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A.M. Best Comments on Rating of Conseco Insurance Subsidiaries

A.M. Best Comments on Rating of Conseco Insurance Subsidiaries

Business Editors

OLDWICK, N.J.–(BUSINESS WIRE)–Jan. 29, 2002

The A- financial strength rating of the primary insurance subsidiaries of Conseco, Inc. (NYSE: CNC) remain under review with negative implications.

The rating was placed under review on October 3, 2001 following Conseco’s announcement that it would take charges in the third quarter of 2001, reducing after tax earnings by $471.2 million. This comment follows an earlier announcement today by Conseco of the initiatives underway to fund its corporate debt obligations through the balance of 2002 and into 2003.

Since this time, A.M. Best has been conducting a comprehensive review of Conseco’s insurance and finance operations, as well as the potential impact of continued weak economic conditions on the organization’s ability to successfully complete its ongoing financial restructuring. A.M. Best recognizes that weakened economic conditions have resulted in a shortfall on expected earnings and cash flow from its finance business. This has increased Conseco’s reliance on cash generated from its insurance operating subsidiaries, and resulted in the company’s need to pursue alternative cash generation initiatives in order to service its corporate debt obligations. At this point, A.M. Best believes that policyholder interests will remain secure as management pursues various initiatives to fulfill its upcoming corporate debt obligations, and that capital maintained in its insurance subsidiaries will remain well within Best’s near term expectations for their current rating levels.

Over the past 18 months Conseco, through a restructuring plan, identified over $2 billion of non-strategic assets that were to be sold or monetized in order to meet corporate debt commitments through 2003. While not executed in its original format, A.M. Best has reviewed the company’s revised plans and expects that the sale of additional assets and cash generation options will be sufficient to allow it to continue to meet corporate obligations through 2003. Although A.M Best anticipates that current economic conditions will continue to pressure earnings on both its insurance and finance operations over the near-term, it does not expect that the planned cash generation transactions will have a material impact Conseco’s future earnings. A.M. Best does, however, also recognize the execution and timing risk associated with management’s current plans.

In connection with the rating review of Conseco, Inc. and its subsidiaries, A.M. Best has also evaluated information and analysis compiled by both the company and actuarial consultants concerning the recoverability and expected impact on future earnings and financial flexibility associated with intangible assets carried on its balance sheet. Although A.M. Best is satisfied that the analysis supports the rating agency’s current expectations for Conseco’s insurance subsidiaries’ financial strength rating, we will continue to monitor the impact that unexpected changes might have on these assets and reported earnings and capitalization.

The following outlines A.M. Best’s expectations and potential rating actions for the Conseco insurance subsidiaries through the balance of 2002:

Dates Events

—————— —————————————————

1st Qtr 2002 Announcements concerning Conseco, Inc.’s 2002

alternative liquidity initiatives. A.M. Best

expects announcements concerning the sale of its

variable annuity business, its plans for joint

venturing its manufactured housing floor plan

business, and the reinsurance of several life and

health insurance blocks of business. A.M. Best will

review the terms of such transactions, as well as

the amounts and timing of the cash they are

expected to generate. The ratings of the Conseco

insurance subsidiaries could be lowered more than

one level if such announcements are not in place by

the end of the first quarter of 2002.

2nd Qtr 2002 Execution of Conseco, Inc.’s 2002 alternative

liquidity initiatives. A.M. Best expects that the

above mentioned transactions will be executed and

cash will be received by Conseco by the end of the

second quarter, well in advance of its scheduled

debt repayments on Conseco Finance debt in

September 2002, and Conseco, Inc. notes in October.

Although cash from these transactions is expected

to be received by the end of the second quarter,

the financial strength ratings of the Conseco

insurance operating subsidiaries will likely remain

under review, and be potentially subject to

downgrades, pending further evidence of the success

of management’s operational restructuring plan.

3rd & 4th Evidence of the successful execution of its

Qtrs 2002 operational restructuring efforts. A.M. Best will

continue to review Conseco’s operational

restructuring and its ongoing ability to generate

sufficient earnings and cash flows necessary to

service its debt obligations through the balance of

2002 and throughout 2003. A.M. Best will also

continue to evaluate the impact that weak economic

conditions will have on its operating activities.

Therefore, the financial strength ratings of the

Conseco insurance subsidiaries could be downgraded

one or more rating levels if either macro economic

conditions or other external events impede the

company’s ability to sustain its earnings and cash

flows at levels that are more than sufficient to

cover corporate debt obligations through 2003. A.M.

Best will only consider the appropriateness of

affirming the current financial strength rating of

the Conseco insurance subsidiaries upon both the

successful execution of its alternative 2002

liquidity initiatives and when the rating agency is

satisfied that the levels of cash produced from its

restructured operating subsidiaries will more than

adequately cover its 2003 debt commitments.

A.M. Best notes that the potential exists for certain events outside of the company’s control–including continued macro economic conditions, regulatory and accounting actions and class action lawsuits–to pose long-term financial challenges for the group. Consequently, A.M. Best will continue to monitor closely the potential impact of these factors on the organization’s ability to meet its obligations to both its insurance policyholders and its corporate creditors.

The financial strength rating of the following insurance subsidiaries of Conseco Inc. remain under review with negative implications.

– Conseco Annuity Assurance Co.

– Conseco Direct Life Insurance Co.

– Conseco Variable Insurance Co.

– Conseco Medical Insurance Co.

– Conseco Life Insurance Co.

– Conseco Senior Health Insurance Co.

– Conseco Health Insurance Co.

– Conseco Life Insurance Company of New York

– Bankers Life & Casualty Co.

– Manhattan National Life Insurance Co.

– Pioneer Life Insurance Co.

– Washington National Insurance Co.

A.M. Best Co., established in 1899, is the world’s oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best’s Web site at www.ambest.com.

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