Exhibit 99.1
NEWS
For Release Immediate
Contacts (News Media) Tony Zehnder, EVP, Corporate Communications
312.396.7086
(Investors) Lowell Short, SVP, Investor Relations
317.817.2893
Conseco Reports First Quarter Results
Carmel, Ind., May 4, 2006 - Conseco, Inc. (NYSE: CNO) today reported results for
the first quarter of 2006:
o Net operating income (1): $55.8 million (including after-tax expenses
of $9.6 million related to certain litigation reserves), down 21% from
1Q05
o Net operating income per diluted share: 36 cents (including after-tax
expenses of 5 cents per share related to certain litigation reserves),
down 16% from 1Q05
o Net income applicable to common stock: $55.1 million, down 24% from
1Q05 (including $.7 million of net realized investment losses in 1Q06
vs. $2.0 million of net realized investment gains in 1Q05)
o Net income per diluted share: 35 cents, down 20% from 1Q05 (including
1 cent of net realized investment losses in 1Q06 vs. 1 cent of net
realized investment gains in 1Q05)
o Sales (new annualized premium): $85.8 million, up 7% over 1Q05
During the quarter, Conseco continued to make progress on its initiatives to
increase sales, aggressively manage expenses, enhance its technology and
operating platform, build a high-performance culture and maintain top-tier
corporate governance practices. Conseco's vision and mission are clear and
consistent: to establish Conseco as a leading provider of financial security for
the life, health and retirement needs of middle market Americans.
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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 of related
amortization and income taxes, ("Net Operating Income," a non-GAAP
financial measure) is important to evaluate the financial performance of
the company, and is a key measure commonly used in the life insurance
industry. Management uses this measure to evaluate performance because
realized investment gains or losses can be affected by events that are
unrelated to the company's underlying fundamentals. A reconciliation of Net
Operating Income to Net Income applicable to common stock is provided in
the table on page 2.
(2) Management believes that an analysis of earnings before net realized
investment gains (losses), corporate interest and taxes ("EBIT", a non-GAAP
financial measure) provides a clearer comparison of the operating results
of the company quarter-over-quarter because it excludes: (i) the effects of
the 2005 issuance of convertible debentures and amendment of our credit
facility; and (ii) net realized investment gains (losses) that are
unrelated to the company's underlying fundamentals. A reconciliation of
EBIT to Net Income applicable to common stock is provided in the table on
page 2.
(3) The calculation of this non-GAAP measure differs from the corresponding
GAAP measure because accumulated other comprehensive income (loss) has been
excluded from the value of capital used to determine this measure.
Management believes this non-GAAP measure is useful because it removes the
volatility that arises from changes in the unrealized appreciation
(depreciation) of our investments. The corresponding GAAP measures for
debt-to-total capital and book value per common share were 16% and $23.86,
respectively.
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Conseco (2)
May 4, 2006
Operating results
Results by segment for the quarter were as follows ($ in millions):
Three Months Ended
March 31,
--------------------------
2006 2005
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EBIT (2):
Bankers Life (including Colonial Penn)............................................. $ 62.3 $ 58.8
Conseco Insurance Group ("CIG").................................................... 41.9 64.4
Other Business in Run-off.......................................................... 24.0 21.5
Corporate Operations, excluding corporate interest expense......................... (13.6) (8.6)
------ ------
Total EBIT...................................................................... 114.6 136.1
Corporate interest expense........................................................... (12.4) (12.0)
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Income before net realized investment gains (losses) and taxes................ 102.2 124.1
Tax expense.......................................................................... 36.9 44.3
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Net income before net realized investment gains (losses)........................ 65.3 79.8
Preferred stock dividends:
5.50% Class B mandatorily convertible preferred stock............................. 9.5 9.5
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Net operating income............................................................ 55.8 70.3
Net realized investment gains (losses), net of related amortization and taxes........ (.7) 2.0
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Net income applicable to common stock........................................... $ 55.1 $ 72.3
====== ======
Per diluted share:
Net operating income............................................................ $.36 $.43
Net realized investment gains (losses), net of related amortization and taxes... (.01) .01
---- -----
Net income applicable to common stock........................................... $.35 $.44
==== ====
In our Bankers Life segment, EBIT in the first quarter of 2006 was $62.3 million
compared to $58.8 million in the first quarter of 2005. The earnings improvement
reflects increased investment income, improved margins in our Medicare
supplement business and the overall growth of the business; partially offset by
lower margins in our long-term care business and a pre-tax loss of $2.0 million
related to the distribution and quota-share reinsurance agreements with Coventry
Health Care regarding the Medicare Part D program. Medicare Part D products
experience disproportionately higher benefits in the first half of the contract
year than the second half due to the benefit design.
In our Conseco Insurance Group segment, EBIT was $41.9 million in 1Q06, compared
to $64.4 million in 1Q05. Earnings in 1Q06 reflected: (i) lower earnings due to
a declining block of Medicare supplement business; (ii) higher benefit ratios
(and therefore lower margins) on specified disease business due to
higher-than-expected persistency in older blocks; and (iii) expenses totaling
$7.5 million related to certain litigation reserves.
In our Other Business in Run-off segment, EBIT was $24.0 million in the first
quarter of 2006, compared to $21.5 million in the first quarter of 2005. During
the first quarter of 2006, we upgraded the prior version of the valuation system
used to determine reserves for the long-term care block of business in run-off.
The new version includes enhancements to more precisely estimate insurance
liabilities for policies with return-of-premium benefits. The effect of this
refinement and certain other reserve adjustments resulted in a net decrease to
our insurance liabilities of approximately $14.0 million in the first quarter of
2006. Our long-term care results in this segment also reflect the negative
effect of higher than assumed persistency of approximately $2.0 million and
increased claim reserves of $6.0 million on 2005 incurred claims.
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Conseco (3)
May 4, 2006
The Corporate operations segment includes "40|86 Advisors" (our investment
advisory subsidiary) and corporate expenses. Results of corporate operations
included expenses totaling $7.5 million in 1Q06 related to certain litigation
reserves.
Financial strength
At March 31, 2006, our debt-to-total capital ratio, excluding accumulated other
comprehensive income (loss) (3), was 15%, compared to 16% at December 31, 2005,
and book value per share, excluding accumulated other comprehensive income
(loss) (3), was $25.34 compared to $24.95 at December 31, 2005.
Sales up 7% for the quarter
Total sales, as measured by new annualized premium (which includes 6% of annuity
and 10% of single premium whole life deposits), rose by 7% over 1Q05, to $85.8
million, as we capitalized on growth opportunities across our three distribution
channels: career, independent and direct.
At Conseco Insurance Group (independent distribution), total 1Q06 new annualized
premium was $20.4 million, up 45% over 1Q05. Expanded product offerings,
revitalized marketing efforts, increased agent productivity and improved
recruiting efforts contributed to the increase.
At Bankers Life (career distribution), total 1Q06 new annualized premium was
$57.0 million, down 1% from 1Q05 and in line with our expectations.
At Colonial Penn (direct distribution), total 1Q06 new annualized premium was
$8.4 million, up 3% over 1Q05 as we continued the investment in our marketing
efforts.
Outlook
Based on: (i) our analysis of the non-recurring nature of several of the factors
that affected 1Q06 results; and (ii) our expectations for the business for the
balance of 2006, we continue to expect that our 2006 operating earnings will at
least meet our previous outlook of $1.85 of operating income per share, after
being adjusted for the first quarter after-tax expenses of 5 cents per share
related to litigation reserves. This outlook is based on numerous assumptions
and factors. If they prove incorrect, actual earnings could differ materially
from estimates. (See note on forward-looking statements below.)
Conference Call
The company will host a conference call to discuss results at 12 noon Eastern
Daylight Time on Friday, May 5, 2006. The webcast can be accessed through the
Investors section of the company's website as follows:
http://investor.conseco.com. Listeners should go to the website at least 15
minutes before the event to register and download any necessary audio software.
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.
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Conseco (4)
May 4, 2006
Cautionary Statement Regarding Forward-Looking Statements. Our statements, trend
analyses and other information contained in this press release relative to
markets for Conseco's products and trends in Conseco's operations or financial
results, as well as other statements, contain forward-looking statements within
the meaning of the federal securities laws and the Private Securities Litigation
Reform Act of 1995. Forward-looking statements typically are identified by the
use of terms such as "anticipate," "believe," "plan," "estimate," "expect,"
"project," "intend," "may," "will," "would," "contemplate," "possible,"
"attempt," "seek," "should," "could," "goal," "target," "on track," "comfortable
with," "optimistic" and similar words, although some forward-looking statements
are expressed differently. You should consider statements that contain these
words carefully because they describe our expectations, plans, strategies and
goals and our beliefs concerning future business conditions, our results of
operations, financial position, and our business outlook or they state other
"forward-looking" information based on currently available information.
Assumptions and other important factors that could cause our actual results to
differ materially from those anticipated in our forward-looking statements
include, among other things: (i) our ability to 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) our ability to continue to recruit and retain productive
agents and distribution partners and 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)
May 4, 2006
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
March 31, December 31,
2006 2005
---- ----
(unaudited)
ASSETS
Investments:
Actively managed fixed maturities at fair value (amortized cost:
March 31, 2006 - $22,567.9; December 31, 2005 - $22,380.2)......................... $22,116.8 $22,494.2
Equity securities at fair value (cost: March 31, 2006 - $31.2;
December 31, 2005 - $25.6)......................................................... 33.0 27.1
Mortgage loans....................................................................... 1,328.2 1,264.2
Policy loans......................................................................... 424.0 429.8
Trading securities................................................................... 697.8 716.3
Other invested assets ............................................................... 126.4 109.6
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Total investments.................................................................. 24,726.2 25,041.2
Cash and cash equivalents:
Unrestricted......................................................................... 102.9 237.8
Restricted........................................................................... 21.8 35.2
Accrued investment income................................................................. 327.3 315.4
Value of policies inforce at the Effective Date........................................... 2,410.3 2,414.0
Cost of policies produced................................................................. 862.2 758.8
Reinsurance receivables................................................................... 878.8 887.5
Income tax assets, net.................................................................... 1,624.4 1,496.6
Assets held in separate accounts.......................................................... 30.1 29.8
Other assets.............................................................................. 387.3 341.0
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Total assets....................................................................... $31,371.3 $31,557.3
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Liabilities for insurance products:
Interest-sensitive products.......................................................... $12,689.0 $12,686.8
Traditional products................................................................. 11,898.5 11,872.2
Claims payable and other policyholder funds.......................................... 846.8 842.1
Liabilities related to separate accounts............................................. 30.1 29.8
Other liabilities...................................................................... 503.6 440.0
Investment borrowings.................................................................. 314.7 315.1
Notes payable - direct corporate obligations........................................... 805.3 851.5
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Total liabilities.................................................................. 27,088.0 27,037.5
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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: March 31, 2006 - 151,513,212; December 31, 2005 - 151,513,434)...... 1.5 1.5
Additional paid-in capital............................................................. 3,198.4 3,194.1
Accumulated other comprehensive income (loss).......................................... (224.2) 71.7
Retained earnings...................................................................... 639.8 584.7
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Total shareholders' equity........................................................... 4,283.3 4,519.8
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Total liabilities and shareholders' equity........................................... $31,371.3 $31,557.3
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Conseco (6)
May 4, 2006
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions, except per share data)
(unaudited)
Three months ended
March 31,
-----------------------
2006 2005
---- ----
Revenues:
Insurance policy income............................................................. $ 754.7 $ 727.7
Net investment income (loss):
General account assets............................................................ 351.3 337.8
Policyholder and reinsurer accounts............................................... 14.1 (23.3)
Net realized investment gain (loss)................................................. (3.1) 1.6
Fee revenue and other income........................................................ 4.7 4.2
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Total revenues.................................................................. 1,121.7 1,048.0
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Benefits and expenses:
Insurance policy benefits........................................................... 726.8 671.0
Interest expense.................................................................... 16.4 14.7
Amortization........................................................................ 118.6 94.7
Other operating costs and expenses.................................................. 158.8 140.4
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Total benefits and expenses..................................................... 1,020.6 920.8
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Income before income taxes...................................................... 101.1 127.2
Income tax expense on period income.................................................... 36.5 45.4
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Net income...................................................................... 64.6 81.8
Preferred stock dividends.............................................................. 9.5 9.5
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Net income applicable to common stock........................................... $ 55.1 $ 72.3
======== ========
Earnings per common share:
Basic:
Weighted average shares outstanding............................................... 151,521,000 151,058,000
=========== ===========
Net income........................................................................ $.36 $.48
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Diluted:
Weighted average shares outstanding............................................... 183,541,000 186,764,000
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Net income........................................................................ $.35 $.44
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Conseco (7)
May 4, 2006
CONSECO, INC. AND SUBSIDIARIES
COLLECTED PREMIUMS
(Dollars in millions)
Three Months Ended
March 31,
---------------------
2006 2005
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Bankers Life segment:
Annuity............................................................................... $233.4 $221.7
Supplemental health................................................................... 325.9 313.6
Life.................................................................................. 66.6 48.6
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Total collected premiums.............................................................. $625.9 $583.9
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Conseco Insurance Group segment:
Annuity............................................................................... $ 36.2 $ 25.3
Supplemental health................................................................... 159.6 174.6
Life.................................................................................. 84.1 89.7
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Total collected premiums.............................................................. $279.9 $289.6
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Other Business in Run-off segment:
Long-term care........................................................................ $ 87.3 $92.3
Major medical......................................................................... 1.1 0.7
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Total collected premiums.............................................................. $88.4 $93.0
===== =====
BENEFIT RATIOS ON MAJOR SUPPLEMENTAL HEALTH LINES OF BUSINESS
Three Months Ended
March 31,
-----------------------
2006 2005
---- ----
Bankers Life segment:
Medicare Supplement:
Earned premium........................................................................ $168 million $164 million
Benefit ratio......................................................................... 67.8% 71.9%
Long-Term Care:
Earned premium........................................................................ $143 million $138 million
Benefit ratio......................................................................... 96.5% 91.8%
Interest-adjusted benefit ratio (a non-GAAP measure)(a)............................... 66.9% 63.9%
Conseco Insurance Group (CIG) segment:
Medicare Supplement:
Earned premium........................................................................ $68 million $82 million
Benefit ratio (b)..................................................................... 60.3% 55.2%
Specified Disease:
Earned premium........................................................................ $90 million $90 million
Benefit ratio......................................................................... 77.5% 75.5%
Interest-adjusted benefit ratio (a non-GAAP measure)(a)............................... 45.9% 44.8%
Other Business in Run-off segment:
Earned premium........................................................................ $89 million $92 million
Benefit ratio......................................................................... 94.8% 94.5%
Interest-adjusted benefit ratio (a non-GAAP measure)(a)............................... 45.1% 48.2%
<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>
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