Exhibit 99.1
NEWS
For Release Immediate
Contacts (News Media) Tony Zehnder, EVP, Corporate Communications
317.817.4409
(Investors) Lowell Short, SVP, Investor Relations
317.817.2893
Conseco Reports Second Quarter Results
Carmel, Ind., August 2, 2006 - Conseco, Inc. (NYSE: CNO) today reported results
for the second quarter and six months of 2006. The quarter's results reflect the
impact of the previously announced tentative litigation settlement that resulted
in after-tax costs of approximately $100.3 million and finalized tax settlement
that resulted in a direct increase to shareholders' equity of approximately $260
million.
Second quarter 2006 results:
o Net operating income (loss) (1): ($31.7) million (including after-tax
costs related to the tentative litigation settlement of $100.3
million), compared to $74.1 million in 2Q05
o Net operating income (loss) per diluted share: (21) cents (including
after-tax costs related to the tentative litigation settlement of 66
cents per share), compared to 45 cents in 2Q05
o Net income (loss) applicable to common stock: ($31.8) million,
compared to $78.6 million in 2Q05 (including $0.1 million of net
realized investment losses in 2Q06 vs. $4.5 million of net realized
investment gains in 2Q05)
o Net income (loss) per diluted share: (21) cents, compared to 48 cents
in 2Q05 (including no net realized investment losses in 2Q06 vs. 3
cents of net realized investment gains in 2Q05)
o Earnings (loss) before net realized investment gains (losses),
corporate interest and taxes ("EBIT") (2): ($22.7) million (including
pre-tax costs related to the tentative litigation settlement of $157.0
million), compared to $146.2 million in 2Q05
o Sales (4): $89.1 million, up 8% over 2Q05
Six months 2006 results:
o Net operating income (1): $24.1 million (including after-tax costs
related to the tentative litigation settlement of $111.6 million),
down 83% from the first six months of 2005
o Net operating income per diluted share: 16 cents (including after-tax
costs related to the tentative litigation settlement of 73 cents per
share), down 82% from the first six months of 2005
o Net income applicable to common stock: $23.3 million, down 85% from
the first six months of 2005
o Net income per diluted share: 15 cents, down 84% from the first six
months of 2005
o EBIT (2): $91.9 million (including pre-tax costs related to the
tentative litigation settlement of $174.7 million), down 67% from the
first six months of 2005
o Sales (4): $174.9 million, up 7% over the first six months of 2005
Financial strength at June 30, 2006:
o Book value per share, excluding accumulated other comprehensive income
(loss) (3), was $26.89, compared to $24.95 at December 31, 2005
o Debt-to-total capital ratio, excluding accumulated other comprehensive
income (loss) (3), was 14.5%, compared to 16.1% at December 31, 2005
"This has been an eventful and pivotal quarter for Conseco, as we have now
addressed two significant historical issues," interim Chief Executive Officer
James Hohmann said. "We finalized the tax settlement, and we reached a tentative
settlement in an important litigation issue that had its origin in certain
universal life policies. Most of these policies were sold by insurance companies
before the companies were acquired by Conseco in the 1990s. Collectively, these
two items have resulted in a significant net increase to shareholders' equity.
Our strong capital position is more than adequate to absorb the litigation
charges; our estimate of the consolidated risk-based capital ratio (a non-GAAP
measure) exceeds 330%.
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Conseco (2)
August 2, 2006
"These events are evidence of our progress as an organization," Hohmann said.
"We are making significant strides on many fronts as we establish Conseco as a
leading provider of financial security for the life, health and retirement needs
of middle market America.
"Notwithstanding this progress, second quarter was a difficult quarter in
certain of our health businesses, with incurred claims exceeding expectations in
the Bankers' long-term care block, specified disease and in particular, the
run-off long-term care block. Although we are responding to these challenges
with increased claims management focus and pricing initiatives where
appropriate, based on our results in the first half of 2006 and our expectations
for the balance of the year, we are lowering our outlook for 2006 operating
earnings to between $1.65 and $1.75 of operating income per share, excluding the
after-tax litigation charges recorded in the first half of 2006."
This outlook is based on numerous assumptions and factors. If they prove
incorrect, actual earnings could differ materially from estimates. (See note on
forward-looking statements below.)
Operating results
Results by segment for the quarter were as follows ($ in millions):
Three Months Ended
June 30,
--------------------------
2006 2005
---- ----
EBIT (2), excluding the costs related to the tentative litigation settlement:
Bankers Life (including Colonial Penn).......................................... $ 70.2 $ 68.4
Conseco Insurance Group......................................................... 64.7 68.8
Other Business in Run-off....................................................... 4.4 21.4
Corporate Operations, excluding corporate interest expense...................... (5.0) (7.1)
------- ------
EBIT, excluding the costs related to the tentative litigation settlement..... 134.3 151.5
Costs related to the tentative litigation settlement.............................. (157.0) (5.3)
------- ------
Total EBIT................................................................... (22.7) 146.2
Corporate interest expense........................................................ (12.0) (13.1)
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Income (loss) before net realized investment gains (losses) and taxes...... (34.7) 133.1
Tax (expense) benefit............................................................. 12.5 (49.5)
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Net income (loss) before net realized investment gains (losses)............ (22.2) 83.6
Preferred stock dividends:
5.50% Class B mandatorily convertible preferred stock.......................... (9.5) (9.5)
------- ------
Net operating income (loss)................................................ (31.7) 74.1
Net realized investment gains (losses), net of related amortization and taxes..... (.1) 4.5
------- ------
Net income (loss) applicable to common stock............................... $ (31.8) $ 78.6
======= ======
Per diluted share:
Net operating income (loss).................................................. $(.21) $.45
Net realized investment gains (losses), net of related amortization
and taxes................................................................. - .03
----- ----
Net income (loss) applicable to common stock................................. $(.21) $.48
===== ====
In our Bankers Life segment, EBIT was $70.2 million in the second quarter of
2006 compared to $68.4 million in the second 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 higher incurred claims in our long-term care business.
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Conseco (3)
August 2, 2006
In our Conseco Insurance Group segment, EBIT, excluding the costs related to the
tentative litigation settlement, was $64.7 million in the second quarter of
2006, compared to $68.8 million in the second quarter of 2005. Earnings in the
second quarter of 2006 reflected higher incurred claims in our specified disease
business.
In our Other Business in Run-off segment, EBIT was $4.4 million in the second
quarter of 2006, compared to $21.4 million in the second quarter of 2005.
Earnings in the second quarter of 2006 reflected adverse development of prior
period claim reserves and an increase in initial claims, partially offset by a
release of certain other redundant reserves of $9.4 million.
The Corporate operations segment includes our investment advisory subsidiary and
corporate expenses.
Sales up 8% for the quarter
Total sales (4) rose by 8% over 2Q05, to $89.1 million.
At Conseco Insurance Group (independent distribution), total 2Q06 sales were
$23.6 million, up 50% over 2Q05. Expanded product offerings, revitalized
marketing efforts, increased agent productivity and improved recruiting efforts
contributed to the increase.
At Bankers Life (career distribution), total 2Q06 sales were $56.4 million, down
6% from 2Q05, reflecting lower long-term care sales and in line with our
expectations.
At Colonial Penn (direct distribution), total 2Q06 sales were $9.1 million, up
24% over 2Q05 as we continued the investment in our marketing efforts.
Conference Call
The company will host a conference call to discuss results at 10:00 a.m. Eastern
Daylight Time on Thursday, August 3, 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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(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 tables on page 2 and 7.
(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 tables on
page 2 and 7.
(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 15.8% and
$23.95, respectively, at June 30, 2006, and 15.9% and $25.42, respectively,
at December 31, 2005.
(4) Measured by new annualized premium, which Includes 6% of annuity and 10% of
single premium whole life deposits.
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Conseco (4)
August 2, 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)
August 2, 2006
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
June 30, December 31,
2006 2005
---- ----
(unaudited)
ASSETS
Investments:
Actively managed fixed maturities at fair value (amortized cost:
June 30, 2006 - $22,568.4; December 31, 2005 - $22,380.2).......................... $21,690.8 $22,494.2
Equity securities at fair value (cost: June 30, 2006 - $31.2;
December 31, 2005 - $25.6)......................................................... 33.4 27.1
Mortgage loans....................................................................... 1,452.9 1,264.2
Policy loans......................................................................... 418.4 429.8
Trading securities................................................................... 668.3 716.3
Other invested assets ............................................................... 97.9 109.6
--------- ---------
Total investments.................................................................. 24,361.7 25,041.2
Cash and cash equivalents:
Unrestricted......................................................................... 206.2 237.8
Restricted........................................................................... 39.2 35.2
Accrued investment income................................................................. 317.8 315.4
Value of policies inforce at the Effective Date........................................... 2,403.2 2,414.0
Cost of policies produced................................................................. 967.5 758.8
Reinsurance receivables................................................................... 862.7 887.5
Income tax assets, net.................................................................... 2,022.7 1,496.6
Assets held in separate accounts.......................................................... 28.8 29.8
Other assets.............................................................................. 341.4 341.0
--------- ---------
Total assets....................................................................... $31,551.2 $31,557.3
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Liabilities for insurance products:
Interest-sensitive products.......................................................... $12,678.7 $12,686.8
Traditional products................................................................. 11,937.6 11,872.2
Claims payable and other policyholder funds.......................................... 822.9 842.1
Liabilities related to separate accounts............................................. 28.8 29.8
Other liabilities...................................................................... 630.7 440.0
Investment borrowings.................................................................. 350.4 315.1
Notes payable - direct corporate obligations........................................... 805.5 851.5
--------- ---------
Total liabilities.................................................................. 27,254.6 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:June 30, 2006 - 151,518,505; December 31, 2005 - 151,513,434)........ 1.5 1.5
Additional paid-in capital............................................................. 3,464.9 3,194.1
Accumulated other comprehensive income (loss).......................................... (445.6) 71.7
Retained earnings...................................................................... 608.0 584.7
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Total shareholders' equity........................................................... 4,296.6 4,519.8
--------- ---------
Total liabilities and shareholders' equity........................................... $31,551.2 $31,557.3
========= =========
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Conseco (6)
August 2, 2006
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,
------------------- -----------------
2006 2005 2006 2005
---- ---- ---- ----
Revenues:
Insurance policy income................................... $ 739.7 $ 728.5 $1,494.4 $1,456.2
Net investment income (loss):
General account assets.................................. 357.3 348.0 708.6 685.8
Policyholder and reinsurer accounts..................... (13.7) (1.6) .4 (24.9)
Net realized investment gains (loss).................... (3.7) 7.9 (6.8) 9.5
Fee revenue and other income.............................. 4.5 3.9 9.2 8.1
-------- -------- -------- --------
Total revenues..................................... 1,084.1 1,086.7 2,205.8 2,134.7
-------- -------- -------- --------
Benefits and expenses:
Insurance policy benefits................................. 705.2 703.4 1,432.0 1,374.4
Interest expense.......................................... 17.1 16.1 33.5 30.8
Amortization.............................................. 97.6 88.0 216.2 182.7
Costs related to the tentative litigation settlement...... 157.0 5.3 174.7 5.9
Other operating costs and expenses........................ 142.1 134.0 283.2 273.8
-------- -------- -------- --------
Total benefits and expenses........................ 1,119.0 946.8 2,139.6 1,867.6
-------- -------- -------- --------
Income (loss) before income taxes.................. (34.9) 139.9 66.2 267.1
Income tax expense (benefit) on period income............. (12.6) 51.8 23.9 97.2
-------- -------- -------- --------
Net income (loss).................................. (22.3) 88.1 42.3 169.9
Preferred stock dividends................................. 9.5 9.5 19.0 19.0
-------- -------- -------- --------
Net income (loss) applicable to common stock....... $ (31.8) $ 78.6 $ 23.3 $ 150.9
======== ======== ======== ========
Earnings per common share:
Basic:
Weighted average shares outstanding.................. 151,514,000 151,058,000 151,518,000 151,058,000
=========== =========== =========== ===========
Net income (loss).................................... $(.21) $.52 $.15 $1.00
===== ==== ==== =====
Diluted:
Weighted average shares outstanding.................. 151,514,000 185,002,000 152,556,000 185,883,000
=========== =========== =========== ===========
Net income (loss).................................... $(.21) $.48 $.15 $.91
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Conseco (7)
August 2, 2006
CONSECO, INC. AND SUBSIDIARIES
OPERATING RESULTS
Results by segment for the six months ended June 30 were as follows ($ in
millions):
Six Months Ended
June 30,
--------------------
2006 2005
---- ----
EBIT (2), excluding the costs related to the tentative litigation settlement:
Bankers Life (including Colonial Penn)................................................... $ 132.5 $127.2
Conseco Insurance Group.................................................................. 115.4 133.5
Other Business in Run-off................................................................ 28.4 42.9
Corporate Operations, excluding corporate interest expense............................... (9.7) (15.4)
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EBIT, excluding the costs related to the tentative litigation settlement.............. 266.6 288.2
Costs related to the tentative litigation settlement....................................... (174.7) (5.9)
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Total EBIT............................................................................ 91.9 282.3
Corporate interest expense................................................................ (24.4) (25.1)
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Income before net realized investment gains (losses) and taxes....................... 67.5 257.2
Tax expense................................................................................ (24.4) (93.8)
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Net income before net realized investment gains (losses)............................ 43.1 163.4
Preferred stock dividends:
5.50% Class B mandatorily convertible preferred stock................................... (19.0) (19.0)
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Net operating income................................................................ 24.1 144.4
Net realized investment gains (losses), net of related amortization and taxes.............. (.8) 6.5
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Net income applicable to common stock............................................... $ 23.3 $150.9
======= ======
Per diluted share:
Net operating income.................................................................. $.16 $.88
Net realized investment gains, net of related amortization and taxes.................. (.01) .03
---- ----
Net income applicable to common stock................................................. $.15 $.91
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Conseco (8)
August 2, 2006
CONSECO, INC. AND SUBSIDIARIES
COLLECTED PREMIUMS
(Dollars in millions)
Three Months Ended
June 30,
-----------------------
2006 2005
---- ----
Bankers Life segment:
Annuity............................................................................... $238.3 $238.6
Supplemental health................................................................... 345.7 304.5
Life.................................................................................. 68.2 55.7
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Total collected premiums.............................................................. $652.2 $598.8
====== ======
Conseco Insurance Group segment:
Annuity............................................................................... $ 92.4 $ 28.1
Supplemental health................................................................... 153.3 166.0
Life.................................................................................. 78.3 83.0
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Total collected premiums.............................................................. $324.0 $277.1
====== ======
Other Business in Run-off segment:
Long-term care........................................................................ $80.2 $87.7
Major medical......................................................................... 2.2 0.6
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Total collected premiums.............................................................. $82.4 $88.3
===== =====
BENEFIT RATIOS ON MAJOR SUPPLEMENTAL HEALTH LINES OF BUSINESS
Three Months Ended
June 30,
---------------------
2006 2005
---- ----
Bankers Life segment:
Medicare Supplement:
Earned premium........................................................................ $164 million $164 million
Benefit ratio(a)...................................................................... 67.4% 72.4%
Long-Term Care:
Earned premium........................................................................ $148 million $140 million
Benefit ratio(a)...................................................................... 96.2% 92.6%
Interest-adjusted benefit ratio (a non-GAAP measure)(b)............................... 66.8% 64.3%
Conseco Insurance Group (CIG) segment:
Medicare Supplement:
Earned premium........................................................................ $64 million $74 million
Benefit ratio(a)...................................................................... 56.9% 63.2%
Specified Disease:
Earned premium........................................................................ $89 million $90 million
Benefit ratio(a)...................................................................... 79.9% 74.0%
Interest-adjusted benefit ratio (a non-GAAP measure)(b)............................... 48.2% 43.0%
Other Business in Run-off segment:
Earned premium........................................................................ $82 million $90 million
Benefit ratio(a)...................................................................... 118.0% 97.6%
Interest-adjusted benefit ratio (a non-GAAP measure)(b)............................... 64.4% 48.6%
<FN>
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(a) The benefit ratio is calculated by dividing the related product's insurance
policy benefits by insurance policy income.
(b) 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.
</FN>
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