Conseco, Inc. has announced plans to transfer the Conseco Senior Health Insurance Company to an independent trust for the benefit of its long-term care policyholders.
Under the terms of the proposed transaction, all of the stock of the Conseco Senior Health Insurance Company, or CSHI, including approximately $2.9 billion in assets supporting its long-term care liabilities, will be transferred to the independent trust.
Conseco has formed the "Transition Trust," which has filed for regulatory approval with the Pennsylvania Insurance Department, to separate CSHI from Conseco. Upon approval the Transition Trust will merge with the Independent Trust, making the Independent Trust the surviving entity and the owner of CSHI.
Conseco expects to record accounting charges totaling approximately $1.2 billion related to the transaction, comprised of CSHI's equity, an additional valuation allowance for deferred tax assets and the capital contribution to CSHI and the independent trust.
More than $500 million of the accounting charge will be recognized in Conseco's second quarter 2008 financials.
"This unique structure aligns the interests of the Independent Trust, management and regulators with the policyholders," Conseco CEO Jim Prieur said. "It is a balanced solution for all of Conseco's constituents, including CSHI's approximately 142,000 long-term care policyholders, and provides Conseco greater flexibility in serving its 4 million other policyholders."
Prior to the transaction, Conseco will contribute $175 million of additional capital to CSHI and the Independent trust. In addition, CSHI's non-long-term care business will be assigned to Conseco.
Following the transfer, CSHI will be re-named the Senior Health Insurance Company of Pennsylvania, will be governed independently of Conseco and will be subject to oversight by the Pennsylvania Insurance Department.
John Wells will continue to serve as the president and chief executive officer.
Conseco's contract with the Long Term Care Group for policy administration and system improvements will remain with Senior Health.
In addition to its own policies, Senior Health will administer approximately 22,000 non-CSHI Closed Block long-term care policies of other Conseco insurers, with Conseco retaining responsibility for those liabilities.
"Following the closing, Senior Health will be operated for the benefit of CSHI's long-term care policyholders without a profit motive, so as to ensure that any future benefits from rate increases or policy changes will accrue to policyholders," said Conseco CFO Ed Bonach. "At the closing, Conseco will contribute $175 million, principally in cash and notes, to CSHI and the Independent Trust, bringing CSHI's total adjusted statutory capital to approximately $300 million."
The transfer is expected to close in the fourth quarter of 2008, once it has been approved by the Pennsylvania Insurance Department.