Slide 1: Preliminary View of Fourth Quarter 2007 Financial and Operating Results
Preliminary View of Fourth Quarter 2007 Financial and Operating Results Conseco, Inc.
Slide 2: Forward-Looking Statements
Forward-Looking Statements Cautionary Statement Regarding Forward-Looking Statements. Our statements, trend analyses and other information contained in these materials relative to markets for Conseco’s products and trends in Conseco’s operations or financial results, as well as other statements, con
Slide 3: Preliminary Results and Non-GAAP Measures
Preliminary Results 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 Conse
Slide 4: Q4 2007 Preliminary Financial Summary
Q4 2007 Preliminary Financial Summary CNO BLC and CP continue to have strong results CP results negatively impacted by cost of expanding product line with PFFS CIG results negatively affected by unlocking adjustment in interest-sensitive life block and other non-recurring adjustments LTC Closed Bloc
Slide 5: Q4 2007 Summary of Other Issues
Q4 2007 Summary of Other Issues CNO Financial Statement Status Resolution outstanding on accounting for long-term care future loss reserves Form 10-K will be filed as soon as practical (no later than 3/28) Long-Term Care Reserves Overall reserve adequacy (Gross Premium Valuation is positive) Prospec
Slide 6: Before Effect of Future Loss Reserve
Before Effect of Future Loss Reserve CNO Illustrative Example Profit Breakeven Loss 1 2 3 4 5 6 7 8 Policy Year 6
Slide 7: Pivoting
Pivoting CNO Illustrative Example Profit Breakeven Loss 1 2 3 4 5 6 7 8 Policy Year 7
Slide 8: After Effect of Future Loss Reserve
After Effect of Future Loss Reserve CNO Illustrative Example Profit Breakeven Loss 1 2 3 4 5 6 7 8 Policy Year 8
Slide 9: Pivot vs Future Loss Reserve
Pivot vs Future Loss Reserve CNO Illustrative Example Profit Pivot FLR Breakeven Loss 1 2 3 4 5 6 7 8 Policy Year 9
Slide 10: Q4 2007 Summary of Other Issues (cont.)
Q4 2007 Summary of Other Issues (cont.) CNO Remediation Material control weakness first disclosed in 2006 Form 10-K 2007 plan has been completed, plus additional items from scope expansion Examined more than 2,400 policy forms: Specified Disease, LTC, Life Adjustments have been pushed back to corres
Slide 11: Q4 2007 Preliminary Summary of Results
Q4 2007 Preliminary Summary of Results CNO ($ millions, except per share amounts) Pre-Tax After Tax** EPS** Bankers Life* $58.3 Colonial Penn (0.2) Conseco Insurance Group 7.7 LTC Closed Block* (11.3) Corporate and interest expense (22.0) Income before net realized investment losses*** 32.5 $(49.2)
Slide 12: 2007 Full Year Preliminary Summary of Results
2007 Full Year Preliminary Summary of Results CNO ($ millions, except per share amounts) Pre-Tax After Tax** EPS** Bankers Life* $233.0 Colonial Penn 18.1 Conseco Insurance Group 102.7 LTC Closed Block* (202.4) Corporate and interest expense (89.1) Cost related to litigation settlement (64.4) Loss r
Slide 13: Preliminary Financial Indicators
Preliminary Financial Indicators CNO Consolidated RBC ratio 296% at 12/31/07 vs 357% at 12/31/06 Investments $362.7 million of investment income in Q4 2007 Earned yield of 5.95% in Q4 2007 94% of bonds investment grade at 12/31/07* Corporate liquidity Available holding company liquidity exceeds $90
Slide 14: Collected Premiums
Collected Premiums CNO ($ millions) 2006 2007 $4,286.5 $4,314.1 2004 2005 Strong, consistent $3,881.4 $3,925.9 growth in Bankers Run-Off and Colonial Penn CIG Less consistent growth in CIG due to CP focus on more profitable business BLC 14
Slide 15: Summary Bankers
Summary Bankers Q4 2007 New Annualized Premium (NAP) of $58.3 million, 4% above Q4 2006, total year NAP up 10% Earnings driven by improved spreads and higher PDP/PFFS income Effective July 1, 2007, entered into a quota-share reinsurance agreement related to certain group PFFS business sold by Covent
Slide 16: 2007 Strong Distribution Results: Growth in Key Metrics
2007 Strong Distribution Results: Growth in Key Metrics Bankers $294 million NAP = 10% growth Strong Med Advantage and Life sales Flat LTC Lower Med Supp and Annuities Improved agent productivity while growing quantity 4,480 agents at 12/31/07, up 10% vs 12/31/06 13% growth in new agent contracts $6
Slide 17: NAP Growth: 2003-2007
NAP Growth: 2003-2007 Bankers ($ millions) 10% compound annual growth since 2003 Annual NAP up $90 million during period Increases driven by agent productivity and growth plus new product offerings (primarily Life/PDP/PFFS) 17
Slide 18: Summary Colonial Penn
Summary Colonial Penn Q4 2007 NAP of $9.3 million, 25% above Q4 2006, total year NAP up 27% Expanded product line into PFFS market in Q4 2007 $8.4 million of expenses charged to income Agreement to recapture block of life insurance business previously reinsured, effective 10/1/07 Recapture fee (purc
Slide 19: Summary CIG
Summary CIG Q4 2007 NAP of $19.7 million, 18% less than Q4 2006, total year NAP down 21% Decreases in Medicare supplement and annuities, consistent with CIG’s focus on more profitable business Higher value from new business compared to Q4 2006 and full year 2006, despite lower sales Strong sales gai
Slide 20: NAP: Q4 2006 vs Q4 2007
NAP: Q4 2006 vs Q4 2007 CIG ($ millions) 20
Slide 21: Summary LTC Closed Block
Summary LTC Closed Block Significant reserve strengthening in Q2 2007 has stabilized results Active rate management, improved claims-paying practices and expense efficiency improvements have contributed to reduced losses Earnings are approaching breakeven Migration to LTCG system and processes on tr
Slide 22: Verified Incurred Development
Verified Incurred Development* LTC Closed Block Developed ($ millions) Deficiencies in Periods Prior to 2004 2004 2005 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Reported Claims $0.0 $370.8 $396.0 $433.3 $119.7 $212.0 $100.7 $104.7 Prior Period Development 0 (44.2) (58.9) (72.2) (34.9) (109.7) 3.3 1.8 Ver
Slide 23: Operating Data LTC Closed Block
Operating Data LTC Closed Block Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Claims Paid (mils.) $83.1 $90.4 $101.2 $96.1 $81.64 $102.0 $96.8 $99.1 $104.9 Open Claimant Counts 12,290 11,805 12,536 12,228 12,048 11,870 12,424 12,121 12,338 In Force Policy Counts 201,649 197
Slide 24: Premium Re-rates (as of 3/13/08)
Premium Re-rates (as of 3/13/08) LTC Closed Block Round 1 - exceeded each goal: Re-rates submitted: $64.0 million (115% of goal) Re-rates approved: $45.8 million (110% of goal) Re-rates implemented: $44.4 million (106% of goal) Re-rates financial impact: $37.3 million (106% of goal) Round 2 – on tra
Slide 25: What We Have Left to Do
What We Have Left to Do LTC Closed Block Continue working within the regulatory environment to achieve equitable and actuarially justified rate increases Continue progress on claims-paying improvements and expense efficiencies Reduce future exposure and volatility of this block 25
Slide 26: Investment Quality
Investment Quality* CNO Actively Managed Fixed Maturities by Rating at 12/31/07 (Market Value) Below-investment grade securities represent 6% of total portfolio Limited new money allocation to below- investment grade securities 12/31/06 3/31/07 6/30/07 9/30/07 12/31/07 % of Bonds which are Investmen
Slide 27: Structured Securities at 12/31/07
Structured Securities at 12/31/07 CNO (Market value in millions) Structured securities and Other asset-backed securities Planned amortization class, target amortization class, and accretion- $58.5 1.1% represent 25% of total directed bonds Commercial $1,596.1 mortgage-backed securities actively mana
Slide 28: Sub-Prime Home Equity ABS
Sub-Prime Home Equity ABS CNO Exposure by Vintage Year (Book Value in millions) Market value represents 0.52% of invested assets at 12/31/07, compared to 0.57% at 9/30/07 and 0.70% at 12/31/06 Reduced sub-prime exposure by over 17% during Q4 2007, including 63% of 2007 vintage, and over 51% during 2
Slide 29: Sub-Prime Home Equity ABS at 12/31/07
Sub-Prime Home Equity ABS at 12/31/07 CNO Market Book % of Avg. Avg. Avg. 60+ % of Rating Value (mil.) Value (mil.) Subprime* FICO Support Delinq. Portfolio* AAA $39.9 $42.5 32.4% 646 41.6% 9.2% 0.17% AA $40.8 $48.9 33.1% 641 28.6% 9.0% 0.17% A $41.9 $58.6 34.0% 643 19.4% 7.1% 0.18% BBB $0.5 $0.5 0.
Slide 30: Sub-Prime Home Equity ABS and Structured Credit
Sub-Prime Home Equity ABS and Structured Credit CNO No ABS CDO investments No hedge fund investments No “mark to model” structured securities No NIM securities No CDO Squared Investments Nominal (<$10 million par) third-party CLO/structured credit exposure Highly developed cashflow and default analy
Slide 31: CMBS Exposure Summary at 12/31/07
CMBS Exposure Summary at 12/31/07 CNO Exposure by Rating Category (in millions) $995 $1,023 31
Slide 32: CNO Recap
CNO Recap Core businesses Bankers Life and Colonial Penn – continued strong results, focused on profitable growth CIG Greater focus on distinctive capabilities Producing more economic value from refocused sales efforts Run-off LTC block Claims reserve volatility reduced Run rate losses per quarter,
Slide 33: CNO Recap (cont.)
CNO Recap (cont.) Changing the portfolios of the business Annuity coinsurance deal with Swiss Re closed; released capital from low-return business Recapture of Colonial Penn life block from Swiss Re; higher- return core business for CNO Operations Bulk of organizational realignment completed Remaini
Slide 34: Q4 2007 Normalization of Preliminary Earnings
Q4 2007 Normalization of Preliminary Earnings CNO ($ millions) LTC BLC CP CIG Run-Off Corp. Consol. Q4 2007 pre-tax income (loss) – as reported* $58.3 $(0.2) $7.7 $(11.3) $(22.0) $32.5 Loss on termination of interest-rate swaps - - 4.2 - - 4.2 Cost of initial marketing of PFFS product through direct
Slide 35: Next Steps/Expectations
Next Steps/Expectations Complete evaluation and calculation of future loss reserves Filing of 10-K Full earnings release call and investor deck presentation 35
Slide 36: Questions and Answers
S CONSECO Questions and Answers
Slide 37: Appendix
S CONSECO Appendix
Slide 38: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures The following provides additional information regarding certain non-GAAP measures used in this presentation. A non-GAAP measure is a numerical measure of a company’s performance, financial position, or cash flows that excludes or includes am
Slide 39: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation of net income applicable to common stock to the net operating income, excluding: (i) Q2 2006 charge related to the litigation settlement and refinements to such estimates recognized in subsequent periods; (ii) a Q3 2007 char