Conseco Inc. may be flirting with bankruptcy, but regulators assert that its life insurance operations remain statutorily sound, despite some public perception that the fate of the corporate offsprings is tied to the parents.
In its quarterly filing with the Securities and Exchange Commission last week, Carmel, Ind.-based Conseco raised the possibility of a bankruptcy filing–either voluntary or involuntary.
The company has received two repreives from lenders on principal and interest due on $4 billion in debt and $481.3 million in guarantees from directors and officers loans. It also owes approximately $1.9 billion of trust preferred securities through cross-default provisions.
The last repreive was on $224.9 million of principal plus accrued interest due on Oct. 15.
In its filing, Conseco said that “if the holders of such indebtedness or preferred securities exercised their rights to accelerate the maturity of all principal and interest due, we would be unable to satisfy these obligations.
“These forbearance agreements expire on Nov. 27, 2002, and are subject to various conditions. The Company is currently in negotiations with the relevant lenders to extend the expiration date of these forbearance agreements, although we cannot assure you that we will be able to do so.”
A representative for a Conseco bondholders group, Brad Eric Scheler, a lawyer with the New York law firm of Fried, Frank, Harris, Shriver & Jacobson, told National Underwriter that negotiations, which are “ongoing” could produce results “very shortly.” He advised, “Stay tuned. We hope to have something sooner than later.”
Meanwhile, regulators are closely monitoring the health of Consecos insurance operations.
Conseco noted in its quarterly filing that rating agency downgrades and stock market vagaries have impacted sales of its products.
For the first nine months of 2002, annuity premiums collected dropped to $804.1 million from $877 million during the same 2001 time frame. During third-quarter 2002, total annuity premiums collected declined to $270.4 million from $291.7 million in third-quarter 2001.
Total life insurance premium fell to $483.9 million in the first nine months of 2002 compared with $632.1 million in the same 2001 period. In third-quarter 2002, life premiums collected dropped to $112.6 million from $204.6 million.
In addition to the downgrades, Conseco said the decline in life premiums is related to reinsurance agreements executed in 2002.
Betty Patterson, senior associate commissioner with the Texas insurance department, one of the lead states in Consecos oversight, says of the insurance units that “they are still solvent and still operating.”
However, she noted that there has been some surrender activity, which was expected given the common name of the holding company and the insurance operations. “People dont make the distinction, and there is a distinction,” she says.