CEO resignation won't hurt Conseco, analysts say

May 15, 2006 @ 12:01 am

By Gary S. Mogel

NEW YORK - The unexpected resignation of Conseco Inc.'s chief executive this month won't hurt the company, as long as its key financial ratings are maintained or upgraded, insurance industry analysts say.

William Kirsch resigned as the Carmel, Ind.-based insurer's chief executive May 4 after 21 months on the job to "spend more time with his family and explore other opportunities," according to a company statement.That will be financed by a $6.7 million farewell package that was derided by analysts during a conference call the day after the resignation was announced.

Mr. Kirsch will remain with the company until Aug. 31 to "assist in the transition," the statement added. By that time, $5.4 million in stock grants will vest.

"Watching Bill stick around until August to collect a big fat payday is absolutely disgusting," Richard Glass, a portfolio manager for Morgan Stanley in New York, said during the conference call.

"It's unforgivable for the board to allow Bill to stick around with no other purpose than his own self-interest," Jeff Bronchick, chief investment officer of RCB Investments in Toronto, said during the call.

James Hohmann, chief administrative officer, will become chief executive until a permanent replacement is found.

The farewell package is "on the low end of what I've seen in these situations," Conseco chairman Glenn Hilliard said during the call.

Despite the furor over the farewell package, many analysts think that Mr. Kirsch performed well during his tenure and that the company is in better shape than when he took over.

"When Mr. Kirsch became CEO, I was skeptical, because he didn't have insurance company operating experience," said Jukka Lipponen, senior vice president of the Hartford, Conn., office of New York-based Keefe Bruyette & Woods Inc. "But he did a pretty good job of building a team of experts around him."

Before taking over as chief executive, Mr. Kirsch, an attorney, had been Conseco's inside counsel, and before that, its outside counsel. He and William Shea, the chief executive he replaced, helped the company emerge from its 2002 bankruptcy.

"I thought highly of Bill Kirsch," said Rosemarie Mirabella, a senior financial analyst for A.M. Best Co. Inc. in Oldwick, N.J. He created an effective operating platform and a well-defined strategy, she added.

"We remain concerned by the lack of continuity of senior management at the company," said Scott Robinson, an analyst with Moody's Investors Service Inc. in New York. But Moody's doesn't think that the resignation will be a "major issue" in how it will rate the company, he added.

Moody's rating for Conseco is Baa3, with a "positive" outlook.

The resignation was announced on the same day that Conseco reported first-quarter earnings of 35 cents a share, down from 44 cents in the year-earlier quarter. After the earnings and resignation announcements, the company lost 6% of its market value, or $400 million.

But analysts said that the earnings shortfall wasn't the reason for the resignation.

"The timing looks awkward, but I think [Mr. Kirsch] wanted a lifestyle change," Ms. Mirabella said.

A spokesman for Conseco didn't return a call seeking additional information about Mr. Kirsch's departure.

"The only caveat about the resignation is that if Conseco isn't upgraded in August by A.M. Best, then people may say that it was because of Kirsch leaving," Mr. Lipponen said. "But I do expect them to get that upgrade."

Best's financial strength rating on Conseco is BBB+, according to Ms. Mirabella, but she said she doesn't know how the resignation will affect the rating review, which should be completed by August.

"While Kirsch's resignation is a setback, we think the timing is early enough that it will not affect the [Best] decision," said Andrew Kligerman, an analyst with New York-based UBS Investment Research, in a research note. "Hohmann has worked closely with A.M. Best, and [we] continue to think an upgrade to A- is likely," he added in the note.

Mr. Hilliard, who was regarded as a CEO candidate when Mr. Kirsch was appointed to the position, isn't interested in becoming chief executive, analysts noted. He is the former chief executive of ING U.S. Financial Services in Atlanta.

There is a good possibility that Mr. Hohmann will be offered the chief executive job on a permanent basis, according to Mr. Lipponen.

"He's highly regarded in insurance industry circles and has operational experience," Mr. Lipponen said.

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