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Conseco To Settle Suit, Gain On Taxes

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Conseco Inc. says it will be setting aside about $100 million in the second quarter to settle a class-action lawsuit involving holders of universal life insurance policies.

Lawyers filed suits on behalf of UL policyholders in 2003 and 2004, after an insurance unit of Conseco, Carmel, Ind., eliminated cost-of-insurance subsidies for about 86,500 policyholders who bought the policies from companies later acquired by Conseco.

The settlement is subject to court approval, Conseco says.

“Implementation of this settlement will resolve a significant historical issue and will allow our current management team, our associates, our regulators and our rating agencies to focus more fully on Conseco’s progress toward becoming a leading provider of life insurance, supplemental health insurance and annuities for middle America,” James Hohmann, Conseco’s interim chief executive, says in a statement about the proposed settlement.

Conseco notes that it also will be recording a $260 million increase in shareholders’ equity as a result of a settlement of a tax dispute with the Internal Revenue Service. Conseco will be reducing the valuation allowance on deferred income tax assets, the company says.

The litigation charge and the tax gain should increase shareholders’ equity by about $160 million, Conseco estimates.

Conseco might have been able to win the suits “but settling (vs. fighting) the lawsuit reduces the uncertainty of a jury trial and resolves ‘a significant historical issue,’” Andrew Kligerman, an analyst at UBS Investment Research, New York, writes in a comment about the settlement announcement.


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