Ratings agencies lower outlook for Conseco-WEB ONLY

Two prominent financial ratings companies downgraded their outlooks for Carmel-based insurer Conseco Inc. yesterday.

International credit ratings agency Fitch Ratings Inc. put the ratings of Conseco and its subsidiaries on “negative watch” status. And New York-based Moody’s Investors Service downgraded Conseco’s financial strength rating and its bank-debt rating while giving the insurer a “negative” outlook.

Both agencies cited the possibility of auditors including a “going concern” qualification in Conseco’s upcoming financial statements.

Conseco’s auditor, PricewaterhouseCoopers, said Monday it might include the “going-concern” warning in the company’s annual report, suggesting Conseco may not be able to stay in business.

“Inclusion of such a paragraph [in the financial statements] would be considered a covenant violation under Conseco’s secured credit agreement,” New York-based Fitch said in a statement.

Fitch also lowered the insurer’s ratings, including its issuer default rating.

Fitch said it reduced Conseco’s rating due to declining financial flexibility, as the company is faced with less breathing room on its financial covenants than anticipated.

In January, Conseco said its board approved a plan that would help preserve its ability to carry forward prior-year losses, a move than can help reduce a company’s tax bill.

Conseco CEO Jim Prieur expressed faith Monday that his company would answer its auditor’s concerns and avoid receiving the “going-concern” qualification.

“We’re very confident that we’ll be able to resolve the issue and provide more information,” Priuer told an investor during a conference call. “[The auditors] are really asking for more information at this point, and that’s what we’re going to be working on the next few weeks.”

Conseco lost $406.8 million in the quarter ended Dec. 31. However, 90 percent of those losses resulted from the company transferring its money-losing Senior Health policies to an independent trust.

The company lost another $88 million on investments in the fourth quarter, according to the preliminary results.

Excluding those two charges, Conseco would have earned nearly $49 million, or 26 cents per share. Those profits are 79-percent higher than in the same quarter a year ago.

However, even on that basis, Conseco’s results fell short of analysts’ expectations. They forecast profit of 29 cents per share, according to a survey by Thomson Financial.

Conseco’s stock fell 14 cents yesterday, closing at 38 cents per share.