Slide 1: Preliminary View of Fourth Quarter 2008 Financial and Operating Results
Preliminary View of Fourth Quarter 2008 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 All financial results described herein should be considered preliminary and are subject to change to reflect any necessary adjustments that are identified before the Company completes its financial statements and files its Annual Report on Form 10-K for the year ended December 31
Slide 4: Going Concern Discussion
CNO Going Concern Discussion Form 10-K filing delayed until on or before March 17, 2009. Finalizing the analysis and disclosure related to investment portfolio Auditors’ concerns regarding liquidity and debt covenant margins (primarily those that could be impacted by a significant amount of addition
Slide 5: Q4 2008 Preliminary Financial Summary
Q4 2008 Preliminary Financial Summary CNO Continued profitability in all three insurance segments, with total Q4 2008 EBIT of $78.1 million $101.6 million quarterly sales for CNO, up 16% over Q4 2007 Bankers sales up 25% Colonial Penn sales up 16% CIG sales down 9% Separation of Senior Health* occur
Slide 6: Q4 2008 Preliminary Financial Summary
Q4 2008 Preliminary Financial Summary CNO Investment portfolio earned yields meeting expectations Net realized investment losses of $88.0 million (including impairment losses of $44.8 million), consistent with Q3 2008 results, industry trends and market conditions Accumulated other comprehensive los
Slide 7: Why CNO is Different
Why CNO is Different Not ratings-sensitive Virtually no variable business Focus on protection products Small average policy sizes No significant investments in exotic securities No dynamic hedging 7
Slide 8: Collected Premiums
Collected Premiums CNO ($ millions) Collected Premiums-Trailing 4 Quarters Strong, consistent Q4 2008 growth in Bankers Q4 2007 Q1 2008 Q2 2008 Q3 2008 $4,275.1 $4,524.9 $4,167.3 and Colonial Penn $4,045.0 $4,056.4 Slight decline in CIG due to focus on CIG more profitable CP business BLC 8
Slide 9: Q4 2008 Preliminary Summary of Results
Q4 2008 Preliminary Summary of Results CNO ($ millions, except per share amounts) Pre-Tax After Tax EPS Bankers Life $40.0 Colonial Penn 6.7 Conseco Insurance Group 31.5 Corporate operations, interest expense and gain on extinguishment of debt 5.9 Income before net realized investment losses* 84.1 $
Slide 10: Q4 Preliminary Earnings CNO Consolidated
Q4 Preliminary Earnings CNO Consolidated ($ millions) Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Bankers Life $58.3 $29.1 $34.6 $67.8 $40.0 Colonial Penn (0.2) 3.7 8.3 6.5 6.7 Conseco Insurance Group 9.6 23.3 32.3 34.2 31.5 Corporate operations, excluding interest expense (2.9) (6.7) (16.2) (3.7) (0.1)
Slide 11: Preliminary Operating ROE
Preliminary 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 the left side investment gains (losses), valuation allowance of thi
Slide 12: Preliminary Operating EPS (Diluted)
Preliminary Operating EPS* (Diluted) CNO *Operating earnings per share exclude net realized investment gains (losses), valuation allowance related to deferred tax assets and losses related to the transfer of Senior Health to an independent trust. See Appendix for corresponding GAAP measure. 12
Slide 13: Liquidity
Liquidity CNO Corporate liquidity Available holding and non-life company liquidity of $59 million at 12/31/08 $108 million of liquidity at 2/27/09 Repurchased $37 million of our convertible debentures during October 2008 for $16 million, resulting in $21 million gain Drew down $75 million on revolve
Slide 14: Liquidity: Q4 2008 Actual
Liquidity: Q4 2008 Actual CNO ($ millions) $7 $12 Beginning $15 Liquidity Balance $20 $138 $46 $25 Ending Liquidity Balance $59 $50 $12 14
Slide 15: 2009 Liquidity Projection
2009 Liquidity Projection CNO ($ millions) Cash Balance 12/31/08 $59.0 Sources Dividends* 60.0 Surplus Debenture Interest* 44.9 Management and Investment Fees 53.0 Intercompany Loans and Other 37.4 Total Sources 195.3 Uses Interest 54.6 Debt Repayments: Revolver 55.0 Senior Credit Facility 10.2 Seni
Slide 16: Key Debt Covenants
Key Debt Covenants CNO ($ millions) Q4 2007 Q3 2008 Q4 2008 Company expects final Debt/Capital Ratio* audited statements to Covenant Maximum 30.0% 30.0% 30.0% show compliance, as of Actual 21.0% 23.6% 27.9% 12/31/08, with all Interest Coverage financial ratio and Covenant Minimum 2.00X 2.00X 2.00X b
Slide 17: Consolidated RBC Ratio
Consolidated RBC Ratio* CNO Q4 2008 positive impacts: Senior Health separation Q4 statutory operating results Permitted practices Capital management actions Q4 2008 negative impacts: Mortgage Experience Adjustment Factor Net realized losses Investment downgrades *Risk-Based Capital (“RBC”) requireme
Slide 18: Consolidated RBC Ratio – Q4 2008 Changes
Consolidated RBC Ratio – Q4 2008 Changes CNO 8% Beginning 11% Ending RBC 15% RBC 18% 257% 23% 258% 19% 9% 18
Slide 19: Capital Management Actions
Capital Management Actions CNO Bankers LTC New Business Reinsurance Benefits Improve capital and product risk mix Develop partnership with reinsurer Transaction Terms Reinsurer: Reinsurance Group of America (RGA) Reinsure 2008, 2009 and future new business Traditional coinsurance; quota share is 70%
Slide 20: Capital Management Actions: Statutory Financial Impact
Capital Management Actions: Statutory Financial Impact CNO ($ millions) 2008 2009 Consolidated Consolidated Consolidated Consolidated TAC Impact RBC Impact TAC Impact RBC Impact Bankers - LTC Reinsurance $6.8 +1.5% $6.8 +1.5% Bankers – Coventry Group Exit N/A N/A $(0.3) +7.8% Other Reinsurance and C
Slide 21: Capital Management Actions: 2009 GAAP Impact
Capital Management Actions: 2009 GAAP Impact CNO ($ millions, except per share amounts) GAAP Operating Income Pre-Tax After Tax Per Share Bankers - LTC Reinsurance $(3.0) $(2.0) $(0.01) Bankers – Coventry Group Exit $(7.5) $(4.9) $(0.03) Other Reinsurance and Capital Actions $(3.7) $(2.4) $(0.01) 21
Slide 22: Q4 Summary Bankers
Q4 Summary Bankers Earnings were $40.0 million, vs. $67.8 million in Q3 2008 Q4 2008 earnings affected by: Lower than expected PFFS/PDP margins Lower margins in Med Supp FAS 133 and COLI volatility Med Supp and LTC reinsurance transaction Continued stabilization in LTC margins Strong Q4 2008 sales 2
Slide 23: NAP Results Bankers
NAP Results Bankers ($ millions) Quarterly NAP-Excluding PFFS Quarterly NAP up 18% vs Q4 2007 (up 25% including PFFS) Strong sales of annuities (+84%) and Med Supp (+21%), partially offset by lower life (-13%) and LTC (-27%) sales Non-PFFS NAP-Quarterly: $60.9 $55.6 $59.8 $61.2 $71.9 PFFS NAP-Quarte
Slide 24: Q4 Earnings Bankers
Q4 Earnings Bankers ($ millions) Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Insurance policy income $470.4 $497.0 $543.4 $537.7 $531.8 Net investment income 132.1 129.3 135.2 138.3 155.4 Fee revenue and other income 4.3 1.6 2.1 3.1 4.2 Total revenues 606.8 627.9 680.7 679.1 691.4 Insurance policy benef
Slide 25: Q4 Summary Colonial Penn
Q4 Summary Colonial Penn Q4 2008 NAP of $11 million, 16% above Q4 2007 2008 YTD NAP of $54.4 million, up 28% over prior year Q4 2008 earnings were $6.7 million, compared to $(0.2) million in Q4 2007 Lower expenses from discontinued PFFS pilot program Q4 2007 recapture of reinsurance treaty Organic g
Slide 26: Q4 Earnings Colonial Penn
Q4 Earnings Colonial Penn ($ millions) Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Insurance policy income $34.6 $44.4 $47.5 $46.4 $46.5 Net investment income 9.5 9.2 10.1 10.1 10.2 Fee revenue and other income 0.2 0.3 0.5 0.5 0.5 Total revenues 44.3 53.9 58.1 57.0 57.2 Insurance policy benefits 25.2 35
Slide 27: Q4 2008 NAP $18 million, 9% below Q4 2007 CIG
Q4 2008 NAP $18 million, 9% below Q4 2007 CIG ($ millions) Sales gains in specified disease, up 6% from Q4 2007 Decreases in high face-amount life and annuity products, consistent with CIG’s re-focus 27
Slide 28: Q4 Summary CIG
Q4 Summary CIG Q4 2008 earnings down 8% vs Q3 2008: Unlocking adjustment of $7.0 million on the interest-sensitive life block Lower LTC closed block margins ($4.4 million) Partially offset by: Higher specified disease margins due to a deferred ROP adjustment Higher Medicare supplement margins Q4 200
Slide 29: Q4 Earnings CIG
Q4 Earnings CIG ($ millions) Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Insurance policy income $242.6 $243.7 $239.1 $237.7 $238.4 Net investment income 137.7 136.1 138.7 134.0 143.7 Fee revenue and other income 0.3 0.8 0.5 0.1 0.3 Total revenues 380.6 380.6 378.3 371.8 382.4 Insurance policy benefits
Slide 30: Q4 2008 Net Realized Losses
Q4 2008 Net Realized Losses CNO ($ millions) Net losses on sales $(48.1) Losses due to recognition of other-than-temporary impairments (44.9) Subtotal before amortization adjustment (93.0) Amortization adjustment to DAC and PVP 5.0 Net realized investment losses $(88.0) 30
Slide 31: Investment Quality: Fixed Maturities
Investment Quality: Fixed Maturities* CNO Actively Managed Fixed Maturities by Rating at Investment grade securities 12/31/08 (Market Value) represent 92% of total portfolio* Limited new money allocation to below-investment grade securities Increase in below-investment grade ratio driven by credit c
Slide 32: Asset Allocation at 12/31/08
Asset Allocation at 12/31/08 CNO Overall highly rated Pressure on ALT-A delinquency Overall mark-to-market and trends credit migration consistent with Some Alt-A downgrades credit cycle Low, but rising delinquency Pressure on financials and trends cyclicals Seasoned portfolio BBB market pricing pres
Slide 33: Asset Allocation at 12/31/08
Asset Allocation at 12/31/08 CNO ($ millions) MTM in line with market trends, reflecting wider spreads in corporates and mortgages 33
Slide 34: CMOs by Agency at 12/31/08
CMOs by Agency at 12/31/08 CNO ($ millions) Our CMO portfolio is almost evenly divided between agencies and non-agencies 34
Slide 35: Non-Agency CMOs at 12/31/08
Non-Agency CMOs at 12/31/08 CNO Our non-agency CMOs are diversified by type and vintage 35
Slide 36: Alt-A at 12/31/08
Alt-A at 12/31/08 CNO ($ millions) Market Book % of Avg. Avg. Avg. 60+ % of Rating Value (mil.) Value (mil.) Alt-A* FICO Support Delinq. Portfolio* AAA $227.1 $466.5 93.6% 716 9.2% 9.7% 1.22% AA $0.9 $4.0 0.4% 695 18.2% 6.5% 0.00% A $3.9 $3.9 1.6% 708 6.8% 12.5% 0.02% BB $10.8 $10.8 4.4% 704 12.0% 1
Slide 37: Sub-Prime Home Equity ABS By Vintage
Sub-Prime Home Equity ABS By Vintage CNO (GAAP book value - $ millions) $150.5 $81.4 Exposure reduced by 46% in 2008 Market value represents 0.32% of invested assets at 12/31/08, compared to 0.52% at 12/31/07 37
Slide 38: Sub-Prime Home Equity ABS
Sub-Prime Home Equity ABS CNO ($ millions) Market Book % of Avg. Avg. Avg. 60+ % of Rating Value (mil.) Value (mil.) Subprime* FICO Support Delinq. Portfolio* AAA $24.1 $32.3 39.7% 639 30.3% 15.8% 0.13% AA $21.6 $31.7 38.9% 648 23.4% 9.5% 0.12% A $12.5 $17.4 21.4% 665 22.8% 8.4% 0.07% Total $58.2 $8
Slide 39: CMBS by Vintage at 12/31/08
CMBS by Vintage at 12/31/08 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 $225.3 $30.1 $30.2 $6.0 --- 2004 $153.7 $7.4 $15.6 $9.1 --- 2005 $111.7 $2.
Slide 40: CMBS by Collateral Type at 12/31/08
CMBS by Collateral Type at 12/31/08 CNO Our CMBS are backed by a diverse pool of underlying collateral – $90 billion, from more than 7,800 commercial mortgage loans 40
Slide 41: Investment Grade Corporates at 12/31/08
Investment Grade Corporates at 12/31/08 CNO Our IG Corporate allocation is highly diversified 41
Slide 42: High Yield Corporates at 12/31/08
High Yield Corporates at 12/31/08 CNO Our HY Corporate allocation is diversified and is weighted away from cyclicals 42
Slide 43: CNO Summary
CNO Summary Key differences between Conseco and the rest of the industry: Our sales are continuing to grow and, indeed, are growing strongly Our products are simple and straightforward, and entail less risk than products designed for higher-net-worth customers Our market is sufficiently different fr
Slide 44: Questions and Answers
S CONSECO Questions and Answers
Slide 45: Appendix
S CONSECO. Appendix
Slide 46: 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 47: 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 a Q4 2007 and Q2 2008 valuation allowance for deferred tax assets (and related per share amounts) is as follows (dollars in millions, except per
Slide 48: 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 49: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation from book value per diluted share to book value per diluted share, excluding accumulated other comprehensive income (loss) is as follows (dollars in millions, except per share amounts): Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 200
Slide 50: 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 and losses related to the transfer of Senior Health to an independent trust (“net operating income”, a non-GAAP financial measure) i
Slide 51: 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 less a Q4 2007 and Q2 2008 valuation allowance for deferred tax assets on common equity (excluding accumulated other comprehensive income (loss) and net operating loss carryforw
Slide 52: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures (continued from previous page) Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Average common shareholders' equity $4,260.7 $4,087.8 $3,660.9 $3,043.1 $2,184.1 Average common shareholders' equity, excluding accumulated other comprehensive income (lo
Slide 53: 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 nine months ended December 31, 2008, is as follows (dollars in millions): Corporate an
Slide 54: 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 is as follows (dollars in millions):
Slide 55: 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 December 31, 2008,
Slide 56: 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
Slide 57: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation of the debt to capital ratio to debt to capital, excluding accumulated other comprehensive loss is as follows (dollars in millions): Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Corporate notes payable $ 1,193.7 $ 1,191.7 $ 1,189