Exhibit 99.1
NEWS
For Release Immediate
Contacts (News Media) Tony Zehnder, Corporate Communications 312.396.7086
(Investors) Scott Galovic, Investor Relations 317.817.3228
Conseco reports first quarter 2009 net income of $24.5 million
vs. net loss in year-earlier quarter;
Operating earnings per share up 55% over first quarter 2008
Carmel, Ind. May 11, 2009 - Conseco, Inc. (NYSE: CNO) today reported results for
first quarter 2009. "We are pleased to report operating earnings of 17 cents per
share," CEO Jim Prieur said. "Conseco showed continued improvement and
profitability in all three insurance businesses for the first quarter, which is
a seasonally low quarter for our earnings. Core sales increased by 4% overall.
We set records in the quarter for new agent contracts in our wholly owned
distribution channels, and new agency appointments rose 73% in our independent
channel, all key to future sales growth."
First Quarter 2009 Results
o Total New Annualized Premium ("NAP") excluding Private-Fee-For-Service
("PFFS") (1): $87.5 million, up 4% from 1Q08
o PFFS NAP (which we sell through a marketing agreement with Coventry):
$34.1 million, down 53 percent from 1Q08, reflecting new CMS marketing
restrictions and a more conservative sales recognition policy
o $72.3 million of income before net realized investment losses,
discontinued operations resulting from the transfer of Senior Health
Insurance Company of Pennsylvania (the "Transfer") to an independent
trust, corporate interest and taxes ("EBIT") (2), up 46%, compared to
$49.4 million in 1Q08
o Net operating income (3) of $31.4 million, up 56%, compared to $20.1
million in 1Q08
o Net operating income per diluted share: 17 cents, up 55%, compared to
11 cents in 1Q08
o Net income of $24.5 million, compared to a net loss of $7.2 million in
1Q08 (including $6.9 million of net realized investment losses in 1Q09
vs. $27.3 million of net realized investment losses and income related
to discontinued operations in 1Q08)
o Net income per diluted share of 13 cents, compared to a net loss per
diluted share of 4 cents in 1Q08 (including 4 cents of net realized
investment losses in 1Q09 vs. 15 cents of net realized investment
losses and income related to discontinued operations in 1Q08)
Financial Strength at March 31, 2009
o Book value per common share, excluding accumulated other comprehensive
income (loss) (4), was $18.57, up 1%, compared to $18.41 at December
31, 2008
o Debt-to-total capital ratio, excluding accumulated other comprehensive
income (loss) (4), was 27.6%, compared to 27.8% at December 31, 2008
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Conseco (2)
May 11, 2009
Operating Results
Results by segment for the quarter were as follows ($ in millions, except per
share data):
Three Months Ended
March 31,
------------------------
2009 2008
---- ----
EBIT (2):
Bankers Life.................................................................... $ 44.7 $ 29.1
Colonial Penn................................................................... 5.1 3.7
Conseco Insurance Group......................................................... 31.2 23.3
Corporate Operations, excluding corporate interest expense...................... (8.7) (6.7)
------ ------
EBIT......................................................................... 72.3 49.4
Corporate interest expense........................................................ (13.7) (18.5)
Expenses related to debt modification............................................. (9.5) -
------ ------
Income before net realized investment losses, taxes and
discontinued operations.................................................. 49.1 30.9
Tax expense on period income...................................................... 17.7 10.8
------ ------
Net operating income.............................................................. 31.4 20.1
Net realized investment losses (net of related amortization and taxes)............ (6.9)(5)(6) (27.8)
------ ------
Net income (loss) before discontinued operations.............................. 24.5 (7.7)
Discontinued operations........................................................... - .5
------ ------
Net income (loss)............................................................. $ 24.5 $ (7.2)
====== ======
Per diluted share:
Net income before net realized investment losses and discontinued operations... $ .17 $ .11
Net realized investment losses, net of related amortization and taxes.......... (.04) (.15)
Discontinued operations........................................................ - -
------ ------
Net income (loss).............................................................. $ .13 $ (.04)
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Conseco (3)
May 11, 2009
Segment Results In our Bankers Life segment, pre-tax operating earnings were
$44.7 million in the first quarter of 2009, up 54%, compared to $29.1 million in
the first quarter of 2008. Results for the first quarter of 2009 were primarily
affected by:
o an increase in earnings of approximately $11 million from the long-term
care block resulting from the release of liabilities for insurance products
on lapsed policies and policy owner elected benefit reductions following
recent rate increase actions, partially offset by an increase in incurred
claims;
o an increase in earnings of approximately $5 million from equity-indexed
annuity products primarily resulting from the change in the value of the
embedded derivative related to future indexed benefits reported at
estimated fair value;
o an increase in earnings of approximately $5 million from fixed annuity
products resulting from lower surrenders of these policies; and
o a decrease in earnings of approximately $6 million from Medicare supplement
products resulting from higher benefits ratios partially offset by lower
amortization of insurance intangibles due to lower policy lapses.
In our Colonial Penn segment, the pre-tax operating earnings were $5.1 million
in the first quarter of 2009, up 38%, compared to $3.7 million in the first
quarter of 2008. Results for the first quarter of 2009 were primarily affected
by favorable mortality on Colonial Penn's life block.
In our Conseco Insurance Group segment, pre-tax operating earnings were $31.2
million in the first quarter of 2009, up 34%, compared to $23.3 million in the
first quarter of 2008. Significant factors affecting the segment's earnings in
these periods included:
o an increase in earnings of approximately $8 million in the first quarter of
2009 when compared to 2008 due to an unlocking adjustment made in the first
quarter of 2008;
o an increase in earnings of approximately $5.5 million in the first quarter
of 2009 from specified disease and Medicare supplement policies primarily
resulting from favorable development of year-end claim reserves; and
o a decrease in earnings of approximately $3 million in the first quarter of
2009 due to increased surrenders of certain equity-indexed products with
market value adjustment features (which have the effect of reducing related
surrender charges).
The Corporate Operations segment includes our investment advisory subsidiary and
corporate expenses. As previously reported, we completed an amendment to our
Second Amended Credit Facility on March 30, 2009. We incurred fees and expenses
of $9.5 million in conjunction with the amendment; these expenses were
recognized in the first quarter of 2009.
Investments
During the first quarter of 2009, we elected to adopt two new Staff Positions
issued by the Financial Accounting Standards Board in April 2009: (i) FSP FAS
115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary
Impairments;" and (ii) FSP FAS 157-4 "Determining Fair Value when Volume and
Level of Activity for the Asset or Liability have Significantly Decreased and
Identifying Transactions That Are Not Orderly." The first of the two adopted
Staff Positions had an effect on the other-than-temporary investment losses we
recognized in the first quarter of 2009, because the guidance required the
allocation of such losses between earnings and accumulated other comprehensive
income (loss).
Conseco recognized total other-than-temporary impairment losses of $108.1
million in the first quarter of 2009, of which $92.0 million was recorded in
earnings and $16.1 million was recorded in accumulated other comprehensive loss
in accordance with the new accounting pronouncement.
Net realized investment losses in the first quarter of 2009 of $6.9 million (net
of related amortization and taxes and the establishment of a valuation allowance
for deferred tax assets related to such losses) included: (i) $85.1 million of
net gains from the sales of investments; net of (ii) $92.0 million of
other-than-temporary impairment losses recognized in earnings (including losses
from sales of investments after the end of the quarter). Such net realized
investment losses include a deferred tax valuation allowance of $2.4 million, as
it is more likely than not that tax benefits related to investment losses
recognized in the first quarter of 2009 will not be utilized to offset future
taxable income. Net realized investment losses in the first quarter of 2008 of
$27.8 million (net of related amortization and taxes) included $41.3 million of
writedowns for securities we determined were subject to other-than-temporary
declines in market values.
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Conseco (4)
May 11, 2009
Sales Results
In addition to the sales of proprietary products, Bankers Life, through a
partnership with Coventry, distributes Medicare PDP and PFFS plan through
Bankers career agents.
At Bankers Life (career distribution), total NAP in 1Q09 was $94.5 million, down
18% from 1Q08 (total NAP, excluding PFFS, was $60.4 million, up 9 percent from
1Q08).
At Colonial Penn (direct distribution), total NAP was $12.3 million, down 29%
from 1Q08. Excluding 1Q08 sales of $4.7 million from a PFFS test marketing
program that was subsequently terminated, total NAP was down 4%.
At Conseco Insurance Group (independent distribution), total NAP was $14.8
million, down 10% from 1Q08 as sales continue to be repositioned to more
profitable products.
Accounting Matters
Results for the first quarter of 2008 have been restated to reflect the
operations of Senior Health Insurance Company of Pennsylvania as a discontinued
operation resulting from the Transfer which was completed in the fourth quarter
of 2008.
Effective January 1, 2009, we adopted FSP No. APB 14-1, "Accounting for
Convertible Debt Instruments That May Be Settled in Cash Upon Conversion
(Including Partial Cash Settlement)" ("FSP APB 14-1"). FSP APB 14-1 was required
to be retrospectively applied to all periods presented. The impact on the first
quarter of 2008, was to reduce previously reported earnings by $1.4 million, net
of income taxes, or 1 cent per diluted share.
Conference Call
The company will host a conference call to discuss results today at 10:00 a.m.
Eastern Daylight Time. 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 this 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) 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 $210 per enrolled policy ($200 in 2008), PFFS sales equal
$2,320 per enrolled policy ($2,250 in 2008).
(2) Management believes that an analysis of earnings or loss before net
realized investment gains (losses), discontinued operations, 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) Management believes that an analysis of Net income (loss) applicable to
common stock before net realized investment gains or losses, discontinued
operations, 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.
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Conseco (5)
May 11, 2009
(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 45.2% and $8.61,
respectively, at March 31, 2009, and 44.6% and $8.82, respectively, at
December 31, 2008.
(5) Such amount includes a deferred tax valuation allowance of $2.4 million as
it is more likely than not that tax benefits related to investment losses
recognized in the first quarter of 2009 will not be utilized to offset
future taxable income.
(6) Such amount excludes the portion of impairment losses on actively managed
fixed maturities recognized in other comprehensive loss (net of related
amortization and taxes) of $8.7 million for the three months ended March
31, 2009 (in accordance with the new accounting pronouncement, which we
adopted effective January 1, 2009).
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) general economic, market and political
conditions, including the performance and fluctuations of the financial markets
which may affect our ability to raise capital or refinance existing indebtedness
and the cost of doing so; (ii) our ability to continue to satisfy the financial
ratio and balance requirements and other covenants of our debt agreements; (iii)
our ability to generate sufficient liquidity to meet our debt service
obligations and other cash needs; (iv) our ability to obtain adequate and timely
rate increases on our supplemental health products including our long-term care
business; (v) the receipt of required regulatory approvals for dividend and
surplus debenture interest payments from our insurance subsidiaries; (vi)
mortality, morbidity, the increased cost and 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; (vii) changes in
our assumptions related to the cost of policies produced or the value of
policies in force at the effective date of our emergence from bankruptcy; (viii)
the recoverability of our deferred tax asset and the effect of potential tax
rate changes on its value; (ix) changes in accounting principles and the
interpretation thereof; (x) 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, (xi) performance and valuation of our investments, including the impact
of realized losses (including other-than-temporary impairment charges); (xii)
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; (xiii) the ultimate outcome of
lawsuits filed against us and other legal and regulatory proceedings to which we
are subject; (xiv) our ability to complete the remediation of the material
weakness in internal controls over our actuarial reporting process and to
maintain effective controls over financial reporting; (xv) our ability to
continue to recruit and retain productive agents and distribution partners and
customer response to new products, distribution channels and marketing
initiatives; (xvi) 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 ratings downgrades on our business; (xvii) the risk
factors or uncertainties listed from time to time in our filings with the
Securities and Exchange Commission; (xviii) regulatory changes or actions,
including those relating to regulation of the financial affairs of our insurance
companies, such as the payment of dividends and surplus debenture interest 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; and (xix) 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 11, 2009
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
March 31, December 31,
2009 2008
---- ----
(unaudited) (as adjusted)
ASSETS
Investments:
Actively managed fixed maturities at fair value (amortized cost:
March 31, 2009 - $18,538.0; December 31, 2008 - $18,276.3)........................ $15,396.8 $15,277.0
Equity securities at fair value (cost: March 31, 2009 - $30.7;
December 31, 2008 - $31.0)........................................................ 32.5 32.4
Mortgage loans...................................................................... 2,140.5 2,159.4
Policy loans........................................................................ 361.3 363.5
Trading securities.................................................................. 280.3 326.5
Securities lending collateral....................................................... 243.9 393.7
Other invested assets .............................................................. 101.6 95.0
--------- ---------
Total investments................................................................. 18,556.9 18,647.5
Cash and cash equivalents - unrestricted................................................. 769.6 894.5
Cash and cash equivalents - restricted................................................... 4.5 4.8
Accrued investment income................................................................ 312.5 298.7
Value of policies inforce at the Effective Date.......................................... 1,425.5 1,477.8
Cost of policies produced................................................................ 1,874.5 1,812.6
Reinsurance receivables.................................................................. 3,155.3 3,284.8
Income tax assets, net................................................................... 2,068.6 2,047.7
Assets held in separate accounts......................................................... 17.0 18.2
Other assets............................................................................. 322.9 276.7
--------- ---------
Total assets...................................................................... $28,507.3 $28,763.3
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Liabilities for insurance products:
Interest-sensitive products........................................................ $13,215.3 $13,332.8
Traditional products............................................................... 9,864.3 9,828.7
Claims payable and other policyholder funds........................................ 987.8 1,008.4
Liabilities related to separate accounts........................................... 17.0 18.2
Other liabilities.................................................................... 506.5 457.4
Investment borrowings................................................................ 758.3 767.5
Securities lending payable........................................................... 256.4 408.8
Notes payable - direct corporate obligations......................................... 1,310.5 1,311.5
--------- ---------
Total liabilities.................................................................. 26,916.1 27,133.3
--------- ---------
Commitments and Contingencies
Shareholders' equity:
Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares
issued and outstanding: March 31, 2009 - 184,758,758;
December 31, 2008 - 184,753,758.................................................... 1.9 1.9
Additional paid-in capital........................................................... 4,105.6 4,104.0
Accumulated other comprehensive loss................................................. (1,840.5) (1,770.7)
Accumulated deficit.................................................................. (675.8) (705.2)
--------- ---------
Total shareholders' equity......................................................... 1,591.2 1,630.0
--------- ---------
Total liabilities and shareholders' equity......................................... $28,507.3 $28,763.3
========= =========
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Conseco (7)
May 11, 2009
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions, except per share data)
(unaudited)
Three months ended
March 31,
------------------
2009 2008
---- ----
(as adjusted)
Revenues:
Insurance policy income............................................................. $ 782.8 $ 785.1
Net investment income (loss):
General account assets........................................................... 308.6 310.0
Policyholder and reinsurer accounts and other special-purpose portfolios......... (18.0) (26.0)
Net realized investment gains (losses), excluding impairment losses................. 85.1 (4.3)
Other-than-temporary impairment losses (1).......................................... (92.0) (41.3)
Fee revenue and other income........................................................ 3.0 4.0
-------- --------
Total revenues................................................................... 1,069.5 1,027.5
-------- --------
Benefits and expenses:
Insurance policy benefits........................................................... 753.5 767.7
Interest expense.................................................................... 23.2 30.8
Amortization........................................................................ 120.8 109.8
Expenses related to debt modification............................................... 9.5 -
Other operating costs and expenses.................................................. 120.3 131.1
-------- --------
Total benefits and expenses...................................................... 1,027.3 1,039.4
-------- --------
Income (loss) before income taxes and discontinued operations.................... 42.2 (11.9)
Income tax expense (benefit):
Tax expense (benefit) on period income.............................................. 15.3 (4.2)
Valuation allowance for deferred tax assets......................................... 2.4 -
-------- --------
Income (loss) before discontinued operations..................................... 24.5 (7.7)
Discontinued operations, net of income taxes............................................ - .5
-------- ---------
Net income (loss)................................................................... $ 24.5 $ (7.2)
======== =========
Earning (loss) per common share:
Basic:
Weighted average shares outstanding.............................................. 184,754,000 184,653,000
=========== ===========
Income (loss) before discontinued operations..................................... $.13 $(.04)
Discontinued operations.......................................................... - -
---- -----
Net income (loss).............................................................. $.13 $(.04)
==== =====
Diluted:
Weighted average shares outstanding.............................................. 184,756,000 184,653,000
=========== ===========
Income (loss) before discontinued operations..................................... $.13 $(.04)
Discontinued operations.......................................................... - -
---- -----
Net income (loss).............................................................. $.13 $(.04)
==== =====
<FN>
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(1) The 2009 amount represents gross other-than-temporary impairments of $108.1
million less $16.1 million, which was recognized in other comprehensive
loss.
</FN>
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Conseco (8)
May 11, 2009
CONSECO, INC. AND SUBSIDIARIES
COLLECTED PREMIUMS
(Dollars in millions)
Three months ended
March 31,
---------------------
2009 2008
---- ----
Bankers Life segment:
Annuity............................................................................... $302.1 $228.7
Supplemental health................................................................... 423.8 435.5
Life.................................................................................. 48.9 48.0
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Total collected premiums.............................................................. $774.8 $712.2
====== ======
Colonial Penn segment:
Life.................................................................................. $ 47.0 $ 42.9
Supplemental health................................................................... 1.9 2.3
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Total collected premiums............................................................. $ 48.9 $ 45.2
====== ======
Conseco Insurance Group segment:
Annuity............................................................................... $ 19.5 $ 41.6
Supplemental health................................................................... 146.2 158.5
Life.................................................................................. 64.4 71.9
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Total collected premiums.............................................................. $230.1 $272.0
====== ======
BENEFIT RATIOS ON MAJOR SUPPLEMENTAL HEALTH LINES OF BUSINESS
Three Months Ended
March 31,
----------------------
2009 2008
---- ----
Bankers Life segment:
Medicare Supplement:
Earned premium........................................................................ $165 million $161 million
Benefit ratio(a)...................................................................... 70.2% 64.6%
PDP and PFFS:
Earned premium........................................................................ $123 million $119 million
Benefit ratio(a)...................................................................... 94.4% 93.9%
Long-Term Care:
Earned premium........................................................................ $151 million $156 million
Benefit ratio(a)...................................................................... 105.1% 111.6%
Interest-adjusted benefit ratio (a non-GAAP measure)(b)............................... 68.6% 79.0%
Conseco Insurance Group (CIG) segment:
Medicare Supplement:
Earned premium........................................................................ $47 million $54 million
Benefit ratio(a)...................................................................... 67.3% 65.8%
Specified Disease:
Earned premium........................................................................ $94 million $92 million
Benefit ratio(a)...................................................................... 76.0% 81.7%
Interest-adjusted benefit ratio (a non-GAAP measure)(b)............................... 42.2% 48.1%
Long-Term Care:
Earned premium........................................................................ $8 million $9 million
Benefit ratio(a)...................................................................... 210.1% 136.4%
Interest-adjusted benefit ratio (a non-GAAP measure)(b)............................... 132.0% 66.4%
<FN>
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(a) The benefit ratio is calculated by dividing the related product's insurance
policy benefits by insurance policy income.
(b) The interest-adjusted benefit ratio (a non-GAAP measure) is calculated by
dividing the product's insurance policy benefits less interest income on
the accumulated assets backing the insurance liabilities by insurance
policy income. Interest income is an important factor in measuring the
performance of longer duration health products. The net cash flows
generally cause an accumulation of amounts in the early years of a policy
(accounted for as reserve increases), which will be paid out as benefits in
later policy years (accounted for as reserve decreases). Accordingly, as
the policies age, the benefit ratio will typically increase, but the
increase in the change in reserve will be partially offset by interest
income earned on the accumulated assets. The interest-adjusted benefit
ratio reflects the interest income offset. Since interest income is an
important factor in measuring the performance of these products, management
believes a benefit ratio, which includes the effect of interest income, is
useful in analyzing product performance. 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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