Please standby. Good day, and welcome to the Torchmark Corporation Third Quarter 2014 Earnings Release Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to Mike Majors, VP, Investor Relations. Please go ahead, sir.

Thank you. Good morning, everyone. Joining the call today are Gary Coleman and Larry Hutchison, our Co-Chief Executive Officers; 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 2013 10-K and any subsequent Form 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 $131 million or $0.99 per share, a per share increase of 4% from a year ago. Net income for the quarter was $132 million or $1 per share, a 5% increase on a per share basis. On our second quarter conference call, the midpoint of the guidance provided for the full year 2014 anticipated net operating income of $1.01 per share in the third quarter. The actual net operating income was $0.02 lower due to higher than expected Part D drug costs. With fixed maturities at amortized cost, our return on equity as of September 30 was 15.1%, and our book value per share was $27.57, a 10% increase from a year ago. On a GAAP reported basis, with fixed maturities at market value, book value per share increased 27% to $34.55. In our Life Insurance operations, premium revenue grew 4% to $492 million, and life underwriting margins were $139 million, approximately the same as a year ago. Net life sales increased 14% to $91 million. On the health side, premium revenue, excluding Part D grew 1% to $210 million, and health underwriting margin grew 5% to $49 million. Health sales increased from $23 million to $48 million. Administrative expenses were $45 million for the quarter, 1% more than a year ago. For the full year 2014, we anticipate that administrative expenses will be up around 1% and be approximately 5.7% of premium. I have one more item to discuss before turning the call over to Larry. Recently, there were reports that Torchmark had suffered a data breach. There was an isolated internal breach in which we believe that someone at one of American Income's agency offices in the northwest used compromised login credentials to obtain personal information from approximately 400 insurance applications. We have notified the individuals affected and continue to follow the investigation. I will now turn the call over to Larry Hutchison for his comments on the marketing operations.

Thank you, Gary. First, let's discuss American Income. At American Income, life premiums were up 7% to $194 million, and life underwriting margin was up 3% to $60 million. Net life sales were $43 million, up 18% due primarily to increased agent counts. The producing agent count at the end of the third quarter were 6,155, up 13% from a year ago. The average count in the third quarter was 6,106, up 6% from the second quarter. , : At Liberty National, life premiums declined 2% to $68 million, while life underwriting margin declined 7% to $18 million. Net life sales grew 18% to $9 million, and net health sales increased 22% to $4 million. The producing agent count at Liberty National ended the quarter at 1,604, up 22% from a year ago. The average agent count for the third quarter was 1,554, up 4% from the second quarter. Life net sales growth is expected to be within a range of 9% to 11% for the full year 2014, and 5% to 9% for 2015. Health net sales growth is expected to be within our range of 17% to 19% for the full year 2014, and 5% to 9% for 2015. Now, Family Heritage; health premiums increased 7% to $52 million. Our health underwriting margin increased 40% to $11 million. Health net sales were up 18% to $12 million. The producing agent count at the end of the quarter was 761, up 6% over a year ago. The average agent count for the third quarter was 763, up 1% from the second quarter. We expect sales growth for the full year 2014 to be in the range from 7% to 9%, and 4% to 10% for 2015. The United American General Agency health premiums increased 2% to $71 million; net…

I'll spend a few minutes discussing our investment operations. First, excess investment income; excess investment income, which we define as net investment income less required interest on policy liabilities and debt was $55 million, an increase of $1.7 million or 3% over the third quarter of 2013. On a per share basis, reflecting the impact of our share repurchase program, excess investment income increased 8%. For the full year, we expect excess investment income to increase by about 3%, and on a per share basis the increase should be about 8% % compared to 2013. These growth percentages are negatively impacted by Part D. We estimate that the delay in receiving reimbursement from CMS for the higher than expected Part D claims will result in $4 million of lost investment income for the full year. Excluding this reduction, the increase in 2004 excess investment income will be about 5% or 10% of our share basis. Now, regarding the investment portfolio; invested assets were $13.3 billion, including $12.7 billion of fixed maturities at amortized cost. Out of the fixed maturities, $12.2 billion are investment grade with an average rating of A minus, and below investment grade bonds are $570 million compared to $586 million in a year ago. The percentage of below investment grade bonds to fixed maturities is 4.5% compared to 4.8% a year ago. With a portfolio leverage of 3.5 times, the percentage of below investment grade bonds to equity, excluding net unrealized gains on fixed maturities is 16%. Overall, the total portfolio is rated A minus, same as the year ago. In addition, we have net unrealized gains in the fixed maturity portfolio of $1.4 billion, approximately the same as at the end of the second quarter. Now, regarding investment yield, in the third quarter we invested $174…

Thanks, Gary. I'd like to first take a few minutes to discuss the reduction in 2014 earnings guidance. The midpoint of our guidance fell $0.08 from $4.10 to $4.02; $0.05 of this reduction is due to additional adverse Part D experience. The remaining $0.03 includes the effect of both higher Part D claims and a lower new money rates on excess investment income, and slightly lower underwriting income from our non-Part D operations. With respect to Part D, we have added new schedule on our Web site entitled "Medicare Part D margins," which provides information regarding Part D premiums and margins. As can be seen on the schedule, the Part D margin as a percentage of premium is expected to decline from 11.8% in 2013 to 7% to 8% in 2014. This reduction results from higher claims driven primarily by two issues. One: Claims that are related to the new Hepatitis C drugs that are trending at the high end of the range, we discussed on our second quarter call, and through a CMS administrative rule change implemented in the third quarter retroactive to the beginning of the year that effectively shifts responsibility for a portion of Part D claims expenditures on group business, from CMS to insurance carriers. For 2015, we expect significantly less volatility in Part D. One: We have adjusted our 2015 pricing to reflect the impact of the Hepatitis C drugs and the administrative rule change. And two: We expect to have about 87% fewer auto-assigned insurance in 2015 than we have in 2014. Since auto-assigns have accounted for nearly 85% of our Hepatitis C claims this year, our exposure to Hepatitis C claims should be much lower next year. While the loss of auto-assigns will result in lower premium income in 2015, we expect underwriting…

Thank you, Frank. For 2014, we expect our net operating income to be within the range of $4 per share to $4.04 per share. For 2015, we expect our net operating income per share to be in the range of $4.15 to $4.55, resulting in a midpoint of $4.35, an 8% increase over the midpoint of our current 2014 guidance. Those are our comments. We will now open the call up for questions.

Thank you. (Operator Instructions) And we'll first go to Jimmy Bhullar from JPMorgan.

Hi, good morning. I have a couple of questions. You discussed the Part D claims issue, but I'm wondering if you could talk about the higher life claims as well. It seems like life insurance claims are higher than they had been in a while. And then secondly on buybacks, given what S&P published a couple of months ago, had there been any change in your long-term strategy on share buybacks and how you think about capital left that’s not been to the holdco level?

Okay. Jimmy, first, we'll talk about the life claims. Life claims were up primarily in direct response, although they were up slightly in the Liberty National American Income. Direct response declines were trending slightly higher than we expected at this point during the year, and I think we're expecting to be -- the policy obligation percentage to be half a point or a point higher than what we had in all of 2013. We don't think there is a significant trend there, but that's something we will monitor. Our American, our Liberty National, part of the increase there was that we have a (inaudible)in the third quarter of '13, but we expect the full year policy obligations to be at or around maybe slightly higher than what we had for 2013, but again we see this is more of a fluctuation than a trend.

Okay. And then, on buybacks?

Yes. Then, Jimmy, on the buybacks and the S&P issue, we do not see at this point in time any change in the long-term strategy on the buyback. We're still evaluating our various options to address the shortfall that S&P has, and -- I just want to point out that's just a change in view with respect to capitalization that we've had in place at the holding company and our insurance companies required some time. So there's really been no significant changes there, but we do think that there are other alternatives out there for us to use other than changing any philosophy on the buyback.

And then just lastly, you mentioned, like, low rates being a headwind for earnings, not for the balance sheet. But if we are in this type of environment, can you discuss what you're -- are you doing anything on the pricing side to offset part of the impact or are you just like accepting low returns as long as rates are low?

Jimmy, we're not anticipating increase in pricing at this point. But I think if you remember, I think it was a year or two ago, we increased rates of both American Income and direct response. And we at that time we increased the rates more than we probably needed to. And so, I think if we stay in this whole way down where we are I think (indiscernible) back then. I think we're okay at this point.

Once thing I'd add to that, Gary. At that point, when we put enough pricing increase, we really anticipated at the time that the rates would stay low, at least in the 2015. So at this point in time, it's not a real surprise.

Okay. Thank you.

And our next question will come from Eric Bass from Citigroup.

Hi, thank you. I just want to start on the Part D business; since you said your thoughts on long-term view on the Part D market, this has been the most volatile piece of your business in recent years. It seems like it's getting harder to predict from year-to-year. So, does this change at all how you're thinking about pricing and whether you want to attract auto enrollees going forward?

Yes, exactly. We don't like volatility and most of the higher claim costs and the volatility we've had has been in the auto-assigns. We're going to have a significant reduction in auto enrollees next year. I think we're going to be very careful in our products in the (indiscernible) law.

Got it. So, if we think about the premium growth kind of beyond 2015, we should not assume a significant increase because you attract more auto enrollees in the future. Is that a reasonable way to think about it?

Yes. You won't see the big increases that we had because that has come, as we said, the auto enrollees will still stay with our individual group business, and we expect just moderate growth there.

Okay. And then maybe we can just switch quickly to free cash flow, I think your guidance for next year is implying free cash flow that's a little bit down from what it was this year. Imagine some of that may be that drag from the higher Part D claims and low investment income, but if you could just talk about any other moving pieces there?

Eric. That's exactly right. Our preliminary estimates and I will stress that it's pretty preliminary at this point, because we have not even completed our third quarter statutory filings and statutory income projections. But our initial look for statutory earnings in 2014 would indicate that they are -- actually will come in just a little bit lower than we had in 2013. Therefore the dividends up from the insurance companies in 2015 is expected to be just a little bit less, and that's what's really driving the slight decrease in the free cash flow. And it really is primarily the drag from the Part D operations that we're seeing in 2014 on both investment income as well as underwriting. Then you'll notice in general, we from -- funding several initiatives with respect to our sales growth, and keep in mind that all those funding, those initiatives are fully expensed on a statutory basis, so those do tend to have a little drag on the earnings as well.

Got it. Thank you. And just last very quickly, can you [found out that] (ph) what could you assume for life underwriting margins in your '15 guidance?

The midpoint to our guidance, the underwriting margins are around 20%, 28% and 29%, which is -- we're going to end 2014 probably at 28.5, and so it's -- we're not expecting it to change from the fiscal …

Great, thank you very much.

And we'll now move to Randy Binner from FBR Capital Markets.

Hi, great, thanks. I have a couple. One is just a follow-up on what Eric was asking there and is that -- and this goes back to Frank, a commentary on the opening part of the call, but when you say that underwriting margins in Part D are going to recover to more normal levels, I think that would be low-teens underwriting margin. I just want to clarify that, and are you assuming that auto enrollee claims also improve next year or that there just simply won't be as many, when you talk about the overall underwriting margin for Part D improving next year?

Yes, it's really is a little bit of a combination. Both the underwriting margin that we're seeing overall, we do expect to be in that 10% to 13% range. So we do see that clearly, which is about where we've been pricing and where we've estimated on normal course in the past few years. And then, you truly just have less exposure to the autos. Several of the region the autos have very low underwriting margins as we've lost those regions, then we're starting to see that the overall margins on the auto -- what is left on the auto-assign business should come up as well.

Okay. You don't think that there would be a region increase I guess, that the other regions would have the same problem, as the other the reason I think that would be different experience?

We just have. I mean we're basically going from 22 regions in 2014 to where we're going to have four regions in 2015. So we just have fewer numbers. Basically, our enrollment and it's an 87% decline of what we're anticipating as a decrease in the overall enrollment in the auto-assigns.

All right, so that's helpful. It's more dramatic on the drop and the autos; got it. And then I guess I'm going to ask about the brief just because it feels like the stock is maybe off a little bit more than what happened fundamentally. It sounds like your explanation here is that it sounds quite limited with 400 applications being affected and those folks being notified. I guess the idea the two questions I have is, is there a financial exposure here that's notable, and is this the same issue has being outlined in (indiscernible) article online? Is it the same thing as that?

Hi, this is Larry. We don't think there's any financial exposure here. I think a breach is really the wrong term to use here. It is not a third-party -- it can be information taken from someone within the organization. Actually, this information is very small. And we contacted the 400 people involved, so we don't expect any further activity around those item.

Okay. And could you -- is it the same issue that's being covered in the online media on that?

Yes, it is.

All right, very good. Thank you.

And we'll now go to Yaron Kinar from Deutsche Bank.

Good morning, everybody. Going back to the Part D segment or operations; is there -- would you be able to quantify the earnings, headwinds, end of 2015 from the cash flow issue there?

Yes. We basically have about a $115 million that we are going to be receiving, if you will, from CMS in late 2015. So we estimate the last investment earning should be close to $6 million, the headwinds for 2015.

Okay. I guess if I take that out of the midpoint of that, of the 2015 guidance range, and I compare that to the original guidance range for 2013, I get the EPS growth of roughly 6%, 7% year-over-year. And I guess it just seems a little below maybe (indiscernible) see from Torchmark. I was curious what else was going on there …

Yes, which also need to take into account when you're looking at that is the drag on '14 from the Part D operation. So, our underwriting income, the midpoint of our guidance at the beginning of the year, we were anticipating around $36 million. We're looking at coming in around somewhere in the range of $26 million, $25 million to $27 million in 2014. And we expect that to be relatively flat going into 2015. So that's creating from your starting point, that's creating an additional drag plus. So as we looked at it, if you do include the $6 million at the midpoint of the 2015 guidance and compare it to the midpoint of our final guidance here for 2014, you'll end up somewhere real north of 9%.

Okay. And then, maybe switching gears a little bit to agent count, it seems like both in Liberty National and American Income, they're a little bit ahead of the schedule. Do you anticipate that the growth will slow down a little bit in the coming quarters or to continue seeing that this healthy clip?

Yaron Kinar, we're not expecting a significant drop in the agent count. However, historically, we've seen increase in agent terminations in fourth quarter, Liberty National, the same phenomena, I think for both distribution, we issued the guidance for 2015 in terms of the agent counts, or be in a better position (indiscernible) we will be able to see what terminations occurred in the fourth quarter on both distributions, also (indiscernible) in the month of January 2015.

Okay. I appreciate the answers. Thank you.

Our next question comes from Steven Schwartz from Raymond James & Associates.

Hey, good morning everybody. First, just on the excess investment income 2015, what are you assuming? Are you assuming, I guess first question, that's the new money rate will continue at a 475 level?

Steven, we're assuming that we'll be investing a little over 5% at the midpoint.

Okay.

And they started out a little bit lower than that at the beginning (indiscernible) as the year goes on.

Okay, (indiscernible) from your mouth. So given that, how should we think about the rate on the portfolio coming down over the year?

I think that right in the portfolio, it will come down around three to four basis points.

For the year or per quarter?

For the year.

For the year, okay. And then, I want to go back to Part D, so my understanding is that you price for the non-auto enrollees depending upon your pricing, then you get assigned auto enrollees. Is that correct?

We would actually -- within a particular region we'd end up putting in a bid. That would anticipate whether or not we'd get auto enrollees for that particular region.

, :

While you're ultimately pricing overall with respect to what are you getting auto enrollees and not, you're still not, the experience overall, between the non-auto enrollees we aren't -- I guess I'll just say that the experience that we're seeing is not necessarily resulting in excessively high margins on the non-auto enrollees.

Okay, all right. And then, the S&P issue with regards to the financing is that correct that it has to do with preferred share financing, it has to do with the internal financing of reserves?

Well, internal financing of the overall capital, and back in 1998 we had -- at the time that we spent our Waddell & Reed, we actually had put some preferred stock into the capital structure of the insurance companies. And in exchange, absolute debt at that point in time but it's really done in connection with that that's been on Waddell & Reed back at that point in time. And they've been in place ever since.

Okay. So this doesn't have to do with capital finance or anything like that?

Correct.

Okay. Thank you. That's (indiscernible).

And we'll now go to Seth Weiss from Bank of America Merrill Lynch.

Great, thank you. If I could just ask a follow-up question on the timing of the CMS reimbursement question, If we look out into 2016, does that $6 million of lost income, does that just subside or does that actually reverse?

Well, I think it should subside, one just having better than reversing. We're expecting to receive that around a $115 million in the fourth quarter typically it ends up being in November. That can change just a little bit. And for then it will be there in these final invested assets as of the end of 2015, which will impact the 2016 earnings.

And I suppose, with mix shift of auto enrollees and rough spend (indiscernible) I guess what I was trying to get out with this question, if there is any maybe excess cash flow that comes in, in '15 in terms of reimbursements that would cause maybe 16 to be a little bit not normal in terms of investment growth there?

Yes. What we're anticipating with respect to the 2015 plan, so we always estimate, we do attempt to estimate what the settlement with CMS is going to be every year. Right now, our estimate for 2015 is that we'll actually be growing that receivable if you will buy about another $30 million. And so over the course of 2015, which is also build into our guidance that we'll be funding about $30 million worth of claims on behalf of CMS over the course of the year, and then, in 2016, we'll be -- at the end of '15, then, we would have a net receivable from them at about $30 million that will be impacting 2016 earnings.

Yes. And then, if I could ask just one other question on sales growth guidance, and if I look across different life channels, mid single-digits, as opposed to upper single-digits, last year in 2014, maybe just some commentaries on setting those, what's causing the decline there, if maybe '15, that's the more normalized growth number in '14, coming out of an easy comp or what lead to that maybe conservative growth guidance?

That should be on the agency, its agent growth that drives the growth in sales. I was seeing a pattern historically in each of the companies that we have stair step growth in the agency. Something 20% agency growth in American Income and you have similar growth for Liberty National this year, you wouldn't expect to have 20% growth next year; must get the sales guidance at 6% to 10% of American Income in model within that different levels of agency growth, different levels of percentage (indiscernible) that range, because as the year moves on and if we have short agency growth, this calls for the 10% growth. If the agency grows slowly, it's going to be close to the 6%.

Okay. Thank you, very much.

Our next question comes from Colin Devine from Jefferies.

Good morning. And looking at the life, I guess the underwriting ratio or the benefit ratio, the one that stuck out for me was direct response. And you really haven't talked about that. And yet, it seemed to be the highest in the last nine to 10 years, and probably two standard deviations above the average over that period. Was something particular that happened there?

Colin, I mentioned email that we've had higher climbs in the third quarter than expected. And as a result of that, we may be more -- 47% to 47.5% is a percentage of all sale negations, whereas last year, it was 46.4%. I think it's been around that for several quarters. It's going forward. There will be a net 46% and 47% range. We still like -- so, again I think it's more a fluctuation and then we've been turning to that 46, 47 number for several quarters now.

That's why I wanted, with the number 48 that just seemed …

What I think is seeing there a little bit is the catch-up effect of the first couple of quarters where in that 46 range, but we're seeing over the course of the year, that we're now saying it should be on that 47 a year said, you know, 47 or 47.5 to seem a little bit of a catch-up there in the third quarter.

Okay. And then, with respect to the agent recruiting this quarter which I thought was quite strong. Can you talk a little bit more about what was behind that and obviously what you're doing to quote and place to really hold on to our agent just to go forward. Have you changed anything there?

We mentioned in the prior calls that we changed our (indiscernible) recruiting. This year versus last year, we actually had a quarter-over-quarter increase on recruiting. But also this strong growth on our middle management count this year. The middle management didn't help support the agent growth. In addition, we're seeing a slight increase recent retention which is another (indiscernible).

I was looking at that. That's what and why I was a little surprised when you took the sales guidance down, given what this, when you've done recruiting. So something there that's just are you just being cautious?

Being conscience based on the history of each of the agency forces. When I think about agency, it doesn't grow on a one-year fashion. It really, there's step growth. And you have certain agents, you would expect to see some increase in terminations in the following several quarters. (Indiscernible) see what's driving that agent force and life changes, continuing that level of growth. You would like to think we're going to have back to back 10% or 15% increases in agent channel. I think that's not realistic on a historical basis, it just stretch a little over agent growth in 2015 and in 2014.

Thank you. Then the final one, you haven't talked in many quarters about what's been going on in sort of first command and such. Can you give us any update on that, it's just so a meaningful part of the overall premiums?

We're seeing some positive results. First command, we seen is increase in the sales at first command. I think the important part of our business is not core. We really focus our growth in direct response, American Income and Liberty National with respect to the life operations.

Okay. Thank you.

Our next question comes from John Nadel from Sterne, Agee.

Good morning, everybody.

Good morning, Mr. Nadel.

Yes. It will happen. The question I really want to talk about was just -- I really want to understand some of the thoughts and maybe some of the risks that you might be seeing around the lower end of 2015 guidance. I mean if I -- first of all, I guess, it's a wider range of guidance and I think we've historically seeing from you guys but the lower end of the guidance implies I believe 3% year-over-year EPS growth from your midpoint of '14. And if I assume your buybacks at or around the current pace, that actually suggests to me that at the lower end of your EPS range, it might actually contemplate actual earnings being down on a year-over-year basis. I guess, I'm just trying to understand where is the cost in there?

(Indiscernible).

Yes. Let's say, as we look at the ranges, I think it's taking in to account very early in the process and we haven't finalized the statutory income. So that clearly one piece is statutory earnings would have a come in a little bit differently. And we have less cash flow, free cash flow available for the buybacks. And then of course volatility in the marketplace and so we do tend to as we're looking at our ranges at this beginning. At this point in time, we're kind of trying to take a look at, where some of the -- it's all lot of really bad things happen or if a lot of really good things happen, those kind of set the outside boundary. We don't spend an awful lot of time now, we're more focused on clearly around that the midpoint of that, that we're recognizing that there is some extreme events that could impact on either side. And if we have that unfortunate confluence of example, we've really bad client experience on the life side, and we don't get that off set with some positive on the health side. We are really bad on the health as well. Part D ends up being -- it's a low end of their margin. And if rates stay really low and those type of things, so we're just kind of trying to -- that's I think, there is no specific changes if you will that we're anticipating that would kid of pop into there?

Okay. So if I could -- and I don't want to necessarily put words in your mouth, but if I were going to paraphrase, I'd say the lower end of the guidance is essentially just to -- the opportunity that if a bunch of things just go against you, in 2015, weaker underwriting margins generally and maybe slightly lower buyback, there you go.

That's right. Okay. It seems and I guess that makes sense, because if I look at the top line trends, particularly here, in the first nine months of 2014. Top line growth has accelerated a little bit, your sales growth has been certainly very strong, stronger I think than even you guys had expected it might be, and that is a backdrop, recognizing long-term investment rates are challenging, but with top line growth starting to pick up a bit, it seems difficult to assume that earnings, not EPS, but earnings could be down on year-over-year basis. Unless I guess you get some underwriting issues like claims, so that's the way you're thinking about it?

Yes. It has to take some unusual events.

Okay.

I'll jump -- first of all, it's really earlier to be projecting 2015, we'll tie to that when we get to the fourth quarter call, but I think we build -- the midpoint is really where we're thinking we're going to be. At that midpoint, the 4.35, if we weren't losing the $6 million investment income because of this Part D thing, that has another $0.03, that gives us $4.38. That will be over 9% increase. We feel like it's going to be more around that midpoint and neither the higher or lower.

Got it, okay. That's a very helpful color. That's really important, thank you.

And we'll now move to Mark Hughes from SunTrust. And we'll actually go to Ryan Krueger from KBW.

Hi, good morning. I just have a couple more questions on '15 guidance; can you just give us what your administrative expense great expectation is next year? And then also I don't think you've said this yet, what percentage growth you expect in excess investment income in '15?

Okay. The administrative expenses, we're thinking to grow 3% to 5% next year. And investment income, we think the growth rate there will be at the midpoint. I think we have assumed 2.5% -- that's lower than what we have in 2014. But like I mentioned to John a while ago, with the add back we're losing on Part D, the increase in investment income would be over 3%, and that's what we'd expect.

Got it. And then, your admin expense growth have been in I think growing in the 1% to 2% range probably for a little while, why are you expecting that to increase more going forward?

Ryan, in 2014, it grew about 1%, and that's largely because of our pension expense. It was very high in 2013 and it dropped in 2014 with the change in the discount rate. Without a change in the discount rate, it would have grown more than that in that 3% range, without the decrease of a pension expense in 2014. So looking forward 2014, 2015, you don't have that offsetting impact on it and it will be growing just in a more normal 3%, 4%, 5% level.

Got it, thanks. And then last one, just on the S&P issue, is there any real reason for you to react to this because I think S&P's rating is already one above the other rating agencies. So I guess the question is would you just tick to downgrade or do you actually feel you need to react?

Well, it's clearly one of the factors that we're already evaluating as we look at our options. And we do recognize that the S&P rating does not have a particular substantial impact or really any impact on our marketing efforts, and we do recognize that many of our peer companies and most of our peer companies do have their S&P rating, the lower. So it's something that we're taking to consideration and thinking about as we look at those options.

Ryan, I'd say we'd like to maintain the ratings, but time maybe a good part. From a marketing standpoint, the S&P or Moody's ratings aren't that important. In our business, the rating is important (indiscernible) we have A plus, that's far more important (indiscernible).

Got it. Thanks a lot.

We'll now move to Eric Berg from RBC Capital Markets.

Thanks very much. So I've had a chance to look at the exhibits that you filed on your Web site, entitled Medicare Part D margins, S&P contemplate a much smaller business, but a more profitable business next year than this year. Can you review with us -- you touched on it, but could you go directly to the question, how does the government sign into these auto enrollees and how can you be as confident as you're right now that the auto enrollees will be down so sharply next year from current levels?

There is a -- when you submit a bid into a particular region, for particular plans, your filed plan, and we know already for 2015 whether or not the bid that we put in is -- how that compares to a benchmark premium, so essentially CMS takes all of the bids from all the different insurance companies that are covering low income subsidy individuals and comes up with what they call "a benchmark premiums." If your submitted premium is less than that benchmark premium, then you're automatically given auto-assigns. So when everybody -- all the insurance companies that have qualifying bids are then on a proportional basis assigned the auto-assigns and the enrolling individuals. If your bid is above that benchmark premium by more than $2, then you're out, and you're not going to be pulled back in. So, for the bids that we submitted for 2015, we've already been notified their bid was too high as compared to the benchmark premium. And again, you don't know what that benchmark premium is going to be at the time you submit your bids, but at this time in time we know that we're out in albeit four regions versus the 22 that we're in, in 2014.

So, in short; just to go through this in a little bit more detail, you know you have far fewer auto enrollees next year than this year. You know the auto enrollees had been the preponderance of the higher than expected Hepatitis-related claims.

Yes. That provides 85% of the Hepatitis C claims.

And so, with fewer, in short with 4Q or higher claimants on the roll next year than this year, do you expect a smaller business, but a more profitable business in percentage terms, product margin percentage terms, is that a match up?

Correct, and with less volatility, because of our fewer auto-assigns.

Thanks.

(Operator Instructions) We'll now go to Mike (indiscernible).

Hi, thanks. This is Mike (indiscernible). Liberty National life sales accelerated again this quarter to now very strong levels, shall we expect total premium growth to move into positive territory sooner? I guess I'd have expected it to be closer breakeven by now, so maybe I'm missing necessarily higher laps component or something.

I think if you think there is problem in sales growth going forward, we expect to be in a positive premium loan some time in 2017.

Mike, the one reason that's taken a while to (indiscernible) block, and there is nothing unusual about the laps really, it's just a big block and we've had ups and downs and multi downs in sales in the past few years. Now, we've had sales growth, it's just going to take a couple of years that sales growth to get where we can at least breakeven on the premium.

Got it, that's helpful. Lastly, we could take offline if I'm missing something, but I think Larry during the prepared comments out to big jump in direct response of health sales. Could you give us some more color on what took place and why you expect the sales that follow-up next year. Maybe that's the whole auto enrollment things that you're talking about. Thank you.

The direct response in the health job is the Medicare Supplement that we offer to the direct mail authors. It's an existing channel of distribution. We include those Medicare settlement sales in the direct response category. And we had a very large group who was added in the third quarter. And next year, we're not expecting another large group, and that's why the sales guidance for next year is in much smaller percentage than this year.

Got it. And so, the (indiscernible) is that helping out there or is there any correlation there?

I'd tell you, the overall results are better than what anticipated in the current season. (Indiscernible) through brand awareness and that's resulted in the growth in inquiries, and most were immediate channels. We are also seeing growth there in net sales, and the product marketing territories compared to the rest of the country. So we're very pleased with the results after the first year.

Got it, thank you.

And it appears there are no further questions. I'll turn the conference back over to our presenters for any additional or closing remarks.

All right, thank you for joining us this morning; those were our comments. And we will talk to you again next quarter.

This concludes today's presentation. Thank you for your participation.