Hedge fund manager Paulson & Co. will make another big bet on a financial company by investing $77.9 million in stock and warrants of struggling insurer Conseco Inc. (CNO).

Conseco, which sells health, life and other insurance products, primarily to lower- and middle-income clients, said it would use the investment to shore up its beleaguered balance sheet.

Conseco's shares soared 16% to $5.79 in after-hours trading after it unveiled Paulson's planned investment.

Conseco's insurance holding company said it would register with the Securities and Exchange Commission to sell at least $200 million in shares in a public offering in addition to the Paulson deal. Paulson's warrants will have an exercise price of $6.50. Paulson will own 9.9% of Conseco after the completion of the private sale of public stock, including shares previously acquired in open-market transactions.

Paulson is famous for betting against subprime mortgages and financials in 2007 and some of 2008, making him one of the richest and most successful hedge fund managers in the world.

However, Paulson this year turned bullish on at least some financials, buying several, including shares of Bank of America Corp. (BAC) and Regions Financial Corp. (RF) during the second quarter. The move was seen by many as a bullish turn on the sector, and news of the purchases sparked a rally in the shares.

Conseco, in its deal, moved quickly to issue the securities, even winning a New York Stock Exchange exception, as delaying the offerings to get stockholder approval would "seriously jeopardize the financial viability" of the company, the company's press release Tuesday said.

Additionally, Conseco said it plans to sell, in a private offer, up to $293 million in aggregate principal 7% convertible senior debentures due 2016. The new debentures mostly won't be convertible prior to June 30, 2013.

The deals will allow Conseco to retire $293 million in debt that comes due in September 2010 and will build overall capital and liquidity for the beleaguered middle-market insurer.

"We believe Conseco has a sound business model and with this financing, a much improved financial position," said John Paulson of Paulson & Co. "We have great confidence in Conseco's future direction, in [CEO] Jim Prieur, his management team and the board of directors."

Last quarter, the Indiana-based company swung to a profit as its investment losses shrank from a year earlier, having emerged from a tumultuous period in which it amended a credit pact after its auditor expressed doubts it could continue as a going concern.

A Conseco spokesman declined to comment on the announcements.

- By Lavonne Kuykendall, Dow Jones Newswires; (312) 750 4141; lavonne.kuykendall@dowjones.com

(Joseph Checkler, Kathy Shwiff and John Kell contributed to this article.)