Slide 1: First Quarter 2009 Financial and Operating Results
First Quarter 2009 Financial and Operating Results For the period ended March 31, 2009 Conseco, Inc. May 11, 2009
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: Non-GAAP Measures
Non-GAAP Measures This presentation contains the following financial measures that differ from the comparable measures under Generally Accepted Accounting Principles (GAAP): operating earnings measures; book value, excluding accumulated other comprehensive income (loss) per diluted share; operating
Slide 4: Q1 2009 Summary CNO
Q1 2009 Summary CNO Continued profitability in all three insurance segments, with total Q1 2009 EBIT of $72.3 million Core sales* of $87.5 million, up 4% over Q1 2008 Trailing four-quarter premium up 12% over a year ago Strong growth in agent recruiting Bankers 22% YTD growth in new agents, a record
Slide 5: Q1 2009 Summary CNO
Q1 2009 Summary CNO Net realized investment losses of $6.9 million Total other-than-temporary impairment losses of $108.1 million $92.0 million recorded in earnings $16.1 million recorded in accumulated other comprehensive loss Accumulated other comprehensive loss increased by $69.8 million in Q1 20
Slide 6: Collected Premiums CNO
Collected Premiums CNO ($ millions) Collected Premiums-Trailing 4 Quarters Strong, consistent Q4 2008 Q1 2009 growth in Bankers Q1 2008 Q2 2008 Q3 2008 $4,275.1 $4,524.9 $4,549.3 $4,167.3 and Colonial Penn $4,056.4 Slight decline in CIG due to focus on CIG more profitable CP business BLC 6
Slide 7: Q1 2009 Summary of Results CNO
Q1 2009 Summary of Results CNO ($ millions, except per-share amounts) Pre-Tax After Tax EPS Bankers Life $44.7 Colonial Penn 5.1 Conseco Insurance Group 31.2 Corporate operations, interest expense and expenses related to debt modification (31.9) Income before net realized investment losses* 49.1 $31
Slide 8: Q1 Earnings CNO Consolidated
Q1 Earnings CNO Consolidated ($ millions) Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Bankers Life $29.1 $34.6 $67.8 $40.0 $44.7 Colonial Penn 3.7 8.3 6.5 6.7 5.1 Conseco Insurance Group 23.3 32.3 34.2 31.5 31.2 Corporate operations, excluding interest expense (6.7) (16.2) (3.7) (0.1) (8.7) Total EBIT*
Slide 9: Operating ROE CNO
Operating ROE CNO Operating ROE*, Trailing 4 Quarters Operating ROE (Before Annuity Coinsurance Transaction)**, Trailing 4 Quarters *Operating return excludes net realized **Operating return, as calculated and defined on investment gains (losses), valuation allowance the left side of this page, but
Slide 10: Operating EPS CNO
Operating EPS* CNO Seasonality of Q1 Q2 Q3 Q4 Q1 Operating EPS** 17-22% 20-25% 23-28% 26-31% 17-22% *Operating earnings per share exclude net realized investment gains (losses), valuation allowance related to deferred tax assets and discontinued operations. See Appendix for corresponding GAAP measur
Slide 11: Key Debt Covenants CNO
Key Debt Covenants CNO ($ millions) Q4 2008 Q1 2009 Covenant Margins as of 3/31/09 Bank Covenant Debt/Capital Ratio* Covenant Maximum 30.0% 32.5% Reduction to shareholders’ equity of approximately $672 million or Actual 28.3% 27.9% additional debt of $324 million. Interest Coverage Covenant Minimum
Slide 12: Liquidity Projection For Remainder of 2009
Liquidity Projection For Remainder of 2009 CNO ($ millions) Cash Balance 3/31/09 $104.3 Sources Dividends $60.0 Surplus Debenture Interest 34.3 Management and Investment Fees 42.5 Total Sources $136.8 Uses Interest $52.9 Debt Repayments: Revolver (repaid in April 2009) 55.0 Senior Credit Facility 6.
Slide 13: Consolidated RBC Ratio CNO
Consolidated RBC Ratio* CNO Q1 2009 positive impacts: Q1 statutory operating results (7 percentage pts) Termination of group PFFS cases (6 pts) Q1 2009 negative impacts: Net capital losses (14 pts) Credit rating migration (7 pts) Mortgage Experience Adjustment Factor (6 pts) Dividend (4 pts) Other i
Slide 14: Consolidated RBC Ratio – Changes Over Last Four Quarters
Consolidated RBC Ratio – Changes Over Last Four Quarters CNO +4% +10% Beginning +4% RBC +6% +9% 282% +11% -50% Ending +23% RBC -46% 230% -20% -3% 14
Slide 15: Q1 Summary Bankers
Q1 Summary Bankers Earnings of $44.7 million, up 54% over Q1 2008: Higher LTC margins (+$11 million) Positive impact of rate increases Higher annuity margins (+$10 million) Positive FAS 133 impact Improved persistency Increase in COLI surrender value (+$3 million) Lower Med Supp margins due to highe
Slide 16: NAP Results Bankers
NAP Results Bankers ($ millions) Quarterly Core NAP (Excludes PFFS) Core NAP up 9% vs Q1 2008 Strong sales of annuities (+33%), Med Supp (+8%) and life (+8%), partially offset by lower LTC (-20%) sales PFFS sales negatively affected by: New CMS marketing restrictions Change in sales recognition PFFS
Slide 17: Q1 2009 Sales and Distribution Results Bankers
Q1 2009 Sales and Distribution Results Bankers Agent productivity and agent force growth remain strong 4,987 agents* at 3/31/09, up 5% vs 12/31/08 22% YTD growth in new agents; a record quarter for agent recruiting Coventry’s decision to not file PFFS for 2010 not expected to disrupt distribution Cu
Slide 18: Annuity Sales Bankers
Annuity Sales Bankers ($ millions) Annuities – NAP* Stock market volatility fueling fixed annuity sales Q4 2008 Indexed annuities remain smaller $24.4 percentage of total annuity sales Q3 2008 $19.4 Q1 2009 SEC designation of indexed $18.2 annuities as securities (Rule 151A) Q2 2008 Q1 2008 $15.6 no
Slide 19: Annuity Surrenders Bankers
Annuity Surrenders Bankers EIA Surrenders No significant change in (annualized quarterly rate) surrender activity: Q1 2009 surrenders slightly lower than Q4 2008 Average account value: EIAs - $41,000 Non-EIAs - $35,000 Non-EIA Surrenders (annualized quarterly rate) Over 89% of our annuities are stil
Slide 20: LTC Update Bankers
LTC Update Bankers Rate increases ahead of schedule (2008 round – policies issued prior to 2002) Filed $102.5 million of rate increases = 100% of expected total Approvals at 3/31/09 = $66.6 million (30 states), 94% of expected total Projected financial impact = $56.7 million, 94% of expected total C
Slide 21: Q1 Earnings Bankers
Q1 Earnings Bankers ($ millions) Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Insurance policy income $497.0 $543.4 $537.7 $531.8 $491.5 Net investment income 129.3 135.2 138.3 155.4 142.2 Fee revenue and other income 1.6 2.1 3.1 4.2 1.4 Total revenues 627.9 680.7 679.1 691.4 635.1 Insurance policy benef
Slide 22: Q1 Summary Colonial Penn
Q1 Summary Colonial Penn Earnings of $5.1 million, up 38% over Q1 2008: Favorable life claim experience and overall business growth Lower expense levels Higher investment income 2009 lead generation efforts intentionally reduced as part of company’s capital management efforts Life sales for Q1 2009
Slide 23: Q1 Earnings Colonial Penn
Q1 Earnings Colonial Penn ($ millions) Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Insurance policy income $44.4 $47.5 $46.4 $46.5 $47.1 Net investment income 9.2 10.1 10.1 10.2 9.8 Fee revenue and other income 0.3 0.5 0.5 0.5 0.2 Total revenues 53.9 58.1 57.0 57.2 57.1 Insurance policy benefits 35.0 35
Slide 24: Q1 Summary CIG
Q1 Summary CIG Earnings of $31.2 million, up 34% vs Q1 2008: Higher margins for specified disease and Med Supp blocks (+$6 million) Unlocking adjustment negatively impacted Q1 2008 (+$8 million) Partially offset by lower annuity margin due to excess terminations in Q1 2009 (-$3 million) Continuing t
Slide 25: Q1 2009 Sales and Distribution Results CIG
Q1 2009 Sales and Distribution Results CIG ($ millions) Q1 2008 Specified disease sales up 20% over Q1 2008 Q1 2009 Worksite sales up 27% Strong recruiting, with record numbers of new agents in PMA, 52 new IMOs signed for CIG Sales, and 61% increase in producing worksite agents Decreases in high fac
Slide 26: Q1 Earnings CIG
Q1 Earnings CIG ($ millions) Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Insurance policy income $243.7 $239.1 $237.7 $238.4 $244.2 Net investment income 136.1 138.7 134.0 143.7 134.3 Fee revenue and other income 0.8 0.5 0.1 0.3 0.7 Total revenues 380.6 378.3 371.8 382.4 379.2 Insurance policy benefits
Slide 27: Q1 2009 Net Realized Losses CNO
Q1 2009 Net Realized Losses CNO ($ millions) Amount Recognized through Accumulated Gross Other Comprehensive Amount Recognized Amounts Income through Net Income Net gains on sales $85.1 - $85.1 Losses due to recognition of other- than-temporary impairments (108.1) $(16.1) (92.0) Amortization adjustm
Slide 28: Investment Quality: Fixed Maturities CNO
Investment Quality: Fixed Maturities* CNO Actively Managed Fixed Maturities by Rating at Investment grade securities 3/31/09 (Market Value) represent 91% of total portfolio* <BBB Limited new money allocation 9% AAA 16% to below-investment grade AA 5% securities Increase in below-investment BBB 37% g
Slide 29: Q1 2009 Downgrades from Investment Grade to Below Investment Grade
Q1 2009 Downgrades from Investment Grade to Below Investment Grade CNO ($ millions) Effect of Statutory Book Downgrades on Type Value # Issues RBC Ratio* IG Corporates $119.3 9 (1.4) Financials 87.4 6 (1.6) Subprime 10.0 1 (0.1) Alt-A 114.0 5 (2.2) Prime Jumbo 15.0 1 (0.5) CMBS 15.1 5 (0.3) Other 34
Slide 30: Asset Allocation at 3/31/09 CNO
Asset Allocation at 3/31/09 CNO Overall highly rated Pressure on ALT-A marks caused by Overall mark-to-market and fundamentals and market illiquidity credit migration consistent with Alt-A downgrades credit cycle Low, but rising delinquencies Pressure on Financials/REITs Seasoned portfolio Severe BB
Slide 31: Asset Allocation at 3/31/09 CNO
Asset Allocation at 3/31/09 CNO ($ millions) MTM in line with expectations, reflecting generally stabilized yields during Q1 2009 31
Slide 32: CMOs by Type at 3/31/09 CNO
CMOs by Type at 3/31/09 CNO ($ millions) Our allocation to CMOs has been reduced over the last two years to meet our asset/liability management needs 32
Slide 33: Non-Agency CMOs at 3/31/09 CNO
Non-Agency CMOs at 3/31/09 CNO Our non-agency CMOs are diversified by vintage 33
Slide 34: Alt-A at 3/31/09 CNO
Alt-A at 3/31/09 CNO ($ millions) Market Book % of Avg. Avg. Avg. 60+ Avg. Accum. % of Rating Value (mil.) Value (mil.) Alt-A* FICO Support Delinq. Loss Portfolio* AAA $13.1 $18.3 5.0% 692 14.8% 8.1% 0.75% 0.07% AA $43.5 $52.8 16.5% 734 7.7% 5.4% 0.23% 0.23% A $5.1 $10.0 1.9% 691 11.8% 12.9% 0.61% 0
Slide 35: Sub-Prime Home Equity ABS By Vintage CNO
Sub-Prime Home Equity ABS By Vintage CNO (GAAP book value - $ millions) $130.5 $79.2 Exposure reduced by 39% in the last 12 months Represents 0.35% of invested assets at 3/31/09, compared to 0.70% at 3/31/08 Very little exposure to 2006 and 2007 vintages ($10.0 million) 35
Slide 36: Sub-Prime Home Equity ABS at 3/31/09 CNO
Sub-Prime Home Equity ABS at 3/31/09 CNO ($ millions) Market Book % of Avg. Avg. Avg. 60+ % of Rating Value (mil.) Value (mil.) Subprime* FICO Support Delinq. Portfolio* AAA $16.1 $22.2 36.7% 632 34.3% 13.7% 0.09% AA $10.0 $18.2 22.9% 629 23.1% 13.8% 0.05% A $6.0 $16.3 13.7% 676 19.7% 6.8% 0.03% BBB
Slide 37: CMBS by Vintage at 3/31/09 CNO
CMBS by Vintage at 3/31/09 CNO (GAAP book value - $ millions) Our CMBS exposure is heavily weighted toward higher ratings and older vintages with stronger qualitative characteristics and seasoning AAA AA A BBB <BBB Pre-2004 $206.7 $34.1 $42.5 $12.0 $0.0 2004 $163.9 $3.0 $16.2 $19.6 $0.0 2005 $119.3
Slide 38: CMBS by Collateral Type at 3/31/09 CNO
CMBS by Collateral Type at 3/31/09 CNO Our CMBS are backed by a diverse pool of underlying collateral – $90 billion, from more than 7,900 commercial mortgage loans 38
Slide 39: CNO Summary CNO
CNO Summary CNO Key differences between Conseco and the rest of the industry: Our sales are continuing to grow Our products are simple and straightforward, and entail less product risk than those designed for higher-net-worth customers Strong franchise in the senior middle market Capital management
Slide 40: Questions and Answers
S CONSECO Questions and Answers
Slide 41: Appendix
S CONSECO. Appendix
Slide 42: Book Value Per Share CNO
Book Value Per Share* CNO Increase from Q4 2008 due to Q1 2009 net income *Book value excludes accumulated other comprehensive income (loss). Shares outstanding assumes: (1) conversion of convertible securities; and (2) the exercise of outstanding stock options and vesting of restricted stock (each
Slide 43: Bank Covenant Debt to Total Capital Ratio CNO
Bank Covenant Debt to Total Capital Ratio* CNO Change from Q4 2008 Q4 2008 Q1 2009 primarily due to Q1 2009 Q3 2008 28.3% 27.9% Q2 2008 net income Q1 2008 22.9% 23.6% 20.9% *Excludes accumulated other comprehensive income (loss). See Appendix for corresponding GAAP measure. 43
Slide 44: Net Investment Income CNO
Net Investment Income CNO ($ millions) General Account Investment Income Decrease in Q1 2009 primarily due to increase in cash and short-term investment balances compared to prior periods Yield: 5.82% 5.82% 5.91% 5.93% 5.67% 44
Slide 45: Expenses CNO
Expenses CNO ($ millions) Adjusted Operating Expenses* Back-office consolidation complete Approximately $20 million in savings realized in 2007 and 2008; remaining $5 million expected in 2009 Q4 2008 expenses reflect increased investment in business growth at Bankers and Conseco Insurance Group *Adj
Slide 46: Segment Performance Bankers
Segment Performance Bankers ($ millions) Pre-Tax Operating Income* Earnings up 54% vs Q1 2008 Earnings positively affected by: Higher LTC margins Lower DAC/VOBA amortization Change in COLI surrender value FAS 133 accounting Offset by: Lower Med Supp margins PTOI-Trailing 4 Quarters: $225.4 $189.5 $1
Slide 47: Premiums – Medicare Supplement Bankers
Premiums – Medicare Supplement Bankers Medicare Supplement – First-Year Premiums ($ millions) First-year premiums up 3% vs Q1 2008 Med. Supp. First-Year Prems.-Tr. 4 Qtrs: $79.4 $78.8 $79.3 $81.3 $81.9 Med. Supp. Total Premiums-Quarterly: $159.9 $150.6 $153.8 $172.3 $155.8 Med. Supp. NAP-Quarterly:
Slide 48: Premiums – Long-Term Care Bankers
Premiums – Long-Term Care Bankers ($ millions) Long-Term Care – First-Year Premiums* Quarterly first-year premium tracks decline in NAP Q1 2009 NAP decline attributable to three (Direct) $9.9 main factors: Overall industry sales decline Agent force shift toward life and annuity sales Tightened under
Slide 49: Premiums – Life Insurance Bankers
Premiums – Life Insurance Bankers ($ millions) Life – First-Year Premiums Fluctuations in first-year Q2 2008 $22.5 premiums primarily reflect Q1 2008 Q3 2008 Q4 2008 $20.2 $19.5 variance in sales of single- $18.5 Q1 2009 $16.8 $9.4 premium policies $7.5 $8.2 SPWL $7.0 Non-SPWL premiums down $6.2 8%
Slide 50: Premiums – Annuity Bankers
Premiums – Annuity Bankers ($ millions) Annuity – First-Year Premiums Stock market volatility fueling fixed annuity sales Indexed annuities remain smaller percentage of total annuity sales First-Year Prems.-Tr. 4 Qtrs: $898.9 $959.4 $1,031.3 $1,220.6 $1,294.1 Total Premiums-Quarterly: $228.7 $261.1
Slide 51: Benefit Ratio – PDP Bankers
Benefit Ratio* – PDP Bankers Down 8% vs Q1 2008 Q1 2009 impacted by prior contract year IBNR release of $0.9 million Q1 2008 impacted by prior contract year IBNR strengthening of $2 million *We calculate benefit ratios by dividing insurance policy benefits by insurance policy income. 51
Slide 52: Benefit Ratio – PFFS Individual Business Bankers
Benefit Ratio* – PFFS Individual Business Bankers Q1 2009 vs Q4 2008 comparison impacted by prior contract year reserve releases *We calculate benefit ratios by dividing insurance policy benefits by insurance policy income. 52
Slide 53: Interest-Adjusted Benefit Ratio – Long Term Care Bankers
Interest-Adjusted Benefit Ratio* – Long Term Care Bankers Q1 2009 positively impacted by continued stabilization of incurred claims and excess terminations Completed Round Three re-rates on legacy block; expect $50 million annual financial impact Began implementation of premium re-rates (Round Two)
Slide 54: Segment Performance Colonial Penn
Segment Performance Colonial Penn ($ millions) Pre-Tax Operating Income* Q1 2008 to Q1 2009 change affected by: Organic growth initiatives and favorable mortality, net of DAC amortization Lower net expenses Higher investment income Q4 2008 to Q1 2009 change affected by: Seasonally higher life claims
Slide 55: Premiums – Life Insurance Colonial Penn
Premiums – Life Insurance Colonial Penn ($ millions) Life – First-Year Premiums NAP: Trailing 4 quarters relatively flat 14% growth over most recent quarter Premium: First year: Trailing 4 quarters relatively flat 3% growth over most recent quarter Total: continued steady growth First-Year Prems.-Tr
Slide 56: Segment Performance CIG
Segment Performance CIG ($ millions) Pre-Tax Operating Income* Higher specified disease margins Lower expenses Unlocking adjustment negatively impacting interest-sensitive life block in Q1 2008 Partially offset by Lower LTC closed block margins Lower annuity margin due to excess terminations on EIAs
Slide 57: Premiums - Medicare Supplement CIG
Premiums - Medicare Supplement CIG ($ millions) Medicare Supplement – First-Year Premiums NAP lower vs Q4 2008: We continue to focus on the profitability of this business rather than increased sales First-Year Prems.-Tr. 4 Qtrs: $15.6 $12.7 $10.6 $9.6 $8.3 Total Premiums-Quarterly: $53.1 $49.6 $48.5
Slide 58: Premiums – Specified Disease CIG
Premiums – Specified Disease CIG ($ millions) Specified Disease – First-Year Premiums NAP up 20% from Q1 2008: New products Increased PMA focus on specified disease products Recruitment of Health IMOs Momentum increasing in Worksite market First-Year Prems.-Tr. 4 Qtrs: $33.5 $35.6 $37.6 $39.4 $40.2
Slide 59: Premiums – Annuity CIG
Premiums – Annuity CIG ($ millions) Annuity – First-Year Premiums First-year collections down 16% from Q4 2008: Discontinuance of products due to an annuity coinsurance transaction Focus on profitable products First-Year Prems.-Tr. 4 Qtrs: $277.3 $203.4 $155.3 $119.9 $98.5 Total Premiums-Quarterly:
Slide 60: Benefit Ratio – Medicare Supplement CIG
Benefit Ratio* – Medicare Supplement CIG In line with expectations and recent trends Trailing 4 Quarter Avg.: 67.4% 68.0% 69.1% 68.4% 68.8% *We calculate benefit ratios by dividing insurance policy benefits by insurance policy income. 60
Slide 61: Interest-Adjusted Benefit Ratio – Specified Disease CIG
Interest-Adjusted Benefit Ratio* – Specified Disease CIG Q4 2008 included recognition of deferred ROP adjustment related to prior periods Q1 2009 recognized lower incurred claims due to favorable experience in prior periods Trailing 4 Quarter Avg.: 46.0% 47.6% 47.4% 43.3% 41.8% Qtrly. non-int. adjus
Slide 62: 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 63: 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 net operating income (and related per-share amounts) is as follows (dollars in millions, except per-share amounts): Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Net income (loss) applic
Slide 64: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures Book value, excluding accumulated other comprehensive income, per diluted share This non-GAAP financial measure differs from book value per diluted share because accumulated other comprehensive income has been excluded from the book value us
Slide 65: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures Operating return measures Management believes that an analysis of return before net realized gains or losses, discontinued operations and increases to our valuation allowance for deferred tax assets (“net operating income,” a non-GAAP financ
Slide 66: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation of return on common equity to operating return on common equity (excluding accumulated other comprehensive income (loss) and net operating loss carryforwards) is as follows (dollars in millions, except per share amounts): Q1
Slide 67: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation of pretax operating earnings (a non-GAAP financial measure) to segment operating income (loss) and consolidated net income (loss) for the three months ended March 31, 2009, is as follows (dollars in millions): CIG Bankers Co
Slide 68: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation of common shareholders’ equity, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure) to common shareholders’ equity at March 31, 2009, is as follows (dol
Slide 69: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation of average common shareholders’ equity, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure) to average common shareholders’ equity at March 31, 2009, is
Slide 70: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures Debt to capital ratio, excluding accumulated other comprehensive income (loss) This non-GAAP financial measure differs from the debt to capital ratio because accumulated other comprehensive income has been excluded from the value of capital