CONTACTS:
FOR IMMEDIATE RELEASE
OLDWICK, N.J. - SEPTEMBER 11, 2003 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength rating of B (Fair) of Conseco, Inc's (NYSE:CNO) insurance subsidiaries and has removed the ratings from under review. The rating outlook is positive.
This change reflects the Northern District of Illinois Bankruptcy Court's decision to approve CNC's plan of reorganization on September 9, 2003 and CNC's subsequent emergence from bankruptcy on September 10, 2003. CNC filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy code in December, 2002. The bankruptcy filing was necessitated as a result of indebtedness amassed from a corporate-wide acquisition strategy during the 1990's and the significant reduction in shareholder's equity, which was primarily caused by losses in its consumer finance business and investment portfolio and the write-off of substantially all of the balance of goodwill and deferred tax assets from its balance sheet. The company has formally emerged from the bankruptcy reorganization administrative process and is now an insurance only entity with a simplified debt and operating structure and a restructured balance sheet which will reflect a "fresh start" accounting valuation.
The maintenance of the financial strength rating reflects A.M. Best's view that the bankruptcy restructuring has resolved some of the risk of uncertainty surrounding the company's ability to emerge successfully from bankruptcy and to move forward with its restructuring plan, although it is unclear at this time how much business risk still remains in the organization. The removal of the under review status and the assignment of a positive outlook reflects the emerging nature of CNC as a new legal and insurance operating entity.
A.M. Best views positively management initiatives to recapitalize the company and restore its financial and operating viability. These initiatives include the sale of the company's ownership of the GM building in New York at a significant statutory gain, the sale of Conseco Finance, reducing or discontinuing products which are more capital intensive, ongoing operating expense reductions, merging of some subsidiaries and the restructuring of the company's investment portfolio toward less risky, less volatile investments that more appropriately match the liabilities of its insurance operations. In addition, it is A.M. Best's opinion that the insurance companies will continue to stabilize and rebuild their overall capitalization levels and operating profiles in the near term. A.M. Best also notes the ongoing regulatory oversight and the protective order ("Order to Maintain Financial Condition and To Protect Policyholders") issued by the Texas Department of Insurance which is the lead domiciliary regulator.
Despite these positive developments, there still exists significant execution risk to CNC as it implements it reorganization plan, a diminished capital position on both an absolute and risk adjusted basis, ongoing uncertainty regarding the viability of the company's independent distribution systems, significant investment risk within its portfolios and a moderately high debt to capital ratio on a post bankruptcy basis. In addition, A.M. Best believes CNC will be challenged as it "right-sizes" its expense levels to meet its new operating profile. These factors, coupled with the general macro environmental challenges facing the industry as a whole, create formidable challenges to CNC's future success. A.M. Best will continue to closely monitor the company's financial and operational performance and the related impact on its ability to meet its obligations to its policyholders.
A.M. Best has affirmed the financial strength ratings of B (Fair) of the following CNC subsidiaries.
- Conseco Annuity Assurance Company
- Conseco Life Insurance Company
- Conseco Senior Health Insurance Company
- Conseco Health Insurance Company
- Conseco Life Insurance Company of New York
- Washington National Insurance Company
- Colonial Penn Life Insurance Company
- Bankers Life and Casualty Company
A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source.