Conseco Completes Transfer of Long-Term-Care Unit to Trust

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November 13, 2008 Thursday 04:47 PM EST

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Conseco Completes Transfer of Long-Term-Care Unit to Trust

Fran Lysiak

CARMEL, Ind.

Conseco Inc. has completed the transfer of a long-term-care insurance unit to an independent trust after the Pennsylvania Insurance Department approved the deal.

Related to the transfer of Senior Health Insurance Company of Pennsylvania, formerly known as Conseco Senior Health Insurance Co., Conseco said it contributed $175 million to the Senior Health Care Oversight Trust. That includes a 6% senior note due 2013 in the principal amount of $125 million, and $11 million to provide "working capital" and to fund the trust's future operating expenses.

The contribution also includes cash and cash equivalents of $35.7 million related to Senior Health assigning its non-long-term-care business to Conseco Life Insurance Co., Conseco said.

The trust is to manage Senior Health in order to satisfy the obligations of the insurance coverages it underwrites, a separate statement from Senior Health said. The insurance department will oversee Senior Health and the trust.

"This unique structure aligns the interests of the trust, management and regulators with those of SHIP's 140,000 long-term-care policyholders," said John W. Wells, president and chief executive officer of Senior Health, in a statement. Senior Health is being operated to benefit Conseco Senior Health's long-term-care policyholders "and without a profit motive, so as to ensure that any future benefits from rate increases or policy changes will accrue solely to policyholders."

The trust is governed by an independent board made up of former insurance regulators and others. It includes Wells, who was transferred from Conseco; Julianne M. Bowler, lead trustee and former commissioner of the Massachusetts Department of Insurance; Gregory V. Serio, former superintendent of insurance of New York, and Cecil D. Bykerk, former chief actuary of Mutual of Omaha and president of the Society of Actuaries.

Dr. C. Everett Koop, former surgeon general of the United States, also is a member of the board.

Conseco (NYSE: CNO) reported a wider third-quarter net loss of $182 million, with current-quarter results including $240.9 million in net realized investment losses and losses related to its transfer of Senior Health (BestWire, Nov. 6, 2008).

Conseco "will benefit from both reduced earnings volatility and better allocation of management resources on its core businesses going forward," said Conseco CEO Jim Prieur, in a statement.

Also related to the deal, all of Conseco Senior's stock was transferred to the trust, including $121 million of "total adjusted capital" at Sept. 30, Senior Health said.

In March, the Carmel, Ind.-based Conseco said it was reviewing strategic alternatives and hired investment banking firm Morgan Stanley as its adviser (BestWire, May 22, 2008).

Most members of the Conseco Insurance Group currently have a Best's Financial Strength Rating of B+ (Good).

On the afternoon of Nov. 13, Conseco stock was trading at $3.04 a share, up 24.59% from the previous close.

(By Fran Matso Lysiak, senior associate editor, BestWeek: [email protected])

November 14, 2008