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Maximum wage: Indiana's highest-paid CEOs.

MAXIMUM WAGE: Indiana's Highest-Paid CEOs

His career had been a relatively quiet affair, but these days Stephen Hilbert is all over the business headlines.

In recent months, countless stories have been written about the Conseco Inc. chairman's rise from rags to riches. We know, for instance, how as a college kid, Hilbert became one of the top-producing encyclopedia salesmen in the country. We know that Hilbert came from a nice but modest blue-collar family. His parents steered him from what would have been his first insurance job.

We've heard how the more mature thirty-something businessman took the concept of consolidation and parlayed it into a multibillion-dollar insurance holding company based in Carmel. We know that at age 45, Hilbert is the highest-paid CEO of an Indiana public company, making more than $2.15 million last year.

With Hilbert grabbing the headlines, Conseco itself often has been overshadowed. But Hilbert is trying to change that, trying to tell the good news about his insurance holding company and refute the charges of its skeptics. He's shown up to talk insurance on Cable News Network, and his company has garnered positive press in publications such as Business Week, USA Today and Investor's Daily.

Conseco has earned its headlines. Its stock has quadrupled in value in less than a year's time. Its earnings continue to soar. And Hilbert says the increased scrutiny has won over new champions of Conseco.

Just what is Conseco? "|Conseco' is Latin for |very profitable,'" Hilbert quips. In truth, the name came from the two original companies that were merged to form the parent company: Consolidated National Life and Security National of Indiana. But that occurred later in its relatively short corporate life. Let's start at the beginning.

Conseco came into being as Security National. Two friends, Hilbert and David Deeds, organized it as a holding company that would acquire and operate insurance companies. "We saw an opportunity in the late |70s when the insurance industry just literally changed overnight and the profit piece of our business switched from mortality - and the cost that the policyholders paid for their mortality premiums - to products that are more investment-oriented, like annuities and universal life products."

Small- and medium-sized companies, they felt, would have trouble competing as the products became more dependent upon costly computer technology. The idea was that by consolidating and centralizing management, the companies would be more efficient. Conseco decided at the outset that there would be no hostile takeovers. It would acquire only willing sellers.

From that beginning, Conseco has moved fast and furiously. Its common stock now is listed for trading on the New York Stock Exchange. During the past year, the per-share price has jumped from $17 to a high of $79, prompting a two-for-one stock split in June. Since 1985, total revenues have grown an average of 117 percent a year, from $15.7 million in '85 to $753.3 million in '90. Fully diluted operating earnings per share have grown from 40 cents to $5 in that time.

Hilbert says his organization has acquired a total of 10 companies - seven directly and three through the newer institutional investor partnership called Conseco Capital Partners. Under the new arrangement, Conseco Inc. manages the acquired companies and their portfolios, while the partnership assumes the takeover-related liabilities. "The debt that's required toward the completion of the acquisition, we're not liable for, |we' being Conseco. There's no cross-collateralization." Hilbert says Conseco should continue to grow externally with help of the partnership.

But Conseco has grown internally as well. Hilbert attributes the company's success to "having a solid business plan, sticking with the business plan, and timing. Timing is one of those wonderful things that you really can't plan. I was just blessed to have it happen."

His plan has, indeed, worked. Conseco has streamlined and consolidated the administrative systems of the companies it has acquired. It has focused on products that don't tend to deplete the capital of the company. And, he says, "We have put together an investment philosophy that allows us to have enhanced yields without having to take undue risks in our investment portfolios."

In getting to where it is now, Conseco built up debt. Too much debt, according to its critics. "Conseco incurred that in order to get acquisitions and reach a critical mass," counters James Rosensteele, vice president of corporate and investor relations. "We needed to have a strong centralized administrative department; we needed an investment department, operating people, centralized control of marketing new products, a centralized financial control and centralized actuarial systems. The results are that the companies are all more profitable than they were prior to when Conseco took them over."

Hilbert adds that the debt complaint really doesn't hold water, anyway, because debt is on the decline when compared with the company's equity base. "Our debt-equity ratio has gone down from 5.4-to-1 in 1986 to a level at the end of the first quarter of this year of 1.4-to-1."

The company's strength, he adds, is boosted by the quality of its investments. While the industry as a whole has up to 15 percent of its investments in low-grade securities and as much as 20 percent in real estate, Conseco's corresponding figures are 5 percent and 7 percent.

Conseco has found something of a niche market with its new push to sell annuities. It sold $1.4 billion of new premiums in annuities last year alone. Hilbert explains their popularity: "Annuities allow you to accumulate your dollars on a tax-deferred basis; that's why they're so popular," he says. The rate Conseco pays on annuities is slightly higher than the going rate for a five-year certificate of deposit, but the effective yield is significantly greater because of the tax difference. No wonder it's such a lucrative area. "Last year, the annuity market was $200 billion, and it's growing at 20 percent a year."

The typical person who purchases an annuity is someone in the age bracket of 50 or older. "How people put their dollars away for the future is becoming high on everyone's priority list," Hilbert explains. "We have an aging population and I don't think anyone feels really comfortable about the Social Security system."

The people who take time to learn about Conseco become believers, Hilbert says. Ironically, it has been the action of some disbelievers that has brought out the news that has sent Conseco's stock soaring. A number of funds that make money through short-selling - essentially betting that a particular company's stock price will fall - set their sights on Conseco. As Hilbert sees it, the short-sellers made the mistake of assuming Conseco shared the same problems as some of the rest of the financial industry. "They painted the industry with one brush and they shorted indiscriminately across the board, and they really didn't analyze us."

The short-sellers, he says, charged that Conseco had papered its walls with junk bonds. Scrutiny followed, and out of it came the public revelation that Conseco doesn't have junk bond problems. Then, he says, short-sellers charged that Conseco had too much debt, and as result of that charge, more people learned that Conseco's debt picture actually was improving.

"The shorts asked the questions, the analysts came in and found the answers, and the answers were positive," Hilbert says. "The people who have really come in and taken a look at Conseco have walked away becoming shareholders."

As are the short-sellers today, Hilbert's parents initially were skeptical of the insurance business. After leaving the military, Hilbert was offered jobs at R.J. Reynolds and Indianapolis-based College Life Insurance. Though he found the College Life position intriguing, his parents convinced him to join Reynolds. "That was when I was young. I think they're thrilled to death today."

Hilbert, who grew up in Terre Haute, is quick to give his parents credit for his current successes. "My mom and dad weren't really in business - my mother was a telephone operator for GTE in Terre Haute and my dad worked for Anaconda Aluminum. But one thing they instilled in me because of their habits was a great work ethic. I don't care what your choice in life is as far as occupation; I think you can create your own luck by working hard." And his parents did, he says. "They always were trying to do better today than they had yesterday. That, in essence, has been my philosophy as well."

When he was a sophomore at Indiana State University, that philosophy helped Hilbert turn heads in the encyclopedia sales business. The company, Grolier Inc., figured the best salesman could make $600 in an especially good month. Hilbert nearly tripled that too-rosy projection. Looking back, he says he was driven at least in part by fear of failure.

He continues to bring fear of failure into his business life today, he says. "We're constantly looking into the future here, not just to see how we can get bigger and better but also to see what are going to be the next problems in the industry."

And there will be problems in the insurance business, no question about it, he says. There are more than 2,000 insurance companies today, and Hilbert foresees the day when there will be only a quarter as many. "Over the next several years I think you're going to see some companies just not make it. Then you're going to see a tremendous number of companies that just hang on by their fingernails. And then there are going to be 300 or so that really thrive. What needs to happen is for that middle group to consolidate."

And consolidate could be another word for Conseco.
COPYRIGHT 1991 Curtis Magazine Group, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:salaries of chief executive officers in Indiana corporations
Author:Partington, Marta J.
Publication:Indiana Business Magazine
Article Type:Cover Story
Date:Jul 1, 1991
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