Conseco shares drop after A.M. Best downgrade

NEW YORK, Aug 8 (Reuters) - Conseco Inc's (CNO.N) shares were 9 percent lower on Wednesday after A.M. Best Co. downgraded the credit ratings of the insurer's operating units by two notches on Tuesday evening, leaving it at the very bottom of the investment grade category.

The ratings reflect continuing charges the Midwestern life and health insurer has taken to cover policies that are no longer being sold but must still be serviced.

In its second quarter earnings report on Monday, Conseco reported a net loss of $64.5 million or 38 cents a share, in part because it took $110 million to strengthen the "runoff block," where payoffs on policies have been volatile, Chief Executive Jim Prieur said that day.

A.M. Best analyst Rosemarie Mirabella, who issued a report Tuesday evening on Conseco, said it was the company's second significant reserve strengthening in six months, following the fourth quarter charge of $54 million. "It's the magnitude of the charges and the short time period that adds the additional risk," Mirabella told Reuters on Wednesday.

Prieur said Wednesday he would have no comment on the A.M. Best report at this time.

Other analysts also expressed concern about Conseco's charges.

"The size of this quarter's charge is highly surprising," said Mark Finkelstein, an analyst with Cochran Caronia Waller in an interview. "There's a risk that the run-off segment will continue to produce meaningful losses and even more capital will have to be plowed in."

Conseco's shares were down 9.2 percent to $15.11 in afternoon trading Wednesday on the New York Stock Exchange, after shedding 8 percent on Tuesday. The stock traded as low as $13.62 earlier on Wednesday.

(Reporting by Ed Leefeldt)

((Editing by Tim Dobbyn; edward.leefeldt@reuters.com; Reuters Messaging: edward.leefeldt.reuters.com@reuters.net; +1 646 223 6315)) Keywords: CONSECO SHARES/

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