Conseco recently announced its intention to do a registered offering of not less than $200 million of common stock.

Press Release

Carmel, Ind. -- Conseco, Inc. (NYSE: CNO) today reported results for third quarter 2009. "Conseco recorded its third consecutive profitable quarter, reporting $15.4 million of net income," CEO Jim Prieur said. "Our Bankers Life business turned in a strong quarter with pre-tax operating earnings up 26% over last year's third quarter and record performance in both life and Medicare Supplement sales and again in agent recruitment."

"We have continued to make progress and after the quarter ended we undertook a series of transactions to enhance Conseco's liquidity and capital positions," Prieur said. These transactions included entering into a stock and warrant purchase agreement with Paulson & Co. Inc. to sell Paulson 16.4 million shares of common stock and warrants to purchase 5 million shares of common stock, and announcing a private offering of up to $293 million of 7% convertible senior debentures to fund the purchase of our existing convertible debentures. Upon closing of the private sale of common stock, Paulson will own approximately 9.9% of Conseco's outstanding shares.

In addition, Conseco recently announced its intention to do a registered offering of not less than $200 million of common stock. Conseco is required to use half of the net proceeds of the issuance to repay indebtedness under its credit agreement, with the remaining net proceeds to be used for general corporate purposes.

Third Quarter 2009 Results

•$107.0 million of income before net realized investment losses, corporate interest and taxes ("EBIT") (1), up 2%, compared to $104.8 million in 3Q08
•Net operating income (2) of $54.3 million, down 7%, compared to $58.3 million in 3Q08
•Net operating income per diluted share: 29 cents, down 6%, compared to 31 cents in 3Q08
•Net income of $15.4 million, compared to a net loss of $183.3 million in 3Q08 (including $38.9 million of net realized investment losses and valuation allowance for deferred tax assets in 3Q09 vs. $241.6 million of net realized investment losses and losses related to discontinued operations in 3Q08)
•Net income per diluted share of 8 cents, compared to a net loss per diluted share of 99 cents in 3Q08 (including 21 cents of net realized investment losses and valuation allowance for deferred tax assets in 3Q09 vs. $1.30 of net realized investment losses and losses related to discontinued operations in 3Q08)
•Total New Annualized Premium ("NAP") excluding Private-Fee-For-Service ("PFFS") (3): $93.4 million, up 1% from 3Q08
•Bankers NAP excluding PFFS (3): $62.5 million, up 2% from 3Q08
•Conseco Insurance Group NAP (3): $20.3 million, up 7% from 3Q08
•PFFS NAP (sold through a marketing agreement with Coventry): $(.2) million in 3Q09 compared to $4.6 million in 3Q08 (4), reflecting changes in consumer preference and the transition to a new marketing agreement with Humana Inc.

Nine Month 2009 Results

•$266.0 million of EBIT (1), up 25%, compared to $213.2 million in the first nine months of 2008
•Net operating income (2) of $126.5 million, up 22%, compared to $103.6 million in the first nine months of 2008
•Net operating income per diluted share: 68 cents, up 21%, compared to 56 cents in the first nine months of 2008
•Net income of $67.5 million, compared to a net loss of $679.0 million in the first nine months of 2008 (including $59.0 million of net realized investment losses and valuation allowance for deferred tax assets in the first nine months of 2009 vs. $782.6 million of net realized investment losses, valuation allowance for deferred tax assets and losses related to discontinued operations in the first nine months of 2008)
•Net income per diluted share of 36 cents, compared to a net loss per diluted share of $3.68 in the first nine months of 2008 (including 32 cents of net realized investment losses and valuation allowance for deferred tax assets in the first nine months of 2009 vs. $4.24 of net realized investment losses, valuation allowance for deferred tax assets and losses related to discontinued operations in the first nine months of 2008)
•Total NAP excluding PFFS (3): $272.7 million, up 1% from the first nine months of 2008
•Bankers NAP excluding PFFS (3): $186.0 million, up 5% from the first nine months of 2008
•Conseco Insurance Group NAP (3): $53.3 million, down slightly from the first nine months of 2008
•PFFS NAP (4): $40.2 million, down 35% from the first nine months of 2008 reflecting changes in consumer preference and the transition to a new marketing agreement with Humana, Inc.

Financial Strength at September 30, 2009

•Book value per common share, excluding accumulated other comprehensive income (loss) (5), was $18.82, up 2%, compared to $18.41 at December 31, 2008
•Debt-to-total capital ratio, excluding accumulated other comprehensive income (loss) (5), was 26.6%, compared to 27.8% at December 31, 2008

Conseco's financial statements show compliance, as of September 30, 2009, with the financial covenants in its credit agreement related to combined insurance subsidiary capital, the combined risk-based capital ratio of its insurance subsidiaries, the Company's debt to capital ratio and the Company's interest coverage ratio. The combined risk-based capital ratio increased by 5 percentage points in the third quarter to 252 percent at September 30, 2009. The increase reflects: (i) a 19 percentage point increase due to third quarter statutory income; and (ii) an 10 percentage point increase due to the completion of the reinsurance transaction with Wilton Reassurance Company ("Wilton Re"); offset by (iii) a 22 percentage point decrease due to losses, valuation changes and rating downgrades related to the Company's investment portfolio; and (iv) a 2 percentage point net decrease due to other items.

Segment Results

In our Bankers Life segment, pre-tax operating earnings were $85.4 million in the third quarter of 2009, up 26%, compared to $67.8 million in the third quarter of 2008. Results for the third quarter of 2009 were primarily affected by:

•an increase in earnings of approximately $20 million from the PFFS business assumed through our quota-share agreements with Coventry (the last of which will expire on January 1, 2010), primarily due to increases in our share of risk adjustment premium payments made by the U.S. Department of Health and Human Services Center for Medicare and Medicaid Services;
•an increase in earnings of approximately $7 million related to Company-owned life insurance policies which were purchased to fund the segment's deferred compensation plan for certain agents (such variance resulted from a $4 million increase in the estimated fair value of investments underlying such policies in the third quarter of 2009 compared to a $3 million decrease in the prior year period); and
•a reduction in earnings of approximately $7 million from long-term care product margins primarily from higher claim expense and a decrease in premiums following policy lapses.

In our Colonial Penn segment, the pre-tax operating earnings were $7.4 million in the third quarter of 2009, up 14%, compared to $6.5 million in the third quarter of 2008. Results for the third quarter of 2009 reflect favorable mortality experience compared to the same period in 2008.

In our Conseco Insurance Group segment, pre-tax operating earnings were $21.6 million in the third quarter of 2009, down 37%, compared to $34.2 million in the third quarter of 2008. Results for the third quarter of 2009 were primarily affected by:

•a reduction in earnings of approximately $7 million related to universal life products primarily due to additional amortization expense from changes in our future estimates of: (i) the timing of changes to certain non-guaranteed elements related to the "Lifetrend" life insurance products; and (ii) investment earnings due to decreased yields from our portfolio; and
•reduction in earnings of approximately $3 million due to an increase in expense related to the settlement of several lawsuits.

Corporate interest expense reflects both the higher interest rate paid on debt following the amendment to our credit facility in the first quarter of 2009, and Conseco's higher average debt outstanding.

The results for the third quarter of 2009 also reflect the previously disclosed increase to the deferred tax valuation allowance of $20 million that we established upon the completion of the reinsurance transaction with Wilton Re.

The results from the third quarter of 2008 included a $157.4 million loss from discontinued operations related to the agreement to transfer the stock of Senior Health Insurance Company to an independent trust which was completed in the fourth quarter of 2008.

Investments

During the third quarter of 2009, accumulated other comprehensive loss improved by $1.6 billion to $(146.0) million, reflecting the increases in estimated fair value of our actively managed fixed maturity investments.

Conseco recognized total other-than-temporary impairment losses of $162.4 million in the third quarter of 2009, of which $35.7 million was recorded in earnings and $126.7 million in accumulated other comprehensive loss in accordance with a new accounting pronouncement, which we adopted effective January 1, 2009.

Net realized investment losses in the third quarter of 2009 were $18.9 million (net of related amortization and taxes and the establishment of a valuation allowance for deferred tax assets related to such losses). Such net realized investment losses include the aforementioned other-than-temporary impairment losses of $35.7 million and a deferred tax valuation allowance of $6.7 million, as it is more likely than not that tax benefits related to investment losses recognized in the third quarter of 2009 will not be utilized to offset future taxable income. Net realized investment losses in the third quarter of 2008 of $84.2 million (net of related amortization and taxes) included $50.1 million of writedowns for securities we determined were subject to other-than-temporary declines in market values.

Sales Results

At Bankers Life (career distribution), total NAP in 3Q09 was $62.3 million, down 5% from 3Q08 (total NAP, excluding PFFS, was $62.5 million, up 2% from 3Q08).

In addition to the sales of proprietary products, Bankers Life, through a partnership with Coventry, distributes Medicare PDP and PFFS plans through Bankers career agents. Coventry has decided to cease selling PFFS plans effective January 1, 2010. On July 22, 2009, the Company announced a strategic alliance under which the Bankers Life segment will offer Humana's Medicare Advantage plans to its policyholders and consumers nationwide through its career agency force and will receive marketing fees based on sales. Effective January 1, 2010, the Company will no longer be assuming the underwriting risk related to PFFS business.

At Colonial Penn (direct distribution), total NAP was $10.6 million, down 12% from 3Q08, reflecting our previously announced reduced marketing expenditures.

At Conseco Insurance Group (independent distribution), total NAP was $20.3 million, up 7% from 3Q08 as sales continue to be repositioned to more profitable products.

Accounting Matters

Results for the third 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 authoritative guidance relating to convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement). This guidance was required to be retrospectively applied to all periods presented. The impact on the third quarter of 2008 was to reduce previously reported earnings by $1.3 million, net of income taxes, or 1 cent per diluted share.

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.

Source: Conseco, Inc.