A.M. Best Affirms Conseco's Ratings.OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating (FSR (Free System Resource) In Windows 3.x, the amount of unused memory in various 64K blocks reserved for managing current applications. Every open window takes some space in this area. See Windows memory limitation. ) of B++ (Very Good) and issuer credit ratings (ICR (Intelligent Character Recognition or Image Character Recognition) The machine recognition of hand-printed characters as well as machine printing that is difficult to recognize. ) of "bbb+" of Conseco, Inc.'s (Conseco) (Carmel, IN) [NYSE NYSE See: New York Stock Exchange :CNO CNO abbr. chief of naval operations ] core insurance subsidiaries. Concurrently, A.M. Best has affirmed the ICR of "bb+" and the existing debt ratings of Conseco. The outlook for these ratings is positive. (See complete list of ratings below.) The ratings reflect Conseco's sound GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). balance sheet, conservative financial leverage, good interest coverage, high quality investment portfolio and improved statutory capitalization levels for its core insurance entities on both a stand-alone and consolidated basis. The ratings also recognize the strides Conseco has made in refining its strategic profile as it continues to focus on rebuilding its product manufacturing capabilities and expanding its distribution within its two major distribution systemsCoBankers Life and Conseco Insurance Group (CIG CIG Ceiling (height above ground level to base of clouds) CIG Conference Intergouvernementale (French: Intergovermental Conference) CIG Conservation Innovation Grants (USDA NRCS) ). Additionally, A.M. Best notes progress made on Conseco's realization of expense efficiencies at CIG, the successful resolution of its $4.2 billion net operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. carryforwardCothe deductibility of which will augment GAAP capitalCoas well as the tentative settlement of legacy cost of insurance litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. announced in August 2006. A.M. Best views favorably the enhanced absolute and risk-adjusted capitalization levels at all entities, excluding CSH csh - C shell which remains at regulatory minimum capital levels, as well as the successful execution of Bankers' long-term care long-term care (LTC), n the provision of medical, social, and personal care services on a recurring or continuing basis to persons with chronic physical or mental disorders. (LTC LTC abbr. lieutenant colonel ) re-rates that will be completed within the next year. These positive factors are tempered by moderate overall sales growth at Bankers Life (adjusted to remove the impact of the industry wide downturn in LTC sales), persistency challenges associated with CIG's Medicare supplement business, disintermediation The elimination of the distributor and/or retailer (the middleman) when making a purchase. The term is used to refer to purchasing directly from a manufacturer's Web site, the benefits of which are convenience, fast turnaround time and sometimes lower prices. risk in CIG's annuity block and recent development of adverse operating trends in Conseco's run-off LTC business. A.M. Best will continue to monitor persistency trends within Medicare supplement which have been negatively impacted by re-rates concurrent with open enrollment periods during the last year. Further, loss ratios for Conseco's run-off LTC business have been trending negatively due to higher claim incidence. Finally, A.M. Best views CIG's annuity business cautiously given the potential for disintermediation, particularly in rapidly rising interest rate scenarios. A.M. Best notes Conseco's exposure to ongoing industry wide issues including a highly competitive landscape within Medicare supplement as consumers migrate toward Medicare Advantage and private fee-for-service products. Ongoing business risk remains within LTC products given their long-tailed nature as meaningful claims experience typically takes several decades to develop. While A.M. Best recognizes the steps CIG has made to rebuild its independent distribution system and improve product development, it has not resulted in considerable revenue growth across CIG's major lines of business. Also, A.M. Best would view favorably the continued execution of planned expense efficiencies at CIG. The impact of these initiatives, coupled with recent management changes and the aforementioned operating trends, though not resulting in a change in the current outlook, likely extends the timeframe for a potential upgrade to 18-24 months. A.M. Best would likely upgrade Conseco's ratings if the following occurs: * Consolidated and stand-alone statutory capitalization levels generally meet or exceed present levels (including planned capital contributions from Conseco's planned bank refinancing). This assumes positive statutory earnings trends on an aggregate basis. * Run-off LTC business continues to generate GAAP operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before in excess of $50 million with no material (greater than $50 million) statutory capital infusions required over the next two years. * GAAP operating earnings for Bankers Life (including Colonial Penn) of at least $270 million for 2006 and 2007. * GAAP operating earnings for CIG of at least $220 million for 2006 (excluding the one-time litigation settlement charge) and $240 million for 2007 with improving expense ratios. * Overall annual sales growth of 8-10%, with positive sales trends at Bankers Life, CIG and Colonial Penn over the next two years. * Maintain financial leverage below 25% with EBIT EBIT See: Earnings Before Interest and Taxes EBIT See earnings before interest and taxes (EBIT). interest coverage of at least 5 times. Conversely, A.M. Best would likely revise the rating outlook to stable if one or more of the following occurs: * Run-off LTC business generates GAAP operating earnings less than $40 million in 2006 or 2007, or aggregate capital infusions greater than $50 million over the next two years. * Failure to achieve combined pre-tax statutory operating earnings growth (excluding surplus notes interest) of at least 15% in 2007. * A decline in CIG's GAAP operating earnings (excluding the one-time litigation settlement charge) below $200 million for 2006 and $220 million for 2007. Concurrently, A.M. Best has affirmed the FSR of B (Fair) and ICR of "bb+" of Conseco Senior Health Insurance Company (CSH). The outlook is stable. CSH's rating reflects the fact that it is capitalized at regulatory minimums as it houses the majority of Conseco's run-off LTC block. The FSR of B++ (Very Good) and ICRs of "bbb+" have been affirmed with a positive outlook for the following subsidiaries of Conseco, Inc.: * Bankers Life and Casualty Bankers Life and Casualty is primarily a health insurance company in the United States. It was founded in 1879 and was previously known as White Cross. It was formerly owned by millionaire investor John D. Company * Colonial Penn Life Insurance Company * Conseco Health Insurance Company * Conseco Insurance Company * Bankers Conseco Life Insurance Company of New York * Conseco Life Insurance Company * Washington National Insurance Company The following debt ratings have been affirmed for Conseco Inc. with a positive outlook: -- "bb+" on $300 million 3.5% senior unsecured convertible debentures, due 2035 -- "bb-" on $690 million 5.5% mandatorily convertible preferred stock Convertible Preferred Stock Preferred stock that includes an option for the holder to convert the preferred shares into a fixed number of common shares, usually anytime after a predetermined date. Also known as "convertible preferred shares". , due 2007 The FSR of B (Fair) and ICR of "bb+" of Conseco Senior Health Insurance Company have been affirmed with a stable outlook. For a list of A.M. Best's debt ratings, please visit http://www.ambest.com/debtratings/. 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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