CNO Financial Group, Inc. (CNO) Q1 2014 Earnings Report, Transcript and Summary

Good afternoon, my name is Valerie and I will be your conference operator today. At this time, I would like to welcome everyone to the 2014 Outlook. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Mr. Helding you may begin your conference.

Good afternoon and thank you for joining us on CNO Financial Group's 2014 Outlook Conference Call. Today's presentation will include remarks from Ed Bonach, Chief Executive Officer, Scott Perry, Chief Business Officer, and Fred Crawford, Chief Financial Officer. Following the presentation we will also have several other business leaders available for the question-and-answer period. During this conference call, we will be referring to information contained in this morning’s press release. You can obtain the release by visiting the Media section of our website at www.cnoinc.com. This afternoon's presentation is also available in the Investors section of our website and was filed on our Form 8-K earlier today. Let me remind you that any forward-looking statements we make today are subject to a number of factors which may cause actual results to be materially different than those contemplated by the forward-looking statements. Today’s presentation contains a number of non-GAAP measures which should not be considered as substitutes for the most directly comparable GAAP measures. You’ll find a reconciliation of the non-GAAP measure to the corresponding GAAP measure in the Appendix. I'll now turn the call over to Ed Bonach, the Chief Executive Officer. Ed?

Thanks Erik and good afternoon everyone. 2013 is shaping up to be another year of significant accomplishments for CNO. We expect to record increased sales, collected premiums, risk-based capital and return on equity. Along with having received multiple upgrades from the rating agencies. As we look ahead to 2014, our strategy remains largely the same. We'll build long-term shareholder value by continuing to invest in our business platform, remaining focused on sustainable and profitable growth, improving the effectiveness of our back-office operations, continuing to enhance the customer experience and tactically deploying our excess capital including strategic fit acquisitions. With class action litigation in our OCB segment now behind us, we also look to accelerate the run-off of these closed blocks of business. Turning to Slide 6, before we get into our outlook around sales and key financial metrics, let me briefly comment on some general trends and market dynamics that are likely to impact our business. CNO serves the needs of middle income Americans that are at or near retirement. This segment of our population is underserved and growing rapidly. As we have seen in studies conducted by our Center for a Secure Retirement, and Institute for Wellness Solutions, there are significant opportunities for growth in the middle income market. First, middle income retirees are generally unprepared for retirement and are likely -- will have difficulty managing longevity risk and healthcare costs. Second, as the population continues to shift from defined benefit plans to defined contribution plans there's been a tremendous increase in the value of retirement assets and the control of planned participants, and there are now over $21 trillion of retirement assets in motion. Third, the Affordable Care Act and insurance marketplaces have expanded opportunities in the individual market, and lastly we’re seeing growing use of technology by our agents and our customers and expect that trend to continue. CNO takes a proactive approach to understand its customers and many of the initiatives that we will discuss in this call are built around serving our target market and customers. Before I move on to the next slide, let me briefly comment on our long-term care strategy. Long-term care insurance plays an important role in the retirement care and security of Americans. Middle income retirees significantly underestimate the likelihood of one day needing long-term care and more than 75% of middle income boomers incorrectly think that Medicare will pay for ongoing long-term care. It is important to understand that having private long-term care insurance options will reduce the future burden on already strapped state Medicaid programs. While CNO has been successful in managing its long-term care business, margins are still vulnerable. We continue to balance offering affordable products that meet the needs of our market, while also providing for adequate risk adjusted returns. While we have been successful in achieving several rounds of rate increases in the past, we recognize that rate actions are becoming increasingly more difficult in the current regulatory environment. The LTC products that CNO has sold over the past several years are mostly short-term care, and this is slowly and favorably shifting the risk profile of our in-force over time. On a longer range basis, we are focused on working with regulators, legislatures, and the industry to reshape industry dynamics that address this important need. Turning to Slide 7, let me briefly touch on some of the key initiatives that we’ll be investing in over the next year. As previously mentioned, we see significant opportunities for growth in the middle income marketplace and the initiatives that we'll be investing in are geared towards capitalizing on those opportunities. We expect to invest $45 million to 55 million next year in four major categories. We’ll make significant investments to drive increased operating effectiveness in our back-office and to enhance the customer experience. We’ll continue to invest in agent growth and expansion. And lastly, we will continue to introduce new products and expand our market reach. We expect these investments to drive accelerated sales growth in each of our core business segments. And let me now turn it over to Scott who’d discuss some of these initiatives in more detail, as well as the sales outlook for each of our businesses. Scott?

Thanks, Ed. As we turn to the business segment outlook, we see continued sales traction within all segments as investments we’ve been making in growth are beginning to take hold. At Bankers Life, the positive momentum we have seen is carrying over to the fourth quarter and we expect to produce sales results in line with expectations. It is worth noting that during the quarter we achieved a significant milestone with the opening of our 300th location. Additionally, along with continued strong life sales, we expect the quarter to be highlighted by a strong annual enrollment period, resulting in year-over-year growth in both Medicare Advantage Policy sold and Medicare Supplement now. Looking forward, I’d like to highlight some of the areas we will be focused on to continue to drive growth and capitalize on the marketplace trends that Ed mentioned earlier. Although, Bankers will continue to look opportunistically to add new locations, we will begin to shift investments towards initiatives that are focused on driving increases in agent productivity. Examples include sales force automation and advanced life sales training. In addition, Bankers is planning on making investments to drive growth in agents that are also registered financial advisors. These advisors will play a more and more important role within the Bankers agency model as more and more Baby Boomers find themselves in a position to make investment decisions that pervious middle market retirees who relied on defined benefit plans didn’t have to make. As the trusted advisor to the middle market, Bankers agents also registered as financial advisors can play an important role in assisting non-registered agents and providing a well rounded plan that includes solutions to address the needs middle Americans worry about most, payment of healthcare expenses, adequacy of retirement income and leaving the legacy. Taken together, we expect these initiatives to contribute to growth and agent productivity that will equal or exceed the 2% we have experienced in 2013. This increased productivity combined with steady agent recruiting retention in new locations should drive growth in sales of 6% to 8% in 2014. For Washington National, we are experiencing increased momentum and expect sales results in the fourth quarter to be modestly above expectations. Sales in both the worksite and individual markets have benefited from agent recruiting and the extension of our product portfolio. Voluntary worksite group enrollments are also expected to be strong in the quarter. Looking ahead to 2014, we will be focused on expanding worksite distribution and growing our own agency distribution. We believe the voluntary worksite space will benefit from healthcare reform and a movement toward private exchanges. Our participation in private exchange platforms is expected to contribute to increased worksite sales during the fourth quarter and will be an area of focus for us in 2014. We will also be introducing a new group underwritten supplemental health insurance product enabling us to acquire accounts in which it is required that all employees have the opportunity to purchase coverage. In addition to our worksite expansion plans, we will drive growth in our owned agency distribution PMA through initiatives to increase sales in the individual market. This includes development of a new program to recruit agents experienced in marketing supplemental health insurance as their primary product line. We will also continue developing new field leaders and relocating talent to underserved areas to increase our geographic coverage. These initiatives should result in 2014 sales growth of 7% to 9%. Moving to Slide 10, for Colonial Penn we are expecting increased sales in the fourth quarter versus the prior year. Late in the third quarter and at the beginning of the fourth quarter, we increased our marketing investment. However, due to less available direct response television ad space, our cost per lead increased. And looking at full year 2013, sales growth will be modest. However, keep in mind that this comes after two consecutive years of very strong growth at Colonial Penn and that Colonial Penn sales this year will be more than 35% higher than in 2010. Some of the key drivers of Colonial Penn’s growth next year will be the continued expansion of our new Patriot program, growth from non-TV lead sources and expanded online response channels to increase traffic. We are also building a robust framework that supports advanced user tracking to increase conversion rates of web leads and we are planning to further expand our Hispanic marketing initiative. Lastly, we expect our Telesales staff to benefit from productivity improvements due to the full deployment of our CRM system. For 2014, we are projecting sales growth between 6% and 9% and continued growth in collected premiums. In addition, we are taking steps to drive improvements in our marketing cost to NAP ratio and expect a more modest EBIT loss in 2014 of approximately $5 million. Let me now hand it over to Fred who will discuss CNO’s financial outlook. Fred?

Thanks, Scott. As we enter the final two weeks of the year, our view of the fourth quarter remains largely consistent with our outlook comments during the third quarter call. We expect our core benefit ratios and spreads to perform generally in line with our normalized results in the third quarter and throughout 2013. However, we now expect Colonial Penn will record a loss in the fourth quarter driven by a net increase in ad spend of approximately $5 million. We expect a modest build in RBC towards 400%, leverage continuing to decline and excess capital at the holding company of approximately $150 million. We expect share repurchase for the year to come in at approximately $250 million. We have considerable capital loss tax assets set to expire at year-end and have engaged in a measured trading strategy to generate capital gains on a tax basis only. As a result, we expect evaluation allowance release in the fourth quarter in the range of $50 million to $60 million. Turning to Slide 12 and switching gears to focus on 2014, I’d like to first touch on the tactical strategies deriving our financial plan. As Ed noted earlier, we expect to invest approximately $45 million to $55 million in key growth and platform initiatives during 2014. From a GAAP expense standpoint, we estimate roughly 40% of this cash spend will be capitalized and amortized in future years. In addition, we have been investing in our platform and have certain investments running off as we enter 2014. We estimate that our investment in new initiatives will increase expenses by approximately $10 million in 2014. We continue our disciplined approach to in-force management with the goal of deriving improved economic value overtime. We are introducing new and restructured products based on the value of new business, actively exploring OCB run-off solutions and gradually shifting our long-term care in-force mix as new business is more concentrated in limited benefit products. We are committed to achieving investment-grade ratings believing it is critical to unlock and defend future shareholder value. We expect to continue repurchasing our stock as an attractive risk adjusted use of excess capital, remaining tactical as we trade closer to adjusted book value. There is a lot of data provided on Slide 13 taken as a whole the story for 2014 is stability and consistency in our core underwriting margins and spreads. Bankers Medicare supplement, Bankers long-term care and Washington National supplemental health benefit ratios are expected to perform consistent with normalized ratios reported in the third quarter. We provide sensitivities on this slide but expect the diversity in our business lines to result in relative stability when looking at our aggregate margins. Bankers Medicare supplement collected premium is expected to be up modestly in 2014 with strong growth in med advantage where we enjoy distribution income. Washington National supplemental health collected premium is expected to grow in the 6% range reflecting investment in our distribution platform. Long-term care premium is declining 4% per annum as rating actions moderate and we sell a lower risk and lower premium per policy product. Before discussing annuity and life spreads it’s worth stepping back to reflect on our overall rate assumption. We assume new money rates modestly in excess of 5% for 2014 and a portfolio turnover rate in the 9% range. We have not adjusted our long-term rate assumptions from last year. We assume new money rates will continue to recover in 2015 rising to 5.5% and 6% in 2016. These long-term rate expectations are generally consistent with the forward curve and our investment strategies. Asset levels overall are expected to grow modestly offsetting declining portfolio yields, thus net investment income is expected to hold flat for 2014. We have under managed crediting rates on indexed annuities and Universal Life portfolios with more limited room to maneuver on fixed interest annuities. Overall spreads are expected to remain favorable in 2014. Focusing on our Bankers annuity business, we expect stable spreads and assets up modestly driven by growth and persistency in indexed annuities. Slide 14 profiles our capital plan. Our plan has built-in a healthy statutory capital margin with consolidated RBC ratio held at 400% in 2014 and throughout our three year plan. We feel this capital margin is appropriate when considering the potential for future credit cycles and long-term care volatility. We expect leverage to continue to drop as we retain more earnings and amortize roughly $60 million of debt in 2014. We expect to maintain approximately $150 million of deployable capital at the holding company with liquidity and investments in excess of $300 million throughout 2014. Capital generation defined as statutory earnings prior to surplus note interest and contractual payments made to the holding company run steady in the 500 million ranges annually. Subject to tactical adjustments we continue to our balanced approach to capital deployment with significant stock repurchase, debt reduction and investment in our business. Turning to Slide 15, this has been an active year for us on the tax front, and we thought it important to review our current position. During the year we settled with the IRS regarding the reclassification of cancellation of indebtedness income. We completed our traditional review of the valuation allowance in the third quarter supporting a sizeable valuation allowance release as taxable income has improved. Finally, we have executed on a general account trading strategy to defend a portion of our tax assets otherwise set to expire. These activities in total add up to valuation allowance releases in excess of $250 million for 2013. Absent the negotiated settlement with the IRS on the treatment of our senior health disposition in 2008, we expect future valuation allowance releases to be modest. In terms of cash flow, we become a more considerable tax payer in late 2016 and into 2017 as our current tax assets are more fully utilized. We estimate a $50 million drag on cash flow beginning in 2016 as the effective tax rate we pay increases, but continues to benefit from our non-life NOLs through 2023. Our tax preservation efforts during 2013 have resulted in real economic value. Consistent with GAAP assumptions for taxable income used when establishing our valuation allowance, we estimate the value of our tax assets at $600 million using a 10% discount rate with every 1% change in the discount rate equating to approximately $30 million of economic value. Turning to Slide 16, a few observations on valuation, we show a conventional valuation map on this slide to illustrate how we think about driving shareholder value. The formula is simple; investor capital in ways that drive expanded returns while building book value and keeping risk in check. We have executed on this formula without question, but have more work to do. We are running off significant blocks of business that tie-up capital at low returns. We are accelerating investment in our business model to drive growth and capitalize on trends in our markets and have built capital in support of investment grade ratings. This balancing act makes for a more gradual but much healthier build in ROE. Our normalized operating ROE has moved from the 7% range throughout 2012 to the 8% range in 2013 and has benefited from both favorable earnings performance and significant capital actions. We have discussed our desire to drive towards investment grade ratings. This is much more than aspiring to higher ratings. Once achieved, we are able to extend debt maturities and create more financial flexibility by eliminating forced amortization, restrictive covenants in baskets that limit the amount and timing of capital deployment. The result is an ability to increase our use of leverage, deploy excess capital more effectively and lower our refinancing risk. Looking ahead, we expect to operate in the mid-8% range throughout 2014, driving towards 9% as we exit 2015. Our plan does not include a leverage free capitalization or global OCB solution and assumes considerable excess capital on-hand. In short, we have the capacity to meet our 9% goal by the end of 2015 with additional levers to pull in time. And with that, let me hand it back to Ed for some closing comments.

Thanks Fred. We continue to see a lot of opportunity as we move into 2014. Our target middle income market’s growth and underserved dynamics remain. The Affordable Care Act and other changes place added value on face-to-face advice from our agents. Investments in our business will continue, tilting a bit more to productivity enhancements. We expect these to result in 2014 consolidated sales growth of 6% to 8% -- accelerating to 8% to 10% in 2015 and 2016. Simplifying and streamlining our back-office to support business growth and capture efficiencies while also garner increased focus and investment. Seeking strategic acquisitions continues as does our exploration of alternatives to accelerate the run off of our closed block OCB business. Enhancing the customer experience is expected to improve persistency, add to sales opportunities while reducing complaints on expenses. As part of the investment we expect to better understand customer needs through analytics and other means. As we have said before, we have a classy problem of what to do with the considerable amount of excess capital we generate. We will remain disciplined, opportunistic and strategic in deploying our capital as we balance profitably growing our business, risk management and continuing our trajectory to investment-grade ratings. We expect to drive shareholder value by increasing ROE on a growing book value, producing above average sales growth and continuing to reduce risk profile of the Company. Let me now turn it back to the operator to open it up for questions, Valerie?

and:

(Operator Instructions) You have a question from the line of Mark Finkelstein with Evercore.

Question on the RBC level and Fred, you talked about targeting kind of a 400%. I am trying to think about -- is this a new level that you’re going to kind of want to approximate going forward. I know we’ve talked about 350 and then deployable above that. Is that new a number 400? Evercore Partners: Question on the RBC level and Fred, you talked about targeting kind of a 400%. I am trying to think about -- is this a new level that you’re going to kind of want to approximate going forward. I know we’ve talked about 350 and then deployable above that. Is that new a number 400?

Yes, I think certainly for the planning period, that’s the number we are targeting. But I would characterize the 400% as having capital margin in it, and meaning, we’ve talked for a while about having the mix of business and the cash flow dynamics were in time, particularly once we lower the beta or volatility of our business we could run this Company at a 350 level and feel comfortable with that being the type of RBC that still qualifies for ratings upgrades. We’re running higher than that. We’re running at more or like 400% and as I mentioned we targeted that. And that margin over 350 is really for the following reasons; one is we absolutely want to continue to drive continued momentum in ratings upgrades. And as I mentioned earlier, I think investment-grade is also a path to down the road unlocking future shareholder value. So we believe that to be important. But there is also another reason and that is, we do remain in the long-term care business, that business can be volatile and we need to be cautious about that. We continue to have run-off businesses that have proven to be volatile in time and so the OCB business is another reason to be careful about having some level of margin. And then realize we’re in a fairly benign credit markets right now. And so I think it is wise, and I think frankly the industry has learned a lesson. That it’s probably a good idea to carry a little bit of margin when you are traveling through otherwise really favorable credit markets. So all of those things contribute to that level, Mark. I think that’s what we feel more comfortable managing at right now. But our business mix over time is the type of business mix that we can drive down at RBC to a more efficient level. But we’ve got to get the beta reduced in our name in order to get there.

And just on the 9% ROE target by the end of ‘15; when you look at kind of where you are and kind of the businesses that -- kind of the earnings levels relative to when you originally set that target, is there any change in how you’re getting to that 9% versus what you originally expected. I mean we are talking a little bit about more capital now so that I assume has some impact long-term care, maybe a little bit different, like what are the ins and outs for that, is still giving you the confidence on achieving that level? Evercore Partners: And just on the 9% ROE target by the end of ‘15; when you look at kind of where you are and kind of the businesses that -- kind of the earnings levels relative to when you originally set that target, is there any change in how you’re getting to that 9% versus what you originally expected. I mean we are talking a little bit about more capital now so that I assume has some impact long-term care, maybe a little bit different, like what are the ins and outs for that, is still giving you the confidence on achieving that level?

Yes, so I think in other words, if we pull the clock back to the investor conference last year where we initially put this target out, what sorts of dynamics have changed even though the target has not. And I would say a couple of things, and it’s somewhat the point of our valuation slide that we’ve included here. And that is as we go towards retaining more capital in our business and carrying an excess level of capital, the book value growth has really picked up pace. So we are seeing our average equity ex-NOL and AOCI really grow more dynamically, which means, earnings have to work that much harder to keep pace in order to achieve that 9%. So to me those are the moving parts. The book value is increasing more dramatically meaning that we’re more challenged in driving the earnings to reach that ROE. And we are being a bit more tactical on the use of our excess capital. We continue to buy back stock aggressively and you can see our guidance suggests that we still believe that to be a favorite use of excess capital, but realize over the last couple of years we enjoyed large levered recapitalization. And in fact, in the plan, right now in our financial plan we literally drive our leverage down towards 15% in 2015. And so we’re achieving right in that territory of 9% just as we guided last year. But indeed it becomes a higher watermark to hit when you’re enjoying healthy growth and book value.

Yes, Mark, let me add, I think this to me really underscores the advantage of having a diversified business model. With any longer term goal or any longer term financial plan we all know things aren’t going to exactly play out on every aspect as the plan would have. But with that diversification you mentioned a couple of things that maybe are less than planned when we set the goal, but we’ve had things more favorable than planned. Annuities, is a great example, the growth in the assets under management and the spreads have developed more favorably than expected. We certainly have been growing quite significantly our life insurance book, which is a good solid, predictable, profit producer. And I think with a longer range goal that's part of what management is supposed to do, is manage to overcome some deficiencies with other areas to achieve that goal and that's why we've not even thought about refining that even though some things have gone against us.

Your next question comes from the line of Humphrey Lee, with UBS.

Just a little follow-up on Mark's question about the RBC, so clearly you're definitely getting at a much healthier level for your financial planning and I understand it's part of your planning for getting in that rating agency upgrade at some time, but while I understand the conversation with the rating agencies are confidential, but to the extent that you can share what do you think the rating agencies are waiting to see before they take any more positive actions? UBS: Just a little follow-up on Mark's question about the RBC, so clearly you're definitely getting at a much healthier level for your financial planning and I understand it's part of your planning for getting in that rating agency upgrade at some time, but while I understand the conversation with the rating agencies are confidential, but to the extent that you can share what do you think the rating agencies are waiting to see before they take any more positive actions?

Yes I think, interestingly I believe they would agree with this statement collectively and that is that our core financial ratios particularly as we explain them here, targeting the levels of RBC leverage and liquidity have are comfortably at the level that is consistent with investment-grade senior debt ratings. And so, therefore what ends up being the dynamic to driving towards higher ratings, one is time, and that is the rating agencies expect a level of stability and consistency, in your results over time and I would say for CNO, candidly, there is a higher bar being set on that particular issue. In other words due to our past the agencies are particularly more careful in wanting to see a longer duration of steady performance and obviously we've been delivering that for the better part of three plus years. But it also goes to some of that capital margin I talked about, the nice thing about a capital margin is you can have, you can suffer a quarter, you can suffer an issue and not feel as if you've lost any step or any momentum with the rating agency, whereas if you run your capital much thinner that could be a different story, so consistency and time is one issue. The other is long-term care, despite our dialogue on how we are positioned relative to many in the industry and how we think about the product and the product mix, the reality is that long-term care is a very low rated product on the scales of the rating agencies and therefore if there's any form of concentration that you have in it, you have to compensate for that in the other areas of your business performance wise, compensate for that to some degree in your capital structure until such time you've changed the mix of that business which goes to my comments, prepared comments, until you've changed the mix of that business to where the volatility or potential volatility is less consequential to your capital management in your earnings story. So that would be -- those would be a couple of dynamics, I would say they watch carefully our run off blocks of business, they have proven to be a historic level of volatility and earnings surprises, and so they realize that the management of those run off blocks and how we entertain strategies around that, play off so into their view of the forward data of the Company. Those are just a few things that I would mention as on their minds, that we need to continue to build.

Segue into long-term care, so the Bankers long-term care loss ratio fell flat for 2014 and I remember you mentioned that part of this because of this slowing down in terms of reactions kind of affecting the loss ratios going forward. And you also talked about the how the challenges you've seen from the industry in terms of getting more rate increases in with the regulators, so from a thing -- the way we're thinking about it, so you're not making any new re-rating actions in your 2014 plan? UBS: Segue into long-term care, so the Bankers long-term care loss ratio fell flat for 2014 and I remember you mentioned that part of this because of this slowing down in terms of reactions kind of affecting the loss ratios going forward. And you also talked about the how the challenges you've seen from the industry in terms of getting more rate increases in with the regulators, so from a thing -- the way we're thinking about it, so you're not making any new re-rating actions in your 2014 plan?

Very limited, very limited, we have talked about this I think before Humphrey to your question but let me reiterate it, what we don't have contemplated in our financial plan and for that matter the early work we're doing on loss recognition testing and cash flow testing is what I would call broad-based rate actions, where you're sort of looking across a broad-base of product and going into multiple states with a set level of rate actions that you're looking for. We've done that on a number of occasions in the past, today is a more tactical approach and that is where it makes a lot of sense where of course it's justified and could be properly documented. There are pockets of products, certain classes of products, most notable where there's maybe more comprehensive product and older age product that's been on our books, where there's justification for rate action, that's a little bit more our approach these days is the tactical dynamics around it and where we can do it and feel comfortable in the probability of some level of success, so that's our approach to it right now as it relates to planning, so no large broad-based rate action embedded in the earnings dynamics and comments I've made about forecast.

Just one last question, you talked about Colonial Penn shifting towards the non-TV ad kind of lead generation, in that sense would it change how the seasonality that we typically see at Colonial Penn which means first quarter and third quarter tends to be a high expenses because of the TV ads? UBS: Just one last question, you talked about Colonial Penn shifting towards the non-TV ad kind of lead generation, in that sense would it change how the seasonality that we typically see at Colonial Penn which means first quarter and third quarter tends to be a high expenses because of the TV ads?

Humphrey, this is Scott. I would say in 2014, we won’t see a noticeable difference I mean we’re ramping up our online activity, so we’ll still see the majority of the sales are coming from and will continue in 2014 to come from TV lead gen, but overtime I’d expect to start to see the seasonality maybe become less acute.

(Operator Instructions) We have a question from the line Ryan Krueger with Dowling & Partners.

I had a question about the $500 million of capital generation, is -- there is 150 million to 200 million or so still the right number to think about for uses in terms of holding company and capital retention for growth? Dowling & Partners: I had a question about the $500 million of capital generation, is -- there is 150 million to 200 million or so still the right number to think about for uses in terms of holding company and capital retention for growth?

In terms of capital retention for growth or the amount of capital -- the amount of that 500 million that we would hold within the statutory entities to support the natural growth rate of the business, we’ve mentioned that that has been coming down. I realize this, by the way it was by design, you can’t quite take from that pie chart and understand exactly what the numbers are but by and large we would expect from a planning perspective to retain in and around the neighborhood of $100 million give or take perhaps a little less in the insurance company to support just natural growth. What we’re not in need of doing as retaining us a significant amount of capital to continue to boost the RBC, we’re at pretty good levels right now so it really is supportive of growth, so that would be just approximately where I’d be at $75 million-$100 million. In terms of like the free cash flow available for deployment that we generate on an annual basis an easy way to think about that is it’s by and large reflected in our share repurchase guidance, in other words that guidance that range bound guidance gives you good feel for the true free cash flow meaning after moving the money up to the holding company, paying debt interest and amortization, paying out a common stock dividend and paying holding company expenses that sort of leaves us with that amount of money to continue to think about deployment. It does not contemplate by the way our ability to spend down for example additional excess capital of the holding company and that’s why I noted we actually -- our plan actually continues to hold the level of 300 plus million dollars at the holding company, so we’ve got this readily deployable capital even after this repurchase guidance.

And then on OCB, I noticed that you did not give an earnings outlook this year for that segment perhaps maybe it’s related to your comments about trying to accelerate the run-off, but just hoping you could provide some commentary on the type of earnings expectations in that segment in 2014? Dowling & Partners: And then on OCB, I noticed that you did not give an earnings outlook this year for that segment perhaps maybe it’s related to your comments about trying to accelerate the run-off, but just hoping you could provide some commentary on the type of earnings expectations in that segment in 2014?

We’re moving away from specific guidance on OCB. Quite honestly, OCB’s volatility is such that we end up giving you non-guidance, guidance, meaning a wide-range from which you end up scratching your head and saying, I’ll think I’ll put in this number. And that’s honestly just a nature of the beast it can be quite volatile as a platform. And so we moved away from guidance for that reason and recognizing that we’re looking for opportunities to accelerate the run-off and that will likely play into the forward trajectory of OCB earnings. Having said that, one thing that you could certainly do at your own risk is take a look at the year-to-date results in OCB and how they’ve been travelling from quarter-to-quarter. You’ll notice that from a reported basis standpoint, they’ve tended to range between $4 million and $6 million a quarter realized there is quite a bit fluctuation within those numbers. It looks like a nice steady OCB performance over the year, but there is offsetting issues and that’s what generally has led to our guidance in the past OCB. I think last year we guided on OCB between something around I think zero and maybe as high as $20 million in OCB and that’s by and large how we have performed. So I would suggest just normalizing the results year-to-date in 2013 and realizing that these are run-off blocks of business and so you can sort of string that out naturally.

(Operator Instructions) There are no further questions at this time.

Alright, thank you operator, and thanks for everyone calling in and happy holidays.

Thank you for participating in today’s conference call. You may now disconnect.