NU Online News Service, Aug. 14, 2003, 7:55 p.m. EDT – Conseco Inc., Carmel, Ind., says in a quarterly report filed with the U.S. Securities and Exchange Commission that the financial problems at its consumer finance unit have been causing headaches for its insurance operations.
Conseco has filed for protection for creditors under Chapter 11 of the U.S. bankruptcy code for the consumer finance operations and the parent company. The company’s life and health insurance units are still solvent, and Conseco is hoping they will form the heart of a profitable new business once Conseco emerges from bankruptcy reorganization.
But the risk-based capital level at one Conseco life subsidiary, which Conseco did not name, has fallen low enough that the unit must give insurance regulators in its home state a plan proposing corrective actions aimed at improving its capital position, Conseco says.
Conseco also has discontinued selling some products and changed the way it sells others, the company says.
The company as a whole is reporting a $21 million net loss for the second quarter on $1.2 billion in revenue, compared with a $1.3 billion net loss on $984 million in revenue for the second quarter of 2002.
The company managed to increase total revenue for many of its life and health insurance products.
Revenue from Medicare supplement insurance, for example, increased to $254 million, from $247 million, and revenue from long term care insurance increased to $228 million, from $227 million.
Annuity sales were particularly strong. The company increased total annuity revenue to $315 million, from $261 million. First-year revenue from new sales of ordinary fixed annuities increased to $297 million, from $186 million.
But “rating downgrades and other adverse publicity concerning the company’s financial condition have caused sales of our insurance products to decline and policyholder redemptions and lapses to increase,” Conseco says. “In some cases, we have experienced defections among our sales force of agents and/or have increased commissions in order to retain them.”
Conseco says it has stopped selling disability insurance and dental insurance. It is relying less on independent agents to sell its annuities, and it no longer sells new LTC insurance policies through independent agents.
If Conseco increases rates for LTC insurance and other health insurance products enough to cope with losses, poor risks might come to dominate the pool of insureds as healthier customers let their policies lapse, the company warns.
“The loss ratios for our long term care products have increased in recent periods and exceeded 110% during the three-month period ended June 30, 2003,” the company says. “We will have to raise rates or take other actions with respect to certain of these policies or this business will continue to be unprofitable and our financial results will be adversely affected.”