Conseco Posts Q3 Loss, But Income Rebounds

Press Release

CARMEL, Ind., Nov. 5 -- Conseco, Inc. (NYSE: CNO) today reported results for the third quarter of 2008. "We are pleased with the performance of our core businesses during the quarter," said Conseco CEO Jim Prieur, "with income before net realized investment losses, corporate interest and taxes of $106.6 million. This slightly exceeds the favorable end of the estimated ranges we provided in our October 23 announcement. All business lines contributed to earnings, and Bankers Life returned to its expected level of profitability, reflecting, in part, measures implemented to improve its long-term care business. Sales grew across all segments, with quarter-over-prior year quarter increases in new annualized premium of 16% at Bankers Life, 6% at Colonial Penn, and 5% at Conseco Insurance Group."

Third quarter 2008 results:

-- Total New Annualized Premium ("NAP") (1): $97.0 million, up 13% from 3Q07 ($92.3 million, excluding Private-Fee-For-Service, up 6 percent from 3Q07)

-- Income (loss) before net realized investment losses, losses related to the proposed transfer of Senior Health Insurance Company of Pennsylvania ("Senior Health," formerly known as Conseco Senior Health Insurance Company prior to its name change in October 2008) to an independent trust, corporate interest and taxes ("EBIT") (2): $106.6 million, compared to $(17.4) million in 3Q07

-- Net operating income (loss) (3): $58.9 million, compared to $(21.7) million in 3Q07

-- Net operating income (loss) per diluted share: 32 cents, compared to (12) cents in 3Q07

-- Net loss applicable to common stock: $182.0 million, compared to $52.7 million in 3Q07 (including $240.9 million of net realized investment losses and losses related to the proposed transfer of Senior Health to an independent trust, in 3Q08 vs. $31.0 million of net realized investment losses in 3Q07)

-- Net loss per diluted share: 98 cents, compared to 28 cents in 3Q07 (including $1.30 of net realized investment losses and losses related to the proposed transfer of Senior Health to an independent trust, in 3Q08 vs. 16 cents of net realized investment losses in 3Q07)

Nine-month 2008 results:

-- NAP (1): $331.1 million, up 1% from the first nine months of 2007 ($269.1 million, excluding Private-Fee-For-Service, up 3 percent from the first nine months of 2007)

-- EBIT (2): $221.3 million, compared to $(33.9) million in the first nine months of 2007

-- Net operating income (loss) (3): $113.0 million, compared to $(67.7) million in the first nine months of 2007

-- Net operating income (loss) per diluted share: 61 cents, compared to (40) cents in the first nine months of 2007

-- Net loss applicable to common stock: $674.9 million, compared to $122.5 million in the first nine months of 2007 (including $787.9 million of net realized investment losses and losses related to the proposed transfer of Senior Health to an independent trust in the first nine months of 2008 vs. $54.8 million of net realized investment losses in the first nine months of 2007)

-- Net loss per diluted share: $3.65, compared to 72 cents in the first nine months of 2007 (including $4.26 of net realized investment losses and losses related to the proposed transfer of Senior Health to an independent trust in the first nine months of 2008 vs. 32 cents of net realized investment losses in the first nine months of 2007)

Financial strength at September 30, 2008:

-- Book value per diluted share, excluding accumulated other comprehensive income (loss) (4), was $20.79, compared to $24.41 at December 31, 2007

-- Debt-to-total capital ratio, excluding accumulated other comprehensive loss (4), was 23.6%, compared to 20.9% at December 31, 2007

Operating results

Results by segment for the quarter were as follows ($ in millions, except
per share data):

Three months ended
September 30,
2008 2007
(Restated)
EBIT (2), excluding costs related to a
litigation settlement and loss related to an
annuity coinsurance transaction:
Bankers Life $67.8 $ 67.5
Colonial Penn 6.5 7.0
Conseco Insurance Group. 36.1 18.2
Other Business in Run-off 2.9 (19.5)
Corporate Operations, excluding corporate
interest expense (6.7) 2.3
EBIT, excluding costs related to a litigation
settlement and loss related to an annuity
coinsurance transaction 106.6 75.5
Costs related to a litigation settlement - (16.4)
Loss related to an annuity coinsurance transaction - (76.5)
Total EBIT 106.6 (17.4)
Corporate interest expense (13.7) (20.2)
Income (loss) before net realized investment
losses and taxes 92.9 (37.6)
Tax expense (benefit) on period income 34.0 (15.9)
Net operating income (loss) 58.9 (21.7)
Net realized investment losses (excluding the
increase in unrealized losses on those
investments expected to be transferred to an
independent trust and net of related amortization
and taxes and the establishment of a valuation
allowance for deferred tax assets related to such
losses) (85.9)(5) (31.0)

Net loss applicable to common stock before
losses related to the proposed transfer
of Senior Health to an independent trust (27.0) (52.7)

Recognition of losses related to the proposed
transfer of Senior Health to an independent trust (155.0)(6) -

Net loss applicable to common stock $(182.0) $(52.7)

Per diluted share:

Net operating income (loss) $.32 $(.12)

Net realized investment losses (.46) (.16)

Losses related to the proposed transfer of
Senior Health to an independent trust (.84) -

Net loss applicable to common stock $(.98) $(.28)

In our Bankers Life segment, pre-tax operating earnings were $67.8 million in the third quarter of 2008, compared to $67.5 million in the third quarter of 2007. The third quarter 2008 earnings improved over the previous two quarters' results reflecting, in part, measures implemented to address higher than expected claims in Bankers long-term care business. Third quarter 2008 earnings compared to the same period in the prior year reflected improved margins from the long-term care block and reduced expenses. Such favorable variances were offset by reductions in margins from the PDP and PFFS business assumed through our quota-share agreements with Coventry.

In our Colonial Penn segment, the pre-tax operating earnings were $6.5 million in the third quarter of 2008, compared to $7.0 million in the third quarter of 2007. Results for the third quarter of 2008 were negatively impacted by a $1.3 million adjustment to the amortization of the cost of policies produced that is not expected to recur. This variance was partially offset by the positive income impacts following the recapture of a modified coinsurance agreement in the fourth quarter of 2007.

In our Conseco Insurance Group segment, pre-tax operating earnings were $36.1 million in the third quarter of 2008, compared to $18.2 million in the third quarter of 2007. Results in this segment in the third quarter of 2007 included an $11 million increase to the amortization of insurance intangibles related to an unprofitable block of universal life insurance business and an $11 million increase to expenses related to operational initiatives and consolidation activities.

In our Other Business in Run-off segment, pre-tax operating earnings were $2.9 million in the third quarter of 2008, compared to a loss of $19.5 million in the third quarter of 2007. Third quarter of 2008 results included an increase in earnings of approximately $20 million resulting from a decrease in the interest-adjusted benefit ratio. Such decrease was driven by increased terminations and higher investment earnings (primarily resulting from the increase in yields following the recognition of unrealized losses in the second quarter of 2008 on investments expected to be transferred to an independent trust).

The Corporate Operations segment includes our investment advisory subsidiary and corporate expenses. The third quarter of 2008 reflects $2.9 million of expenses incurred related to the proposed transfer of Senior Health to an independent trust.

Net realized investment losses in the third quarter of 2008 of $85.9 million (excluding the increase in unrealized losses on those investments expected to be transferred to an independent trust and net of related amortization and taxes and the establishment of a valuation allowance for deferred tax assets related to such losses) include $50 million of other-than- temporary impairment losses. Such net realized investment losses include a deferred tax valuation allowance of $30 million, as it is more likely than not that tax benefits related to investment losses recognized in the third quarter of 2008 will not be utilized to offset future taxable income.

As previously announced, the Company has entered into an agreement to transfer the stock of Senior Health to an independent trust and expects to record accounting charges totaling approximately $1.2 billion related to the transaction, $503.7 million and $155.0 million of which were recognized in the second and third quarters of 2008, respectively. The recognition of these losses in the second and third quarters has no effect on the total charges expected to be recognized related to the transaction. Consummation of the plan to transfer Senior Health to an independent trust, which is conditioned on the receipt of the approval of the Pennsylvania Insurance Department, is expected to take place in the fourth quarter of 2008.

The results from the third quarter of 2007 reflect: (i) a charge of $76.5 million related to the 100% coinsurance of an older block of fixed and equity- indexed annuities; and (ii) additional costs of $16.4 million related to a litigation settlement we entered into in the second quarter of 2006.

Sales results

In addition to the sales of proprietary products, Bankers Life, through a partnership with Coventry, distributes Medicare PDP and Private-Fee-For- Service plans through Bankers career agents.

At Bankers Life (career distribution), total NAP in 3Q08 was $65.8 million, up 16% over 3Q07 primarily due to higher Private-Fee-For-Service sales and higher sales of annuities (total NAP, excluding Private-Fee-For- Service, was $61.2 million, up 6 percent from 3Q07).

At Colonial Penn (direct distribution), total NAP was $12.1 million, up 6% over 3Q07 as we continue to benefit from our investment in marketing.

At Conseco Insurance Group (independent distribution), total NAP was $19.1 million, up 5% over 3Q07 with continued focus on producing more profitable business.

Conference Call

The company will host a conference call to discuss results at 9:00 a.m. Eastern Standard Time on November 6, 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 Thursday morning through the investors section of the company's website.

About Conseco

Conseco, Inc.'s insurance companies help protect working American families and seniors from financial adversity: Medicare supplement, long-term care, cancer, heart/stroke and accident policies protect people against major unplanned expenses; annuities and life insurance products help people plan for their financial futures. For more information, visit Conseco's web site at www.conseco.com.