Ind. Conseco Shares Fall on 2nd Quarter Losses, Change in Outlook

Carmel, Ind.-based Conseco Inc. stock fell after the company swung to a second-quarter loss and trimmed its full-year outlook.

The weak results were partly due to higher-than-expected claims in the insurance holding company’s long-term care and specified disease businesses.

Shares of Conseco fell $2.24, or 9.7 percent, to $20.82 in trading on the New York Stock Exchange.

The company reported a second-quarter loss of $22.3 million, or 21 cents a share, after legal costs of $100.3 million, on revenue of $1.08 billion.

Conseco said it had reached a tentative settlement in a class-action case relating to policies sold by insurance companies that were subsequently acquired by Conseco.

In the same period a year earlier, it earned $88.1 million, or 48 cents a share, on revenue of $1.09 billion.

The company also cut its forecast for 2006 operating earnings to between $1.65 and $1.75 a share. The new estimate excludes the legal costs reported in the second quarter. Conseco had previously forecast full-year operating income of $1.85 a share.

The results might hurt the chances that insurance rating agency A.M. Best Co. will upgrade Conseco any time soon, several analysts said.

Conseco’s Interim Chief Executive James Hohmann declined to comment directly on the ratings procedure, which is now underway, but said the company’s reduced earnings outlook mainly comes on the results from so-called closed blocks of business.

“As such, we don’t believe that they’re fundamental to our financial strength and they certainly are not part of our growth strategy,” Hohmann told analysts in a conference last week.

But although the company maintains a strong risk-based capital ratio and announced the tentative settlement of the legal action, “the newly emerged challenges related to long-term care increases the risk of a delay in the upgrade,” Goldman Sachs analyst Joan H. Zief said in a research note.

Zief doesn’t own shares in the company, but Goldman has a banking relationship with it.

Prior to the recent second-quarter report, “we were confident that the company was going to receive an upgrade,” Fox-Pitt Keton analyst Yaron Shashoua said, adding that the higher-than-expected claims may stall the action.

Shashoua made the comment in a research note that disclosed no conflicts.

The shortfall Conseco reported Wednesday is the third consecutive earnings miss for the company, and Keefe Bruyette & Woods analyst Jukka Lipponen said it was surprising management hadn’t lowered its forecast earlier.

Lipponen, who maintains an “outperform” rating on the company, made the comment in a research note that disclosed no conflicts.