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UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K
 
CURRENT REPORT
 PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):  November 5, 2009

CONSECO, INC.
(Exact Name of Registrant as Specified in Charter)
 
Delaware	001-31792	75-3108137	
(State or Other
 Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer
 Identification No.)	
11825 North Pennsylvania Street
Carmel, Indiana  46032
(Address of Principal Executive Offices) (Zip Code)
 
(317) 817-6100
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former Name or Former Address, if Changed Since
 Last Report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 	o             Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)	

 	o             Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)	
 
 	o             Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))	

 	o             Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))	

 

 

 

 
Item 2.02.	Results of Operations and Financial Condition .	
 
On November 5, 2009, Conseco Inc. (the “Company”) issued additional financial information related to the Company's financial and operating results for the quarter ended September 30, 2009, copies of which are attached hereto as Exhibits 99.1 and 99.2 and are incorporated herein by reference.

The information contained under Item 2.02 in this Current Report on Form 8-K (including Exhibits 99.1 and 99.2) are being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section. The information contained in this Current Report on Form 8-K shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in any such filing.

Item 9.01(d).	Financial Statements and Exhibits .	

The following materials are furnished as exhibits to this Current Report on Form 8-K:

99.1	Third Quarter 2009 Financial and Operating Results for the period ended September 30, 2009.
 	
99.2	Quarterly Financial Supplement – 3Q09.

 

 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 	CONSECO, INC.	

Date: November 5, 2009	 	
 	 
By:	 	 
/s/ John R. Kline	
 	 	 	John R. Kline	
 	 	 	Senior Vice President and
Chief Accounting Officer	

 

 

Exhibit 99.1
Third Quarter 2009
Financial and Operating Results
For the period ended September 30, 2009
Conseco, Inc.
November 5, 2009

 

2
Forward-Looking Statements
Cautionary Statement Regarding Forward-Looking Statements. Our statements, trend analyses and other information contained in these
materials relative to markets for Conseco’s products and trends in Conseco’s operations or financial results, as well as other statements,
contain forward-looking statements within the meaning of the federal securities laws and the Private Securities Litigation Reform Act of 1995.
Forward-looking statements typically are identified by the use of terms such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “project,”
“intend,” “may,” “will,” “would,” “contemplate,” “possible,” “attempt,” “seek,” “should,” “could,” “goal,” “target,” “on track,” “comfortable with,”
“optimistic” and similar words, although some forward-looking statements are expressed differently. You should consider statements that
contain these words carefully because they describe our expectations, plans, strategies and goals and our beliefs concerning future business
conditions, our results of operations, financial position, and our business outlook or they state other ‘‘forward-looking’’ information based on
currently available information. Assumptions and other important factors that could cause our actual results to differ materially from those
anticipated in our forward-looking statements include, among other things: (i) our ability to continue to satisfy the financial ratio and balance
requirements and other covenants of our debt agreements; (ii) liquidity issues associated with the right of holders of our convertible debentures
to require us to repurchase existing debentures on September 30, 2010; (iii) general economic, market and political conditions, including the
performance and fluctuations of the financial markets which may affect our ability to raise capital or refinance existing indebtedness and the
cost of doing so; (iv) our ability to generate sufficient liquidity to meet our debt service obligations and other cash needs; (v) our ability to obtain
adequate and timely rate increases on our supplemental health products including our long-term care business; (vi) the receipt of any required
regulatory approvals for dividend and surplus debenture interest payments from our insurance subsidiaries; (vii) mortality, morbidity, the
increased cost and usage of health care services, persistency, the adequacy of our previous reserve estimates and other factors which may
affect the profitability of our insurance products; (viii) changes in our assumptions related to the cost of policies produced or the value of policies
in force at the effective date of our emergence from bankruptcy; (ix) the recoverability of our deferred tax asset and the effect of potential
ownership changes and tax rate changes on its value; (x) our assumption that the positions we take on our tax return filings, including our
position that the debentures will not be treated as stock for purposes of Section 382 of the Code and will not trigger an ownership change, will
not be successfully challenged by the Internal Revenue Service (IRS);   (xi) changes in accounting principles and the interpretation thereof; (xii)
our ability to achieve anticipated expense reductions and levels of operational efficiencies including improvements in claims adjudication and
continued automation and rationalization of operating systems; (xiii) performance and valuation of our investments, including the impact of
realized losses (including other-than-temporary impairment charges); (xiv) our ability to identify products and markets in which we can compete
effectively against competitors with greater market share, higher ratings, greater financial resources and stronger brand recognition; (xv) the
ultimate outcome of lawsuits filed against us and other legal and regulatory proceedings to which we are subject; (xvi) our ability to complete the
remediation of the material weakness in internal controls over our actuarial reporting process and to maintain effective controls over financial
reporting; (xvii) our ability to continue to recruit and retain productive agents and distribution partners and customer response to new products,
distribution channels and marketing initiatives; (xviii) our ability to achieve eventual upgrades of the financial strength ratings of Conseco and
our insurance company subsidiaries as well as the impact of rating downgrades on our business and our ability to access capital; (xix) the risk
factors or uncertainties listed from time to time in our filings with the Securities and Exchange Commission; (xx) regulatory changes or actions,
including those relating to regulation of the financial affairs of our insurance companies, such as the payment of dividends and surplus
debenture interest to us, regulation of financial services affecting (among other things) bank sales and underwriting of insurance products,
regulation of the sale, underwriting and pricing of products, and health care regulation affecting health insurance products; and (xxi) changes in
the Federal income tax laws and regulations which may affect or eliminate the relative tax advantages of some of our products. Other factors
and assumptions not identified above are also relevant to the forward-looking statements, and if they prove incorrect, could also cause actual
results to differ materially from those projected. All written or oral forward-looking statements attributable to us are expressly qualified in their
entirety by the foregoing cautionary statement. Our forward-looking statements speak only as of the date made. We assume no obligation to
update or to publicly announce the results of any revisions to any of the forward-looking statements to reflect actual results, future events or
developments, changes in assumptions or changes in other factors affecting the forward-looking statements.

 

Non-GAAP Measures
3
This presentation contains the following financial measures that differ from the comparable measures
under Generally Accepted Accounting Principles (GAAP):   operating earnings measures; book value,
excluding accumulated other comprehensive income (loss) per share; operating return measures;
earnings before net realized investment gains (losses) and corporate interest and taxes; debt to capital
ratios, excluding accumulated other comprehensive income (loss); and interest-adjusted benefit ratios.
Reconciliations between those non-GAAP measures and the comparable GAAP measures are
included in the Appendix, or on the page such measure is presented.
While management believes these measures are useful to enhance understanding and comparability
of our financial results, these non-GAAP measures should not be considered substitutes for the most
directly comparable GAAP measures.
Additional information concerning non-GAAP measures is included in our periodic filings with the
Securities and Exchange Commission that are available in the “Investor - SEC Filings” section of
Conseco’s website, www.conseco.com.

 

Q3 2009 Summary
4
CNO
§   Third consecutive profitable quarter
  •   Continued profitability in all three insurance segments
  •   EBIT* of $107.0 million, up 2% over Q3 2008
  •   Net income of $15.4 million, compared to net loss of $183.3
  million in Q3 2008
§   Core sales** of $93.4 million, up 1% from Q3 2008
§   Trailing four-quarter premium up 3% over a year ago
§   Agent recruitment continues to be strong
*Management believes that an analysis of earnings or loss before net realized investment gains (losses),
  discontinued operations, corporate interest and taxes (“EBIT,” a non-GAAP financial measure) provides a
  clearer comparison of the operating results of the company quarter-over-quarter because it excludes:
  (1) corporate interest expense; and (2) net realized investment gains (losses) that are unrelated to the
  company’s underlying fundamentals.
**Excludes PFFS.

 

Q3 2009 Summary
5
CNO
§   Net realized investment losses of $18.9 million
  •   Total other-than-temporary impairments (OTTI) of $162.4 million
  •   $35.7 million recorded in earnings
  •   $126.7 million recorded in accumulated other comprehensive loss (AOCL)
§   AOCL improved to $146 million:
  •   $1.6 billion improvement from 12/31/08
  •   $0.9 billion improvement from 6/30/09
§   Book value per share:
  •   Excluding AOCL* rose to $18.82 at 9/30/09, from $18.41 at 12/31/08
  •   Including AOCL rose to $18.03 at 9/30/09, from $8.82 at 12/31/08
*See Appendix for corresponding GAAP measure.

 

6
CNO
§   Addresses most pressing financial priority: re-financing the
  3.5% convertible debentures
§   Structured to protect NOL, while preserving ability to raise
  additional common equity
§   Improves financial covenant margins; increases liquidity
§   Basics of the deal:
  •   Private placement of common stock and warrants
  •   Issuance of new convertible debentures to refinance existing
  convertible debentures
  •   Tender offer for existing convertible debentures
Recapitalization of Conseco

 

7
CNO
Sources
Net Proceeds from Equity Private Placement
Net Proceeds from New Convertible Debentures
  Total Sources
Uses
Retirement of Old Convertible Debentures
Payment under Credit Agreement (50% of Net
  Proceeds of Equity Private Placement)
Funds Available for Corporate Purposes
  Total Uses
$74
281
$355
$293
37
25
$355
($ millions)
*Assumes all debentures are tendered and extinguished as of 9/30/09. If debentures are tendered on 10/5/10
(the latest possible date), net proceeds from the new debenture issue would be $18 million less.
*
Anticipated Sources and Uses of Cash

 

CNO
8
Credit Facility (matures 10/13)
6% Senior Note ($25MM due annually beginning 11/09)
3.5% Convertible Debentures (puttable by holders 9/10)
7.0% Convertible Debentures (matures 12/16)
Unamortized Discount on Convertible Debentures
Total Corporate Notes Payable
Equity excluding Accumulated Other Comprehensive Loss*
Accumulated Other Comprehensive Loss (“AOCL”)
  Total Shareholders’ Equity
  Total Capital
Debt/Total Capital (excluding AOCL)
Book Value per Share
Book Value per Share (excluding AOCL)
$855
125
293
-
(11)
$1,262
3,480
(146)
$3,334
$4,596
26.6%
$18.03
$18.82
Actual
9/30/09
($ millions)
*Includes recognition of $10.4 million after-tax loss on the assumed extinguishment of all $293 million of existing
debentures and $0.1 million after-tax loss related to the writedown of deferred issuance costs associated with
the repayment of the credit facility.
$(37)
(293)
293
3
63
Recapitalization
Adjustments
$818
125
-
293
(8)
$1,228
3,543
(146)
$3,397
$4,625
25.7%
$16.88
$17.60
As Adjusted
9/30/09
Capital Structure

 

Collected Premiums
9
CNO
§   Total collected premiums
  for trailing 4 quarters up
  3% vs comparable period
  in prior year
§   Slight decline at Bankers
  due to termination of
  PFFS group quota share
  contracts
§   Consistent growth at
  Colonial Penn
§   Slight decline at CIG due
  to focus on more
  profitable business and
  de-emphasizing annuity
  sales
BLC
($ millions)
CP
CIG
Collected Premiums-Trailing 4 Quarters
Q3 2008
$4,275.1
Q4 2008
$4,524.9
Q1 2009
$4,549.3
Q2 2009
$4,494.9
Q3 2009
$4,423.1

 

Q3 2009
Summary of Results
10
CNO
$85.4
7.4
21.6
(31.4)
$83.0
--
(18.9)
$64.1
Pre-Tax
After Tax
EPS
($ millions, except per-share amounts)
$54.3
(20.0)
(18.9)
$15.4
$0.29
(0.11)
(0.10)
$0.08
  *Management believes that an analysis of earnings before net realized investment gains (losses) and increases to
  our valuation allowance for deferred tax assets (a non-GAAP financial measure) provides an alternative measure
  of the operating results of the company because such items are unrelated to the company’s continuing operations.
  The table above provides a reconciliation to the corresponding GAAP measure.
**See Appendix for a reconciliation to the corresponding GAAP measure.
Bankers Life
Colonial Penn
Conseco Insurance Group
Corporate operations and interest expense
Income before net realized investment losses
  and valuation allowance for deferred tax assets*
Valuation allowance for deferred tax assets**
Net realized investment losses**
Total

 

Q3 Earnings
11
CNO Consolidated
*Management believes that an analysis of earnings before net realized investment gains (losses), losses related to
the transfer of Senior Health to an independent trust (included in Discontinued Operations) and corporate interest
and taxes (“EBIT,” a non-GAAP financial measure) provides an alternative measure to compare the operating
results of the company quarter-over-quarter because it excludes: (1) corporate interest expense; and (2) items that
are unrelated to the company’s continuing operations. The table above provides a reconciliation of EBIT to net
income (loss).
($ millions)

 

Operating ROE
12
CNO
Operating ROE*, Trailing 4 Quarters

 

Operating EPS*
13
CNO
*Operating earnings per share exclude net realized investment gains (losses), valuation allowance related to
  deferred tax assets and discontinued operations. See Appendix for corresponding GAAP measure.
**Represents the expected ratio of quarterly Operating EPS to annual Operating EPS, based on
  historical experience.
Seasonality of     Q3   Q4   Q1   Q2   Q3
Operating EPS**   23-28%   26-31%   17-22%   20-25%   23-28%

 

Statutory Surplus ($ millions)

 *Excludes Accumulated Other Comprehensive Loss, as defined by the senior credit facility.
$1,270
$1,100
Current Amendment Levels
“Snapback” Levels (effective Q3 2010)
CNO
14
250%
200%
1.5x
2.0x
Covenant Metrics

 

Liquidity Projection
For Remainder of 2009*
15
CNO
($ millions)
Cash Balance 9/30/09
Sources
  Equity Private Placement Proceeds, net of expenses
  Net Proceeds from New Convertible Debentures
  Surplus Debenture Interest
  Management and Investment Fees
Total Sources
Uses
  Interest
  Debt Repayments:
  Senior Credit Facility
  Retirement of Old Convertible Debentures
  Senior Health Note
Holding Company Expenses
Total Uses
Cash Balance 12/31/09
$85.6
$73.7
281.3
12.2
9.0
376.2
18.9
36.8
293.0
25.0
15.1
388.8
$73.0
*Assumes 100% tender in Q4 2009, and assumes that net equity proceeds are retained at the parent company.
**Includes $4.3 million of expenses related to the retirement of the convertible debentures.
**

 

Consolidated RBC Ratio*
16
CNO
*Risk-Based Capital (“RBC”) requirements provide a tool for insurance regulators to determine the levels of
  statutory capital and surplus an insurer must maintain in relation to its insurance and investment risks. The
  RBC ratio is the ratio of the statutory consolidated adjusted capital of our insurance subsidiaries to RBC.
§   Q3 2009 positive impacts:
  •   Statutory operating results (19 pts)
  •   Wilton Re reinsurance (10 pts)
§   Q3 2009 negative impacts:
  •   Credit rating migration and net
  statutory capital losses (22 pts)

 

Consolidated RBC Ratio -
Changes Over Last Four Quarters
17
CNO
9/30/08
RBC
9/30/09
RBC
257%
252%
+45%
+11%
+4%
-50%
-48%
+17%
+9%
+5%
+2%

 

Capital and
Risk Management Initiatives
18
CNO
§   Reinsure new and inforce business
§   Manage investment portfolio to mitigate RBC impact of ratings
  migration
§   Terminate PFFS quota share agreements with Coventry at 12/31/09 -
  improves consolidated RBC by 8 pts in 2010
§   Limit Bankers branch expansion
§   Reduce direct marketing spending at Colonial Penn
§   Regulatory
  •   Merger of three CIG insurance subsidiaries
  •   Deferred tax asset
  •   Mortgage Experience Adjustment Factor
  •   Modification of RMBS ratings

 

Q3 Summary
19
Bankers
§   Earnings of $85.4 million, up 26% over Q3 2008:
  •   Higher PFFS income (+$20 million) due to mid-year premium
  sweeps and favorable IBNR development
  •   Increase in COLI surrender value (+$7 million)
  •   Lower LTC margins (-$7 million) due to slightly higher interest-
  adjusted benefit ratio
§   Record-setting third quarter for both Life and Med Supp sales
§   Continued strong core sales and record agent recruiting
  •   16% increase in new agents YTD

 

Bankers
20
($ millions)
Quarterly Core NAP (Excludes PFFS)
NAP-Quarterly*:   $65.8   $72.8   $94.5   $69.4   $62.3
PFFS NAP-Quarterly*:   $4.6   $0.9   $34.1**   $6.3   $(0.2)
*Excludes group business not sold by Bankers agents.
**Net of $7 million reserve for anticipated chargebacks related to sales still within their 90-day disenrollment period.
NAP Results
§   Core NAP up 2% vs Q3 2008
  •   Strong sales of Life (+21%) and
  Med Supp (+20%), partially offset
  by lower sales of Annuities (-15%)
  and LTC (-14%)
§   PFFS YTD 2009 sales down 30%
  •   Changes in consumer preferences
  •   Stopped selling Coventry PFFS in
  Q3 2009

 

Q3 2009 Sales and
Distribution Results
21
Bankers
§   Continued growth in agent force
  •   Average agent count YTD 5,186, up 10% vs. first nine months of
  2008
§   Branch manager retention is strong
  •   Since 2004, the annual turnover rate in our top 48 branches has
  been less than 3%
  •   Average length of service for these top managers is 15+ years

 

Medicare Advantage
22
Bankers
§   As previously announced, Coventry is exiting PFFS business
  effective 12/31/09
  •   PFFS relationship terminates; affects approximately 55,000
  Bankers-sold PFFS members, partially reinsured by Bankers
  •   PDP relationship (distribution and reinsurance) remains
  unchanged
§   Coventry policyholder progress
  •   Early results indicate policyholder shift from PFFS to Med Supp;
  for month of October, Med Supp sales are significantly ahead of
  prior year
§   Humana sales begin in earnest on November 15

 

§   Annuity sales down 15% vs
  Q3 2008
§   Lower results are in line with
  overall market
§   Reduced bonus rate to
  maintain margins
Bankers
Annuities   - NAP*
($ millions)
23
*Calculated as 6% of annuity deposits.
Q1 2009
$18.2
$9.0
$10.4
$18.2
$6.2
$5.0
$13.2
$6.8
$11.0
Q2 2009
$17.8
Q3 2009
$16.4
$4.8
$11.6
Annuity Sales

 

Annuity Surrenders
24
Bankers
IA Surrenders
(annualized quarterly rate)
Non-IA Surrenders
(annualized quarterly rate)
§   Both indexed and non-indexed
  annuity surrenders lower than
  prior year
§   Total account value:
  •   IAs - $1.5 billion
  •   Non-IAs - $4.7 billion
§   Average account value:
  •   IAs - $41,000
  •   Non-IAs - $36,000
§   Over 89% of our annuities are
  still in surrender charge period:
  •   IAs - 95%
  •   Non-IAs - 87%

 

LTC Update
25
Bankers
§   Rate increase filings ahead of schedule (2008 round - policies
  issued prior to 2002); expect to exceed original filing goals
  •   Completed filing of $102.5 million of rate increases
  •   As of 9/30/09:
  •   Approvals = $77.4 million, 109% of original goal
  •   Projected financial impact = $58.1 million, 109% of original goal
§   Continued focus on claims management/underwriting
§   New products (as of 9/30/09)
  •   LTC/Annuity Combo product launched in 31 states
  •   LTC product revision launched in 19 states, with rates reflecting
  current claim experience and in line with target profit margins

 

Q3 Earnings
26
Bankers
($ millions)
Trailing 4 Quarter Operating Return on Equity: 10.0%
Management believes that an analysis of income (loss) before net realized investment gains (losses), net of
related amortization (a non-GAAP financial measure), is important to evaluate the financial performance of
our business, and is a measure commonly used in the life insurance industry.   Management uses this
measure to evaluate performance because realized gains or losses can be affected by events that are
unrelated to a company’s underlying fundamentals. The table on Page 11 reconciles the non-GAAP measure
to the corresponding GAAP measure.   See Appendix for a reconciliation of the return on equity measure to
the corresponding GAAP measure.

 

Q3 Summary
27
Colonial Penn
§   Earnings of $7.4 million, up 14% over Q3 2008
  •   Increase primarily driven by margin growth
§   Life sales of $10.6 million, down 12% from Q3 2008
  •   Consistent with reduced marketing spend as part of our capital
  management efforts
  •   Q3 2009 marketing costs associated with lead-based advertising
  and related fulfillment costs were reduced by $5.3 million (45%)
  from Q3 2008
§   YTD campaign productivity remains consistent with expectations

 

Q3 Earnings
28
Colonial Penn
($ millions)
Trailing 4 Quarter Operating Return on Equity: 14.9%
Management believes that an analysis of income (loss) before net realized investment gains (losses), net of
related amortization (a non-GAAP financial measure), is important to evaluate the financial performance of
our business, and is a measure commonly used in the life insurance industry.   Management uses this
measure to evaluate performance because realized gains or losses can be affected by events that are
unrelated to a company’s underlying fundamentals. The table on Page 11 reconciles the non-GAAP measure
to the corresponding GAAP measure.   See Appendix for a reconciliation of the return on equity measure to
the corresponding GAAP measure.

 

Q3 Summary
29
CIG
§   Earnings of $21.6 million, down 37% vs Q3 2008:
  •   Additional Universal Life amortization expense
  •   Higher expenses related to litigation settlements
§   NAP of $20.3 million, up 7% vs Q3 2008
  •   Turning around three consecutive quarters of negative sales
  comparisons
§   Continued strong sales growth in Specified Disease products
  and strong agent recruiting

 

CIG
($ millions)
§   Specified Disease sales up 26% over Q3 2008
§   Worksite sales continue strong momentum,
  up 11% YTD
§   Strong recruiting results in Q3 2009
§   Decrease in Annuity sales, as expected, due
  to shift in focus to Specified Disease and
  Worksite sales
Q3 2008
Q3 2009
Q3 2009 Sales and
Distribution Results

 

Annuity Surrenders
31
CIG
IA Surrenders
(annualized quarterly rate)
Non-IA Surrenders
(annualized quarterly rate)
*Statistics based on account value and GAAP reserves.
§   IA surrenders down significantly
  from Q2 2009
§   Non-IA surrenders stable
§   Total account value:
  •   IAs - $732 million
  •   Non-IAs - $370 million
§   Average account value:*
  •   IAs - $44,400
  •   Non-IAs - $21,100
§   65% of our annuities are still in
  surrender charge period:*
  •   IAs - 99%
  •   Non-IAs - 34%

 

Q3 Earnings
32
CIG
Management believes that an analysis of income (loss) before net realized investment gains (losses), net of
related amortization (a non-GAAP financial measure), is important to evaluate the financial performance of
our business, and is a measure commonly used in the life insurance industry.   Management uses this
measure to evaluate performance because realized gains or losses can be affected by events that are
unrelated to a company’s underlying fundamentals. The table on Page 11 reconciles the non-GAAP measure
to the corresponding GAAP measure.   See Appendix for a reconciliation of the return on equity measure to
the corresponding GAAP measure.
($ millions)
Trailing 4 Quarter Operating Return on Equity: 2.2%

 

Net Investment Income
33
CNO
($ millions)
General Account Investment Income
Yield:	5.82%	5.93%	5.67%	5.65%	5.63%	
§   Decreases in 2009 primarily
  due to lower new money rates
  and increase in cash and short-
  term investment balances
  compared to prior periods

 

Q3 2009
Net Realized Losses
34
CNO
Gains on sales
Losses on sales
Losses due to recognition of other-
  than-temporary impairments
Amortization adjustment to insurance
  intangibles
  Net investment losses before tax
Tax benefit
Increase to tax valuation allowance
  Net investment losses after tax
($ millions)
-
-
$(126.7)
18.7
  (108.0)
(38.8)
-
  $(69.2)
$99.5
(84.1)
(162.4)
20.1
  (126.9)
(45.5)
6.7
  $(88.1)
$99.5
(84.1)
(35.7)
1.4
  (18.9)
(6.7)
6.7
  $(18.9)
Gross
Amounts
Amount Recognized
through Accumulated
Other Comprehensive
 Loss
Amount Recognized
 through Net Income

 

Q3 2009 Impairment Losses
35
CNO
IG Corporates
Alt-A
ABS
Prime Jumbos
Commercial Mortgage Loans
Other
Total
($ millions)
Gross
Amounts
Amount Recognized
through Accumulated
Other Comprehensive
 Income
Amount Recognized
 through Net Income
$5.5
35.0
14.5
88.3
12.3
6.8
$162.4
$0.0
29.9
12.7
84.1
0.0
0.0
$126.7
$5.5
5.1
1.8
4.2
12.3
6.8
$35.7

 

Asset Allocation at 9/30/09*
36
CNO
($ millions)
*Excludes investments from a variable interest entity which we consolidate under GAAP (the related liabilities are
non-recourse to Conseco).

 

Investment Quality:
Fixed Maturities*
37
CNO
Actively Managed Fixed Maturities by Rating at
9/30/09 (Market Value)
 
% of Bonds which are Investment Grade:	9/30/08
93%	12/31/08
92%	3/31/08
91%	6/30/09
91%	9/30/09
93%	
*Excludes investments from a variable interest entity which we consolidate under GAAP (the related liabilities are
non-recourse to Conseco).
AAA
13%
AA
6%
A
31%
BBB
43%
 
7%
§   Investment-grade bonds at 93%:

 

Impact of Downgrades
on BIG Ratio*
38
CNO
*Actively managed fixed maturities (market value).

 

Q3 2009 Downgrades from Investment
Grade to Below Investment Grade
39
CNO
IG Corporates
Alt-A
Prime Jumbo
CMBS
Other
Total
($ millions)
$41.5
9.9
61.1
4.9
52.7
$170.1
7
1
4
2
13
27
(0.7%)
(0.6%)
(0.9%)
(0.1%)
(0.9%)
(3.2%)
Type
Statutory Book 
Value
# Issues
Effect of
Downgrades on
RBC Ratio*
*Includes estimated effect of covariance and tax.

 

RBC Impact of Downgrades
40
CNO
$753 million
downgraded
$997 million
downgraded
$680 million
downgraded
$825 million
downgraded
§   Ratings downgrades have resulted in a decrease to our RBC ratio of 50
  percentage points over the last four quarters.
§   Ratings downgrades
  have been significant

 

Alt-A at 9/30/09
CNO
41
AA
BBB
 
Total
$13.2
$44.5
$143.4
$201.1
$17.5
$49.1
$193.8
$260.4
6.6%
22.1%
71.3%
100.00%
0.06%
0.21%
0.66%
0.93%
Market
Value (mil.)
Book
Value (mil.)
% of
Alt-A*
% of
Portfolio*
Rating
§   Allocation reduced by 46% (book value) from 12/31/08 to 9/30/09
§   No exposure to “affordability products” - option ARMs, hybrid, neg-ams
§   While delinquencies are higher than anticipated, collateral performing better than
  overall Alt-A market in terms of average delinquency and accumulated loss
§   Adequate credit support inherent in structures relative to expected cumulative losses
  and recoverability of book values
693
733
710
714
Avg.
 FICO
14.0%
8.2%
10.1%
9.9%
Avg.
Support
9.4%
6.6%
18.9%
15.5%
Avg. 60+
Delinq.
*Market value.
($ millions)
1.45%
0.50%
1.46%
1.25%
Avg. Accum.
Loss

 

Prime Jumbo at 9/30/09
CNO
42
AAA
AA
A
BBB
 
Total
$223.8
$59.3
$76.8
$164.2
$197.0
$721.1
$247.0
$64.2
$100.3
$198.4
$314.1
$924.0
31.0%
8.2%
10.7%
22.8%
27.3%
100.00%
1.04%
0.27%
0.35%
0.76%
0.91%
3.34%
Market
Value (mil.)
Book
Value (mil.)
% of
Prime 
Jumbo*
% of
Portfolio*
Rating
§   73% investment grade
§   3.3% of total invested assets
§   46 securitizations - highly diversified
736
741
744
741
739
739
Avg.
 FICO
7.9%
4.4%
4.8%
5.8%
7.9%
6.5%
Avg.
Support
1.4%
2.1%
3.4%
5.2%
9.2%
4.7%
Avg. 60+
Delinq.
*Market value.
($ millions)
0.03%
0.11%
0.08%
0.36%
0.59%
0.27%
Avg. Accum.
Loss

 

CMBS by Vintage at 9/30/09
43
CNO
(GAAP book value - $ millions)
$194.5
$136.0
$138.0
$0.0
$47.0
$53.1
$568.6
$556.1
$34.2
$8.8
$0.0
$14.7
$0.0
$0.0
$57.7
$45.0
$48.2
$13.1
$23.1
$15.6
$0.0
$0.0
$100.0
$60.3
$6.0
$17.2
$69.8
$15.0
$0.0
$0.0
$108.0
$36.8
$0.0
$0.0
$3.0
$3.8
$0.0
$0.0
$6.8
$1.6
Pre-2004
2004
2005
2006
2007
2009
Total BV
Total MV
AAA
AA
A
BBB

 

CMBS at 9/30/09
CNO
44
AAA
AA
A
BBB
 
Total
$556.1
$45.0
$60.3
$36.8
$1.6
$699.8
$568.6
$57.7
$100.0
$108.0
$6.8
$841.1
79.5%
6.4%
8.6%
5.3%
0.2%
100.0%
2.57%
0.21%
0.28%
0.17%
0.01%
3.24%
Market
Value (mil.)
Book
Value (mil.)
% of
CMBS*
% of
Portfolio*
Rating
§   Collateral performing materially better than overall CMBS market in terms of delinquency and
  cumulative loss
§   Substantial credit support inherent in structures relative to expected cumulative losses
29.7%
22.8%
11.6%
8.6%
6.1%
26.6%
Avg.
Support
1.5%
0.8%
1.3%
1.2%
1.4%
1.4%
Avg. 60+
Del. & FCR
*% of market value
($ millions)
0.41%
0.07%
0.12%
0.03%
0.00%
0.34%
Avg. Cum.
Loss

 

Commercial Mortgage Loans
at 9/30/09
By Vintage
45
CNO
§   Current LTV of approximately 63.9%
§   Trailing debt service coverage ratio stable relative to underwritten levels of approximately 1.55
§   Emphasis on reducing overall allocation via prepayments, etc.

 

CNO Summary
46
CNO
§   Third consecutive quarter of net income
§   Core sales and agent recruitment continue to improve in declining
  market
§   Recapitalization addresses the company’s most pressing financial
  priority
  •   Refinances the 3.5% convertible debentures
  •   Structured to protect the NOLs
  •   Demonstrates investor confidence in Conseco
§   Capital and risk management remain top priorities
  •   Continue to evaluate reinsurance opportunities
  •   Insurance company merger anticipated in Q1 2010
§   Favorable target market demographics

 

47
Questions and Answers

 

48
Appendix

 

Ø   Agreement to sell common stock and issue warrants
  to Paulson & Co.
  Ø   16.4MM shares
  Ø   5 million warrants with a $6.50 exercise
  price expiring on 12/30/2016 and not
  exercisable until 6/30/2013
  Ø   Aggregate purchase price of $78MM
Ø   Closing upon first settlement date for new
  Convertible Debentures
Ø   Refinances $293 million 3.50% convertible
  debentures puttable to Conseco on 9/30/2010
Ø   Preserves flexibility to raise common equity to
  strengthen capital and reduce outstanding senior
  secured debt
  Ø   Announced intention to file registration
  statement with respect to $200 million of
  common equity in the near future
Ø   Enhances the Company’s liquidity and capital
  positions
Ø   Demonstrates investor confidence in Conseco
Transaction Highlights
Sale of Common Stock and Warrants
Cash Tender Offer of Convertible Debenture	
For “Any and All” of 3.50% convertible debenture due 9/30/2035	
Tender Price	100% par + accrued and unpaid interest	
Launch Date	10/15/2009	
Expiration	11/12/09	
Financing	New convertible debentures and sale of common stock and
warrants to be issued simultaneously with closing of tender offer	
Convertible Debentures	
Total Issuance	Up to $293MM	
Coupon	7.0%	
Conversion Price	$5.49	
Maturity Date	12/30/2016	
Convertibility	Non-convertible until on or after 6/30/2013	
Call Protection	Non-call life; conversion feature terminable at company’s option at
any time on or after 6/30/2013 if stock trades at or above 140% of
the conversion price for at least 20 trading days in a 30 consecutive
trading day period	
Ranking	Senior unsecured	
Settlement:	In whole or in part based upon success of one or more tender offers
and put or call of outstanding $293MM convertible debentures	
Forward Purchase Commitment	
Escrow	Purchase price pre-funded into segregated deposit accounts at Bank
of New York Mellon	
Yield	7% annual return on the proceeds in the deposit account provided in
form of discount from par when the Convertible Debentures are
issued	
Maturity	No later than 10/5/2010	
CNO
49
Recapitalization Summary

 

50
CNO
§   Plan to file a registration statement with the SEC relating to a
  proposed registered offering of common stock
§   Will use reasonable best efforts to consummate the proposed
  registered offering no later than 120 days after the settlement
  of the cash tender offer (expected to be by 3/31/10)
§   Required to use half of net proceeds to pay down
  indebtedness under the credit agreement
§   Remaining net proceeds would be used for general corporate
  purposes
Proposed Registered Offering of
Common Stock

 

Key Debt Covenants
51
CNO
  *Reflects impact of modification to the covenants which are applicable from March 31, 2009 through June 30,
  2010.   Effective with the third quarter of 2010, the covenant margins return to Q4 2008 levels.
**Calculated per bank covenants; excludes Accumulated Other Comprehensive Loss.
($ millions)
Debt/Capital Ratio**
Covenant Maximum
Actual
Interest Coverage
Covenant Minimum
Actual
Statutory Capital
Covenant Minimum
Actual
RBC Ratio
Covenant Minimum
Actual
Q2 2009
Covenant Margins as of 9/30/09*
Reduction to statutory capital and
  surplus of approximately $269
  million, or an increase to the risk-
  based capital of approximately
  $134 million.
Reduction to combined statutory
  capital and surplus of
  approximately $208 million.
Reduction in cash flows to the
  holding company of
  approximately $101 million.
Reduction to shareholders’ equity of
  approximately $831 million or
  additional debt of $400 million.
Q4 2008
30.0%
28.3%
2.00X
2.35X
$1,270
$1,366
250%
255%
Q1 2009
32.5%
27.9%
1.50X
3.07X
$1,100
$1,301
200%
230%
32.5%
27.0%
1.50X
3.31X
$1,100
$1,279
200%
247%
Q3 2009
32.5%
26.8%
1.50X
3.12X
$1,100
$1,308
200%
252%

 

Book Value Per Share *
52
CNO
*Book value excludes accumulated other comprehensive income (loss). See Appendix for corresponding GAAP
measure.
§   Increase from Q2 2009 due to
  Q3 2009 net income

 

Commercial Mortgage Loans
at 9/30/09
Geographic Distribution
53
CNO
Pacific
8.6%
Mountain
9.5%
West North
Central
12.7%
West South
Central
5.7%
East North
Central
22.0%
East South
Central
5.3%
New England
8.7%
Middle
Atlantic
6.3%
South
Atlantic
21.2%

 

Commercial Mortgage Loans
at 9/30/09
By Maturity
54
CNO
($ millions)

 

Expenses
55
CNO
($ millions)
Adjusted Operating Expenses*
*Adjusted operating expenses exclude primarily acquisition costs, capitalization of software development
costs, initial PFFS marketing costs and contractual vacancy charges related to exiting the Merchandise Mart
in Chicago.   This measure is used by the Company to evaluate its progress in reducing operating expenses.
Expenses have been restated for all periods to reflect the SHIP separation.
§   Approximately $20 million in savings
  from back-office consolidation
  realized in 2007 and 2008; remaining
  $5 million expected in 2009
§   Q3 2009 reflects leveling off to more
  stable level following quarter of high
  taxes and insurance and premium
  tax payments, and reduction of
  consulting expense

 

Segment Performance
56
Bankers
*Operating earnings exclude net realized gains (losses).   See Appendix for corresponding GAAP measure of
our consolidated results of operations.
PTOI-Trailing 4 Quarters:   $189.8   $171.5   $187.1   $215.8   $233.4
Revenues-Quarterly:   $679.1   $691.4   $635.1   $662.8   $695.1
Pre-Tax Operating Income*
Revenues -Tr. 4 Quarters:   $2,594.5   $2,679.1   $2,686.3   $2,668.4   $2,684.4
($ millions)
§   Earnings up 26% vs Q3 2008,
  positively affected by:
  •   Higher PFFS/PDP income
  •   Increase in COLI
§   Offset by lower LTC margins

 

Premiums -
Medicare Supplement
57
Bankers
§   First-year premiums up 15%
  vs Q3 2008
Med. Supp. First-Year Prems.-Tr. 4 Qtrs:   $79.3   $81.3   $81.9   $83.6   $86.5
Med. Supp. Total Premiums-Quarterly:   $153.8   $172.3   $155.8   $155.2   $168.9
Med. Supp. NAP-Quarterly:   $16.6   $27.9   $18.4   $19.2   $19.9
Med. Supp. NAP-Trailing 4 Quarters:   $73.7   $78.6   $79.9   $82.1   $85.4
($ millions)

 

Premiums -
Long-Term Care
58
Bankers
($ millions)
First-Year Prems.-Tr. 4 Qtrs:   $43.9   $42.7   $35.9   $30.0   $22.1
Total Premiums-Quarterly:   $154.8   $159.1   $145.9   $151.9   $154.3
Long-Term Care   - First-Year Premiums*
NAP-Quarterly:   $11.4   $7.9   $7.5   $9.8   $9.8
NAP-Trailing 4 Quarters:   $42.3   $39.4   $37.5   $36.6   $35.0
*Includes $4.4 million in both Q1 2009 and Q2 2009 and $6.6 million in Q3 2009 of premiums ceded
under new business reinsurance agreement.
Q2 2009
(Direct)
$9.1
Q1 2009
(Direct)
$8.6
Q3 2009
(Direct)
$9.5
§   Quarterly first-year premium
  declines due to new business
  reinsurance
§   NAP decline attributable to three
  main factors:
  •   Overall industry sales decline
  •   Agent force shift toward other products
  •   Tightened underwriting

 

Premiums -
Life Insurance
59
Bankers
($ millions)
First-Year Prems.-Tr. 4 Qtrs:   $81.8   $80.7   $79.0   $75.9   $79.8
Total Premiums-Quarterly:   $51.9   $55.7   $48.9   $55.3   $63.2
Life - First-Year Premiums
NAP-Quarterly:   $13.1   $11.4   $12.6   $15.6   $15.8
NAP-Trailing 4 Quarters:   $53.6   $51.9   $52.8   $52.7   $55.4
SPWL
Non-
SPWL
$7.5
$12.0
Q3 2008
$19.5
Q4 2008
$20.2
$8.2
$12.0
Q1 2009
$16.8
$6.2
$10.6
Q2 2009
$19.4
$7.8
$11.6
Q3 2009
$23.4
$10.5
$12.9
§   Fluctuations in first-year
  premiums primarily reflect
  variance in sales of single-
  premium policies
§   Non-SPWL premiums up 8%
  vs Q3 2008

 

Premiums -
Annuity
60
Bankers
($ millions)
First-Year Prems.-Tr. 4 Qtrs:   $1,031.3   $1,220.6   $1,294.1   $1,308.7   $1,270.3
Total Premiums-Quarterly:   $323.1   $411.2   $302.1   $275.4   $284.7
Annuity - First-Year Premiums
  §   Annuity first-year premiums
  down 12% from Q3 2008

 

Benefit Ratio* - PDP
61
Bankers
*We calculate benefit ratios by dividing insurance policy benefits by insurance policy income.
§   Down 16% vs Q3 2008
§   Impacted by mid-year premium
  sweeps and favorable claims
  experience

 

Benefit Ratio* -
PFFS Individual Business
62
Bankers
*We calculate benefit ratios by dividing insurance policy benefits by insurance policy income.
§   Comparison vs Q3 2008
  impacted by premium sweeps
  and favorable IBNR development

 

Interest-Adjusted Benefit Ratio* -
Long Term Care
63
Bankers
*We calculate interest-adjusted benefit ratios by dividing insurance policy benefits less interest income on
the accumulated assets backing the insurance liabilities by insurance policy income.
Trailing 4 Quarter Avg.:   74.9%   74.0%   71.4%   67.6%   68.2%
Qtrly. non-int. adjusted:   102.1%   102.2%   105.1%   103.2%   108.3%
§   Q3 2009 positively impacted by
  continued stabilization of
  incurred claims and excess
  terminations

 

Segment Performance
64
Colonial Penn
*Operating earnings exclude net realized gains (losses).   See Appendix for corresponding GAAP measure of
our consolidated results of operations.
PTOI-Trailing 4 Quarters:   $18.3   $25.2   $26.6   $29.3   $30.2
Revenues-Quarterly:   $57.0   $57.2   $57.1   $62.7   $58.1
Pre-Tax Operating Income*
Revenues -Tr. 4 Quarters:   $213.3   $226.2   $229.4   $234.0   $235.1
($ millions)
§   Q3 2008 to Q3 2009 change affected by
  margin growth
§   Q2 2009 to Q3 2009 change affected by:
  •   Lower margin from non-recurring
  reinsurance pool termination in Q2 2009
  •   Lower margin due to seasonality
  •   Higher amortization charges

 

Premiums -
Life Insurance
65
Colonial Penn
($ millions)
First-Year Prems.-Tr. 4 Qtrs:   $33.7   $35.0   $35.8   $35.3   $34.4
Total Premiums-Quarterly:   $43.6   $43.8   $47.0   $45.8   $45.6
Life - First-Year Premiums
NAP-Quarterly:   $12.1   $10.8   $12.3   $10.6   $10.6
NAP-Trailing 4 Quarters:   $48.6   $50.1   $49.7   $45.8   $44.3
§   NAP:
  •   Quarterly and trailing four quarters
  consistent with expectations arising
  from capital management
§   Premium:
  •   First-year premium trending lower due
  to capital management

 

Segment Performance
66
CIG
*Operating earnings exclude net realized gains (losses). See Appendix for corresponding GAAP measure
of our consolidated results of operations.
PTOI-Trailing 4 Quarters:   $99.4   $121.3   $129.2   $118.1   $105.5
Revenues-Quarterly:   $371.8   $382.4   $379.2   $382.5   $381.2
Pre-Tax Operating Income*
Revenues-Tr. 4 Quarters:   $1,511.3   $1,513.1   $1,511.7   $1,515.9   $1,525.3
($ millions)
§   Lower Universal Life results
  primarily due to additional
  amortization expense
§   Higher expenses related to
  litigation settlements

 

Premiums -
Medicare Supplement
67
($ millions)
First-Year Prems.-Tr. 4 Qtrs:   $10.6   $9.6   $8.3   $7.9   $8.0
Total Premiums-Quarterly:   $48.5   $52.6   $42.8   $44.4   $46.9
Medicare Supplement   - First-Year Premiums
NAP-Quarterly:   $1.8   $3.5   $1.7   $1.3   $1.3
NAP-Trailing 4 Quarters:   $8.9   $8.9   $8.3   $8.3   $7.8

 

Premiums -
Specified Disease
68
CIG
($ millions)
First-Year Prems.-Tr. 4 Qtrs:   $37.6   $39.4   $40.2   $41.5   $43.6
Total Premiums-Quarterly:   $92.3   $95.6   $93.0   $95.1   $96.2
Specified Disease   - First-Year Premiums
NAP-Quarterly:   $12.8   $12.0   $11.5   $14.7   $16.1
NAP-Trailing 4 Quarters:   $46.1   $46.8   $48.7   $51.0   $54.3
§   NAP up 26% from Q3 2008:
  •   Increased PMA focus on
  Specified Disease products
  •   Increased recruitment of Health
  IMOs
  •   Momentum increasing in
  Worksite market

 

Premiums -
Annuity
69
CIG
($ millions)
First-Year Prems.-Tr. 4 Qtrs:   $155.3   $119.9   $98.5   $84.7   $83.0
Total Premiums-Quarterly:   $27.4   $23.7   $19.5   $22.3   $25.2
Annuity - First-Year Premiums
§   First-year collections down
  7% from Q3 2008:
  •   Discontinuance of products due
  to an annuity coinsurance
  transaction
  •   Focus on profitable products
  (i.e., Specified Disease)

 

Benefit Ratio* -
Medicare Supplement
70
CIG
Trailing 4 Quarter Avg.:   69.1%   68.4%   68.8%   68.6%   67.3%
*We calculate benefit ratios by dividing insurance policy benefits by insurance policy income.
§   In line with expectations and
  recent trends
§   Stable persistency

 

Interest-Adjusted Benefit Ratio* -
Specified Disease
71
Trailing 4 Quarter Avg.:   47.4%   43.3%   41.8%   42.6%   41.2%
Qtrly. non-int. adjusted:   82.6%   63.8%   76.0%   83.3%   76.6%
*We calculate interest-adjusted benefit ratios by dividing insurance policy benefits, less interest income on
the accumulated assets backing the insurance liabilities, by insurance policy income.
§   Q3 2008 included recognition of
  deferred ROP adjustment
  related to prior periods

 

72

Information Related to Certain Non-GAAP Financial Measures
The following provides additional information regarding certain non-GAAP measures used in this presentation.   A non-GAAP measure is a
numerical measure of a company’s performance, financial position, or cash flows that excludes or includes amounts that are normally excluded
or included in the most directly comparable measure calculated and presented in accordance with GAAP.   While management believes these
measures are useful to enhance understanding and comparability of our financial results, these non-GAAP measures should not be considered
as substitutes for the most directly comparable GAAP measures.   Additional information concerning non-GAAP measures is included in our
periodic filings with the Securities and Exchange Commission that are available in the “Investor - SEC Filings” section of Conseco’s website,
www.conseco.com.
Operating earnings measures 
Management believes that an analysis of net income applicable to common stock before net realized gains or losses, discontinued operations
and increases to our valuation allowance for deferred tax assets (“net operating income,” a non-GAAP financial measure) is important to
evaluate the performance of the Company and is a key measure commonly used in the life insurance industry.   Management uses this measure
to evaluate performance because realized investment gains or losses, discontinued operations and increases to our valuation allowance for
deferred tax assets are unrelated to the Company’s continuing operations.

 

Information Related to Certain Non-GAAP Financial Measures
A reconciliation of net income applicable to common stock to net operating income (and related per-share amounts) is as follows (dollars in
millions, except per-share amounts):

 

Book value, excluding accumulated other comprehensive income, per share 
This non-GAAP financial measure differs from book value per diluted share because accumulated other comprehensive income has been
excluded from the book value used to determine the measure.   Management believes this non-GAAP financial measure is useful because it
removes the volatility that arises from changes in accumulated other comprehensive income.   Such volatility is often caused by changes in the
estimated fair value of our investment portfolio resulting from changes in general market interest rates rather than the business decisions made
by management.
 
A reconciliation from book value per share to book value per share, excluding accumulated other comprehensive income (loss) is as follows
(dollars in millions, except per share amounts):

Information Related to Certain Non-GAAP Financial Measures

 

75
Operating return measures
Management believes that an analysis of return before net realized gains or losses, discontinued operations and increases to our valuation
allowance for deferred tax assets (“net operating income,” a non-GAAP financial measure) is important to evaluate the performance of the
Company and is a key measure commonly used in the life insurance industry.   Management uses this measure to evaluate performance
because realized investment gains or losses, discontinued operations and increases to our valuation allowance for deferred tax assets are
unrelated to the Company’s continued operations.
This non-GAAP financial measure also differs from return on equity because accumulated other comprehensive income (loss) has been
excluded from the value of equity used to determine this ratio.   Management believes this non-GAAP financial measure is useful because it
removes the volatility that arises from changes in accumulated other comprehensive income (loss).   Such volatility is often caused by changes in
the estimated fair value of our investment portfolio resulting from changes in general market interest rates rather than the business decisions
made by management.
In addition, our equity includes the value of significant net operating loss carryforwards (included in income tax assets).   In accordance with
GAAP, these assets are not discounted, and accordingly will not provide a return to shareholders (until after it is realized as a reduction to taxes
that would otherwise be paid).   Management believes that excluding this value from the equity component of this measure enhances the
understanding of the effect these non-discounted assets have on operating returns and the comparability of these measures from period-to-
period.   Operating return measures are used in measuring the performance of our business units and are used as a basis for incentive
compensation.
All references to segment operating return measures assume a 25% debt to total capital ratio at the segment level.   Additionally, corporate
expenses have been allocated to the segments.

Information Related to Certain Non-GAAP Financial Measures

 

A reconciliation of return on common equity to operating return on common equity (excluding accumulated other comprehensive income (loss) and
net operating loss carryforwards) is as follows (dollars in millions, except per share amounts):

Information Related to Certain Non-GAAP Financial Measures

 

77
A reconciliation of pretax operating earnings (a non-GAAP financial measure) to segment operating income (loss) and consolidated net income
(loss) for the nine months ended September 30, 2009, is as follows (dollars in millions):
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Information Related to Certain Non-GAAP Financial Measures

 

78
A reconciliation of common shareholders’ equity, excluding accumulated other comprehensive income (loss) and net operating loss
carryforwards (a non-GAAP financial measure) to common shareholders’ equity at September 30, 2009, is as follows (dollars in millions):
(Continued on next page)
(Continued from previous page)

Information Related to Certain Non-GAAP Financial Measures

 

79
A reconciliation of average common shareholders’ equity, excluding accumulated other comprehensive income (loss) and net operating loss
carryforwards (a non-GAAP financial measure) to average common shareholders’ equity at September 30, 2009, is as follows (dollars in millions):
(Continued from previous page)

Information Related to Certain Non-GAAP Financial Measures

 

80
A reconciliation of the debt to capital ratio to debt to capital, excluding accumulated other comprehensive loss is as follows (dollars in millions):
Debt to capital ratio, excluding accumulated other comprehensive income (loss)
This non-GAAP financial measure differs from the debt to capital ratio because accumulated other comprehensive income has been excluded
from the value of capital used to determine this measure.   Management believes this non-GAAP financial measure is useful because it removes
the volatility that arises from changes in accumulated other comprehensive income.   Such volatility is often caused by changes in the estimated
fair value of our investment portfolio resulting from changes in general market interest rates rather than the business decisions made by
management.

Information Related to Certain Non-GAAP Financial Measures

 

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Exhibit 99.2

 

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