Since Conseco Inc.'s announcement last week of lower-than-expected profits and the surprise departure of its top executive, analysts have begun to wonder whether rating agencies may reconsider their view of the insurer's financial condition.
Conseco, of Carmel, Ind., announced Thursday that William S. Kirsch, 50, its president and chief executive for 21 months, had resigned, for what he said were personal reasons. It also announced first-quarter results Thursday, saying profits were hurt by an effort to bolster its litigation reserve.
Rating agencies have so far downplayed the possibility that the resignation and earnings disappointment would significantly affect their outlook on the company, but Wall Street analysts said the news left them less certain that Conseco would be getting important upgrades from the agencies this summer, as many had expected.
Tom Gallagher of Credit Suisse First Boston said he expected A.M. Best Co. would upgrade Conseco's ratings from B-plus-plus to A in June or July. Mr. Gallagher said these ratings are used by some insurance brokers to decide which companies' policies they will sell and promote.
"Two negative outcomes from Kirsch's resignation are a lower probability of an A.M. Best ratings upgrade, and it raises questions about the fundamental outlook of the business," Mr. Gallagher said in a note to investors.
Rosemarie Mirabella, an analyst with the rating agency A.M. Best in Oldwick, N.J., said that though her company is not happy about Mr. Kirsch's resignation, she is not certain the CEO change will have an impact on Conseco's ratings.
"We did think Bill was doing a good job in terms of leadership and leading the organization going forward," she said. "And, though we do feel another succession of the CEO can be distracting for the organization, our ratings are long-term-focused."
Standard & Poor's last week affirmed its BB-plus rating on Conseco and said Mr. Kirsch's resignation would have little effect.
R. Glenn Hilliard, Conseco's chairman, said during its earnings call Friday that there is never a good time for a CEO to resign, and that the board reluctantly accepted Mr. Kirsch's decision to resign.
He said that by announcing the resignation now, Conseco has three months for James E. Hohmann, who will become interim CEO on May 23, to take a central role in the ratings agencies' review process. Eugene M. Bullis, Conseco's executive vice president and chief financial officer, said that Conseco gave A.M. Best a "heads up" before announcing Mr. Kirsch's resignation and that it has since followed up with the rating agency.
Ms. Mirabella said the quarterly results reflected issues A.M. Best wants to explore before changing its rating. "We want to take a wait-and-see approach," she said. "We are not sure if our thinking might not evolve further in the next couple of months."
Upgrading to an A rating has been Conseco's top goal since it emerged from Chapter 11 in September 2003. It filed for bankruptcy protection in December 2002, when its plan to expand from insurance into a range of financial services failed.
It got partway there in 2005 when A.M. Best, Moody's Investors Service, and Standard & Poor's upgraded it to "positive outlook." It has also accelerated expense reductions, strengthened its balance sheet and capital position, and made several hires.
But in February, Conseco reported fourth-quarter numbers that ended a streak of eight quarters of earnings growth. It blamed investment losses.
Conseco reported that its first-quarter profit fell 21%, to $64.6 million, or 35 cents a share. Revenue rose 7%, to $1.12 billion. Analysts polled by Thomson First Call were expecting 46 cents a share. The results included an after-tax impact of 5 cents a share for the increased litigation reserves.
Mr. Kirsch's contract with Conseco was through 2009, according to a Securities and Exchange Commission filing. Before being named CEO, he had been the company's executive vice president, general counsel, and secretary. Before joining Conseco he had been a managing partner at the Chicago law firm of Kirkland & Ellis and had worked closely with Conseco when it filed for bankruptcy.
Mr. Hilliard said Conseco has a strong internal candidate, but he did not specifically name Mr. Hohmann.
Ms. Mirabella said A.M. Best has been told Mr. Hohmann, 49, may be the CEO for a good stretch.
"Our understanding is that they are speaking of making Mr. Hohmann's role more permanent," she said. "Our understanding is, as part of their need for due diligence, Conseco will conduct a search, but Mr. Hohmann is a serious candidate long-term."
