Conseco Inc. took a major step toward freeing itself of a troubling line of business last week when it announced plans to unload most of its closed block of long term care insurance.
Conseco Inc., Carmel, Ind., has applied to the Pennsylvania Insurance Department to spin off Conseco Senior Health Insurance Company, with about $2.9 billion in assets, as a new independent entity called the Senior Health Care Oversight Trust. Conseco Senior Health, domiciled in Pennsylvania, ultimately would be renamed Senior Health Insurance Company of Pennsylvania if regulators approve the deal.
Conseco Senior Health, with 142,000 LTC policyholders, represents the largest part of the company’s run-off block of LTC business. Financial analysts observe that block has had significant adverse claims experience in recent years.
Conseco says it would continue to retain about 12% of its run-off LTC business among other subsidiaries but that it would shift administration of those policies to the new entity.
Transfer of the closed block would represent the most important part of a program Conseco announced last year to pursue “strategic alternatives,” says CEO Jim Prieur.
In the 11 years since Conseco acquired Senior Health’s LTC business from other insurers, it has contributed $915 million to the company, mostly to shore up claim reserves and maintain regulatory capital levels, the company notes.
Conseco says it expects the Pennsylvania department will hold a period of public comment until the end of September before ruling on the deal. If approved, Conseco says it hopes to complete the deal by Dec. 31.
A spokeswoman for the Pennsylvania department confirmed it has received Conseco’s transfer plan and said it normally takes the agency 60 to 90 days to rule on such applications.
Under the plan, Conseco would contribute $175 million in additional capital to Health Care Oversight, funded through a combination of cash and a $125 million note. The infusion would give the new trust a total of about $300 million in capital.
Conseco says it plans to record about $504 million in accounting charges for the deal in the second quarter, and $654 million in additional charges by the time it completes the transfer.
John Wells, president of Conseco Senior Health, would be president of Senior Health Insurance.
The deal should be good both for Conseco Senior Health policyholders and Conseco’s 4 million other policyholders, says Prieur.
Conseco notes in a filing with the U.S. Securities and Exchange Commission that Conseco shareholders have been pressing it to improve its financial performance.
Weakness at Senior Health has contributed to Conseco having relatively weak financial strength ratings and hurt its ability to compete, Conseco says.
In a conference call with investors, Conseco executives noted the trust would be able to focus solely on its LTC business and operate for the sole benefit of policyholders, without regard to any profit expectations.