Exhibit 99.1
NEWS
For Release Immediate
Contacts (News Media) Tony Zehnder, EVP, Corporate Communications
317.817.5491
(Investors) Daniel Murphy, SVP and Treasurer
317.817.2893
Conseco Reports Third Quarter Results
Carmel, Ind., November 1, 2006 - Conseco, Inc. (NYSE: CNO) today reported
results for the third quarter and nine months of 2006. "Our results for the
current quarter reflect solid performance in our core operating businesses but
have been impacted by the poor results of the long-term care block in our
run-off segment" said Chief Executive Officer Jim Prieur. "Core business results
were consistent with our expectations, with operating earnings essentially flat
in the third quarter of 2006 compared to the third quarter of 2005 reflecting
some unusual items in last year's third quarter. Sales were up a strong 14% on a
combined basis. The run-off segment's results were significantly less than last
year's third quarter and our expectations, with a pre-tax operating loss of
$13.0 million compared to a profit of $16.4 million in the prior year period. A
combination of higher than expected incurred claims and lower than expected
reserve releases for policy terminations were the principal factors contributing
to the poor results."
Third quarter 2006 results:
o Net operating income (1): $52.8 million, compared to $72.1 million in
3Q05
o Net operating income per diluted share: 35 cents, compared to 44 cents
in 3Q05
o Net income applicable to common stock: $38.9 million, compared to $68.4
million in 3Q05 (including $13.9 million of net realized investment
losses in 3Q06 vs. $3.7 million of net realized investment losses in
3Q05)
o Net income per diluted share: 26 cents, compared to 42 cents in 3Q05
(including 9 cents of net realized investment losses in 3Q06 vs. 2 cents
of net realized investment losses in 3Q05)
o Earnings before net realized investment gains (losses), corporate
interest and taxes ("EBIT") (2): $110.4 million, compared to $142.8
million in 3Q05
o Sales (4): $91.6 million, up 14% over 3Q05
Nine months 2006 results:
o Net operating income (1): $76.9 million (including after-tax costs
related to the tentative litigation settlement of $99.7 million), down
64% from the first nine months of 2005
o Net operating income per diluted share: 50 cents (including after-tax
costs related to the tentative litigation settlement of 65 cents per
share), down 62% from the first nine months of 2005
o Net income applicable to common stock: $62.2 million, down 72% from the
first nine months of 2005
o Net income per diluted share: 41 cents, down 69% from the first nine
months of 2005
o EBIT (2): $202.3 million (including pre-tax costs related to the
tentative litigation settlement of $157.0 million), down 52% from the
first nine months of 2005
o Sales (4): $266.5 million, up 10% over the first nine months of 2005
Financial strength at September 30, 2006:
o Book value per common share, excluding accumulated other comprehensive
income (loss) (3), was $27.10, compared to $24.95 at December 31, 2005
o Book value per diluted share, excluding accumulated other comprehensive
income (loss) (3), was $25.81, compared to $24.26 at December 31, 2005
o Debt-to-total capital ratio, excluding accumulated other comprehensive
income (loss) (3), was 14.4%, compared to 16.1% at December 31, 2005
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Conseco (2)
November 1, 2006
Operating results
Results by segment for the quarter were as follows ($ in millions, except per
share data):
Three Months Ended
September 30,
--------------------------
2006 2005
---- ----
EBIT (2):
Bankers Life (including Colonial Penn).......................................... $ 73.0 $ 60.4
Conseco Insurance Group......................................................... 58.5 67.1
Other Business in Run-off....................................................... (13.0) 16.4
Corporate Operations, excluding corporate interest expense...................... (8.1) (1.1)
------ ------
EBIT......................................................................... 110.4 142.8
Corporate interest expense........................................................ (12.5) (12.1)
Loss on extinguishment of debt.................................................... - (3.7)
------ ------
Income before net realized investment gains (losses) and taxes............. 97.9 127.0
Tax expense....................................................................... 35.6 45.4
------ ------
Net income before net realized investment gains (losses)..................... 62.3 81.6
Preferred stock dividends:
5.50% Class B mandatorily convertible preferred stock.......................... 9.5 9.5
------ ------
Net operating income......................................................... 52.8 72.1
Net realized investment gains (losses), net of related amortization and taxes..... (13.9) (3.7)
------ ------
Net income applicable to common stock........................................ $ 38.9 $ 68.4
====== ======
Per diluted share:
Net operating income......................................................... $.35 $.44
Net realized investment gains (losses), net of related amortization
and taxes................................................................. (.09) (.02)
---- ----
Net income applicable to common stock........................................ $.26 $.42
==== ====
In our Bankers Life segment, EBIT was $73.0 million in the third quarter of 2006
compared to $60.4 million in the third quarter of 2005. The earnings improvement
reflects increased investment income and improved margins in our Medicare
supplement business; partially offset by higher incurred claims in our long-term
care business.
In our Conseco Insurance Group segment, EBIT was $58.5 million in the third
quarter of 2006, compared to $67.1 million in the third quarter of 2005.
Earnings in the third quarter of 2006 compared to the comparable period last
year were affected by the following items:
1) Lower earned premium and higher incurred claims in our Medicare
supplement business;
2) Lost profits from the block of business subject to the tentative
litigation settlement discussed in our second quarter earnings
release;
3) Improved margins in our specified disease business; and
4) Net investment income in the third quarter of 2005 included $10.5
million of prepayment income on fixed maturity investments and
mortgage loans, offset by related additional amortization of $5
million.
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Conseco (3)
November 1, 2006
In our Other Business in Run-off segment, EBIT was ($13.0) million in the third
quarter of 2006, compared to $16.4 million in the third quarter of 2005. Results
in the third quarter of 2006 were affected by the following items:
1) Adverse development of prior period claim reserves (approximately $11
million);
2) Higher than expected initial claim costs (approximately $2 million);
and
3) Less than expected reserve releases for terminated policies
(approximately $9 million).
The Corporate Operations segment includes our investment advisory subsidiary and
corporate expenses. Results in the third quarter of 2005 included a performance
fee of $8.1 million earned by our investment advisor for its management of a
portfolio of loans for a structured security that was liquidated during the
period.
Sales up 14% for the quarter
Total sales (4) rose by 14% over 3Q05, to $91.6 million.
At Conseco Insurance Group (independent distribution), total 3Q06 sales were
$26.0 million, up 47% over 3Q05. Expanded product offerings, revitalized
marketing efforts, increased agent productivity and improved recruiting efforts
contributed to the increase.
At Bankers Life (career distribution), total 3Q06 sales were $57.3 million, up
5% from 3Q05, reflecting strong growth in our life and annuity product lines,
essentially flat sales in Medicare supplement and lower long-term care sales.
At Colonial Penn (direct distribution), total 3Q06 sales were $8.3 million, up
10% over 3Q05 as we continued the investment in our marketing efforts.
In addition to the sales of traditional products discussed above, Bankers Life
and Conseco Insurance Group, through a partnership with Coventry Health Care
(Coventry), distribute and risk-share Medicare prescription drug plans (PDP)
through their career and independent agents, respectively. After taking into
account the 50% quota share with Coventry, the equivalent new annualized premium
was $4.9 million during the third quarter and $84.6 million for the first nine
months of 2006.
Outlook
We expect the performance of our core businesses in the fourth quarter to
approximate third quarter results. We are responding with increased focus and
urgency to the emerging trends in the long-term care block in the non-core
run-off segment, through vigilant claims management and a comprehensive premium
re-rate process. However, these steps will likely take several quarters to
influence results. The impact of small experience-driven changes in the
approximately $3.3 billion of reserves held on this block can produce volatility
in quarterly earnings.
See note on forward-looking statements below.
Conference Call
The company will host a conference call to discuss results at 10:00 a.m. Eastern
Standard Time on Thursday, November 2, 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.
During the call, we will be referring to a presentation that will be available
Thursday morning through the investors section of the company's website.
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Conseco (4)
November 1, 2006
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.
- -----------------------------------------------
(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 8.
(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 8.
(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 14.6% and
$26.62, respectively, at September 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 and 100% of all other premiums.
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.
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Conseco (5)
November 1, 2006
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)
November 1, 2006
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
September 30, December 31,
2006 2005
---- ----
(unaudited)
ASSETS
Investments:
Actively managed fixed maturities at fair value (amortized cost:
September 30, 2006 - $22,818.8; December 31, 2005 - $22,380.2)..................... $22,662.4 $22,494.2
Equity securities at fair value (cost: September 30, 2006 - $23.7;
December 31, 2005 - $25.6)......................................................... 26.7 27.1
Mortgage loans....................................................................... 1,480.8 1,264.2
Policy loans......................................................................... 415.0 429.8
Trading securities................................................................... 680.9 716.3
Other invested assets ............................................................... 101.8 109.6
--------- ---------
Total investments.................................................................. 25,367.6 25,041.2
Cash and cash equivalents:
Unrestricted......................................................................... 236.7 237.8
Restricted........................................................................... 14.9 35.2
Accrued investment income................................................................. 342.2 315.4
Value of policies inforce at the Effective Date........................................... 2,239.8 2,414.0
Cost of policies produced................................................................. 1,025.8 758.8
Reinsurance receivables................................................................... 855.6 887.5
Income tax assets, net.................................................................... 1,785.1 1,496.6
Assets held in separate accounts.......................................................... 28.9 29.8
Other assets.............................................................................. 409.6 341.0
--------- ---------
Total assets....................................................................... $32,306.2 $31,557.3
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Liabilities for insurance products:
Interest-sensitive products.......................................................... $12,894.2 $12,686.8
Traditional products................................................................. 11,981.0 11,872.2
Claims payable and other policyholder funds.......................................... 796.7 842.1
Liabilities related to separate accounts............................................. 28.9 29.8
Other liabilities...................................................................... 706.4 440.0
Investment borrowings.................................................................. 380.7 315.1
Notes payable - direct corporate obligations........................................... 805.6 851.5
--------- ---------
Total liabilities.................................................................. 27,593.5 27,037.5
--------- ---------
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: September 30, 2006 - 151,923,582; December 31, 2005 - 151,513,434).. 1.5 1.5
Additional paid-in capital............................................................. 3,468.3 3,194.1
Accumulated other comprehensive income (loss).......................................... (71.8) 71.7
Retained earnings...................................................................... 646.9 584.7
--------- ---------
Total shareholders' equity........................................................... 4,712.7 4,519.8
--------- ---------
Total liabilities and shareholders' equity........................................... $32,306.2 $31,557.3
========= =========
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Conseco (7)
November 1, 2006
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions, except per share data)
(unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------- --------------------
2006 2005 2006 2005
---- ---- ---- ----
Revenues:
Insurance policy income................................ $ 748.5 $ 745.7 $2,242.9 $2,201.9
Net investment income (loss):
General account assets............................... 360.6 356.9 1,069.2 1,042.7
Policyholder and reinsurer accounts.................. 26.2 5.4 26.6 (19.5)
Net realized investment gains (losses)................. (21.8) (6.4) (28.6) 3.1
Fee revenue and other income........................... 4.8 11.9 14.0 20.0
-------- -------- -------- --------
Total revenues..................................... 1,118.3 1,113.5 3,324.1 3,248.2
-------- -------- -------- --------
Benefits and expenses:
Insurance policy benefits.............................. 772.6 725.2 2,204.6 2,099.6
Interest expense....................................... 17.8 12.9 51.3 43.7
Amortization........................................... 104.2 105.0 320.4 287.7
Loss on extinguishment of debt......................... - 3.7 - 3.7
Costs related to the tentative litigation settlement... - 2.5 174.7 8.4
Other operating costs and expenses..................... 147.0 142.8 430.2 416.6
-------- -------- -------- --------
Total benefits and expenses........................ 1,041.6 992.1 3,181.2 2,859.7
-------- -------- -------- --------
Income before income taxes......................... 76.7 121.4 142.9 388.5
Income tax expense on period income....................... 28.3 43.5 52.2 140.7
-------- -------- -------- --------
Net income......................................... 48.4 77.9 90.7 247.8
Preferred stock dividends................................. 9.5 9.5 28.5 28.5
-------- -------- -------- --------
Net income applicable to common stock.............. $ 38.9 $ 68.4 $ 62.2 $ 219.3
======== ======== ======== ========
Earnings per common share:
Basic:
Weighted average shares outstanding.................. 151,663,000 151,114,000 151,566,000 151,077,000
=========== =========== =========== ===========
Net income........................................... $.26 $.45 $.41 $1.45
==== ==== ==== =====
Diluted:
Weighted average shares outstanding.................. 152,529,000 185,178,000 152,547,000 185,648,000
=========== =========== =========== ===========
Net income........................................... $.26 $.42 $.41 $1.33
==== ==== ==== =====
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Conseco (8)
November 1, 2006
CONSECO, INC. AND SUBSIDIARIES
OPERATING RESULTS
Results by segment for the nine months ended September 30 were as follows ($ in
millions, except per share data):
Nine Months Ended
September 30,
----------------------
2006 2005
---- ----
EBIT (2), excluding the costs related to the tentative litigation settlement:
Bankers Life (including Colonial Penn)................................................... $ 205.5 $187.6
Conseco Insurance Group.................................................................. 165.1 197.6
Other Business in Run-off................................................................ 15.4 59.3
Corporate Operations, excluding corporate interest expense............................... (26.7) (19.4)
------- ------
EBIT, excluding the costs related to the tentative litigation settlement.............. 359.3 425.1
Costs related to the tentative litigation settlement....................................... (157.0) -
------- ------
Total EBIT............................................................................ 202.3 425.1
Corporate interest expense................................................................. (36.9) (37.2)
Loss on extinguishment of debt............................................................. - (3.7)
------- ------
Income before net realized investment gains (losses) and taxes....................... 165.4 384.2
Tax expense................................................................................ 60.0 139.2
------- ------
Net income before net realized investment gains (losses).............................. 105.4 245.0
Preferred stock dividends:
5.50% Class B mandatorily convertible preferred stock................................... 28.5 28.5
------- ------
Net operating income.................................................................. 76.9 216.5
Net realized investment gains (losses), net of related amortization and taxes.............. (14.7) 2.8
------- ------
Net income applicable to common stock................................................. $ 62.2 $219.3
======= ======
Per diluted share:
Net operating income.................................................................. $.50 $1.32
Net realized investment gains (losses), net of related amortization and taxes......... (.09) .01
---- -----
Net income applicable to common stock................................................. $.41 $1.33
==== =====
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Conseco (9)
November 1, 2006
CONSECO, INC. AND SUBSIDIARIES
COLLECTED PREMIUMS
(Dollars in millions)
Three Months Ended
September 30,
---------------------
2006 2005
---- ----
Bankers Life segment:
Annuity............................................................................... $278.2 $226.7
Supplemental health................................................................... 318.1 302.9
Life.................................................................................. 73.2 65.8
------ ------
Total collected premiums.............................................................. $669.5 $595.4
====== ======
Conseco Insurance Group segment:
Annuity............................................................................... $182.8 $ 43.3
Supplemental health................................................................... 145.5 160.2
Life.................................................................................. 78.3 86.0
------ ------
Total collected premiums.............................................................. $406.6 $289.5
====== ======
Other Business in Run-off segment:
Long-term care........................................................................ $79.6 $86.4
Major medical......................................................................... 0.8 0.7
----- -----
Total collected premiums.............................................................. $80.4 $87.1
===== =====
BENEFIT RATIOS ON MAJOR SUPPLEMENTAL HEALTH LINES OF BUSINESS
Three Months Ended
September 30,
----------------------
2006 2005
---- ----
Bankers Life segment:
Medicare Supplement:
Earned premium........................................................................ $162 million $164 million
Benefit ratio(a)...................................................................... 65.7% 71.8%
Long-Term Care:
Earned premium........................................................................ $151 million $141 million
Benefit ratio(a)...................................................................... 98.2% 93.9%
Interest-adjusted benefit ratio (a non-GAAP measure)(b)............................... 68.8% 65.1%
Conseco Insurance Group (CIG) segment:
Medicare Supplement:
Earned premium........................................................................ $62 million $74 million
Benefit ratio(a)...................................................................... 66.8% 60.9%
Specified Disease:
Earned premium........................................................................ $89 million $89 million
Benefit ratio(a)...................................................................... 73.6% 75.8%
Interest-adjusted benefit ratio (a non-GAAP measure)(b)............................... 41.2% 44.5%
Other Business in Run-off segment:
Earned premium........................................................................ $83 million $91 million
Benefit ratio(a)...................................................................... 136.0% 99.5%
Interest-adjusted benefit ratio (a non-GAAP measure)(b)............................... 83.1% 50.5%
<FN>
- -----------------------------------------------------------
(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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