP measure)(a)............................... 64.3% 62.4%
Conseco Insurance Group segment:
Medicare Supplement:
Earned premium........................................................................ $74 million $94 million
Benefit ratio (b)..................................................................... 63.2% 62.9%
Specified Disease:
Earned premium........................................................................ $90 million $92 million
Benefit ratio......................................................................... 74.0% 64.3%
Interest-adjusted benefit ratio (a non-GAAP measure)(a)............................... 43.0% 35.3%
Other Business in Run-off segment:
Earned premium........................................................................ $90 million $101 million
Benefit ratio......................................................................... 97.6% 95.2%
Interest-adjusted benefit ratio (a non-GAAP measure)(a)............................... 48.6% 55.7%
<FN>
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(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
June 30, 2005 June 30, 2004
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Bankers Life segment:
Annuity products...................................................................... $238.6 $230.4
Supplemental health products.......................................................... 304.5 293.2
Life products......................................................................... 55.7 41.1
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Total collected premiums.............................................................. $598.8 $564.7
====== ======
Conseco Insurance Group segment:
Annuity products...................................................................... $ 28.1 $ 15.9
Supplemental health products.......................................................... 166.0 181.8
Life products......................................................................... 83.0 90.2
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Total collected premiums.............................................................. $277.1 $287.9
====== ======
Other Business in Run-off segment:
Long-term care products............................................................... $87.7 $92.1
Major medical products................................................................ 0.6 5.3
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Conseco (6)
August 4, 2005
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
June 30, December 31,
2005 2004
---- ----
(unaudited)
ASSETS
Investments:
Actively managed fixed maturities at fair value (amortized cost:
June 30, 2005 - $21,599.8; December 31, 2004 - $21,015.4).......................... $22,441.7 $21,633.4
Equity securities at fair value (cost: June 30, 2005 - $32.4;
December 31, 2004 - $32.7)......................................................... 33.8 33.9
Mortgage loans....................................................................... 1,121.7 1,123.8
Policy loans......................................................................... 435.2 448.5
Trading securities................................................................... 735.1 902.3
Other invested assets ............................................................... 131.4 164.4
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Total investments.................................................................. 24,898.9 24,306.3
Cash and cash equivalents:
Unrestricted......................................................................... 774.3 776.6
Restricted........................................................................... 16.1 18.9
Accrued investment income................................................................. 316.9 308.4
Value of policies in force at the Effective Date.......................................... 2,485.8 2,629.6
Cost of policies produced................................................................. 562.5 409.1
Reinsurance receivables................................................................... 897.0 975.7
Income tax assets......................................................................... 788.1 967.2
Assets held in separate accounts.......................................................... 30.1 32.9
Other assets.............................................................................. 312.7 330.8
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Total assets....................................................................... $31,082.4 $30,755.5
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Liabilities for insurance products:
Interest-sensitive products........................................................ $12,524.7 $12,508.2
Traditional products............................................................... 11,782.4 11,741.3
Claims payable and other policyholder funds........................................ 863.7 879.8
Liabilities related to separate accounts........................................... 30.1 32.9
Other liabilities.................................................................... 476.1 498.3
Investment borrowings................................................................ 452.1 433.9
Notes payable - direct corporate obligations......................................... 758.8 758.9
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Total liabilities.................................................................. 26,887.9 26,853.3
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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: June 30, 2005 - 151,066,487; December 31, 2004 - 151,057,863)..... 1.5 1.5
Additional paid-in capital........................................................... 2,603.0 2,597.8
Accumulated other comprehensive income............................................... 473.5 337.3
Retained earnings.................................................................... 448.7 297.8
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Total shareholders' equity....................................................... 4,194.5 3,902.2
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Total liabilities and shareholders' equity......................................... $31,082.4 $30,755.5
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Conseco (7)
August 4, 2005
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions, except per share data)
(unaudited)
Three months ended Six months ended
June 30, June 30,
------------------- -----------------------
2005 2004 2005 2004
---- ---- ---- ----
Revenues:
Insurance policy income................................ $ 728.5 $ 737.0 $1,456.2 $1,485.4
Net investment income (loss):
General account assets............................... 348.0 318.4 685.8 630.4
Policyholder and reinsurer accounts.................. (1.6) (14.8) (24.9) .9
Net realized investment gains (loss)................. 7.9 (5.6) 9.5 21.5
Fee revenue and other income........................... 3.9 4.5 8.1 11.9
-------- -------- -------- --------
Total revenues..................................... 1,086.7 1,039.5 2,134.7 2,150.1
-------- -------- -------- --------
Benefits and expenses:
Insurance policy benefits.............................. 703.4 666.5 1,374.4 1,386.2
Interest expense....................................... 16.1 23.1 30.8 52.2
Amortization........................................... 88.0 82.3 182.7 180.5
Gain on extinguishment of debt......................... - (2.8) - (2.8)
Other operating costs and expenses..................... 139.3 163.6 279.7 314.8
-------- -------- -------- --------
Total benefits and expenses........................ 946.8 932.7 1,867.6 1,930.9
-------- -------- -------- --------
Income before income taxes......................... 139.9 106.8 267.1 219.2
Income tax expense on period income....................... 51.8 38.5 97.2 78.1
-------- -------- -------- --------
Net income......................................... 88.1 68.3 169.9 141.1
Preferred stock dividends................................. 9.5 23.7 19.0 46.6
-------- -------- -------- --------
Net income applicable to common stock.............. $ 78.6 $ 44.6 $ 150.9 $ 94.5
======== ======== ======== ========
Earnings per common share:
Basic:
Weighted average shares outstanding.................. 151,058,000 127,048,000 151,058,000 113,582,000
=========== =========== =========== ===========
Net income........................................... $.52 $.35 $1.00 $.83
==== ==== ===== ====
Diluted:
Weighted average shares outstanding.................. 185,002,000 146,992,000 185,883,000 123,790,000
=========== =========== =========== ===========
Net income........................................... $.48 $.34 $.91 $.81
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