Subprime mortgage losses hit Conseco

April 1, 2008

Investment losses on subprime mortgage-backed securities and an adjustment to tax assets led Conseco Inc. to a big loss in its fourth quarter.

The Carmel-based insurance company reported final financial results for 2007 last night - two weeks after reporting preliminary results.

Final results were delayed because of a conversation between Conseco and the Securities and Exchange Commission on how to account for price increases on its long-term care policies.

In the three months ended Dec. 31, the company posted a $71.5 million loss compared with a $5.7 million profit in the same quarter a year earlier.

On a per-share basis, Conseco swung to a 38-cent loss in the quarter compared with a gain of 4 cents last year. Revenue for the quarter declined 2 percent to $1.1 billion.

Conseco racked up investment losses of $36.6 million before taxes due to the general decline in markets and because it sold off mortgage-backed securities connected to subprime housing loans, the company said in a statement.

Conseco also spent $68 million to increase the valuation allowance connected to deferred tax assets it holds. Conseco holds $1.9 billion in tax assets, mainly from losses connected to its 2003 bankruptcy reorganization. It can apply those losses to future profits to reduce the amount of tax it owes.

For all of 2007, Conseco lost $194 million for its common shareholders, compared with a profit of $68 million in 2006.

On a per-share basis, Conseco lost $1.12 last year compared with a gain of 45 cents the previous year. Revenue for 2007 rose 2 percent to $4.6 billion.

On March 17, Conseco also reported that it has been working with Morgan Stanley for several months to explore "strategic alternatives." Such language often leads to a sale of the company. But CEO Jim Prieur said then that selling a block of Conseco's business is a possible "alternative" the company could take.

Conseco's shares have fallen 52 percent since June. They closed yesterday at $10.20 apiece.

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