Conseco, Inc’s (CNO) fourth-quarter operating earnings of 15 cents per share were a nickel short of the Zacks Consensus Estimate of 20 cents. The results were also down 16.7% from the operating earnings of 18 cents in the year-ago quarter.
Though results for the quarter were significantly impacted by charges related to accruals for regulatory settlements and the extinguishment of debt, overall sales were up by 18% over the prior-year quarter due to the strong performance of Conseco’s Bankers Life business.
Collected premiums showed a year-over-year decline, especially at Bankers Life and Conseco Insurance Group segments. However, Colonial Penn segment’s results improved slightly.
Net operating income came in at $32.0 million, down 4.2% from $33.4 million in the prior-year quarter. The decrease primarily resulted from a 9.1% decrease in EBIT (income before net realized investment gains, interest and taxes) and a 32.0% increase in corporate interest expense.
For full year 2009, net operating income was $164.6 million or 86 cents per share, compared to $137.0 million or 74 cents in the previous year.
In the Bankers Life segment, EBIT increased to $84.6 million from $40.0 million in the prior-year quarter. The results were aided by improved earnings in the long-term care block, increase in earnings from Medicare supplement products and increase in earnings related to the company-owned life insurance policies.
The Conseco Insurance Group’s EBIT was a negative $6.7 million, compared to a positive $31.5 million in the prior-year quarter. Results for the quarter were affected by decreased earnings from Conseco’s specified disease block, increase in accrual for regulatory and legal settlements, and lower investment income.
Colonial Penn’s EBIT decreased to $5.9 million from $6.7 million in the year-ago quarter. Results for the reported quarter were primarily affected by lower investment income due to lower yields.
Net realized investment losses for the quarter were $2.5 million compared to $88.0 million in the year-ago quarter. Conseco recognized a total of $60.8 million in the form of other-than-temporary impairment losses in the reported quarter.
The debt-to-total capital ratio (excluding AOCI) was 21.5% as of Dec 31, 2009, compared to 27.8% as of Dec 31, 2008. Book value (excluding AOCI) as of Dec 31, 2009 was $15.14 per share, compared to $18.41 as of Dec 31, 2008.
We remain concerned about the continued weakness in the net results for the past few quarters and anticipate additional losses in Conseco’s investment portfolio. However, cost-cutting measures are running ahead of management’s initial targets with expense reductions and the company is focused on maintaining a strong capital position. We think that all the negatives have already been factored into the price.
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