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Conseco Redux

By Marlene Y. Satter

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When Conseco, Inc. reported in August 2002 a $1.33 billion quarterly loss and announced that its accounting practices were under investigation by the SEC, it was widely expected that bankruptcy would not be long in coming. And on December 18, Conseco at last did seek Chapter 11 bankruptcy protection.

The companies involved in the bankruptcy filing are two holding companies, Conseco, Inc. and the Conseco Insurance Holding Company. The insurance companies Conseco Services, LLC and Conseco Capital Management are not included in the filing, according to the company. Conseco, struggling over a load of debt built up from its purchase of Green Tree Financial in 1998, has stated that its insurance companies are sound and adequately capitalized, and that policyholders will not be affected by the parent company restructuring.

John Ryan, a planner from Highlands Ranch, Colorado, says that he is concerned about Conseco policies for his clients and will be closely watching those policies already in place to ensure that they are not adversely affected by the bankruptcy proceeding. But Mark Lubbers, executive VP in corporate affairs for Conseco, says that the insurance companies are “the most settled question in this whole process.” He cites a statement from the Texas commissioner of insurance, Jose Montemayor, that emphatically states that the insurance companies are protected by a “firewall” from the parent company. His statement echoes that of the Michigan Office of Financial and Insurance Services Commissioner, Frank M. Fitzgerald. Both men stress that the insurance companies are governed by state laws “designed to protect the interests of . . . policyholders. Insurance companies are not eligible to file for bankruptcy under the federal bankruptcy code.”

In addition, Lubbers points out that agents may urge clients to move annuities to another company through a motivation “to ‘earn’ another first-year commission.” This, he says, is unrelated to Conseco’s current situation.–Marlene Y. Satter