Exhibit 99.1
NEWS
For Release Immediate
Contacts (News Media) Tony Zehnder, Corporate Communications 317.817.4418
(Investors) Scott Galovic, Investor Relations 317.817.3228
Conseco Reports Preliminary Fourth Quarter and Year-End Results
Carmel, Ind., March 17, 2008 - Conseco, Inc. (NYSE: CNO) today reported
preliminary results for the fourth quarter and year ended December 31, 2007.
"Overall, we continue to make steady progress on our plans to position Conseco
for future growth," CEO Jim Prieur said. "New business continues to be strong at
Bankers and at Colonial Penn, and the expected future margins related to new
business increased at Conseco Insurance Group despite declining sales. Asset
quality has remained a high priority and our portfolio continues to perform
within expectations. This is not to say that we are not without our challenges.
We will continue to move forward with our strategies to further stabilize our
long-term care closed block of business and fully remediate the material
weakness in internal controls."
Preliminary results subject to change
As previously announced, the Company has been consulting with the staff of the
SEC's Office of the Chief Accountant (the "SEC staff") regarding its accounting
policy for long-term care premium rate increases, as described in the Summary of
Significant Accounting Policies in Conseco's 2006 Form 10-K. As previously
disclosed, Conseco has used a method which prospectively changes reserve
assumptions for long-term care policies when premium rate increases differ from
original assumptions. On February 28, 2008, the SEC staff informed Conseco of
their view that the use of this method is not consistent with the guidance of
Statement of Financial Accounting Standards No. 60, "Accounting and Reporting by
Insurance Enterprises." The Company is continuing to evaluate the SEC staff's
view, including its effects on the preliminary earnings reported herein and the
possible effects in prior periods. Due to this ongoing evaluation, the Company
has not completed its financial statements for the year ended December 31, 2007.
As a result, all financial results described in this press release should be
considered preliminary, and are subject to change to reflect any necessary
adjustments that are identified before the Company completes its financial
statements and files its Form 10-K for the year ended December 31, 2007.
"The delay in completing our financial statements is as frustrating for
management as it is for shareholders. There is no difference in the economics of
the long-term care business arising from the SEC's position; no changes at all
in the cash flows or capital requirements - it is all about the timing of the
recognition of earnings for a long term business," said Jim Prieur.
Preliminary fourth quarter 2007 results:
o Net operating income (1) before valuation allowance for deferred tax
assets: $18.8 million
o Net operating income before valuation allowance for deferred tax
assets per diluted share: 10 cents
o Net loss applicable to common stock: $72.2 million (including $23.0
million of net realized investment losses and $68.0 million valuation
allowance for deferred tax assets)
o Net loss per diluted share: 39 cents (including 12 cents of net
realized investment losses and 37 cents of valuation allowance for
deferred tax assets)
o Income before net realized investment losses, corporate interest and
taxes ("EBIT") (2): $51.6 million
o Sales (3): $87.3 million
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Conseco (2)
March 17, 2008
Preliminary full-year 2007 results:
o Net operating loss (1) before valuation allowance for deferred tax
assets: $50.2 million
o Net operating loss before valuation allowance for deferred tax assets
per diluted share: 37 cents
o Net loss applicable to common stock: $210.1 million (including $77.8
million of net realized investment losses and $68.0 million valuation
allowance for deferred tax assets)
o Net loss per diluted share: $1.21 (including 45 cents of net realized
investment losses and 39 cents of valuation allowance for deferred tax
assets)
o EBIT (2): $(6.3) million
o Sales (3): $415.5 million
Preliminary financial strength at December 31, 2007:
o Book value per diluted share, excluding accumulated other
comprehensive income (loss) (4), was $24.28
o Debt-to-total capital ratio, excluding accumulated other comprehensive
income (loss) (4), was 21.0%
The Company currently estimates that adjustments to reflect the SEC staff's view
may have the effect of reducing the preliminary loss reported above for the
fourth quarter of 2007 by up to $5 million (or 3 cents per share) and reducing
the preliminary loss for the year ended December 31, 2007 by up to $15 million
(or 9 cents per share). The Company is working diligently to complete its
financial statements and Form 10-K for the year ended December 31, 2007, as soon
as possible (expected to be no later than March 28, 2008).
As announced in the Company's February 25, 2008 press release, due to the
significance of errors identified in completing the December 31, 2007 financial
statements (the majority of which were identified during the procedures
performed in an effort to remediate the material weakness in internal controls
disclosed in its 2006 Form 10-K and subsequent quarterly filings with the SEC),
Conseco will restate its financial statements for the years ended December 31,
2006 and 2005, along with affected selected financial data for 2004 and 2003 and
the first three quarters of 2007. Therefore, the previously issued financial
statements of the Company for those periods should no longer be relied upon.
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Conseco (3)
March 17, 2008
Preliminary operating results
Results by segment for the quarter and year were as follows ($ in millions,
except per share data):
Three Months Ended Year Ended
December 31, December 31,
2007 2007
---- ----
EBIT (2), excluding costs related to a litigation settlement and loss related to
a coinsurance transaction:
Bankers Life.................................................................... $ 58.3 $ 233.0
Conseco Insurance Group......................................................... 7.7 102.7
Colonial Penn................................................................... (.2) 18.1
Other Business in Run-off....................................................... (11.3) (202.4)
Corporate Operations, excluding corporate interest expense...................... (2.9) (16.8)
------ -------
EBIT, excluding costs related to a litigation settlement and loss related
to a coinsurance transaction.............................................. 51.6 134.6
Costs related to a litigation settlement.......................................... - (64.4)
Loss related to a coinsurance transaction......................................... - (76.5)
------ -------
Total EBIT................................................................. 51.6 (6.3)
Corporate interest expense........................................................ (19.1) (72.3)
------ -------
Income (loss) before net realized investment losses and taxes.............. 32.5 (78.6)
Tax expense (benefit) on period income............................................ 13.7 (28.4)
------ -------
Income (loss) before net realized investment losses and valuation allowance
for deferred tax assets...................................................... 18.8 (50.2)
Valuation allowance for deferred tax assets....................................... 68.0 68.0
------ -------
Net loss before net realized investment losses............................... (49.2) (118.2)
Preferred stock dividends:
5.50% Class B mandatorily convertible preferred stock.......................... - (14.1)
------ -------
Net operating loss........................................................... (49.2) (132.3)
Net realized investment losses, net of related amortization and taxes............. (23.0) (77.8)
------ -------
Net loss applicable to common stock.......................................... $(72.2) $(210.1)
====== =======
Per diluted share:
Net operating income (loss) before valuation allowance for deferred tax assets $ .10 $ (.37)
Valuation allowance for deferred tax assets.................................. (.37) (.39)
----- ------
Net operating loss........................................................... (.27) (.76)
Net realized investment losses, net of related amortization and taxes........ (.12) (.45)
----- ------
Net loss applicable to common stock.......................................... $(.39) $(1.21)
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Conseco (4)
March 17, 2008
In the fourth quarter of 2007, several items had noteworthy impacts on our
results:
o Earnings in the Conseco Insurance Group segment were negatively
affected by the adjustments we made to our estimates of future profits
for certain interest-sensitive life blocks of business. These
adjustments resulted in increases to amortization expense and
policyholder benefits totaling approximately $17 million.
o Earnings in the Conseco Insurance Group segment were also negatively
affected by $4.2 million of trading losses related to the termination
of interest rate swap agreements held in our trading portfolio.
o Earnings in the Colonial Penn segment were negatively impacted by $8.4
million of expense related to the introduction of Medicare Advantage
products through this distribution channel.
o Based on our evaluation of deferred tax assets, we determined the need
to increase the valuation allowance by $68.0 million (primarily
related to tax benefits resulting from the losses recognized in 2007).
o We recognized net realized investment losses of $23.0 million,
including losses related to impairments of $16.1 million.
Sales results
At Bankers Life (career distribution), total sales in 4Q07 were $58.3 million,
up 4% over 4Q06. For the year, Bankers' sales were up 10% from 2006, to $294.4
million. In addition to the sales of proprietary products, Bankers Life, through
a partnership with Coventry Health Care, distributes risk-share Medicare
prescription drug program (PDP) and private-fee-for-service plan (PFFS) through
their career agents.
At Conseco Insurance Group (independent distribution), total sales, including
sales of PDP through Coventry, in 4Q07 were $19.7 million, down 18% from 4Q06.
For the year, sales fell 21% from 2006, to $78.8 million. This segment continues
to focus sales efforts on higher-margin products.
At Colonial Penn (direct distribution), total 4Q07 sales were $9.3 million, up
25% over 4Q06 as we continue to benefit from our investment in marketing. For
the year, sales rose 27% over 2006, to $42.3 million.
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Conseco (5)
March 17, 2008
Conference Call
The company will host a conference call to discuss results at 1:00 p.m. Eastern
Daylight Time on March 17, 2008. 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
Monday 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 table on page 2. 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 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, 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 22.1% and
$22.80, respectively, at December 31, 2007.
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Conseco (6)
March 17, 2008
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) the recoverability of our deferred tax
asset; (v) changes in accounting principles and the interpretation thereof; (vi)
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; (vii) performance of our
investments; (viii) 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; (ix) the
ultimate outcome of lawsuits filed against us and other legal and regulatory
proceedings to which we are subject; (x) 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; (xi) our ability to continue to recruit and retain productive agents
and distribution partners and customer response to new products, distribution
channels and marketing initiatives; (xii) our ability to achieve eventual
upgrades of the financial strength ratings of Conseco and our insurance company
subsidiaries as well as the potential impact of rating downgrades on our
business; (xiii) the risk factors or uncertainties listed from time to time in
our filings with the Securities and Exchange Commission; (xiv) 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; (xv) 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
(xvi) 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 (7)
March 17, 2008
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET DATA - Preliminary (see note)
(Dollars in millions)
December 31,
2007
----
ASSETS
Investments:
Actively managed fixed maturities at fair value (amortized cost:
December 31, 2007 - $20,992.7)..................................................... $20,510.9
Equity securities at fair value (cost: December 31, 2007 - $34.0).................... 34.5
Mortgage loans....................................................................... 2,086.0
Policy loans......................................................................... 370.4
Trading securities................................................................... 665.8
Other invested assets ............................................................... 134.3
---------
Total investments.................................................................. 23,801.9
Cash and cash equivalents................................................................. 428.6
Accrued investment income................................................................. 319.3
Value of policies inforce at the Effective Date........................................... 1,734.1
Cost of policies produced................................................................. 1,423.0
Reinsurance receivables................................................................... 3,592.8
Income tax assets, net.................................................................... 1,923.8
Assets held in separate accounts.......................................................... 27.4
Other assets.............................................................................. 289.6
---------
Total assets....................................................................... $33,540.5
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Liabilities for insurance products................................................... $26,713.0
Other liabilities.................................................................... 510.0
Investment borrowings................................................................ 913.0
Notes payable - direct corporate obligations......................................... 1,193.7
---------
Total liabilities.................................................................. 29,329.7
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Commitments and Contingencies
Shareholders' equity:
Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares issued
and outstanding: December 31, 2007 - 184,652,017).................................. 1.9
Additional paid-in capital........................................................... 4,068.6
Accumulated other comprehensive loss................................................. (273.3)
Retained earnings.................................................................... 413.6
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Total shareholders' equity......................................................... 4,210.8
---------
Total liabilities and shareholders' equity......................................... $33,540.5
=========
Note: This preliminary consolidated balance sheet data is subject to change to
reflect any necessary adjustments that are identified before the Company
completes its financial statements and Form 10-K for the year ended December 31,
2007.
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Conseco (8)
March 17, 2008
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS DATA - Preliminary (see note)
(Dollars in millions, except per share data)
Three months ended Year ended
December 31, December 31,
2007 2007
---- ----
Revenues:
Insurance policy income.................................. $ 814.7 $3,167.3
Net investment income.................................... 333.5 1,536.6
Net realized investment losses........................... (36.6) (155.4)
Fee revenue and other income............................. 6.3 23.8
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Total revenues....................................... 1,117.9 4,572.3
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Benefits and expenses:
Insurance policy benefits................................ 804.9 3,453.8
Interest expense......................................... 32.5 117.3
Amortization............................................. 127.2 454.5
Costs related to a litigation settlement................. - 64.4
Loss related to an annuity coinsurance transaction....... - 76.5
Other operating costs and expenses....................... 156.2 604.1
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Total benefits and expenses.......................... 1,120.8 4,770.6
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Loss before income taxes............................. (2.9) (198.3)
Income tax expense (benefit):
Tax expense (benefit) on period income............... 1.3 (70.3)
Valuation allowance for deferred tax assets.......... 68.0 68.0
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Net loss............................................. (72.2) (196.0)
Preferred stock dividends................................... - 14.1
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Net loss applicable to common stock.................. $ (72.2) $ (210.1)
======== ========
Loss per common share:
Basic:
Weighted average shares outstanding.................... 185,687,000 173,374,000
=========== ===========
Net loss............................................... $ (.39) $ (1.21)
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Diluted:
Weighted average shares outstanding.................... 185,687,000 173,374,000
=========== ===========
Net loss............................................... $ (.39) $ (1.21)
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Note: These preliminary results are subject to change to reflect any necessary
adjustments that are identified before the Company completes its financial
statements and Form 10-K for the year ended December 31, 2007.
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Conseco (9)
March 17, 2008
CONSECO, INC. AND SUBSIDIARIES
COLLECTED PREMIUMS
(Dollars in millions)
Three months ended Year ended
December 31, December 31,
2007 2007
---- ----
Bankers Life segment:
Annuity........................................................................... $221.9 $ 885.5
Supplemental health............................................................... 420.4 1,546.1
Life.............................................................................. 50.7 200.0
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Total collected premiums.......................................................... $693.0 $2,631.6
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Conseco Insurance Group segment:
Annuity........................................................................... $ 58.0 $ 368.6
Supplemental health............................................................... 147.2 594.4
Life.............................................................................. 68.8 287.3
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Total collected premiums.......................................................... $274.0 $1,250.3
====== ========
Colonial Penn segment:
Life.............................................................................. $31.7 $113.7
Supplemental health............................................................... 2.5 10.4
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Total collected premiums.......................................................... $34.2 $124.1
===== ======
Other Business in Run-off segment:
Long-term care.................................................................... $74.4 $305.8
Major medical..................................................................... .6 2.3
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Total collected premiums.......................................................... $75.0 $308.1
===== ======
BENEFIT RATIOS ON MAJOR SUPPLEMENTAL HEALTH LINES OF BUSINESS
- Preliminary (see note)
Three months ended Year ended
December 31, December 31,
2007 2007
---- ----
Bankers Life segment:
Medicare Supplement:
Earned premium........................................................................ $159 million $644 million
Benefit ratio(a)...................................................................... 67.6% 67.2%
PDP and PFFS:
Earned premium........................................................................ $90 million $271 million
Benefit ratio(a)...................................................................... 83.6% 85.1%
Long-Term Care:
Earned premium........................................................................ $156 million $621 million
Benefit ratio(a)...................................................................... 102.3% 102.6%
Interest-adjusted benefit ratio (a non-GAAP measure)(b)............................... 70.2% 71.4%
Conseco Insurance Group (CIG) segment:
Medicare Supplement:
Earned premium........................................................................ $55 million $231 million
Benefit ratio(a)...................................................................... 66.0% 67.6%
Specified Disease:
Earned premium........................................................................ $89 million $359 million
Benefit ratio(a)...................................................................... 80.6% 77.8%
Interest-adjusted benefit ratio (a non-GAAP measure)(b)............................... 46.5% 44.7%
Other Business in Run-off segment:
Earned premium........................................................................ $77 million $312 million
Benefit ratio(a)...................................................................... 148.3% 194.0%
Interest-adjusted benefit ratio (a non-GAAP measure)(b)............................... 83.9% 132.8%
<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
</FN>
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Conseco (10)
March 17, 2008
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.
Note: These preliminary benefit ratios are subject to change to reflect any
necessary adjustments that are identified before the Company completes its
financial statements and Form 10-K for the year ended December 31, 2007.
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