Conseco retains manager appeal: Amid ongoing struggles, insurer landing top talent

Ten years ago, Dan Bardin was exactly where he wanted to be. He was running insurance operations for behemoth American International Group in Thailand, as Asian financial markets collapsed.

“I was there right in the middle of the crisis. And that’s what I like,” Bardin said.

Today, Bardin has found his way to another crisis of sorts. He’s the new president of the Conseco Insurance Group. During the year leading up to Bardin’s arrival in December, the subsidiary of Carmel-based Conseco Inc. struggled on numerous fronts.

Bardin, 57, is one of eight senior managers Conseco Inc. has hired in the last year, all of which bring with them accomplished backgrounds. One came from Swiss Re, the international giant that insures other insurance companies. Others came from bellwether companies such as New Jersey-based Prudential Financial Inc. and Germany-based Allianz SE.

Conseco CEO Jim Prieur has been able to woo the executives in spite of the company’s struggles-and sometimes, as in Bardin’s case, because of them.

“It’s an opportunity to be part of the biggest turnaround in the American insurance industry,” Prieur said. “People like that idea.”

Conseco, which primarily sells life and health insurance to middle-income customers, has been in turnaround mode ever since it emerged from bankruptcy reorganization in September 2003. Conseco Chairman Glenn Hilliard said the company has struggled to integrate the three dozen or so companies Conseco acquired in its go-go days of the 1980s and 1990s.

Former CEO Steve Hilbert built the company into a Fortune 500 giant by acquiring midsize insurance companies, dismissing their layers of managers, and moving them to Carmel. But his last acquisition-of a mobile home lender called GreenTree Financial Corp.-produced such a tidal wave of losses that the entire company went bankrupt in December 2002.

Longer than expected

Fixing Conseco has taken longer than Hilliard expected, he said. It’s been a process of looking at each of the insurer’s millions of insurance policies one by one-then dealing with the problems that have been unearthed.

“This thing was a mess,” said Hilliard, who has been Conseco’s chairman since it emerged from bankruptcy. “Personally, I had no idea it was going to take this long when I came on.”

Conseco reported Feb. 25 that “significant” errors in the company’s financial control systems have overstated the amount of equity held by Conseco shareholders by a range of $15 million to $35 million. The company also said it would restate its earnings reports for 2005, 2006 and 2007.

The announcement came a year after Conseco first announced it had problems with its financial control systems, and after a year that saw Conseco disappoint Wall Street with numerous surprise losses.

Prieur and company talk up the rapid growth of Conseco’s other subsidiaries, Chicago-based Bankers Life & Casualty Co. and Philadelphia-based Colonial Penn. But investors have been focused on the problems at Conseco Insurance Group.

Conseco’s stock now trades at about $12 a share-40 percent lower than what shareholders paid when Conseco emerged from bankruptcy.

“There’s just been so many disappointments along the way,” said Jukka Lipponen, an insurance analyst at Keefe Bruyette & Woods, who has been one of Conseco’s strongest proponents on Wall Street. Since he began covering Conseco in December 2003, Lipponen has always recommended Conseco as a stock that would perform better than its insurance peers. It hasn’t.

“We grew weary,” said Mark Foster, whose firm, Kirr Marbach & Co. in Columbus, sold off the nearly 500,000 Conseco shares it owned in the fall. “The people they’ve brought in all seem like quality individuals with great track records. But you’re not going to get any credit until you see the bottom-line results.”

Part of the changes in personnel were to be expected after Conseco lured Prieur from Sun Life Financial Inc., where he was president and chief operating officer, in September 2006. Most new CEOs like to build their own team, Foster said.

Prieur’s first move was to replace Chief Financial Officer Eugene Bullis. He officially retired when Conseco brought in Ed Bonach as chief financial officer in May. In November, Bullis landed a new job as chief financial officer of Massachusettsbased Hanover Insurance Group Inc.

Before coming to Conseco, Bonach had been CFO for National Life Group. Before that, he was at Allianz. He joined, Bonach said, because he wanted to be “part of restoring the luster to Conseco.”

He wistfully remembers competing against Conseco for acquisitions when he worked at Allianz in the 1980s and 1990s. But, having looked at some of the companies Conseco later acquired, he now understands why the company is having problems.

“It’s not surprising that there would be issues on some of the blocks of business, knowing when they were acquired, the price at which they were acquired,” Bonach said.

‘So much potential’

Others echoed Bonach’s sentiments. Tom Barta, who worked with Bonach at Allianz, said Conseco always “intrigued” him in its heyday.

“They were the darling of the industry,” said Barta, who joined Conseco as its senior vice president of financial planning and analysis.

Barta spent seven years at Allianz corporate headquarters in Germany before returning to his native Minnesota when his two daughters were set to go to college. He missed being close to corporate decisionmakers, so he looked around for new opportunities. That led him to reconnect with Bonach.

“Ed and I got to talking, and Ed talked up Conseco,” Barta said. “Conseco has so much potential once it solves its issues.”

Conseco has used personal connections to bring in new executives. Bardin knew Prieur when they both worked in Asia because one of Prieur’s managers was Bardin’s tennis partner. Bardin replaced Mike Dubes, who retired.

A few other recent hires said Bonach played a key role in their coming to Conseco. Conseco’s new corporate actuary, Tim Tongson, knew Bonach from their days together at Allianz.

Last summer, as Tongson was winding down his days as chief actuary for life and health products at Swiss Re, Bonach invited Tongson to stop at Conseco’s offices in Chicago to meet Prieur. He was impressed enough to come in for a formal interview and then take the job.

“I had situations that were with much larger, top-rated companies. But that’s not really exciting to me. I’ve done that,” said Tongson, 52. “How [better] to be excited about something than to see there’s a challenge and to be able to address that challenge?”

Other recent hires include Mark Johnson, chief compliance officer; Brian Millsap, vice president of product development for long-term-care policies; David Nelson, senior vice president for national sales at Bankers Life; and Mark Billingsley, senior vice president of health valuation.

Incentives help

Prieur said Conseco has not had to pay above-market compensation to lure new executives. Conseco lured Bonach for a lower salary than it had been paying Bullis. But it also gave Bonach the opportunity for more performancebased awards.

Bonach is earning $450,000 a year in salary and a bonus that could range up to $900,000 a year. By contrast, Bullis received a salary of $600,000 a year and bonuses that totaled $4.5 million since Conseco emerged from bankruptcy. Bullis will receive a retirement benefit of $250,000 a year from Conseco for the rest of his life.

Conseco handed Bonach significant stock awards as an incentive for turning around the company. Conseco promised stock awards equal to 155,000 shares. But more than half of those are stock options, which are valuable only if Conseco’s stock goes up. Bonach would receive another 35,000 of the shares if Conseco’s stock performs well against its peers and if the company achieves certain profit goals.

Conseco’s other recent hires also stand to receive stock awards if Conseco does, in fact, turn its business around.

“If I was somebody on the outside that they might have been pursuing, and I really, truly have confidence in the management, I’d love to take stock at $10 or $12 a share,” said Lipponen, the insurance stock analyst.

They new execs also said they’re drawn in by Priuer. He is candid about Conseco’s challenges. But he’s also unwavering about the company’s potential. He repeatedly asserts that Conseco’s focus on middle-income Americans, particularly the fast-growing senior segment, sets it apart from any other insurance company.

And more than one of Conseco’s recent hires have picked up the mantra.

“I don’t think anybody believes that 100 percent of the challenges are behind us,” said Billingsley, the man in charge of health valuation. “But helping the company get through the remaining challenges, that appeals to me. Because it’s a challenge. I like to be part of solving problems.”