Conseco to Transfer Senior Health Business, Take $503 Million in Second-Quarter Charges

CARMEL, Ind., Aug 11, 2008 (A. M. Best via COMTEX) -- CNO | Quote | Chart | News | PowerRating -- Conseco Inc. plans to transfer its Conseco Senior Health Insurance Co. business to an independent trust in a move that will result in $503.7 million in charges to its second-quarter earnings.

Following the transfer, Conseco Senior Health will be called Senior Health Insurance Company of Pennsylvania and run by management transferred from Conseco.

The stock of Conseco Senior Health, including its roughly $2.9 billion in assets supporting its long-term-care insurance liabilities, will be transferred to the senior health care oversight trust. At closing, Conseco will contribute $175 million to Conseco Senior Health and the trust.

As a result of the deal, Conseco said will record accounting charges totaling about $1.2 billion, with $503.7 million to be recorded in its second-quarter earnings. The $503.7 million in charges includes $205.7 million in unrealized losses on investments expected to be transferred to the trust and $298 million to the deferred tax valuation allowance based on recent results that have had a "significant impact" on taxable income. Conseco (NYSE: CNO | Quote | Chart | News | PowerRating) releases second-quarter earnings Aug. 12.

The trust will be governed by a board of trustees separate from Conseco and subject to Pennsylvania insurance department oversight. Management transferring from Conseco to Senior Health will include John Wells, who will continue as president and chief executive officer of Senior Health Insurance Company of Pennsylvania, Conseco said.

"This unique structure aligns the interests of the independent trust, management and regulators with the policyholders," said Jim Prieur, Conseco's CEO, in a statement.

In May, the Carmel, Ind.-based Conseco agreed to pay up to $6.3 million in fines and restitution to end a multistate investigation by insurance regulators into its long-term-care insurance business. The probe concerned how two subsidiaries, Banker's Life and Casualty Co. and Conseco Senior Health, processed claims, handled complaints and marketed and sold policies (BestWire, May 18, 2008).

Conseco Senior Health has about 142,000 long-term-care policyholders. "Following the closing, Senior Health will be operated for the benefit of CSHI's long-term-care policyholders without a profit motive, so as to ensure that any future benefits from rate increases or policy changes will accrue to policyholders," said Ed Bonach, Conseco's chief financial officer, in statement.

Conseco was trading at $9.59 a share on the morning of Aug. 11, up 11.51% from the previous close.

Conseco Senior Health Insurance Co. currently has a Best's Financial Strength Rating of C ++ (Marginal).

(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)

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