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Under the terms of the proposed transaction, all of the stock of CSHI,including its approximately $2.9 billion in assets (as calculated inaccordance with statutory accounting principles) supporting CSHI's long-termcare liabilities will be transferred to the Independent Trust. Immediatelyprior to the transaction, Conseco has agreed to contribute $175 million ofadditional capital to CSHI and the Independent Trust. Following the transfer,CSHI will be re-named Senior Health Insurance Company of Pennsylvania ("SeniorHealth") and will be run by management transferred from Conseco.
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To effect the transfer, Conseco has formed a trust (the "TransitionTrust"), which has filed for regulatory approval with the PennsylvaniaInsurance Department to separate CSHI from Conseco. Upon receipt of suchapproval and satisfaction of all other closing conditions, the TransitionTrust will merge with and into the Independent Trust. The Independent Trustwill be the surviving entity and the owner of CSHI. The filing made by theTransition Trust with the Pennsylvania Insurance Department will be availabletoday in the Form 8-K filed by Conseco.
Conseco expects to record accounting charges totaling approximately $1.2billion related to the transaction, comprised of CSHI's equity (as calculatedin accordance with generally accepted accounting principles), an additionalvaluation allowance for deferred tax assets, and the capital contribution toCSHI and the Independent Trust. Just over $500 million of the accountingcharge will be recognized in Conseco's second quarter 2008 financials. Pleaserefer to the attached table for additional information.
Upon completion of the transaction (which is currently expected in thefourth quarter of 2008), the Independent Trust will be governed by a well-qualified and knowledgeable Board of Trustees independent of Conseco, and,following the transfer of CSHI to the Independent Trust, will be subject tooversight from the Pennsylvania Insurance Department. Management to betransferred from Conseco to Senior Health will include John Wells, who willcontinue to serve as the President and Chief Executive Officer of SeniorHealth Insurance Company of Pennsylvania, and his senior management team foroperations and finance.
"This unique structure aligns the interests of the Independent Trust,management and regulators with the policyholders," Conseco CEO Jim Prieursaid. "It is a balanced solution for all of Conseco's constituents, includingCSHI's approximately 142,000 long-term care policyholders, and providesConseco greater flexibility in serving its 4 million other policyholders."
"Most of CSHI's long-term care business came as a result of Conseco'sacquisition of insurance companies 11 years ago," Prieur said. "Conseco hasworked diligently since then to stabilize that business by contributing $915million in capital and installing experienced management. Our efforts haveproduced significant improvements in performance and customer service over thepast four quarters."
Conseco CFO Ed Bonach added: "Following the closing, Senior Health will beoperated for the benefit of CSHI's long-term care policyholders without aprofit motive, so as to ensure that any future benefits from rate increases orpolicy changes will accrue to policyholders. CSHI's existing capital and afinal contribution of additional capital by Conseco at the time of separationwill be available to supp
