Exhibit 99.1
NEWS
For Release Immediate
Contacts (News Media) Tony Zehnder, Corporate Communications
312.396.7086
(Investors) Investor Relations 317.817.2893
Conseco Reports Second Quarter Results
Carmel, Ind., August 6, 2007 - Conseco, Inc. (NYSE: CNO) today reported results
for the second quarter of 2007.
"Results for the second quarter reflect a significant strengthening of our claim
reserves in our other business in run-off segment," CEO Jim Prieur said. "While
this strengthening should reduce the volatility of the loss experience in future
periods, progress in the turnaround of that block of business will take several
quarters before improvements in claims management and our re-rate program show
significant impact as we position Conseco for future growth."
"During the second quarter, we strengthened run-off long-term care claim
reserves by $110 million," said Ed Bonach, Chief Financial Officer. "We have
made every effort to ensure that our claim reserves are appropriate and forward
looking. This action, which primarily relates to claims incurred in prior
quarters, reflects our efforts to improve our reserving process, using more
detailed data and reserving techniques, and carefully evaluating new experience
emerging in recent periods."
"Sales overall grew 10% over the second quarter of 2006, boosted by continued
strong performance at both our Bankers Life and Colonial Penn businesses, while
the sales mix at Conseco Insurance Group again improved," Prieur said. Bankers
Life total sales increased 19% year-over-year, with strong life production and
private fee-for-service sales, while Colonial Penn's total sales grew 23% with
heightened marketing efforts."
Second quarter 2007 results:
o Net operating loss (1): $54.4 million, compared to $31.7 million in
2Q06 (including after-tax costs related to the proposed litigation
settlement of $22.8 million and $102.1 million in 2Q07 and 2Q06,
respectively)
o Net operating loss per diluted share: 32 cents, compared to 21 cents
in 2Q06 (including after-tax costs related to the proposed litigation
settlement of 13 cents and 67 cents per share in 2Q07 and 2Q06,
respectively)
o Net loss applicable to common stock: $64.5 million, compared to $31.8
million in 2Q06 (including $10.1 million of net realized investment
losses in 2Q07 vs. $.1 million of net realized investment losses in
2Q06)
o Net loss per diluted share: 38 cents, compared to 21 cents in 2Q06
(including 6 cents of net realized investment losses in 2Q07 vs. nil
net realized investment losses in 2Q06)
o Loss before net realized investment losses, corporate interest and
taxes ("EBIT") (2): $60.2 million, compared to $22.7 million in 2Q06
(including pre-tax costs related to the proposed litigation settlement
of $35.0 million and $157.0 million in 2Q07 and 2Q06, respectively)
o Sales (3): $108.0 million, up 10% over 2Q06 (includes sales from
Medicare Advantage Plans through our partnership with Coventry Health
Care (Coventry))
Six-month 2007 results:
o Net operating income (loss) (1): $(39.8) million, compared to $24.1
million in the first six months of 2006
o Net operating income (loss) per diluted share: (25) cents, compared to
16 cents in the first six months of 2006
o Net income (loss) applicable to common stock: $(63.6) million,
compared to $23.3 million in the first six months of 2006
o Net income (loss) per diluted share: (40) cents, compared to 15 cents
in the first six months of 2006
o EBIT (2): $(6.9) million, compared to $91.9 million in the first six
months of 2006
o Sales (4): $242.2 million, up 10% over the first six months of 2006
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Conseco (2)
August 6, 2007
Financial strength at June 30, 2007:
o Book value per common share, excluding accumulated other comprehensive
income (loss) (4), was $24.93, compared to $27.06 at December 31, 2006
o Book value per diluted share, excluding accumulated other
comprehensive income (loss) (4), was $24.90, compared to $25.64 at
December 31, 2006
o Debt-to-total capital ratio, excluding accumulated other comprehensive
income (loss) (4), was 20.3%, compared to 17.3% at December 31, 2006
Operating results
Our segments reflect the addition of Colonial Penn as a separate segment. All
prior period segment disclosures have been restated to conform to our new
presentation. Results by segment for the quarter were as follows ($ in millions,
except per share data):
Three Months Ended
June 30,
--------------------------
2007 2006
---- ----
EBIT (2), excluding costs related to the proposed litigation settlement:
Bankers Life.................................................................... $ 65.5 $ 63.7
Conseco Insurance Group......................................................... 43.8 64.7
Colonial Penn................................................................... 6.7 6.5
Other Business in Run-off....................................................... (133.2) 4.4
Corporate Operations, excluding corporate interest expense...................... (8.0) (5.0)
-------- -------
EBIT, excluding costs related to the proposed litigation settlement.......... (25.2) 134.3
Costs related to the proposed litigation settlement............................. (35.0) (157.0)
-------- -------
Total EBIT................................................................... (60.2) (22.7)
Corporate interest expense........................................................ (16.9) (12.0)
-------- -------
Loss before net realized investment losses and taxes....................... (77.1) (34.7)
Tax benefit....................................................................... 27.3 12.5
-------- -------
Net loss before net realized investment losses............................... (49.8) (22.2)
Preferred stock dividends:
5.50% Class B mandatorily convertible preferred stock.......................... (4.6) (9.5)
-------- -------
Net operating loss........................................................... (54.4) (31.7)
Net realized investment losses, net of related amortization and taxes............. (10.1) (.1)
-------- -------
Net loss applicable to common stock.......................................... $ (64.5) $ (31.8)
======== =======
Per diluted share:
Net operating loss........................................................... $ (.32) $ (.21)
Net realized investment losses, net of related amortization and taxes........ (.06) -
-------- -------
Net loss applicable to common stock.......................................... $ (.38) $ (.21)
======== =======
In our Bankers Life segment, pre-tax operating earnings were $65.5 million in
the second quarter of 2007, compared to $63.7 million in the second quarter of
2006. Results for the current period were in line with our expectations.
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Conseco (3)
August 6, 2007
In our Conseco Insurance Group segment, pre-tax operating earnings were $43.8
million in the second quarter of 2007, compared to $64.7 million in the second
quarter of 2006. Significant factors affecting the segment's earnings in these
periods included:
o A $21 million reduction in universal life earnings in the second
quarter of 2007. This block experienced adverse mortality and we were
required to recognize additional amortization expense since our
current estimate of future profits on this block indicated that a
portion of our insurance acquisition costs were not recoverable.
o A $6 million reduction in Medicare Supplement earnings in the second
quarter of 2007 due to a higher benefit ratio and a smaller inforce
block. This reduction was offset by a $6 million increase in specified
disease earnings in the second quarter of 2007 due to a lower benefit
ratio.
Our Colonial Penn segment achieved pre-tax operating earnings of $6.7 million in
the second quarter of 2007, compared to $6.5 million in the second quarter of
2006.
In our Other Business in Run-off segment, we recognized a pre-tax operating loss
of $133.2 million in the second quarter of 2007, compared to earnings of $4.4
million in the second quarter of 2006. Significant factors affecting the
segment's earnings in these periods included:
o A $118 million reduction in earnings in the second quarter of 2007
(compared to a $20 million reduction in 2006) for increases to our
estimates of claims incurred in prior periods. The reduction for the
second quarter of 2007 includes $110 million of reserve strengthening
resulting from improvements to our reserving methods and assumptions
to better reflect emerging trends.
o A $31 million reduction in earnings in the second quarter of 2007 for
increases to the benefit ratio estimated for claims incurred in the
quarter, compared to such benefit ratio estimated in the second
quarter of 2006 for claims incurred in that quarter.
o A $9.4 million increase in earnings in the second quarter of 2006 due
to release of certain reserve redundancies.
The Corporate Operations segment includes our investment advisory subsidiary and
corporate expenses.
Net realized losses of $10.1 million in the second quarter of 2007 primarily
consisted of impairment losses on those assets expected to be transferred at the
close of our previously announced sale of a block of fixed and equity-indexed
annuities through a 100 percent coinsurance agreement. Upon closing the
transaction, we expect to record a charge of approximately $63 million plus
after tax earnings on this block from July 1, 2007 through the close of the
transaction.
Results in both quarters reflect the impact of the proposed litigation
settlement we entered into in the second quarter of 2006 (including the
additional cost of $35 million in the current quarter we announced in our June
29 release). Our accrual for the cost of the settlement now reflects the final
benefit options selected by all applicable policyholders.
Sales results
In addition to the sales of proprietary 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 2Q07 were $76.8 million,
up 19% over 2Q06, 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 2Q07 were $20.0 million, down 18% from 2Q06
reflecting lower sales of PDP and Medicare Supplement, partly offset by higher
sales of annuities and specified disease.
At Colonial Penn (direct distribution), total 2Q07 sales were $11.2 million, up
23% over 2Q06 as we continue to benefit from our investment in marketing.
-more-
Conseco (4)
August 6, 2007
Conference Call
The company will host a conference call to discuss results at 10:00 a.m. Eastern
Daylight Time on August 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
Tuesday 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 (Loss) 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. Additional information concerning this non-GAAP
measure is included in our periodic filings with the Securities and
Exchange Commission that are available in the "Investor - SEC Filings"
section of Conseco's website, www.conseco.com.
(2) Management believes that an analysis of earnings or loss 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 tables on page 2 and 8.
(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, PDP
sales equal $310 per enrolled policy, PFFS sales equal $2,100 per enrolled
policy.
(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 21.5% and
$23.19, respectively, at June 30, 2007, and 17.5% and $26.58, respectively,
at December 31, 2006.
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Conseco (5)
August 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 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)
August 6, 2007
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
June 30, December 31,
2007 2006
---- ----
(unaudited)
ASSETS
Investments:
Actively managed fixed maturities at fair value (amortized cost:
June 30, 2007 - $23,414.1; December 31, 2006 - $22,946.9).......................... $22,824.6 $22,802.9
Equity securities at fair value (cost: June 30, 2007 - $38.9;
December 31, 2006 - $23.9)......................................................... 40.2 24.8
Mortgage loans....................................................................... 1,736.6 1,642.2
Policy loans......................................................................... 410.3 412.5
Trading securities................................................................... 800.6 675.2
Other invested assets ............................................................... 203.5 178.8
--------- ---------
Total investments.................................................................. 26,015.8 25,736.4
Cash and cash equivalents:
Unrestricted......................................................................... 522.5 385.9
Restricted........................................................................... 29.8 24.0
Accrued investment income................................................................. 353.7 344.5
Value of policies inforce at the Effective Date........................................... 1,998.7 2,137.2
Cost of policies produced................................................................. 1,296.7 1,106.7
Reinsurance receivables................................................................... 855.7 850.8
Income tax assets, net.................................................................... 1,966.6 1,786.9
Assets held in separate accounts.......................................................... 28.6 28.9
Other assets.............................................................................. 369.8 316.0
--------- ---------
Total assets....................................................................... $33,437.9 $32,717.3
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Liabilities for insurance products:
Interest-sensitive products........................................................ $13,060.1 $13,018.0
Traditional products............................................................... 12,352.9 12,094.1
Claims payable and other policyholder funds........................................ 847.4 832.3
Liabilities related to separate accounts........................................... 28.6 28.9
Other liabilities.................................................................... 706.9 611.8
Investment borrowings................................................................ 868.9 418.3
Notes payable - direct corporate obligations......................................... 1,197.8 1,000.8
--------- ---------
Total liabilities................................................................ 29,062.6 28,004.2
--------- ---------
Commitments and Contingencies
Shareholders' equity:
Preferred stock...................................................................... - 667.8
Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares issued
and outstanding: June 30, 2007 - 188,699,343; December 31, 2006 - 152,165,108)..... 1.9 1.5
Additional paid-in capital........................................................... 4,126.4 3,473.2
Accumulated other comprehensive loss................................................. (329.9) (72.6)
Retained earnings.................................................................... 576.9 643.2
--------- ---------
Total shareholders' equity......................................................... 4,375.3 4,713.1
--------- ---------
Total liabilities and shareholders' equity......................................... $33,437.9 $32,717.3
========= =========
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Conseco (7)
August 6, 2007
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions, except per share data)
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
2007 2006 2007 2006
---- ---- ---- ----
Revenues:
Insurance policy income.................................. $ 767.8 $ 739.7 $1,530.6 $1,494.4
Net investment income:
General account assets................................. 382.2 357.3 760.1 708.6
Policyholder and reinsurer accounts and other
special-purpose portfolios.......................... 42.3 (13.7) 47.2 .4
Net realized investment losses........................... (28.3) (3.7) (63.2) (6.8)
Fee revenue and other income............................. 5.2 4.5 9.0 9.2
-------- -------- -------- --------
Total revenues....................................... 1,169.2 1,084.1 2,283.7 2,205.8
-------- -------- -------- --------
Benefits and expenses:
Insurance policy benefits................................ 930.9 705.2 1,732.2 1,432.0
Interest expense......................................... 27.9 17.1 51.5 33.5
Amortization............................................. 116.3 97.6 232.5 216.2
Costs related to the proposed litigation settlement...... 35.0 157.0 48.0 174.7
Other operating costs and expenses....................... 151.8 142.1 296.0 283.2
-------- -------- -------- --------
Total benefits and expenses.......................... 1,261.9 1,119.0 2,360.2 2,139.6
-------- -------- -------- --------
Income (loss) before income taxes.................... (92.7) (34.9) (76.5) 66.2
Income tax expense (benefit) on period income............... (32.8) (12.6) (27.0) 23.9
-------- -------- -------- --------
Net income (loss).................................... (59.9) (22.3) (49.5) 42.3
Preferred stock dividends................................... 4.6 9.5 14.1 19.0
-------- -------- -------- --------
Net income (loss) applicable to common stock......... $ (64.5) $ (31.8) $ (63.6) $ 23.3
======== ======== ======== ========
Earnings per common share:
Basic:
Weighted average shares outstanding.................... 169,139,000 151,514,000 160,038,000 151,518,000
=========== =========== =========== ===========
Net income (loss)...................................... $ (.38) $ (.21) $ (.40) $ .15
======== ======== ======== =======
Diluted:
Weighted average shares outstanding.................... 169,139,000 151,514,000 160,038,000 152,556,000
=========== =========== =========== ===========
Net income (loss)...................................... $ (.38) $ (.21) $ (.40) $ .15
======== ======== ======== =======
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Conseco (8)
August 6, 2007
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,
----------------------
2007 2006
---- ----
EBIT (2), excluding costs related to the proposed litigation settlement:
Bankers Life............................................................................. $ 108.3 $ 120.9
Conseco Insurance Group.................................................................. 101.8 115.4
Colonial Penn............................................................................ 11.3 11.6
Other Business in Run-off................................................................ (164.1) 28.4
Corporate Operations, excluding corporate interest expense............................... (16.2) (9.7)
------- -------
EBIT, excluding costs related to the proposed litigation settlement................... 41.1 266.6
Costs related to the proposed litigation settlement........................................ (48.0) (174.7)
------- -------
Total EBIT............................................................................ (6.9) 91.9
Corporate interest expense................................................................ (33.0) (24.4)
------- -------
Income (loss) before net realized investment losses and taxes........................ (39.9) 67.5
Tax (expense) benefit...................................................................... 14.2 (24.4)
------- -------
Net income (loss) before net realized investment losses............................... (25.7) 43.1
Preferred stock dividends:
5.50% Class B mandatorily convertible preferred stock................................... (14.1) (19.0)
------- -------
Net operating income (loss)........................................................... (39.8) 24.1
Net realized investment losses, net of related amortization and taxes...................... (23.8) (.8)
------- -------
Net income (loss) applicable to common stock.......................................... $ (63.6) $ 23.3
======= =======
Per diluted share:
Net operating income (loss)........................................................... $ (.25) $ .16
Net realized investment losses, net of related amortization and taxes................. (.15) (.01)
------- -------
Net income (loss) applicable to common stock.......................................... $ (.40) $ .15
======= =======
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Conseco (9)
August 6, 2007
CONSECO, INC. AND SUBSIDIARIES
COLLECTED PREMIUMS
(Dollars in millions)
Three months ended
June 30,
---------------------
2007 2006
---- ----
Bankers Life segment:
Annuity............................................................................... $200.5 $238.3
Supplemental health................................................................... 356.6 342.6
Life.................................................................................. 52.1 46.6
------ ------
Total collected premiums.............................................................. $609.2 $627.5
====== ======
Conseco Insurance Group segment:
Annuity............................................................................... $113.0 $ 92.4
Supplemental health................................................................... 147.4 153.3
Life.................................................................................. 70.0 78.3
------ ------
Total collected premiums.............................................................. $330.4 $324.0
====== ======
Colonial Penn segment:
Life.................................................................................. $ 26.0 $ 21.6
Supplemental health................................................................... 2.7 3.1
------ ------
Total collected premiums.............................................................. $ 28.7 $ 24.7
====== ======
Other Business in Run-off segment:
Long-term care........................................................................ $ 75.6 $ 80.2
Major medical......................................................................... .6 2.2
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Total collected premiums.............................................................. $ 76.2 $ 82.4
====== ======
BENEFIT RATIOS ON MAJOR SUPPLEMENTAL HEALTH LINES OF BUSINESS
Three Months Ended
June 30,
--------------------
2007 2006
---- ----
Bankers Life segment:
Medicare Supplement:
Earned premium........................................................................ $161 million $164 million
Benefit ratio(a)...................................................................... 67.4% 67.8%
PDP and PFFS:
Earned premium........................................................................ $47 million $16 million
Benefit ratio(a)...................................................................... 77.6% 80.9%
Long-Term Care:
Earned premium........................................................................ $155 million $148 million
Benefit ratio(a)...................................................................... 96.8% 96.2%
Interest-adjusted benefit ratio (a non-GAAP measure)(b)............................... 66.0% 66.8%
Conseco Insurance Group (CIG) segment:
Medicare Supplement:
Earned premium........................................................................ $58 million $64 million
Benefit ratio(a)...................................................................... 68.9% 56.9%
Specified Disease:
Earned premium........................................................................ $90 million $89 million
Benefit ratio(a)...................................................................... 72.5% 79.9%
Interest-adjusted benefit ratio (a non-GAAP measure)(b)............................... 39.7% 48.2%
Other Business in Run-off segment:
Earned premium........................................................................ $78 million $82 million
Benefit ratio(a)...................................................................... 296.7% 118.0%
Interest-adjusted benefit ratio (a non-GAAP measure)(b)............................... 236.7% 64.4%
<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
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Conseco (10)
August 6, 2007
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.
Additional information concerning this non-GAAP measure is included in our
periodic filings with the Securities and Exchange Commission that are
available in the "Investor - SEC Filings" section of Conseco's website,
www.conseco.com.
</FN>
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