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Conesco emerged from bankruptcy in 2003, after which it has focused on insurance. It relies heavily on its Medicare, fixed-annuities, and long-term care operations, but also provides life insurance and disease-specific insurance. Its clients are primarily middle-class citizens and the elderly. In order to target these groups, Conesco uses a combination of direct marketing, independent distributors, and career agents.
[edit] Business Overview
Incorporated in 1979, Indianapolis-based Conseco, Inc. (CNO) is the top tier holding company for a group of insurance companies operating throughout the United States that develop, market and administer supplemental health insurance, annuity, individual life insurance and other insurance products. The company distributes these products through its Bankers Life segment (which utilizes a career agency force), through its Conseco Insurance Group segment (which utilizes professional independent producers), and through its Colonial Penn segment (which utilizes direct response marketing). The company has other business in Run-off segment which consists of long-term care products sold in prior years through independent agents, small group and individual major medical business which it stopped renewing in 2001 and other group major medical business which it no longer markets. Most of the long-term care business in run-off relates to business written by certain subsidiaries prior to their acquisition by Conseco in 1996 and 1997. The company went public in 1985 and on September 10, 2003, emerged from Chapter 11 bankruptcy proceedings (which began in December, 2002) intact. After emerging from bankruptcy, A.M. Best upgraded its ratings on Conseco's core insurance subsidiaries to B++ (Very good) from B (fair), and raised its ratings on Conseco Senior Health Insurance Company (a subsidiary of the company) to B++ from B. However, after the weaker than expected second quarter 2007 results, the agency has cut the FSR rating to B+(Good) from B++(Very Good) and their issuer credit ratings to bbb- from bbb+. As of September 30, 2007, the company had total assets of $36.2 billion, total investments of $26.3 billion and total shareholders' equity of $4.3 billion.
Conseco recently emerged from bankruptcy in 2003. It sold its finance business and has decided to focus on its insurance business, where it specializes in the senior citizens market. Conseco’s revenue is earned through long-term health insurance, Medicare supplements, fixed annuities, and other types of insurance.
Conseco conducts its sales by employing a large network of sales agents, as well hiring independent brokers and participating in direct marketing. Its sales force tends to target senior citizens and people in the middle-income bracket. Its business is carried out by its three largest segments: Banker’s Life, Conseco Insurance Group, and Colonial Penn.
[edit] Banker’s Life
Banker’s Life primarily markets and distributes Medicare supplement, long-term care, land life insurance. It also provides annuities targeted for the senior citizen market. It employs 5,100 agents and sales managers, and markets its products under its own name.
[edit] Conseco Insurance Group
Conseco Insurance Group markets specific disease, Medicare supplement, and life insurance products in addition to annuities products. Their target markets are mainly senior citizens and members of the middle income bracket. Its products are primarily sold by independent insurance brokers.
[edit] Colonial Penn
Colonial Penn focuses on life insurance which it markets through television commercials, telemarketing, direct mail, and internet advertising. It, too, focuses on the senior citizens demographic and markets its products under its own name.
[edit] Growth
Conseco is modifying its business strategy to take into account the rise in life expectancy in the United States. Furthermore, it is focusing on continuing the rapid growth of its Banker’s Life segment, and Colonial Penn segments, as well as trying to improve the performance of the Conseco Insurance Group.
[edit] Trends and Forces
- Inadequate reserves for expected future policy benefits might be higher than expected, which could result in decreased net income and stockholders’ equity. Conesco calculates its reserves using historical data. Discrepancies between past claims and future claims may result in insufficient reserves. Faster-than-expected increases in medical costs, obesity, and other unforeseen events and costs may force Conesco to pay the difference from its earnings.
- Many factors affect the performance of Conesco’s investment portfolio, which in turns affects its ability to make payments. Overexposure to certain markets, changes in liquidity, general economic conditions, and interest rates all affect its portfolio’s performance. If a market becomes illiquid, such as that of mortgage securities, Conesco may be unable to sell them to make payments, forcing it to incur additional debt.
- Its annuities products are highly susceptible to fluctuations in interest rates. An increase in interest rates may cause its annuities holders to invest their money elsewhere. A decrease in interest rates could result in its payments to annuity holders exceeding the investment returns of the annuity. Only 38% of its annuities have variable interest rates, while 47% have fixed interest rates. If a large amount of customers back out of their annuities, Conesco may be forced to sell part of its investment assets in order to cover the loss.
- Conesco’s future will be influenced by its ability to restructure its insurance business. Despite having emerged from bankruptcy in 2003, its insurance business has been plagued with decreased insurance revenues and new annuity premium revenues. In an effort to increase profits, Conesco will be focusing on marketing its higher-margin products and will be decreasing marketing costs for its underperforming products. Conesco’s predecessor owned 44 insurance companies, resulting in unnecessary duplicate administrative positions and systems. In order to remedy this, planning on streamlining administrative tasks and combining paperwork and processing systems for similar products.
[edit] References
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