Exhibit 99.2
NEWS
For Release Immediate
Contacts (News Media) Tony Zehnder, Corporate Communications
312.396.7086
(Investors) Daniel Murphy, Investor Relations
317.817.2893
Conseco Reports First Quarter Results
Carmel, Ind., May 8, 2007 - Conseco, Inc. (NYSE: CNO) today reported results for
the first quarter of 2007.
"Although results for the quarter are below expectations, Conseco is making
tangible progress across the organization," CEO Jim Prieur said regarding the
first quarter results. "Sales growth was very strong in both our Bankers Life
and Colonial Penn businesses, and the sales mix at Conseco Insurance Group has
improved. We experienced reduced losses in our other business in run-off
segment, where we are beginning to see the anticipated improvements in claims
management as well as the positive impact from the re-rate program. As we have
reported previously, improvement in the performance of that block is expected to
occur over several quarters."
"We continue to take significant steps to improve Conseco's financial return,"
Prieur said. "As described in our separate release today, we reached a
definitive agreement to sell, through a 100% coinsurance agreement, a block of
fixed and equity-indexed annuities that were not generating an acceptable return
on equity (ROE). Our Board has also approved an increase in the stock buyback
program, from $150 million to $350 million and we will continue to move on
opportunities to improve ROE going forward."
First quarter 2007 results:
o Net operating income (1): $14.6 million, compared to $55.8 million in
1Q06
o Net operating income per diluted share: 10 cents, compared to 36 cents
in 1Q06
o Net income applicable to common stock: $.9 million, compared to $55.1
million in 1Q06 (including $13.7 million of net realized investment
losses in 1Q07 vs. $.7 million of net realized investment losses in
1Q06)
o Net income per diluted share: 1 cent, compared to 35 cents in 1Q06
(including 9 cents of net realized investment losses in 1Q07 vs. 1
cent of net realized investment losses in 1Q06)
o Earnings before net realized investment losses, corporate interest and
taxes ("EBIT") (2): $53.3 million, compared to $114.6 million in 1Q06
o Sales (3): $134.2 million, up 10% from 1Q06 (includes sales from
Medicare Advantage Plans through our partnership with Coventry Health
Care (Coventry))
Financial strength at March 31, 2007:
o Book value per common share, excluding accumulated other comprehensive
income (loss) (4), was $27.17, compared to $27.06 at December 31, 2006
o Book value per diluted share, excluding accumulated other
comprehensive income (loss) (4), was $25.24, compared to $25.64 at
December 31, 2006
o Debt-to-total capital ratio, excluding accumulated other comprehensive
income (loss) (4), was 17.3% at both March 31, 2007 and December 31,
2006
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Conseco (2)
May 8, 2007
Operating results
Our segments reflect the addition of Colonial Penn as a separate segment. All
prior period segment disclosures have been restated to conform to our new
presentation.
Results by segment for the quarter were as follows ($ in millions, except per
share data):
Three Months Ended
March 31,
--------------------------
2007 2006
---- ----
EBIT (2):
Bankers Life.................................................................... $ 42.8 $ 57.2
Conseco Insurance Group......................................................... 51.5 41.9
Colonial Penn................................................................... 4.6 5.1
Other Business in Run-off....................................................... (30.9) 24.0
Corporate Operations, excluding corporate interest expense...................... (14.7) (13.6)
------ ------
EBIT......................................................................... 53.3 114.6
Corporate interest expense........................................................ (16.1) (12.4)
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Income before net realized investment losses and taxes..................... 37.2 102.2
Tax expense....................................................................... 13.1 36.9
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Net income before net realized investment losses............................. 24.1 65.3
Preferred stock dividends:
5.50% Class B mandatorily convertible preferred stock.......................... 9.5 9.5
------ ------
Net operating income......................................................... 14.6 55.8
Net realized investment losses, net of related amortization and taxes............. (13.7) (.7)
------ ------
Net income applicable to common stock........................................ $ .9 $ 55.1
====== ======
Per diluted share:
Net operating income......................................................... $ .10 $ .36
Net realized investment losses, net of related amortization and taxes........ (.09) (.01)
------ ------
Net income applicable to common stock........................................ $ .01 $ .35
====== ======
In our Bankers Life segment, pre-tax operating earnings were $42.8 million in
the first quarter of 2007, compared to $57.2 million in the first quarter of
2006. The decline in earnings is due to: (a) higher amortization of Medicare
supplement insurance intangibles of $15.5 million resulting from increased
lapses, principally attributable to customers switching to Medicare Advantage
Plans, (including a small number of exchanges into the Medicare Advantage (MA)
products we distribute through our partnership with Coventry); partially offset
by $5.6 million improvement in margins on Medicare supplement due to higher
revenue and improved loss ratios and (b) higher amortization of long-term care
insurance intangibles of $4.1 million due to changes in assumptions for future
rate increases. Results in the current period also reflect the seasonality
impact of prescription drug program (PDP) and Medicare Advantage policy benefit
patterns that produced breakeven results for the quarter but are expected to
produce lower benefits and higher margins in subsequent quarters.
In our Conseco Insurance Group segment, pre-tax operating earnings were $51.5
million in the first quarter of 2007, compared to $41.9 million in the first
quarter of 2006. Results for the current period reflect: (a) a decline in life
insurance margin of approximately $10.0 million due to higher mortality; (b) an
increase of $6.5 million to the reserve for the R-factor litigation matter
tentatively settled in 2006; and (c) a release of reserves for return of premium
benefits on certain specified disease policies of $19.3 million resulting from
the inaccurate coding discovered in the process of remediating data control
weaknesses reported last quarter. Results for the first quarter of 2006 include
charges of $8.8 million related to the R-factor litigation.
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Conseco (3)
May 8, 2007
Our Colonial Penn segment achieved pre-tax operating earnings of $4.6 million in
the first quarter of 2007, compared to $5.1 million in the first quarter of
2006.
In our Other Business in Run-off segment, we recognized a pre-tax operating loss
of $30.9 million in the first quarter of 2007, compared to earnings of $24.0
million in the first quarter of 2006. Results for the current period include
claim reserve strengthening of $22.0 million resulting from changes in reserving
methodology for a relatively small block of business (Transport Life) with a
high concentration of policies with lifetime benefits and inflation riders.
Results for the 2006 period include several adjustments to insurance liabilities
that increased earnings by $14 million.
The Corporate Operations segment includes our investment advisory subsidiary and
corporate expenses, including interest on corporate debt. Results for the
current quarter include a charge of $4.0 million related to a legacy bankruptcy
related litigation matter and an increase of $6.5 million to the reserve for the
R-factor litigation matter tentatively settled in 2006. Results for the 2006
period included $8.9 million of costs related to the proposed litigation
settlement.
Net realized losses of $13.7 million in 1Q07 included $8.7 million of impairment
losses on those assets expected to be transferred at the closing of the
aforementioned coinsurance agreement that were in an unrealized loss position at
March 31, 2007.
Sales results
In addition to the sales of traditional products, Bankers Life, through a
partnership with Coventry, distributes risk-share Medicare PDP and
private-fee-for-service plan (PFFS) through their career agents.
At Bankers Life (career distribution), total sales in 1Q07 were a record $102.8
million, up 15% over 1Q06, reflecting strong growth in our life product line and
PFFS sales through our partnership with Coventry. Partly offsetting these gains
were lower annuity and medicare supplement sales.
At Conseco Insurance Group (independent distribution), total sales, including
sales of PDP through Coventry, in 1Q07 were $21.0 million, down 13% from 1Q06
reflecting lower sales of PDP and Medicare Supplement, partly offset by higher
sales of annuities and specified disease. Excluding PDP, CIG's sales rose 2%
over 1Q06.
At Colonial Penn (direct distribution), total 1Q07 sales were $10.4 million, up
24% over 1Q06 as we continued the investment in our marketing efforts.
-more-
Conseco (4)
May 8, 2007
Conference Call
The company will host a conference call to discuss results at 10:00 a.m. Eastern
Daylight Time on May 9, 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 Wednesday 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 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) corporate
interest expense; 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) Measured by new annualized premium, which Includes 6% of annuity and 10% of
single premium whole life deposits and 100% of all other premiums.
(4) 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
$26.89, respectively, at March 31, 2007, and 17.5% and $26.58,
respectively, at December 31, 2006.
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Conseco (5)
May 8, 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 remediate the material weakness in internal controls over the
actuarial reporting process that we identified at year-end 2006 and to maintain
effective controls over financial reporting; (ix) our ability to continue to
recruit and retain productive agents and distribution partners and customer
response to new products, distribution channels and marketing initiatives; (x)
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; (xi) the risk factors or uncertainties listed from
time to time in our filings with the Securities and Exchange Commission; (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; (xiii) 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 (xiv) 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)
May 8, 2007
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
March 31, December 31,
2007 2006
---- ----
(unaudited)
ASSETS
Investments:
Actively managed fixed maturities at fair value (amortized cost:
March 31, 2007 - $23,256.9; December 31, 2006 - $22,946.9)......................... $23,182.8 $22,802.9
Equity securities at fair value (cost: March 31, 2007 - $28.5;
December 31, 2006 - $23.9)......................................................... 29.7 24.8
Mortgage loans....................................................................... 1,665.0 1,642.2
Policy loans......................................................................... 409.3 412.5
Trading securities................................................................... 823.2 675.2
Other invested assets ............................................................... 174.6 178.8
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Total investments.................................................................. 26,284.6 25,736.4
Cash and cash equivalents:
Unrestricted......................................................................... 271.8 385.9
Restricted........................................................................... 21.5 24.0
Accrued investment income................................................................. 356.4 344.5
Value of policies inforce at the Effective Date........................................... 2,044.3 2,137.2
Cost of policies produced................................................................. 1,182.2 1,106.7
Reinsurance receivables................................................................... 860.5 850.8
Income tax assets, net.................................................................... 1,772.1 1,786.9
Assets held in separate accounts.......................................................... 28.7 28.9
Other assets.............................................................................. 332.1 316.0
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Total assets....................................................................... $33,154.2 $32,717.3
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Liabilities for insurance products:
Interest-sensitive products........................................................ $13,044.1 $13,018.0
Traditional products............................................................... 12,175.1 12,094.1
Claims payable and other policyholder funds........................................ 848.0 832.3
Liabilities related to separate accounts........................................... 28.7 28.9
Other liabilities.................................................................... 687.3 611.8
Investment borrowings................................................................ 647.7 418.3
Notes payable - direct corporate obligations......................................... 999.3 1,000.8
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Total liabilities................................................................ 28,430.2 28,004.2
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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, 2007 - 150,845,158; December 31, 2006 - 152,165,108).... 1.5 1.5
Additional paid-in capital........................................................... 3,455.1 3,473.2
Accumulated other comprehensive loss................................................. (41.8) (72.6)
Retained earnings.................................................................... 641.4 643.2
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Total shareholders' equity......................................................... 4,724.0 4,713.1
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Total liabilities and shareholders' equity......................................... $33,154.2 $32,717.3
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Conseco (7)
May 8, 2007
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions, except per share data)
Three months ended
March 31,
--------------------
2007 2006
---- ----
Revenues:
Insurance policy income..................................... $ 762.8 $ 754.7
Net investment income:
General account assets................................. 377.9 351.3
Policyholder and reinsurer accounts and other
special-purpose portfolios.......................... 4.9 14.1
Net realized investment losses.............................. (34.9) (3.1)
Fee revenue and other income................................ 3.8 4.7
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Total revenues....................................... 1,114.5 1,121.7
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Benefits and expenses:
Insurance policy benefits................................... 801.3 726.8
Interest expense............................................ 23.6 16.4
Amortization................................................ 116.2 118.6
Costs related to the proposed litigation settlement......... 13.0 17.7
Other operating costs and expenses.......................... 144.2 141.1
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Total benefits and expenses.......................... 1,098.3 1,020.6
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Income before income taxes........................... 16.2 101.1
Income tax expense on period income......................... 5.8 36.5
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Net income........................................... 10.4 64.6
Preferred stock dividends................................... 9.5 9.5
-------- --------
Net income applicable to common stock................ $ .9 $ 55.1
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Earnings per common share:
Basic:
Weighted average shares outstanding.................... 150,936,000 151,521,000
=========== ===========
Net income $ .01 $ .36
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Diluted:
Weighted average shares outstanding.................... 151,067,000 183,541,000
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Net income............................................. $ .01 $ .35
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Conseco (8)
May 8, 2007
CONSECO, INC. AND SUBSIDIARIES
COLLECTED PREMIUMS
(Dollars in millions)
Three months ended
March 31,
2007 2006
---- ----
Bankers Life segment:
Annuity............................................................................... $212.2 $233.4
Supplemental health................................................................... 373.4 322.9
Life.................................................................................. 48.1 43.2
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Total collected premiums.............................................................. $633.7 $599.5
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Conseco Insurance Group segment:
Annuity............................................................................... $120.1 $ 36.2
Supplemental health................................................................... 154.2 159.6
Life.................................................................................. 77.2 84.1
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Total collected premiums.............................................................. $351.5 $279.9
====== ======
Colonial Penn segment:
Life.................................................................................. $ 26.7 $ 23.4
Supplemental health................................................................... 2.6 3.0
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Total collected premiums.............................................................. $ 29.3 $ 26.4
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Other Business in Run-off segment:
Long-term care........................................................................ $ 80.6 $ 87.3
Major medical......................................................................... .6 1.1
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Total collected premiums.............................................................. $ 81.2 $ 88.4
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BENEFIT RATIOS ON MAJOR SUPPLEMENTAL HEALTH LINES OF BUSINESS
Three Months Ended
March 31,
-----------------------
2007 2006
---- ----
Bankers Life segment:
Medicare Supplement:
Earned premium........................................................................ $174 million $165 million
Benefit ratio(a)...................................................................... 66.6% 68.1%
Long-Term Care:
Earned premium........................................................................ $153 million $143 million
Benefit ratio(a)...................................................................... 104.3% 96.5%
Interest-adjusted benefit ratio (a non-GAAP measure)(b)............................... 73.8% 66.9%
Conseco Insurance Group (CIG) segment:
Medicare Supplement:
Earned premium........................................................................ $60 million $68 million
Benefit ratio(a)...................................................................... 66.9% 60.3%
Specified Disease:
Earned premium........................................................................ $90 million $90 million
Benefit ratio(a)...................................................................... 53.2% 77.5%
Interest-adjusted benefit ratio (a non-GAAP measure)(b)............................... 20.4% 45.9%
Other Business in Run-off segment:
Earned premium........................................................................ $80 million $89 million
Benefit ratio(a)...................................................................... 163.5% 94.8%
Interest-adjusted benefit ratio (a non-GAAP measure)(b)............................... 105.3% 45.1%
<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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