Struggling Conseco Inc. is selling its variable annuity business to inviva inc., a company that hawks life insurance and annuities through the Web sites of financial institutions, as part of a continuing effort to shed units and raise money to pay debts.
Under an agreement announced Friday, inviva would buy Conseco Variable Insurance Co., one of the 11 companies that make up the Conseco Insurance Group since Manhattan National Life Insurance Co. was sold in June.
Indianapolis-based Conseco said in January that it planned to raise $528 million by divesting insurance subsidiaries and reinsuring groups of policies. Most of the deals contemplated then have been completed or are being negotiated. The sale of Conseco Variable comes at a time when poor stock market conditions have hurt sales of variable annuities throughout the industry.
In a memo to shareholders this year, Conseco chairman and chief executive officer Gary Wendt spelled out the reasons for the planned sale.
“Our variable annuity business is not a good strategic fit with our middle-market customers, who are interested in more predictable annuity products, including our fixed and equity-indexed products. In large measure, this is why the variable annuity business does not meet our return expectations and why the sale of this business would have a modest impact on our future earnings,” he stated. “On the other hand, this property would be highly valuable to one of several companies pursuing a leadership position in this segment.”
Conseco has been struggling under a heavy debt load, explained Mark Lubbers, spokesman for the company, and the subsidiary sales will help with those payments. However, though the proceeds from these sales will help make debt payments due in 2003, he stressed, the company still needs to renegotiate $540 million of directors and officers loan guarantees that are due at the end of next year.
Mr. Lubbers said that Conseco has already sold or reinsured away several insurance assets and probably will do more but that the inviva variable annuity deal is one of the largest.
This most recent deal is paired with a transaction that closed July 1, in which Conseco reinsured the life insurance business of Conseco Variable Annuities with Protective Life Insurance Co. That deal brought in $49.5 million.
Earlier this year, Conseco also did a reinsurance transaction at Bankers Life and Casualty Co., another subsidiary. This brought in $111 million.
Conseco also sold its small insurance agency, Conseco Risk Management, for $10 million, and did a reinsurance deal with Swiss Re for its Conseco Direct Life Insurance Co. unit, which brought in $75 million. The June sale of Manhattan National to Great American Life Insurance Co. realized $48.5 million.
Together, these transactions have raised $294 million, not counting the sale of the variable annuities subsidiary.
However, Mr. Lubbers said it would be hard to create a “scorecard” for Conseco’s cash-raising effort because not all of these deal proceeds go directly to the parent. Some of the money stays with various insurance subsidiaries to reinforce their capital positions and to keep their ratings sound, he said.
Buying this variable annuity business would bring inviva about 90,000 in-force policies and more than $2.25 billion of assets, including about $1.4 billion of variable annuity account value and $800 million of general account liabilities, predominantly fixed annuities.
The price was not disclosed. The deal is expected to close Sept. 30.
The deal would also give inviva broader distribution; it generally sells insurance through the private-label Web sites of insurance agencies, financial planners, securities firms, and banks.
Conseco Variable Insurance Co. has more than 300 independent broker-dealers and more than 1,800 registered reps selling its suite of annuity products, which inviva said will add scale to its existing operations.
New York-based inviva was founded in December 1999 by David Smilow, who founded and ran Telebank before its sale to E-Trade, and Tracey Hecht, a founding manager of DoughNET, a banking site for minors.
The company bought American Life Insurance Co. of New York in March 2001 for $65 million from Mutual of America Life Insurance Co.
Julie Burke, a managing director at Fitch Inc., said the deal is a good choice for Conseco because “the variable annuity business is a scale business and this is a very, very small block relative to what it takes to be kind of a big player.” However, she said, the big reason for the sale is purely to generate cash for the parent.
“This is part of their asset-sale strategy that they need to do to meet their debt maturity issues,” Ms. Burke said. Because variable sales are down quite a bit industrywide, “this is just a very inopportune time to be marketing a variable annuity company.”
Conseco Variable Insurance got a rating downgrading from A.M. Best Co. on July 12, to B-plus-plus from A-minus. However, A.M. Best has put that rating under review with positive implications because of the prospect of inviva’s taking over ownership. The latter’s life insurance subsidiary, American Life, has a rating of A-minus.
Michael A. Cohen, an analyst at A.M. Best in Oldwick, N.J., said Conseco Variable was originally downgraded because of concern about its parent’s debt problems so that he expects the rating will return to A-minus once the inviva deal closes.
Though Mr. Cohen acknowledged that Conseco has some strategic reasons for selling this particular business, “the ratings agencies at large have taken a fairly negative view of” the parent company’s prospects, he said. “They have a number of very formidable obligations … the question is not, ‘does it make sense,’ but ‘do they have no choice?’ ”
“Companies that are hell-bent on acquisition strategies often get into trouble,” Mr. Cohen said. “They spend too much time doing these acquisitions and not managing a business.”
