Globe Life Inc. (GL) Q3 2012 Earnings Report, Transcript and Summary

Good day, and welcome to the Torchmark Corporation’s Third Quarter 2012 Earnings Release Conference Call. Today’s call is being recorded. For opening remarks and introductions, I’d like to turn the call over to Mike Majors, Vice President of Investor Relations of Torchmark Corporation. Please go ahead, sir.

Thank you. Good morning, everyone. Joining me today are Gary Coleman; and Larry Hutchison, our co-CEOs; Frank Svoboda, our Chief Financial Officer; and Brian Mitchell, our General Counsel. Some of our comments or answers to your questions may contain forward-looking statements that are provided for general guidance purposes only. Accordingly, please refer to our 2011 10-K and any subsequent Forms 10-Q on file with the SEC. I will now turn the call over to Gary Coleman.

Thank you, Mike, and good morning, everyone. Net operating income for the third quarter was $125 million or $1.29 per share, a per share increase of 10% from a year ago. Net income for the quarter was $131 million or $1.36 per share, a 9% increase on a per share basis. With fixed maturities and amortized costs, our return on equity was 15.6% and our book value per share was $34.39, a 9% increase from a year ago. On a GAAP reported basis with fixed maturities at market value, book value per share grew 20% to $44.86. In our life insurance operations, premium revenue grew 6% to $454 million and life underwriting margins increased 13% to $130 million. Net life sales increased 7% to $83 million. On the health side, premium revenue excluding Part D, declined 4% to $170 million and health underwriting margin was $39million, same as year-ago quarter. Health sales were $15 million, down 6%. I’ll now turn the call over to Larry for his comments on the insurance operations.

Thank you, Gary. First I’ll discuss American Income. At American Income, life premiums were up 9% to $167 million and life underwriting margin was also up 17% to $56 million. Net life sales increased 12% for the quarter to $41 million. The producing agent count at the end of the third quarter was 5,472, up 23% from a year ago and up 3% during the quarter. We are pleased with the continued progress at American Income, and are excited about the company’s future prospects. We continue to see growth in a number of newly hired agents who achieved our top bonus level. It’s the first time, top bonus earners were up 47% in the third quarter. Our middle management ranks also increased by 14% in the third quarter. First time bonus earners and middle management trends are both indicators of future agent growth. We expect sales growth for 2012 to range from 13% to 15%, while we expect sales growth for 2013 to range from 10% to 15%. Now Direct Response. Our Direct Response operation worldwide life premiums were up 9% to $158 million and life underwriting margin increased 8% to $37 million. Net life sales were up 3% to $31 million. While we’re pleased with Direct Response sales growth, it was slightly lower than expected in the third quarter, however, the new business written during the third quarter was more profitable than the new business written in a year ago quarter. We expect mid single-digit sales growth for 2012 and 2013. Now Liberty National. At Liberty National, life premiums declined 2% to $70 million, while life underwriting margin was up 22% to $19 million. Net life sales declined 6% to $8 million, while net health sales declined 24% to $4 million. However, both net life and net health sales have increased sequentially for two quarters in a row. The producing agent count at Liberty National ended the quarter at 1,401, down 11% from a year ago, but up 4% just beginning of this year. The producing agent count grew to 1,420 during the first three weeks of the fourth quarter. We continue to make progress in turning around our producing agent counts in sales of Liberty National. We are optimistic that agent growth will continue going forward and expect sales growth to range from 8% to 12% for 2013. Medicare Part D, premium revenue for Medicare Part D grew 63% to $83 million, while the underwriting margin increased 8% to $7 million. Part D sales for the quarter jumped 161% to $22 million due to the increase in low-income subsidized auto enrollees for 2012. We expect an increase of approximately 2% to 3% in our Part D premiums for 2013. This is less from the 2012 increase since we don’t expect this many new auto-enrollees out of our low income subsidy program next year. I will now turn the call back to Gary.

To complete the insurance operations, administrative expenses were $41 million for the quarter, 2% more than a year ago quarter and in line with our expectations. For 2013, we expect a 5% to 6% increase in administrative expenses with most of the increase due to the acquisition of Family Heritage. However, as a percentage of premium, administrative expenses will be around the same level as 2012. Now, I want to spend a few minutes discussing our investment operations. First, excess investment income. Excess investment income, which we define is net investment income less required interest on net policy liabilities and debt was $55 million, a decline of $9 million or 14%, 7% on a per share basis from the third quarter of 2011. Sequentially, excess investment income was down $8 million from the second quarter. Both the year-over-year and sequential declines are due primarily to lower investment income. Compared to the second quarter, net investment income decreased $6 million or 3%, while average invested assets increased by 1%. And investment income increased at the same rate as the assets, investment income would have been up $1 million. This $7 million negative swing is due to the decline in the portfolio yield and the large increase in short-term investments, resulting primarily from the call of the $300 million of bank hybrid securities early in the third quarter. We plan to invest the excess short-term funds and bonds by the end of the year. Due to the expected call of our remaining $300 million of hybrid securities and the lower new money rates, we expect excess investment income in 2013 to decrease approximately 6% to 7%. However, reflecting the impact of share repurchases, we expect that 2013 excess investment income per share to be flat compared to 2012. Now, regarding the investment…

Thanks, Gary. I want to spend a few minutes discussing our shares repurchases and capital position. First, regarding share repurchases and parent company assets. In the third quarter, we spent $44 million to buy 874,000 Torchmark shares. For the full year through September 30, we have spent 318 million of parent company cash to acquire 6.6 million shares. The available liquid assets at the parent consist of assets on hand and the expected free cash flow from operations. Free cash flow results primarily from the dividends received by the parent from the subsidiaries less the interest paid on debt and the dividends paid to Torchmark shareholders. The parent began the year with liquid assets of $74 million. During the first nine months of the year, we generated about $328 million of free cash flow but spent $318 million for Torchmark share repurchases. In addition to the remaining $83 million of cash and liquid assets, the parent received approximately $420 million as a result of the issuance on September 24th of 10-year senior notes and 40-year junior subordinated notes. As a result of this activity the parent ended the second quarter with $504 million of available liquid assets comprised of $74 million of beginning liquid assets plus the $328 million of free cash flow, plus $420 million of net debt proceeds, less the $318 million used for share repurchases. Going forward, along with the $504 million on hand at the end of the third quarter, we should generate approximately $22 million of free cash flow in the fourth quarters giving us $526 million of total cash and liquid assets available for the remainder of the year. Of this cash $120 million was used on October 24th to redeem our 7.1% trust preferred securities and approximately $212 million will be used to…

Thank you, Frank. This is our guidance. For 2012, we expect our net operating income will be within a range of $5.15 per share to $5.19 per share. For 2013, we expect our net operating income will be within the range of $5.45 per share to $5.85 per share. Those are our comments. We will now open the call up for questions.

Thank you, gentlemen. (Operator Instructions) And we’ll first go to the side of Jimmy Bhullar. Your line is open. Jimmy Bhullar – JP Morgan: Hi good morning. I had a few questions. The first one on just your premium conservation efforts, if you look at your lapse rates in most of the subsidiaries that actually been declining but American Income, the lapse rate this quarter was roughly flat with the third quarter of last year? Then secondly just on the Family Heritage deal, should the earnings ramp up as the year goes on or with the first quarter of next year be a normal quarter, just I wanted to get an idea on whether you plan to do any expense savings or any marketing initiatives that would either reduce or increase earnings in that the deal comes on your books? And then finally on Liberty National, you’ve seen a couple of quarters of decent growth in the agent count of your sales expectations actually seem fairly positive as well. What gives you the comfort that this is not sort of a temporary blip in the agent count and what gives you the comfort as the thing that the agent counts are going to keep going from here on out.

Yeah, I think just Liberty...

Yeah, Jimmy as far as the lapse rates to the American Income. If you look back over the last couple of years, the third quarter is generally a higher rate and it’s somewhat due to the timing of the new issues and the lapses that occur on those policies. We expect that rate to be lower in the fourth quarter. The third quarter for some reasons is just unusually high from American.... Jimmy Bhullar – JP Morgan: Yeah. And quarter-over-quarter results actually had been getting better but even if I compare to the third quarter of last year, your lapse rates were actually flat whereas second quarter versus second quarter or first quarter versus first quarter, they were improving.

Well, I... Jimmy Bhullar – JP Morgan: It’s one quarter, so I just wanted...

Yeah, we don’t – matter of fact we have seen benefits of the conversation. As you mentioned in the last story, so from the prior quarters, I think this is just, again I think that the third quarter is just an unusual quarter from a timing standpoint. And again I think in the fourth quarter if you go back to the improvement we’ve seen in the older quarters. Jimmy Bhullar – JP Morgan: Okay.

And secondly on Family Heritage I understood the question right. I would anticipate that the earnings for the first quarter that will grow from there. I don’t think that the first quarter be indicative of the entire year, but we really haven’t had a change as Frank mentioned to and to look at what the purchase accounting adjustments are going to be and right now we don’t have a good feel for the facts around this going to be. Jimmy Bhullar – JP Morgan: But you don’t plan on – the growth would be just as a organic growth in the business. You are not planning any extraordinary cost savings programs or marketing initiatives that would either increase expenses or reduce expenses overtime?

No, there is no cost reduction expense that we’re factoring in and their expense ratios are very similar to ours and they’re very efficient and so the growth as we expect will be the organic growth of sales. Jimmy Bhullar – JP Morgan: Okay.

Jimmy, on Liberty National, we believe that the recruiting systems are in place. We’re now meeting with the different branch managers in the system. They’ve accepted that and the first three weeks of this quarter we’ve seen continued, steady agent growth. So we believe that will continue. At Liberty National we plan to roll out a laptop presentation in January. We think this will further help in recruiting and training the new agents and we hope to see 20% of agents growth at Liberty National by 2013. Jimmy Bhullar – JP Morgan: Okay. Thank you.

Thank you. We’ll now go to the side of Randy Binner. Your line is open. Randy Binner – FBR Capital Markets: Thanks. So, it sounds like – and this is kind of a sales question and so it sounds like the laptops are rolled out in January for Liberty National. Back here in American Income, I guess and I would like to hear more color. I think you said middle manager accounts there are up 10%. If that could be clarified that’d be great? And then I guess just trying to get color on the kind of the trend there and how sustainable the increase in the ranks of those sales managers is?

Randy, sales growth is sustainable. I don’t think we’re going to see sort of the 25% agent growth per year. It should be in fact a 10% to 12% to 15% increase agent growth is sustainable and those focus it and American Income remains is recruiting, is looking at forward activity in those little agents. It’s also management promotions. As we promote through those different levels of management and you’ll see growth in the agency. So that’s really the color to American Income as the both systems continue to be improved on that top is fully rolled that at the American Income, so we get cost of data feedback that we can check those trends. Randy Binner – FBR Capital Markets: How about our recruiting, is there anything new going on, on the front end and how you’re bringing in new recruits?

The Internet recruiting continues to be our biggest source of recruiting. The personnel recruiting is also an emphasis on American Income and personnel recruiting that involves college recruiting, different exciting recruiting. When you look at military recruiting, there’s a new initiative. As the military downsizes and we see people come out of military, those are strong recruits of both the American Income and Liberty National. So we continue to look at new recruiting systems. We hope to look at Family Heritage, study their recruiting systems and having some of those in-house here. Randy Binner – FBR Capital Markets: That’s helpful. And just to clarify, did you say the middle men accounts up around 10%, I missed that number?

Let’s see, I think I’ve said that, up 14%...

14%, yeah. Randy Binner – FBR Capital Markets: Okay. And how about in their trend in particular, is that able to stay at that level or does that settle down not extremely the low hanging fruit there is coming down?

There’s not low hanging fruit, it’s having the system of automatic promotions, it will promote persons out of the agent level, first level of management, the line by asking the fresh level of management, the second level of management is the sustainable number. Randy Binner – FBR Capital Markets: Okay, that’s helpful. Thanks.

Thank you. We’ll now go to side of Chris Giovanni. Your line is open. Chris Giovanni – Goldman Sachs: Thanks so much. Good morning. I guess first question just on kind of the guidance in the range. I mean the ranges I guess are getting wider at least in the past couple of years. So does that suggest that suggest that EPS visibility is declining some or is this just the issue with the drops in the timing?

Well Chris I think part of the wider range this year is Family Heritage and we haven’t included that transaction. We have to study that transaction as we have a great deal into Torchmark, so that’s some of the impact of why we are at range.

And Chris I mean I think last year our range was $0.30, its $0.40 this year. And I agree with Larry that a big part of it is the Family Heritage. Chris Giovanni – Goldman Sachs: Okay. And then are there any other M&A opportunities you guys are currently exploring or at this point is it primarily going to be share repurchases?

Well, Chris we’re always looking for M&A opportunities, but to find the type of company that we found with Family Heritage want us in the middle income market has kept the latency selling type of products that we like. There’s not a wealth of those kind of companies out there. We’ll continue to look and, but in the meantime I think the share repurchases will be the bulk of these of our excess capital. Chris Giovanni – Goldman Sachs: Okay. And then lastly just on the new money rate. I guess there was a little surprise just how well you guys were able to maintain the yields quarter-over-quarter, given what’s spreads did in the quarter and then I guess also you guys shortened some of the duration of the maturities of the portfolio. So curious if you can comment some on kind of where you’re thinking as you look forward here in the 4Q you talked about the 425 kind of the stress test that you’ve done, is that the level of yield you guys are currently looking at?

Yeah, that’s what we’re currently seeing. And one thing that benefited us in the third quarter, I think we’ve talked about this before through a partner we’ve got involved with some products...

Placements.

Product placements and we’ve, I think we’ve done a $100 million of that, most of that was in the third quarter. And those are a little bit shorter but the yields are in between the 10 and 30 years off. We really look to get a strong yield on those on those particular investments and I think that helped for the quarter. That probably helped us get to the 442 but where we’re seeing it today and mainly we’ve invested so far which I think we’ve invested well over $200 million already in October, it’s a round up for 420 to 400 quarter range. Chris Giovanni – Goldman Sachs: Okay. And still no plan to change the overall investment strategy?

No, not at this point. It’s just, the yield curve is too steep to drop down short and also it looks like rates are going to stay low for a while, and as I mentioned, we have been involved in the product placements where we had in the past. We’re still looking for other types of investments but we just haven’t found anything that’s better, we feel that’s better than the corporate bonds. Chris Giovanni – Goldman Sachs: Okay. Thanks so much.

Thank you. We’ll now go to the side of Sarah DeWitt. Your line is open. Sarah DeWitt – Barclays Capital: Hi good morning. On the 2013 EPS guidance, how much is embedded in your outlook in terms of share buybacks?

Well, I think we’re assuming free cash flow of around $360 million to $370 million next year. And I think in our guidance we assume that our share repurchases would be around $360 million.

That’s correct, Gary. Sarah DeWitt – Barclays Capital: Okay, great. And so given that the midpoint of your guidance assumes about 9% EPS growth. It seems like you’ve got 8% EPS growth just from share buybacks alone. So could that be conservative given that the core business have been growing, your Family Heritage coming on will be a partial offset from the redemption of hybrids but it just seems conservative. So am I thinking about that correctly or I am missing anything?

Well, I think one thing, it is going to factor into it is the – in fact there our excess investment income will be lower, I think I mentioned, it was probably 6% lower on a dollar basis and I think that’s we’re seeing that growth in the insurance side but that is a primary factor. Sarah DeWitt – Barclays Capital: Okay great, thank you.

Thank you. We’re now going to side of Paul Sarran. Your line is open. Paul Sarran – Evercore Partners: Yeah thanks, good morning. Was there any sort of cumulative true up in the quarter from the change in discount rate on 2012 new sales?

Yes, there was. From an underwriting income standpoint it’s pretty much awash. So there was an increase in the reserves but there is also decrease in amortization. Where there was an impact is in the excess investment income because of the increase in the interest on the net positive our goal is an average about $500,000 impact in the quarter. Paul Sarran – Evercore Partners: Okay. And on Part D, I don’t think you mentioned it. Did you pick up any new LIS regions for 2013?

No we did not pick up new regions for 2013. Paul Sarran – Evercore Partners: Did you keep the ones you added this year?

I think it’s actually a reduction I think we had six regions in 2013 versus about 24 regions that we had in 2012. Paul Sarran – Evercore Partners: Okay, so do you disenroll those policy holders that you added this year then or do you keep them, you just don’t add new ones. How does that work?

We did not disenroll this year’s policy holders that...

Yeah, if you just look at the numbers, we had, as Larry mentioned we had 21 regions last year and 15 of those regions were going to be able to key the auto science, but we’re now going to get new, new auto science. And I think there’s five reasons where we will get new auto science. So, the core amount of that is we’re not going to see near the number of new auto science this year or in 2013 than we did in 2012.

I think in these terms we’re projecting premiums in 2013, this $327 million versus $319 million in 2012. Paul Sarran – Evercore Partners: Okay, thanks.

Thank you. We’ll now go to side of Mark Hughes. Your line is open. Mark Hughes – SunTrust: Yeah, thank you. Good morning. The life underwriting margin are stronger this quarter, to what extend is that sustainable?

Well, I think it was up slightly this year. I think if you look at the nine months, our life underwriting margin is 28% of premium and overall is 29% in the quarter. There’s not a lot of difference there but I think it the indicative of what the entire year will be if it is more in the 28% range. Mark Hughes – SunTrust: Right. And so for next year more or likely to be at 28% or slightly better?

Yeah. I think in our guidance, it is slightly better than 28%. But again, we’ll talk about just a smaller difference. Mark Hughes – SunTrust: Right. The Direct Response business is something you’re confident that’s going to pick back up, what makes you feel good about that?

Well, I think there’s three things and that is still good about the Direct Response business. In 2013, I think on circulation, we have about 3% as the current net sales will pick up about 10%. We have initiatives, for 2013 in our gold products, our durables products and our other mailings. So their combination of those items, I guess feel optimistic about direct response. Mark Hughes – SunTrust: Right. A and just to be clear the guidance at this point does or does not include the acquisition?

It does include the acquisition of Family Heritage. Mark Hughes – SunTrust: Does include it?

Yeah. Mark Hughes – SunTrust: Thank you.

Thank you we’ll now go to the side of Steven Schwartz. Your line is open. Steven Schwartz – Raymond James: Hey good morning everybody. Just a follow up on Sarah’s question, I guess I’m having a little bit of trouble. It seems Gary you suggested that the interest rate of excess investment, excuse me, would be down about 6% to 7%?

Yeah I say that on a dollar basis it will. Steven Schwartz – Raymond James: Right.

But for share basis it will flat. Steven Schwartz – Raymond James: Okay yeah. Your EBITDA at 360 of share repurchase I would imagine that your general account assets excels, stuff with the debt being paid off in August and whatever. It’s still going to grow. So in your guidance, I think it would, in your guidance where are you thinking the yield goes to by the end of 2013. I think you’re currently at 6.33. Where does that go to the by the end of 2013?

Okay. Steve, first of all we think by the end of year, I think at the fourth quarter it would be 6.25 would be our yield on the portfolio. Steven Schwartz – Raymond James: Okay.

As I mentioned earlier we’re assuming that the remaining $300 million of, I presume we get called in 2013 and they have an interest rate of I think 7.3%. Steven Schwartz – Raymond James: Okay.

And so we’re looking at is by the end of 2013 the portfolio yield would have dropped from 6.25 to 6.04 and this sounds like these are very precise. These are our estimates. So that’s those hybrids still have a big impact. Now going forward from that, we’ll get back to where the decline in the portfolio yield is more like 10 basis points a year. But the next year we’re looking for a little over 20% decline in the yield. Steven Schwartz – Raymond James: Okay. Well, you said your 604 versus 612, I guess you’ve got to take averages. Maybe I’ll get back with Mike offline. If I could, only Family Heritage, what are those agents thinking about their business post January 1, 2014. Do they see HCA as a growth driver or do they see that as a headwind?

They see an opportunity. Gary and I’ve addressed the top agents within the system and they’re excited about joining Torchmark. I think they see opportunities they’re going to have with the recruiting. I think it will bring higher ratings to the company. And to be a part of Torchmark, I think it will be a positive to that agency force. Steven Schwartz – Raymond James: No, I’m sure you will. I was questioning more the macro environment, in ObamaCare and macro environment and how they see that?

Well, these are products that aren’t subject to ObamaCare. These are products that fall aside healthcare reform. Steven Schwartz – Raymond James: Okay.

So these products are unaffected by that, I misunderstood your question, I apologize. Steven Schwartz – Raymond James: Okay. Thank you, Larry.

Thank you. We’ll now go to the side of John Nadel. Your line is open. John Nadel – Sterne Agee: Hi, most of my questions have been asked and answered at this point. I’ve got one little nitpicky one left, I suppose and it’s on Part D. just looking at the quarters’ results, third quarter results, perhaps somewhat weak on the margins versus what we’ve seen here recently as you look out. Was it just sort of a blip or as you look out to 2013 what do we – what should we expect for the margin on the business?

Well, John first of all, we had an unusually high claim quarter. And so that’s when we compare back to third quarter where we had an unusually large claim quarter there is a big difference, but the margin year-to-date on that business is at 10% and we think 10% of premium that we think that’s – this will end the year at 10% of premium and that’s not as surprising just because we price it at 10.5% premium. So we’re very close to where we price that. John Nadel – Sterne Agee: Okay. All right, that’s very helpful. Thank you very much.

Thank you. We’ll now go to side of Sam Hoffman. Your line is open.

Good morning, I had a question about premium growth. It looks like premium growth accelerated in the quarter from 5.7% to 7.2% and even if you exclude the part D, it accelerated from 1.4% to 3.6% and so that’s the big step up in one quarter and it was driven I think by the direct response business. So I mean obviously if your premium growth accelerates by 1.2% every quarter, your growth rate is going to be much higher a year from now and so what I want to understand is what happened with the persistency in the business to cause that and how sustainable is it?

Well Sam, we are seeing advantage from better persistency but for example in direct response we had a 9% increase in premium, we’ve been showing 5% to 6% increase. Well the reason we’d 9% this year was more of an issue that the third quarter premiums of last year were very low and so it’s just an unusual comparison. I don’t think you can the numbers you extrapolate I think you can carry for our fourth quarter but we’re looking for unlike the premiums next year and our guidance, we’re going to be about 4.5% for this year. We’re looking at next year being at least that much maybe to 5%. So we’re seeing, we’re going to see improvement but maybe not at the level you’re talking about.

Okay. And then just can you clarify a bit about what you were saying about the discount rate and the price increase? I know you said that you lowered the discount rate at the beginning of this year, and you raised price but is that going to recur both the discount rate and the price increase in 2013? And then just help us understand what’s in guidance and how we should think about that going forward?

Well, first of all, in the guidance we are assuming the same discount rate that I talked about earlier, the quarter-over-quarter graded up to six in a quarter. We don’t feel like, we feel like the situation would be very similar next year in terms of rates and that will be appropriate. As I mentioned, we did raise rates, the premium rights 5% this year, the effect of changing the interest rate assumption from what we had last year to this year, this year really we require about 2% to 3% increase in premium. So we actually increased the premium rates higher than we really needed but that – so but going forward, we still feel like the new level that we’ve gone in, the discount rates will be appropriate going forward.

Okay. And, then I guess, my last question is on family heritage, can you talk bit about the business and just if you could repeat the premium growth that it had and kind of how much sales it has and should be expected to grow overtime?

Frank, if you want to handle that.

Sure Larry. Yeah, the total premium in 2011, they had around $162 million of total premium income. And we really look at them growing somewhere in that 8% to 9%, 10% range over the next couple of years. So far, year-to-date through June 30, they have premium income of about $87 million that was reported on their statutory financial statements. So obviously just looking toward annualizing that you end up at around $176 million or $175 million and that’s around an 8.5% increase. So, we are again expecting that the premiums to go somewhere in that 8% to 10% range. I believe their sales but I don’t have that that number handy but I believe that it was somewhere in the $50 million range.

Okay. Thanks for taking the call.

Thank you. We’ll now go to side of Bob Glasspiegel. You line is open. Bob Glasspiegel – Langen McAlenney: I’m going to follow-up on Sam’s question and try to drill a little bit deeper into the acquisition. It seems like that you’re saying the midpoint of the range is $0.15 accretion which is $23 million of earnings and there is going to be $2 million to $3 million of, that’s pre-tax earnings and is going to require $2 million to $3 million more of underwriting. So there is $25 million of sort of pre-tax income that needs to be spread either in the underwriting, so it’s held for underwriting and/or investment income. But I think you said investment income, I think you said investment income is down 6 so that’s not going to move. So, am I right that we need about $25 million of pretax of underwriting income?

Yeah, that is correct. It is going to be health business and it is somewhere in that range. We would estimate on a pre-tax basis yeah somewhere in that $25 million to 27 million range. Bob Glasspiegel – Langen McAlenney: So, on the $180 million of premium it’s a pretty good underwriting margin so we’re talking about roughly 15%.

Yeah, the underwriting margins before admin expense are somewhere we expect for 2013 to be in the 14% to 17%. Bob Glasspiegel – Langen McAlenney: Okay, my math is right.

And we do as time goes on and with new business we look forward to be slightly higher than that, but with the in-force block that’s where we’re estimating at this point. Bob Glasspiegel – Langen McAlenney: Is there anything you can do with the capital structure, expense structure or cross-selling or better productivity and that’s pretty good sales actually relative to their in-force but

With respect Bob Glasspiegel – Langen McAlenney: Within Torchmark on the margin that you probably haven’t factored in here.

Yeah, with respect to let’s say the capital structure, they are adequately capitalized at this point in time. They do have some excess capital if you will compared to what we would normally maintain a minimum 325% level. But at this point in time we do not anticipate taking out any of that excess capital if you will and allow that to help fund some of their future growth going forward. I think as Gary has mentioned earlier, there aren’t a significant amount of any expense savings that we’re really anticipating at this point. We will continue to look at their investment portfolio and to see whether or not there is some opportunities there and Larry I may pass it to you with respect to potential sales and potential sales initiatives going forward.

The potential sales initiatives, first of all, is where the agency force, and to do that, it is two ways, one is better recruiting methods. The second is geographic expansion. They are concentrated in the upper Midwest and Texas and we think those products could be offered in New York, Canada, other parts of U.S. So that’s another part of the expansion we’re talking about was family heritage. Bob Glasspiegel – Langen McAlenney: So, if you guys can’t create any expense savings, this must be the most efficient small company on the planet?

Do you look at their expenses as a percentage of premium as it’s quite low, it’s a very well run company. Bob Glasspiegel – Langen McAlenney: So it’s impressive. Look forward to learning more about them as you hopefully own it in next week? Thank you.

Thank you. (Operator Instructions) And we’ll go to side of Jeff Schuman. Your line is open. Jeffrey Schuman – KBW: Thanks, good morning. I understand that in part D there was volatility this quarter and there will be volatility some times, but can you remind us at this point do you, is there any sort of normal, kind of base line seasonality to the margins in that business?

Well, Jeff, we really haven’t seen it. I mentioned last year third quarter was low. We can’t expect we might see that this year but we said it was higher. Yeah, this business is priced every year and we just said and the clients come at different times. We just haven’t seen seasonality that we can count on. Jeffrey Schuman – KBW: Okay, thank you. And then this should probably be obvious but just Jimmy I mean, I guess the excess investment income compares to the down six, does that exclude Family Heritage from both periods or is that just in 2013 and you’re still down six?

That includes Family Heritage in both periods. Jeffrey Schuman – KBW: In both periods, okay.

Yeah. Remember for 2012, we only had them for two months but yeah it includes both periods. Jeffrey Schuman – KBW: But includes it on a pro forma basis for 2012?

No, not on a pro forma basis. Jeffrey Schuman – KBW: Okay.

But over their actual additional access would be for those time of two months. Jeffrey Schuman – KBW: Okay I guess just for some modeling perspective, do you have idea how that compares and would have been on an apples to apples basis?

Yeah. We’ll have to find, I missed it, but I can find that... Jeffrey Schuman – KBW: Okay, that’s it for me. Thanks.

I have got it, excluding family service, excuse me Family Heritage, we would project for 2013 that excess investment income would be down somewhere, this is dollar amount not per share, dollars would be down somewhere between 7% and 10% and on per share basis, excess investment income would be a decline of 2% to 4%. Jeffrey Schuman – KBW: Okay, that’s helpful. Thank you.

With Family Heritage, I was saying earlier on per share basis it will be flat for 2013. Jeffrey Schuman – KBW: Okay, thanks for clearing that up.

Thank you. (Operator Instructions). It appears we have no further questions at this time. I’ll now turn the conference back over to our speakers for closing remarks.

All right, thank you for joining us this morning, those are our comments and we’ll talk to you again next quarter.