Slide 1: Third Quarter 2007 Financial and Operating Results
Third Quarter 2007 Financial and Operating Results For the period ended September 30, 2007 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: 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 r
Slide 4: Q3 2007 Summary CNO
Q3 2007 Summary CNO Pre-Tax After Tax (mils.) (mils.) EPS Operating earnings before litigation settlement and loss on coinsurance transaction $49.3 $34.7 $0.18 Litigation settlement (16.4) (10.6) (0.06) Loss on coinsurance transaction (76.5) (49.7) (0.26) Operating losses (43.6) (25.6) (0.14) Net re
Slide 5: Q3 2007 Operating Earnings by Segment
Q3 2007 Operating Earnings by Segment CNO (Pre-tax earnings in millions) Bankers Life $66.3 Colonial Penn 7.0 Conseco Insurance Group* (0.4) LTC Closed Block** (2.9) $70.0 *Unfavorably impacted by $18.3 million from remediation procedures related to material control weakness and $11 million of expen
Slide 6: Q3 2007 Summary CNO
Q3 2007 Summary CNO BLC and CP continue to have strong results CIG results negatively affected by accounting remediation activities and expenses related to operations consolidation LTC Run-off block approaching breakeven; stability achieved as result of Q2 2007 reserving activities Sale of annuity b
Slide 7: New Business Volumes (NAP) CNO Consolidated
New Business Volumes (NAP) CNO Consolidated ($ millions) Q3 06 Q3 07 YTD 06 YTD 07 Bankers $58.0 $56.5 $212.3 $236.1 Colonial Penn 8.3 11.4 25.8 33.0 Conseco Insurance Group 26.3 18.1 75.1 59.1 Total $92.6 $86.0 $313.2 $328.2 New business volumes are measured by new annualized premium, which include
Slide 8: Operating ROE
Operating ROE CNO Conseco has set a long-term goal of improving its Operating ROE – after-tax earnings divided by equity (excluding our NOL deferred tax asset from equity and other adjustments below) – to 11% in 2009 Operating ROE*, Trailing 4 Quarters Operating ROE (excl. litigation settlement char
Slide 9: Q3 Earnings CNO Consolidated
Q3 Earnings CNO Consolidated ($ millions) Q3 2006 Q3 2007 Bankers Life $68.4 $66.3 Conseco Insurance Group 58.5 (0.4) Colonial Penn 4.6 7.0 Other Business in Run-Off (13.0) (2.9) Corporate operations, excluding interest expense (8.1) (0.5) EBIT, excluding costs related to the litigation settlement a
Slide 10: Operating EPS (Diluted)
Operating EPS (Diluted) CNO Operating EPS* Operating EPS, Before Litigation Settlement Charges and Coinsurance Transaction** *Operating earnings per share exclude net **Operating earnings per share, before: (1) Q2 realized investment gains (losses). See Appendix 2006 charge related to the litigation
Slide 11: Expenses
Expenses CNO ($ millions) Adjusted Operating Expenses*, Trailing 4 Quarters Back-office consolidation on track to produce annual cost savings of more than $30 million beginning in 2008 Bankers Life policyholder service now managed in Carmel Additional savings resulting from CIG Sales and Marketing r
Slide 12: Financial Indicators
Financial Indicators* CNO Book value per diluted share (excluding accumulated other comprehensive loss) $24.77 at 9/30/07 vs $25.81 a year earlier and $25.64 at YE 2006 Debt and preferred stock to total capital ratio (excluding accumulated other comprehensive loss) 20.6% at 9/30/07 vs 26.4% a year e
Slide 13: Colonial Penn Recapture: Transaction Overview
Colonial Penn Recapture: Transaction Overview CNO Increase core business ($50 million annual life premium) Grow enterprise value Eliminate reinsurance accounting and administration Recapture fee (purchase price): $63 million Effective date: 10/1/07 (expected to close by 12/31/07) Accretive to earnin
Slide 14: Q3 2007 Summary Bankers
Q3 2007 Summary Bankers Sales of $56.5 million, up 11% YTD, 2% below Q3 2006 Sales of PFFS voluntarily suspended in June by seven largest health plans; resumed in September Slightly lower earnings (vs Q3 2006) driven by: Lower LTC margins, offset by Improved spreads and higher PDP/PFFS income Effect
Slide 15: Q3 Earnings Bankers
Q3 Earnings Bankers ($ millions) Q3 2006 Q3 2007 Insurance policy income $390.1 $473.6 Net investment income 134.4 144.2 Fee revenue and other income 1.4 3.8 Total revenues 525.9 621.6 Insurance policy benefits 313.3 404.6 Amounts added to policyholder account balances 51.7 54.9 Amortization related
Slide 16: Segment Performance Bankers
Segment Performance Bankers ($ millions) Pre-Tax Operating Income* Higher earnings driven by: Higher margins on Medicare- related products, primarily driven by PFFS LTC margins negatively impacted by higher persistency and lower claim terminations PTOI-Trailing 4 Quarters: $252.8 $258.4 $244.0 $245.
Slide 17: Benefit Ratio – Medicare Supplement Bankers
Benefit Ratio* – Medicare Supplement Bankers Increase in benefit ratio from Q2 2007 due to higher persistency (offset by lower amortization) Trailing 4 Quarter Avg.: 67.9% 66.6% 65.8% 65.7% 66.6% *We calculate benefit ratios by dividing insurance policy benefits by insurance policy income. 17
Slide 18: Benefit Ratio – PDP and PFFS Business Bankers
Benefit Ratio* – PDP and PFFS Business Bankers PDP and PFFS continue to trend as expected Seasonality drives fluctuations *We calculate benefit ratios by dividing insurance policy benefits by insurance policy income. 18
Slide 19: Interest-Adjusted Benefit Ratio – Long Term Care Bankers
Interest-Adjusted Benefit Ratio* – Long Term Care Bankers Q3 2007 negatively impacted by: Fewer claims closed compared to prior periods Higher persistency compared to Q2 2007 Began implementation of premium re-rates in Q3 2007 on more recent business not previously re-rated; expected $25-30 million
Slide 20: Q3 Earnings Colonial Penn
Q3 Earnings Colonial Penn ($ millions) Q3 2006 Q3 2007 Insurance policy income $29.1 $32.5 Net investment income 9.2 9.4 Fee revenue and other income 0.1 0.2 Total revenues 38.4 42.1 Insurance policy benefits 25.2 26.3 Amounts added to policyholder account balances 0.4 0.3 Amortization related to op
Slide 21: Segment Performance Colonial Penn
Segment Performance Colonial Penn ($ millions) Pre-Tax Operating Income* Consistent and favorable trends: Sales Mortality Expenses Amortization of DAC/VOBA Earnings PTOI-Trailing 4 Quarters: $19.5 $21.6 $21.1 $21.3 $23.7 Revenues-Quarterly: $38.4 $41.4 $39.0 $38.9 $42.1 Revenues -Tr. 4 Quarters: $14
Slide 22: Q3 2007 Summary CIG
Q3 2007 Summary CIG Sales down 31% from Q3 2006 Higher value from new business compared to Q3 2006, despite lower sales Strong sales gains in specified disease, up 35% from Q3 2006 Decreases in Medicare supplement and annuities, consistent with CIG’s focus on more profitable business Lower earnings
Slide 23: Q3 Earnings CIG
Q3 Earnings CIG ($ millions) Q3 2006 Q3 2007 Insurance policy income $245.9 $238.7 Net investment income 189.3 181.2 Fee revenue and other income 0.8 0.1 Total revenues 436.0 420.0 Insurance policy benefits 184.1 220.3 Amounts added to policyholder account balances 84.5 76.4 Amortization related to
Slide 24: Segment Performance CIG
Segment Performance CIG ($ millions) Pre-Tax Operating Income* Q3 2007 includes: Specified disease reserve correction of $18.3 million $11 million of expenses related to operational savings or consolidation activity $11 million reduction (vs Q3 2006) in interest-sensitive life earnings from adverse
Slide 25: Benefit Ratio – Medicare Supplement CIG
Benefit Ratio* – Medicare Supplement CIG Consistent with expectations Higher persistency in Q3 2007 compared to Q3 2006 resulted in slightly higher benefit ratio Trailing 4 Quarter Avg.: 60.6% 61.9% 63.6% 66.6% 67.1% *We calculate benefit ratios by dividing insurance policy benefits by insurance pol
Slide 26: Interest-Adjusted Benefit Ratio – Specified Disease CIG
Interest-Adjusted Benefit Ratio* – Specified Disease CIG Reserve corrections have affected benefit ratios in several periods: Loss ratio would have been 50.1% in Q3 2007 without $18.3 million adjustment, 41.8% in Q1 2007 without $19.3 million adjustment, and 37.7% in Q4 2006 without $13.3 million ad
Slide 27: Segment Summary LTC Closed Block
Segment Summary LTC Closed Block Financial results reflect prior-quarter reserve strengthening and improving business fundamentals Program for improvement initiatives providing a real impact Completed implementation of $30 million in approved Round 1 rate increases; $21 million expected in Round 2 I
Slide 28: Premium Re-rates Round 1 LTC Closed Block
Premium Re-rates Round 1 LTC Closed Block 28
Slide 29: Premium Re-rates Round 2 LTC Closed Block
Premium Re-rates Round 2 LTC Closed Block 29
Slide 30: Q3 Earnings LTC Closed Block
Q3 Earnings LTC Closed Block ($ millions) Q3 2006 Q3 2007 Insurance policy income $83.4 $77.2 Net investment income 44.6 48.8 Fee revenue and other income 0.1 0.1 Total revenues 128.1 126.1 Insurance policy benefits 113.4 106.0 Amortization related to operations 5.6 5.6 Other operating costs and exp
Slide 31: Segment Performance LTC Closed Block
Segment Performance LTC Closed Block ($ millions) Pre-Tax Operating Income* Stable prior-period claim development Meaningful impact from improvement initiatives Net $6.6 million favorable adjustments to reserve for future benefits PTOI-Trailing 4 Quarters: $33.3 ($41.9) ($96.8) ($234.4) ($224.3) Rev
Slide 32: Benefit Detail LTC Closed Block
Benefit Detail LTC Closed Block ($ millions) Total Benefits Q3 2007 incurred claims reflect: Stable claim reserve development Verified basis consistent with prior periods Q3 2007 increase in reserves: $(20.1) million decrease related to prior- period deaths and terminations $13.5 million increase fo
Slide 33: Interest-Adjusted Benefit Ratio LTC Closed Block
Interest-Adjusted Benefit Ratio* LTC Closed Block Benefit reserve adjustments favorably impacted Q3 2007 by 8.5% Trailing 4 Quarter Avg.: 60.1% 83.2% 99.0% 141.0% 140.2% Qtrly. non-int. adjusted: 136.0% 198.2% 163.5% 296.7% 137.4% Qtrly. Verified Basis non-int. adjusted: 143.5% 147.6% 148.1% 145.1%
Slide 34: Balance Sheet Detail LTC Closed Block
Balance Sheet Detail LTC Closed Block ($ millions) Insurance Liabilities and Intangible Assets, Net of Reinsurance Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Reserve for Future Benefits $2,413.6 $2,412.6 $2,412.2 $2,409.0 $2,402.3 Claim Reserve 752.3 815.6 829.1 952.6 954.3 Insurance Acquisition Costs
Slide 35: Verified Incurred Development LTC Closed Block
Verified Incurred Development* LTC Closed Block Developed ($ millions) Deficiencies in Periods Prior to 2004 2004 2005 2006 Q1 2007 Q2 2007 Q3 2007 Reported Claims $0.0 $370.8 $396.0 $433.4 $119.7 $212.0 $100.7 Prior Period Development 0 (44.1) (58.7) (71.9) (34.9) (109.7) 3.3 Verified Claims as of
Slide 36: Operating Data LTC Closed Block
Operating Data LTC Closed Block Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Claims Paid (mils.) $107.4 $83.1 $90.4 $101.2 $96.1 $81.64 $102.0 $96.8 $99.1 Open Claimant Counts 12,449 12,290 11,805 12,536 12,228 12,048 11,870 12,424 12,121 In Force Policy Counts 202,804 201
Slide 37: High-Quality Assets
High-Quality Assets CNO Actively Managed Fixed Maturities by Rating at 9/30/07 (Market Value) Only 6% of total portfolio is in below-investment grade securities Excludes investments from variable interest entity we are required to consolidate for GAAP financial reporting (such assets and the related
Slide 38: Structured Securities at 9/30/07
Structured Securities at 9/30/07 CNO (Market value in millions) Structured securities and Other asset-backed securities Planned amortization class, target amortization class, and accretion- $64.5 1.2% represent 25% of total directed bonds Commercial $1,510.9 mortgage-backed securities actively manag
Slide 39: Sub-Prime Home Equity ABS
Sub-Prime Home Equity ABS CNO Exposure by Vintage Year (Market Value in millions) Over 40% reduction of sub-prime exposure during Q3 2007, including 82% of 2007 vintage and 100% of 2006 vintage As of 9/30/07, 0.57% of invested assets, compared to 1.2% at 6/30/07 Reduction in exposure reflects dispos
Slide 40: Sub-Prime Home Equity ABS at 9/30/07
Sub-Prime Home Equity ABS at 9/30/07 CNO Market Book % of Avg. Avg. Avg. 60+ % of Rating Value (mil.) Value (mil.) Subprime* FICO Support Delinq. Portfolio* AAA $32.2 $32.9 21.6% 646 47.6% 8.2% 0.12% AA $44.9 $49.7 30.0% 640 28.4% 7.5% 0.17% A $62.7 $76.7 42.0% 641 19.2% 6.6% 0.24% <=BBB $9.5 $21.9
Slide 41: Sub-Prime Home Equity ABS and Structured Credit
Sub-Prime Home Equity ABS and Structured Credit CNO Through Q3 2007, total of four downgraded sub-prime ABS securities – par amount $17 million No ABS CDO investments No hedge fund investments No exposure to substandard servicers Nominal (<$10 million par) third-party CLO/structured credit exposure
Slide 42: CNO Recap
CNO Recap Core businesses Bankers Life and Colonial Penn – great results, focused on growth CIG Greater focus on distinctive capabilities Producing more economic value from lower sales Runoff LTC block Claims reserve volatility reduced Run rate now at a small loss per quarter, expect profitability n
Slide 43: CNO Recap
CNO Recap Changing the portfolios of the business Annuity coinsurance deal with Swiss Re closed; releases 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 – Carmel now ha
Slide 44: Questions and Answers
S CONSECO Questions and Answers 44
Slide 45: Appendix
S CONSECO Appendix 45
Slide 46: Premiums – Medicare Supplement Bankers
Premiums – Medicare Supplement Bankers Medicare Supplement – First-Year Premiums (in millions) First-year premiums continue downward trend, reflecting migration to PFFS plans Med. Supp. First-Year Prems.-Tr. 4 Qtrs: $93.1 $97.8 $95.2 $90.7 $86.8 Med. Supp. Total Premiums-Quarterly: $146.7 $157.2 $16
Slide 47: Premiums – PDP/PFFS Bankers
Premiums – PDP/PFFS Bankers PDP/PFFS – First-Year Premiums (in millions) Q3 2007 Significant increase in $78.5 PDP/PFFS premiums as result of expansion of partnership with Coventry Q2 2007 PFFS Q3 2006 $25.9 $20.8 Q4 2006 Q1 2007 $17.8 $16.0 PDP PDP NAP-Quarterly: $0.7 $0.5 $4.3 $0.7 $0.8 PFFS NAP-Q
Slide 48: Premiums – Long-Term Care Bankers
Premiums – Long-Term Care Bankers Long-Term Care – First-Year Premiums ($ millions) Sales have stabilized Increases in total premiums as result of higher persistency and rate increases First-Year Prems.-Tr. 4 Qtrs: $54.6 $51.2 $48.6 $47.7 $47.4 Total Premiums-Quarterly: $145.0 $150.2 $158.2 $155.4 $
Slide 49: Premiums – Life Insurance Bankers
Premiums – Life Insurance Bankers Life – First-Year Premiums ($ millions) First-year premiums declined from Q2 2007 due to lower single-premium sales Trailing 4-quarter sales continue to increase First-Year Prems.-Tr. 4 Qtrs: $90.4 $90.3 $91.0 $93.0 $89.8 Total Premiums-Quarterly: $47.8 $46.6 $48.1
Slide 50: Premiums – Annuity Bankers
Premiums – Annuity Bankers Annuity – First-Year Premiums ($ millions) Increase over Q2 2007 in first- year premiums reflects higher sales Total trailing 4-quarter premiums declined due to higher terminations as result of difficult interest rate environment First-Year Prems.-Tr. 4 Qtrs: $1,010.7 $994
Slide 51: Premiums - Medicare Supplement CIG
Premiums - Medicare Supplement CIG Medicare Supplement – First-Year Premiums ($ millions) Sales down 70% from Q3 2006: Pursuing smaller, more profitable block of Medicare supplement First-Year Prems.-Tr. 4 Qtrs: $28.0 $30.6 $28.9 $26.2 $23.9 Total Premiums-Quarterly: $54.6 $61.8 $59.8 $56.1 $54.8 NA
Slide 52: Premiums – Specified Disease CIG
Premiums – Specified Disease CIG Supplemental Health – First-Year Premiums ($ millions) Sales up 35% from Q3 2006: New products Increased focus within PMA Recruitment of Health IMOs First-Year Prems.-Tr. 4 Qtrs: $28.4 $28.1 $28.2 $28.9 $29.8 Total Premiums-Quarterly: $88.1 $89.4 $92.1 $89.1 $88.7 NA
Slide 53: Premiums – Annuity CIG
Premiums – Annuity CIG ($ millions) Annuity – First-Year Premiums Sales down 59% from Q3 2006: Impact of ratings downgrade Discontinuance of products due to coinsurance transaction Greater focus on profitability First-Year Prems.-Tr. 4 Qtrs: $358.1 $415.5 $500.2 $521.5 $415.9 Total Premiums-Quarterl
Slide 54: Premiums – Life Insurance Colonial Penn
Premiums – Life Insurance Colonial Penn Life – First-Year Premiums ($ millions) Continued strong year-over-year sales growth Comparing the trailing four quarters data: NAP and first-year premium both grew 23% First-year premium consistently grew 4-6% each quarter First-Year Prems.-Tr. 4 Qtrs: $22.0
Slide 55: Book Value Per Diluted Share
Book Value Per Diluted Share* CNO Decrease in Q3 2007 reflects net loss for quarter, offset by common share repurchases *Book value excludes accumulated other comprehensive income (loss). Shares outstanding assumes: (1) conversion of convertible securities; and (2) the exercise of outstanding stock
Slide 56: Debt and Preferred Stock to Total Capital Ratio
Debt and Preferred Stock to Total Capital Ratio* CNO Increase in Q3 2007 Q4 2006 Q1 2007 28.9% reflects net loss for quarter Q3 2006 26.4% 28.8% and effect of common Q2 2007 Q3 2007 20.3% 20.6% share repurchases Preferred Stock Debt *Excludes accumulated other comprehensive income (loss). See Append
Slide 57: Consolidated RBC Ratio
Consolidated RBC Ratio* CNO Continued strong RBC *Risk-Based Capital (“RBC”) requirements provide a tool for insurance regulators to determine the levels of statutory capital and surplus an insurer must maintain in relation to its insurance and investment risks. The RBC ratio is the ratio of the sta
Slide 58: Net Investment Income
Net Investment Income CNO ($ millions) General Account Investment Income, Excluding Corporate Segment Yield up 16 bps from Q3 2006 Net investment income from the prepayment of securities: $0.5 $1.0 $5.0 $1.1 $0.6 Yield: 5.72% 5.72% 5.83% 5.83% 5.88% 58
Slide 59: 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 60: 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; and (ii) a Q3 2007
Slide 61: 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 62: 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): Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Total sh
Slide 63: 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 (“net operating income”, a non-GAAP financial measure) is important to evaluate the performance of the Company and is a key measure
Slide 64: 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: (i) Q2 2006 charge related to the litigation settlement and refinements to such estimates recognized in subsequent periods; and (ii) a Q3 2007 charge related to a coinsur
Slide 65: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures (continued from previous page) Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Average common shareholders' equity 3,836.9 4,045.1 4,050.8 4,215.8 4,339.5 Average common shareholder's equity, excluding accumulated other comprehensive income (loss) (a non-GAAP
Slide 66: 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 Sept. 30, 2007, is as follows (dollars in millions): Other Business
Slide 67: 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), the Q2 2006 charge related to the litigation settlement and refinements to such estimates recognized in subsequent periods, the Q3 2007
Slide 68: 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), the Q2 2006 charge related to the litigation settlement and refinements to such estimates recognized in subsequent periods, the
Slide 69: 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 70: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures Reconciliations of the: (i) debt to capital ratio to debt to capital, excluding accumulated other comprehensive loss; and (ii) debt and preferred stock to capital ratio to debt and preferred stock to capital, excluding accumulated other comp