UPDATE 2-Conseco says auditors may raise going concern doubts

* Says auditors seek details on liquidity, debt covenants

* Preliminary net loss $2.20/shr vs loss of $0.38/shr yr-ago

* Oper profit $0.26/shr; Street view $0.29/shr

* Delays filings its annual earnings report

* Shares lose more than half their value (Recasts; adds details from conference call, updates share movement)

March 2 (Reuters) - Conseco Inc CNO.N, a Midwestern U.S. life and accident insurer, warned of a possible default under its credit facility if auditors raised doubts over its ability to continue as a going concern, sending shares down as much as 60 percent to its all time low.

The company posted a $406.8 million fourth-quarter loss on a preliminary basis, as net realized investment losses for the period more than tripled from a year ago.

In a conference call with analysts, Conseco warned that its long-term operating return-on-equity (ROE) target of 11 percent for 2009 was no longer achievable, and deferred its ROE target due to a turbulent economy.

The company also said in a news statement that it will delay its final results until March 17 as its needs more time to finalize the analysis and disclosure related to its investment portfolio.

Conseco said its auditors were seeking more details to satisfy concerns over the company’s liquidity and debt covenants, primarily those that could be hurt by a significant amount of additional realized losses in its investment portfolio.

If auditors raise substantial doubt over Conseco’s ability to continue as a going concern, the auditors’ report for the year ended December 31, 2008, will include an explanatory paragraph to that effect, the company said.

Inclusion of such a paragraph, unless waived by lenders, would be default under Conseco’s senior credit facility, it added.

The company, however, expects its final audited financial statements for last year to show compliance with all financial ratio and balance covenants of bank facility, Conseco said in the call.

All covenants under its credit agreement including those relating to insurance subsidiary capital, the combined risk-based capital ratio of its insurance subsidiaries, the company’s debt to capital ratio and its interest coverage ratio are expected to be in compliance, Conseco said.

The company said its liquidity stands at about $108 million, as of the end of February 2009.

Last week, Standard & Poor’s cut its ratings on ten life insurers, including Conseco, and said the downgrades reflect “severe equity market declines and volatility on earnings and capital adequacy.”


For the fourth quarter, the insurer posted a preliminary net loss applicable to common shareholders of $406.8 million, or $2.20 a share.

A year ago, it reported a loss of $71.5 million, or 38 cents a share.

Net realized investment losses for the quarter surged to $88 million from $23.8 million a year ago.

Net operating income, before valuation allowance for deferred tax assets, was $48.7 million, or 26 cents a share, compared with $27.2 million, or 15 cents a share, the year earlier, Conseco said it in its preliminary earnings statement.

Analysts on average forecast operating earnings per share of 29 cents a share, according to Reuters Estimates.

Shares of the company, which touched a new low of 48 cents a share, were trading at 55 cents on the New York Stock Exchange. Through Friday, shares have plunged 77 percent since the start of the year. (Reporting by Tenzin Pema in Bangalore; Editing by Anil D’Silva)