A.M. Best Places Ratings of Conseco, Inc. and Its Subsidiaries Under Review With Developing Implications

These rating actions follow Conseco's recent announcement of its intention to transfer ownership interest in CSHI to a newly-formed independent Pennsylvania business trust, Senior Health Care Oversight Trust (the Trust). CSHI houses the majority of Conseco's run-off long-term care (LTC) block. Over the last decade, Conseco has supported this underperforming block by contributing $915 million primarily to strengthen claim reserves and maintain the minimum level of regulatory capital. This transaction, in its current form, would effectively separate CSHI from Conseco; hence, Conseco would no longer be obligated to fund future losses related to CSHI's run-off LTC block.

CSHI will subsequently be renamed Senior Health Insurance Company of Pennsylvania (Senior Health). In addition to its current level of capital and surplus (roughly $125 million), Senior Health will receive a final contribution from Conseco of $175 million, comprising a five year 6% $125 million senior unsecured note and the balance in cash and cash equivalents. Senior Health will be run solely for the benefit of its LTC policyholders, governed by the Trust, which will operate as a non-profit entity. The Trust and CSHI will be overseen by five highly-qualified trustees and will remain under the jurisdictional oversight of the Pennsylvania Insurance Department (PID).

A.M. Best notes that the transaction remains subject to regulatory review and approval, including a public comment period; this process is expected to be concluded by year end. Due to the uniqueness of the transaction structure as well as the inherent execution risk involved, A.M. Best has placed the group's ratings under review. If the transaction closes with substantially similar terms and structure as proposed, A.M. Best will consider revising the rating outlook to stable. However, absent significantly improved operating results, failure to complete the transaction could result in a downgrade to some, if not all, of Conseco's ratings.

Post transaction, A.M. Best believes Conseco would likely benefit from some enhanced financial flexibility as well as the ability to focus management's time and efforts on developing strategies to improve the organization's business profile and operating performance of its core product lines. However, A.M. Best notes that the current projected debt-to-capital ratio at roughly 28%--incorporating a $1.2 billion accounting charge related to the transaction--approaches the maximum permitted leverage per the covenants in Conseco's existing credit facility.

The FSR of B+ (Good) and ICRs of "bbb-" have been placed under review with developing implications for the following core insurance subsidiaries of Conseco, Inc.:

-- Bankers Life and Casualty Company

-- Colonial Penn Life Insurance Company

-- Conseco Health Insurance Company

-- Conseco Insurance Company

-- Bankers Conseco Life Insurance Company

-- Conseco Life Insurance Company

-- Washington National Insurance Company

The FSR of C++ (Marginal) and ICR of "b" have been placed under review with developing implications for Conseco Senior Health Insurance Company.

The following debt rating has been placed under review with developing implications:

Conseco, Inc.-- -- "bb-" on $300 million 3.5% senior unsecured convertible debentures, due 2035

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

SOURCE: A.M. Best Co.

A.M. Best Co. Analysts: Rosemarie Mirabella, 908-439-2200, ext. 5892 rosemarie.mirabella@ambest.com or Andrew Edelsberg, 908-439-2200, ext. 5182 andrew.edelsberg@ambest.com or Public Relations: Jim Peavy, 908-439-2200, ext. 5644 james.peavy@ambest.com or Rachelle Morrow, 908-439-2200, ext. 5378 rachelle.morrow@ambest.com