Conseco Inc. Has Been Raising Cash Through Life Subsidiaries
Six life insurance subsidiaries of Conseco Inc., paid extraordinary shareholder dividend payments to their parent companies in the second quarter of 2002. Extraordinary dividends are defined as dividends that exceed the larger of (1) 100% of the prior years earnings, or (2) 10% of the prior years surplus.
During 2002, seven life subsidiaries paid or declared shareholder dividends in a series of 20 payments in Consecos vertical holding company structure. And, three life insurance subsidiaries raised capital by reinsuring significant portions of their life insurance in-force, which supported most of the dividend payments.
One life insurance subsidiary was sold in June. A second sales agreement was signed in July and awaits insurance department approval.
Table 1 shows the components of changes in statutory surplus in the first six months of 2002, for the 15 life insurance subsidiaries of Conseco Inc. Twelve of the 15 companies had a reduction in statutory surplus.
Although the parent company, Conseco Inc., is flirting with bankruptcy, its life insurance subsidiaries have, in general, been deemed safe because of the protection afforded by: (1) statutory limits on shareholder dividend payments that can be made without insurance department approval, and (2) risk-based capital requirements for life insurance companies under the Risk-Based Capital Model Act of the National Association of Insurance Commissioners.
When a companys RBC ratio is (a) below 125%, the company is subject to a regulatory trend test, (b) below 100%, the company must submit a plan to improve its RBC ratio, (c) below 75%, regulators will order corrective actions, (d) below 50%, regulators are authorized to take over the company, and (e) below 35%, regulators must take over the company.
Conseco Life Insurance Company of Texas, a holding company for 13 other life insurance companies, paid cash dividends of $40 million, $60 million, $20 million, $55 million, and $25 million to an intermediary holding company, CIHC Inc., on April 5, April 29, May 29, June 17 and June 24, 2002, respectively, after approval by the Texas Department of Insurance.
The total payments of $200 million exceeded the prior years operating earnings of $178 million.
Although Conseco Life Insurance Company of Texas paid $200 million in shareholder dividend payments to its parent company in the second quarter of 2002, in turn, Conseco Life Insurance Company of Texas received $220 million in dividend payments from three of its life insurance subsidiaries.
First, Bankers Life Insurance Company of Illinois paid cash dividends of $20 million, $60 million, $20 million, and $45 million on April 3, April 29, May 29 and June 17, 2002, respectively, after approval by the Illinois Department of Insurance. The total payments of $145 million exceeded the prior years operating earnings of $102 million.
Although Bankers Life Insurance Company of Illinois paid $145 million in shareholder dividend payments to its parent company in the second quarter of 2002, in turn, Bankers Life of Illinois received $158 million in dividend payments from its subsidiary, Bankers Life and Casualty Company.