Exhibit 99.1
NEWS
For Release Immediate
Contacts (News Media) Tony Zehnder, Corporate Communications
317.817.5345
(Investors) Daniel Murphy, Investor Relations
317.817.2893
Conseco Reports Fourth Quarter and Year-End Results
Carmel, Ind., March 6, 2007 - Conseco, Inc. (NYSE: CNO) today reported results
for the fourth quarter and full year 2006.
"I'm disappointed with our poor overall financial results," said Jim Prieur,
reporting on his first full quarter as CEO, "but we are taking the necessary
steps that will fundamentally change Conseco for the better. The results for the
quarter reflect a number of adjustments, many of which we believe are one-time
in nature, and there are many signs of progress, including strong full year
sales growth in our core operating businesses, emerging efficiencies from the
consolidation of our back office operations, and progress on our initiatives to
improve the performance of our run-off long-term care block."
Fourth quarter 2006 results:
o Net operating income (1): $5.7 million, compared to $70.4 million in
4Q05
o Net operating income per diluted share: 4 cents, compared to 44 cents
in 4Q05
o Net income (loss) applicable to common stock: $(3.7) million, compared
to $67.6 million in 4Q05 (including $9.4 million of net realized
investment losses in 4Q06 vs. $2.8 million of net realized investment
losses in 4Q05)
o Net income (loss) per diluted share: (2) cents, compared to 42 cents
in 4Q05 (including 6 cents of net realized investment losses in 4Q06
vs. 2 cents of net realized investment losses in 4Q05)
o Earnings before net realized investment losses, corporate interest and
taxes ("EBIT") (2): $40.7 million, compared to $130.2 million in 4Q05
o Sales (4): $87.2 million, down 3% from 4Q05
Full year 2006 results:
o Net operating income (1): $82.6 million (including after-tax costs
related to the tentative litigation settlement of $102.1 million),
down 71% from 2005
o Net operating income per diluted share: 54 cents (including after-tax
costs related to the tentative litigation settlement of 67 cents per
share), down 69% from 2005
o Net income applicable to common stock: $58.5 million, down 80% from
2005
o Net income per diluted share: 38 cents, down 78% from 2005
o EBIT (2): $243.0 million (including pre-tax costs related to the
tentative litigation settlement of $157.0 million), down 56% from 2005
o Sales (4): $353.7 million, up 6% over 2005
Financial strength at December 31, 2006:
o Book value per common share, excluding accumulated other comprehensive
income (loss) (3), was $27.06, compared to $24.95 at December 31, 2005
o Book value per diluted share, excluding accumulated other
comprehensive income (loss) (3), was $25.64, compared to $24.26 at
December 31, 2005
o Debt-to-total capital ratio, excluding accumulated other comprehensive
income (loss) (3), was 17.3%, compared to 16.1% at December 31, 2005
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Conseco (2)
March 6, 2007
Operating results
Our segments reflect the addition of Colonial Penn as a separate segment. All
prior period segment disclosures have been restated to conform to our new
presentation.
Results by segment for the quarter were as follows ($ in millions, except per
share data):
Three Months Ended
December 31,
--------------------------
2006 2005
---- ----
EBIT (2):
Bankers Life.................................................................... $ 69.1 $ 63.5
Conseco Insurance Group......................................................... 23.9 59.1
Colonial Penn................................................................... 5.4 3.3
Other Business in Run-off....................................................... (57.3) 17.9
Corporate Operations, excluding corporate interest expense...................... (.4) (13.6)
------ ------
EBIT......................................................................... 40.7 130.2
Corporate interest expense........................................................ (16.0) (10.9)
Loss on extinguishment of debt.................................................... (.7) -
------ ------
Income before net realized investment losses and taxes..................... 24.0 119.3
Tax expense....................................................................... 8.8 39.4
------ ------
Net income before net realized investment losses............................. 15.2 79.9
Preferred stock dividends:
5.50% Class B mandatorily convertible preferred stock.......................... 9.5 9.5
------ ------
Net operating income......................................................... 5.7 70.4
Net realized investment losses, net of related amortization and taxes............. (9.4) (2.8)
------ ------
Net income (loss) applicable to common stock................................. $ (3.7) $ 67.6
====== ======
Per diluted share:
Net operating income......................................................... $ .04 $.44
Net realized investment losses, net of related amortization and taxes........ (.06) (.02)
----- ----
Net income (loss) applicable to common stock................................. $(.02) $.42
===== ====
In our Bankers Life segment, EBIT was $69.1 million in the fourth quarter of
2006 compared to $63.5 million in the fourth quarter of 2005. The earnings
improvement reflects increased investment income and improved margins in our
Medicare supplement business, including our Medicare Part D marketing and
quota-share reinsurance agreements with Coventry. Results for the fourth quarter
of 2006 include a $7.4 million reduction in insurance reserves for certain
policies no longer in force but incorrectly carried in the reserve valuation
system, offset by higher incurred claims in our long-term care business,
including claim reserve strengthening of $8.4 million relating to claims
incurred in previous periods.
In our Conseco Insurance Group segment, EBIT was $23.9 million in the fourth
quarter of 2006, compared to $59.1 million in the fourth quarter of 2005.
Earnings in the fourth quarter of 2006 were affected by an increase in specified
disease active life reserves (net of related amortization of insurance
intangibles) of $11.7 million arising from the correction of reserve valuation
errors, and charges of $16.1 million related to the segment's life insurance
results in connection with changes in management's intent regarding the
administration of certain policies. Results in the fourth quarter of 2005
reflect lower operating expenses due to an $8.8 million gain related to the
termination of a postretirement plan.
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Conseco (3)
March 6, 2007
Our Colonial Penn segment achieved pre-tax operating earnings of $5.4 million in
the fourth quarter of 2006 compared to $3.3 million in the fourth quarter of
2005, principally reflecting improved mortality experience and increased
investment income.
In our Other Business in Run-off segment, EBIT was $(57.3) million in the fourth
quarter of 2006, compared to $17.9 million in the fourth quarter of 2005.
Results in the fourth quarter of 2006 were affected by the following items:
1) Claim reserve strengthening of approximately $54.1 million resulting
from adverse claim experience on claims incurred in previous periods,
including $24.5 million related to the first three quarters of 2006;
2) Increases in long-term care insurance reserves of $7.1 million related
to data refinements in calculating claim reserves on certain policies
with inflation riders, with coverages for two insureds, and that are
paying benefits subject to a non-forfeiture option; and
3) Year-end adjustments to expense and premium accruals and an unusually
high level of policyholders electing non-forfeiture benefits favorably
impacted operating results by approximately $8.2 million.
The Corporate Operations segment includes our investment advisory subsidiary and
corporate expenses. Results for the fourth quarter of 2005 included an increase
in litigation reserves of $6.9 million.
Sales results
At Conseco Insurance Group (independent distribution), total sales of
traditional products in 4Q06 were $24.0 million, up 13% over 4Q05. Expanded
product offerings, revitalized marketing efforts, increased agent productivity
and improved recruiting efforts contributed to the increase. For the year, sales
rose 37% over 2005, to $94.0 million.
At Bankers Life (career distribution), total sales of traditional products in
4Q06 were $55.7 million, down 9% from 4Q05, reflecting strong growth in our life
product line, and lower annuity, medicare supplement and long-term care sales.
For the year, sales fell 3% from 2005, to $226.4 million.
At Colonial Penn (direct distribution), total 4Q06 sales were $7.5 million, up
4% over 4Q05 as we continued the investment in our marketing efforts. For the
year, sales rose 10% over 2005, to $33.3 million.
In addition to the sales of traditional products, 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, new annualized premium was $85.6 million for 2006,
substantially all of which was sold during the open enrollment period in the
first half of the year.
Internal Controls over Financial Reporting
We expect to file our annual report on Form 10-K on or about March 9, 2007. As a
result of certain adjustments identified by management and made during our
year-end closing process, we have concluded that, as of December 31, 2006, we
did not maintain effective control over certain actuarial financial reporting
processes. The related control deficiencies, taken in the aggregate, constitute
a material weakness. None of the adjustments were material individually, or in
the aggregate, to our current year or prior period financial statements taken as
a whole. We have taken steps to address the control deficiencies which will not
be considered fully remediated until the revised control processes have been
operating for a sufficient period of time to provide reasonable assurance as to
their effectiveness.
-more-
Conseco (4)
March 6, 2007
Outlook
The significant losses recently incurred in our run-off block of long-term care
insurance have led to corrective action plans involving accelerated premium
increase activity, enhanced care management and claim adjudication practices,
upgrading of management talent and focused accountability, and improved
technology based tools. However, more time is necessary to achieve the necessary
visibility to improving trends in operating results in order to provide any
commentary on outlook. As these results are significant to our overall operating
performance, we cannot comment on overall outlook at this time. 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 March 7, 2007. 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.
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 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 amendments of our credit
facility in 2006 and 2005; 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 17.5% and
$26.58, respectively, at December 31, 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.
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Conseco (5)
March 6, 2007
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 obtain adequate and timely rate
increases on our supplemental health products including our long-term care
business; (ii) mortality, morbidity, usage of health care services, persistency,
the adequacy of our previous reserve estimates and other factors which may
affect the profitability of our insurance products; (iii) changes in our
assumptions related to the cost of policies produced or the value of policies
inforce at the Effective Date; (iv) our ability to achieve anticipated expense
reductions and levels of operational efficiencies including improvements in
claims adjudication and continued automation and rationalization of operating
systems; (v) performance of our investments; (vi) our ability to identify
products and markets in which we can compete effectively against competitors
with greater market share, higher ratings, greater financial resources and
stronger brand recognition; (vii) the ultimate outcome of lawsuits filed against
us and other legal and regulatory proceedings to which we are subject; (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) our ability to achieve an upgrade of the financial
strength ratings of our insurance company subsidiaries as well as the potential
impact of rating downgrades on our business; (x) the risk factors or
uncertainties listed from time to time in our filings with the Securities and
Exchange Commission; (xi) 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; (xii) 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; and (xiii) changes in the Federal income tax
laws and regulations which may affect or eliminate the relative tax advantages
of some of our products.
Other factors and assumptions not identified above are also relevant to the
forward-looking statements, and if they prove incorrect, could also cause actual
results to differ materially from those projected. All written or oral
forward-looking statements attributable to us are expressly qualified in their
entirety by the foregoing cautionary statement. Our forward-looking statements
speak only as of the date made. We assume no obligation to update or to publicly
announce the results of any revisions to any of the forward-looking statements
to reflect actual results, future events or developments, changes in assumptions
or changes in other factors affecting the forward-looking statements.
- Tables Follow -
Conseco (6)
March 6, 2007
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
2006 2005
---- ----
ASSETS
Investments:
Actively managed fixed maturities at fair value (amortized cost:
December 31, 2006 - $22,946.9; December 31, 2005 - $22,380.2)...................... $22,802.9 $22,494.2
Equity securities at fair value (cost: December 31, 2006 - $23.9;
December 31, 2005 - $25.6)......................................................... 24.8 27.1
Mortgage loans....................................................................... 1,642.2 1,264.2
Policy loans......................................................................... 412.5 429.8
Trading securities................................................................... 675.2 716.3
Other invested assets ............................................................... 178.8 109.6
--------- ---------
Total investments.................................................................. 25,736.4 25,041.2
Cash and cash equivalents:
Unrestricted......................................................................... 385.9 237.8
Restricted........................................................................... 24.0 35.2
Accrued investment income................................................................. 344.5 315.4
Value of policies inforce at the Effective Date........................................... 2,137.2 2,382.0
Cost of policies produced................................................................. 1,106.7 758.8
Reinsurance receivables................................................................... 850.8 887.5
Income tax assets, net.................................................................... 1,786.9 1,496.6
Assets held in separate accounts.......................................................... 28.9 29.8
Other assets.............................................................................. 316.0 341.0
--------- ---------
Total assets....................................................................... $32,717.3 $31,525.3
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Liabilities for insurance products:
Interest-sensitive products........................................................ $13,018.0 $12,686.8
Traditional products............................................................... 12,094.1 11,840.2
Claims payable and other policyholder funds........................................ 832.3 842.1
Liabilities related to separate accounts........................................... 28.9 29.8
Other liabilities.................................................................... 611.8 440.0
Investment borrowings................................................................ 418.3 315.1
Notes payable - direct corporate obligations......................................... 1,000.8 851.5
--------- ---------
Total liabilities................................................................ 28,004.2 27,005.5
--------- ---------
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: December 31, 2006 - 152,165,108; December 31, 2005 - 151,513,434). 1.5 1.5
Additional paid-in capital........................................................... 3,473.2 3,194.1
Accumulated other comprehensive income (loss)........................................ (72.6) 71.7
Retained earnings.................................................................... 643.2 584.7
--------- ---------
Total shareholders' equity......................................................... 4,713.1 4,519.8
--------- ---------
Total liabilities and shareholders' equity......................................... $32,717.3 $31,525.3
========= =========
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Conseco (7)
March 6, 2007
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions, except per share data)
Three months ended Year Ended
December 31, December 31,
-------------------- -----------------
2006 2005 2006 2005
---- ---- ---- ----
Revenues:
Insurance policy income.................................. $ 746.1 $ 728.2 $2,989.0 $2,930.1
Net investment income (loss):
General account assets................................. 366.0 347.7 1,435.2 1,390.4
Policyholder and reinsurer accounts.................... 44.6 3.7 71.2 (15.8)
Net realized investment losses........................... (18.6) (6.0) (47.2) (2.9)
Fee revenue and other income............................. 5.2 4.7 19.2 24.7
-------- -------- -------- --------
Total revenues....................................... 1,143.3 1,078.3 4,467.4 4,326.5
-------- -------- -------- --------
Benefits and expenses:
Insurance policy benefits................................ 863.8 701.0 3,068.4 2,800.6
Interest expense......................................... 22.2 14.6 73.5 58.3
Amortization............................................. 103.0 100.7 423.4 388.4
Loss on extinguishment of debt.............................. .7 - .7 3.7
Costs related to the tentative litigation settlement........ - 9.9 174.7 18.3
Other operating costs and expenses....................... 144.2 137.2 574.4 553.8
-------- -------- -------- --------
Total benefits and expenses.......................... 1,133.9 963.4 4,315.1 3,823.1
-------- -------- -------- --------
Income before income taxes........................... 9.4 114.9 152.3 503.4
Income tax expense on period income......................... 3.6 37.8 55.8 178.5
-------- -------- -------- --------
Net income........................................... 5.8 77.1 96.5 324.9
Preferred stock dividends................................... 9.5 9.5 38.0 38.0
-------- -------- -------- --------
Net income (loss) applicable to common stock......... $ (3.7) $ 67.6 $ 58.5 $ 286.9
======== ======== ======== ========
Earnings per common share:
Basic:
Weighted average shares outstanding.................... 152,062,000 151,410,000 151,690,000 151,160,000
=========== =========== =========== ===========
Net income (loss)...................................... $(.02) $.45 $.39 $1.90
===== ==== ==== =====
Diluted:
Weighted average shares outstanding.................... 152,062,000 183,217,000 152,509,000 185,040,000
=========== =========== =========== ===========
Net income (loss)...................................... $(.02) $.42 $.38 $1.76
===== ==== ==== =====
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Conseco (8)
March 6, 2007
CONSECO, INC. AND SUBSIDIARIES
OPERATING RESULTS
Results by segment for the year ended were as follows ($ in millions, except per
share data):
Year Ended
December 31,
----------------------
2006 2005
---- ----
EBIT (2), excluding the costs related to the tentative litigation settlement:
Bankers Life............................................................................ $ 258.4 $234.4
Conseco Insurance Group................................................................. 189.0 256.7
Colonial Penn........................................................................... 21.6 20.0
Other Business in Run-off............................................................... (41.9) 77.2
Corporate Operations, excluding corporate interest expense.............................. (27.1) (33.0)
------- ------
EBIT, excluding the costs related to the tentative litigation settlement.............. 400.0 555.3
Costs related to the tentative litigation settlement....................................... (157.0) -
------- ------
Total EBIT............................................................................ 243.0 555.3
Corporate interest expense................................................................. (52.9) (48.1)
Loss on extinguishment of debt............................................................. (.7) (3.7)
------- ------
Income before net realized investment gains (losses) and taxes....................... 189.4 503.5
Tax expense................................................................................ 68.8 178.6
------- ------
Net income before net realized investment gains (losses).............................. 120.6 324.9
Preferred stock dividends:
5.50% Class B mandatorily convertible preferred stock................................... 38.0 38.0
------- ------
Net operating income.................................................................. 82.6 286.9
Net realized investment gains (losses), net of related amortization and taxes.............. (24.1) -
------- ------
Net income applicable to common stock................................................. $ 58.5 $286.9
======= ======
Per diluted share:
Net operating income.................................................................. $ .54 $1.76
Net realized investment gains (losses), net of related amortization and taxes......... (.16) -
----- -----
Net income applicable to common stock................................................. $ .38 $1.76
===== =====
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Conseco (9)
March 6, 2007
CONSECO, INC. AND SUBSIDIARIES
COLLECTED PREMIUMS
(Dollars in millions)
Three months ended
December 31,
---------------------
2006 2005
---- ----
Bankers Life segment:
Annuity............................................................................... $247.6 $264.1
Supplemental health................................................................... 327.7 303.2
Life.................................................................................. 46.6 42.7
------ ------
Total collected premiums.............................................................. $621.9 $610.0
====== ======
Conseco Insurance Group segment:
Annuity............................................................................... $121.9 $ 65.0
Supplemental health................................................................... 153.2 160.7
Life.................................................................................. 73.9 76.3
------ ------
Total collected premiums.............................................................. $349.0 $302.0
====== ======
Colonial Penn segment:
Supplemental health................................................................... $ 2.9 $ 3.3
Life.................................................................................. 26.8 24.4
----- -----
Total collected premiums.............................................................. $29.7 $27.7
===== =====
Other Business in Run-off segment:
Long-term care........................................................................ $75.9 $82.7
Major medical......................................................................... .7 .8
----- -----
Total collected premiums.............................................................. $76.6 $83.5
===== =====
BENEFIT RATIOS ON MAJOR SUPPLEMENTAL HEALTH LINES OF BUSINESS
Three Months Ended
December 31,
---------------------
2006 2005
---- ----
Bankers Life segment:
Medicare Supplement:
Earned premium........................................................................ $160 million $160 million
Benefit ratio(a)...................................................................... 65.4% 70.5%
Long-Term Care:
Earned premium........................................................................ $153 million $143 million
Benefit ratio(a)...................................................................... 106.7% 96.1%
Interest-adjusted benefit ratio (a non-GAAP measure)(b)............................... 76.9% 67.0%
Conseco Insurance Group (CIG) segment:
Medicare Supplement:
Earned premium........................................................................ $62 million $70 million
Benefit ratio(a)...................................................................... 64.1% 58.6%
Specified Disease:
Earned premium........................................................................ $90 million $90 million
Benefit ratio(a)...................................................................... 84.9% 79.6%
Interest-adjusted benefit ratio (a non-GAAP measure)(b)............................... 52.5% 48.1%
Other Business in Run-off segment:
Earned premium........................................................................ $82 million $87 million
Benefit ratio(a)...................................................................... 198.2% 99.5%
Interest-adjusted benefit ratio (a non-GAAP measure)(b)............................... 143.5% 49.4%
<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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