Conseco (CNO) Announces New Reinsurance Transaction

November 20, 2009 8:59 AM EST

Conseco, Inc. (NYSE: CNO) today announced a new agreement under which its Bankers Life and Casualty Company subsidiary will coinsure, with an effective date of October 1, 2009, about 237,000 life insurance policies with Wilton Reassurance Company. Wilton Re will pay a ceding commission of approximately $45 million and 50% coinsure these policies, which will continue to be administered by Bankers Life.

"This transaction is expected to increase Conseco's consolidated risk-based capital ratio by 9 percentage points, along with increasing statutory capital by the amount of the ceding commission," said Conseco CEO Jim Prieur.

In the transaction, Bankers Life will transfer to Wilton Re approximately $95 million in investment securities and policy loans and $140 million of statutory policy and other liabilities. The transaction, which is subject to the approval of insurance regulators in Illinois and Wisconsin, is expected to be completed in the fourth quarter of 2009.

As a result of the transaction, Conseco expects to record an increase to its deferred tax valuation allowance of approximately $19 million in the fourth quarter of 2009. Conseco also expects to record a pre-tax deferred cost of reinsurance of approximately $30 million, which, in accordance with generally accepted accounting principles, will be amortized over the life of the block, reducing quarterly pre-tax income from operations by approximately $.5 million. In addition, Conseco's future GAAP income from operations will be reduced by the earnings from the portion of the block that is coinsured; such pre-tax earnings before overhead were approximately $2 million in the third quarter of 2009.

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