(By Salman - iStockAnalyst Writer)

Shares of Conseco Inc. (NYSE: CNO) were pummeled on Monday after Carmel, Indiana based insurer said that independent auditors have expressed doubt over its ability to continue as a going concern.

The accounting firm told the insurer that it would include a paragraph about the company's ability to continue "as a going concern" in the annual report without additional information. If the auditors include such a paragraph in the report, then it would lead to violation of some debt covenants and be in default of a senior credit facility.

The company reported massive losses in its fourth quarter preliminary results on Monday. Net loss widened to $406.8 million, or $2.20 a share, compared with a year-earlier net loss of $71.5 million, or 38 cents a share in the prior year quarter. Most the loss was incurred due to a $367.5 million charge for discontinued operations related to the transfer Conseco Senior Health to an independent trust. Excluding the investment losses and reduction in deferred-tax assets, earnings rose to 26 cents from 15 cents. Analysts on average had forecast 29 cents. Conseco said that it will delay filing its annual report on Form 10-K "to finalize the analysis and disclosure related to its investment portfolio in light of unprecedented marketing conditions." The report will be filed until on or before March 17.

Last week, Standard & Poor's lowered its counterparty credit ratings on Conseco four notches further into junk territory to CCC, or highly speculative territory. The rating agency attributed the downgrade to “severe equity market declines and volatility on earnings and capital adequacy."

In a conference call on Monday, CEO Jim Prieur said “The two issues are liquidity at the holding company and the potential losses in the investment portfolio.” He added further that the independent auditors were “somewhat reluctant” to include some dividends and payments the insurer is due into the company’s liquidity as they are pending regulatory approval. However, he was confident that the issue would be resolved. “We’re very confident we’ll be able to resolve the issue and provide more information” to auditors,” he said.

In September 2003, the company was allowed to emerge from bankruptcy protection, which it had filed on Dec. 17, 2002.

Shares of the company tumbled 65 cents or 53.74% to 55 cents in afternoon session on Monday.

Disclosure: Author does not own any of the stocks discussed here.