Horace Mann Educators Corporation (HMN) Q4 2011 Earnings Report, Transcript and Summary

Good morning. My name is Tasha, and I will be your conference operator today. At this time, I would like to welcome everyone to the fourth quarter 2011 earnings conference call. [Operator Instructions] Thank you. Mr. Nelson, you may begin your conference.

Thank you, and good morning, everyone, and welcome to Horace Mann's Fourth Quarter 2011 Earnings Conference Call. Yesterday, we released our earnings report, including financial statements as well as supplemental business segment information. If you need a copy of this press release, it is available on the Investors page of our website. This morning, we'll cover our results for the fourth quarter in our prepared remarks. The following management members will make presentations today and be available for questions: Pete Heckman, President and Chief Executive Officer; Dwayne Hallman, Executive Vice President and Chief Financial Officer; Tom Wilkinson, Executive Vice President, Property and Casualty; Matt Sharpe, Executive Vice President, Annuity and Life; and Steve Cardinal, Executive Vice President, Marketing. As a reminder, the following discussion may contain forward-looking statements regarding Horace Mann and its anticipated or expected results of operations. Our actual results may differ materially from those projected in these forward-looking statements. These forward-looking statements are made based on management's current expectations and beliefs as of the date and time of this call. For a discussion of the risks and uncertainties that could affect actual results, please refer to the company's public filings with the SEC. We undertake no obligation to publicly update or revise such forward-looking statements to reflect actual results or changes in assumptions or other factors that could affect these statements. Also in our prepared remarks or responses to questions, we may make mention to non-GAAP financial measures. Reconciliations of such non-GAAP financial measures are available on the Investors page of our website. Finally, this call is being recorded, and an Internet replay will be available on our website until March 9, 2012. Now I will turn the call over to Pete Heckman for his comments.

Thanks, Todd. Good morning, everyone, and welcome to our call. After yesterday's market close, Horace Mann reported operating income, which excludes realized investment gains and losses, of $30 million or $0.72 per share for the fourth quarter, as P&C catastrophe losses moderated to more normal expected levels and financial markets performance improved, which provided good visibility to the strong underlying results of our multi-line business model, particularly in our property insurance and annuity lines. While fourth quarter results exceeded our expectations and were significantly better than a year ago, full year 2011 operating EPS of $1.11 was adversely impacted by a record level of industry-wide catastrophe losses, which accounted for more than our $0.49 shortfall to prior year earnings. In spite of that, Horace Mann's book value per share, excluding FAS 115, increased 6% year-over-year and we maintained our strong capital position. The 18% dividend increase announced by our Board of Directors in December, resulting in a current dividend yield of approximately 3.25%, coupled with the $50 million share repurchase authorization, is a reflection of the company's sustainable earnings power, its current excess capital position and undervalued stock price and the Board's ongoing commitment to manage capital to the benefit of the shareholders. Dwayne, Tom, Matt and Steve will provide more detail on our 2011 results, but I'd like to offer up a final assessment of our performance relative to the 4 priorities that we established early last year. Our first objective was to grow the agency force and increase agent productivity. We did increase the number of agencies and agents for the third year in a row and we increased new sales levels year-over-year in all lines of business, with the exception of property. Our second key focus area last year was to improve the underlying profitability of our property line to an acceptable and sustainable level by the fourth quarter, which we also accomplished. In our auto business, a critical priority area for us in 2011 was to initiate state-specific actions to turn around the decline in new business sales and retention levels that began to emerge in the second half of 2010. A focused cross-functional effort, which included a high level of involvement and commitment on the part of our agency force, enabled us to accomplish this objective with true new auto sales exceeding prior year in both the third and fourth quarters by substantial margins and the retention ratios tracking above prior year in all 3 months of the fourth quarter. And like our underlying property profitability, we expect these auto growth trends to continue into 2012 and beyond. Our last 2011 performance priority was to sustain the positive growth and profit results we had achieved in our retirement annuity business in both 2009 and 2010. And with another record year of sales, coupled with the double-digit increase in underlying earnings, adjusting for DAC unlocking and the change in GMDB reserves, I think the results speak for themselves. So as you might expect, we are encouraged overall with the underlying results and recent trends in our business, which are reflected in our 2012 business plans and in our operating EPS guidance range of $1.80 to $2 which Dwayne will comment on further in just a moment. Looking forward to 2012, we have established 5 critical priorities. 4 of them are focused on sustaining the momentum and strong business results achieved in 2011. First, we'll be focusing on further increasing the productivity of our agents and are also targeting another modest increase in the size of our agency force. Next, we expect to continue the momentum we've built in true new auto sales throughout 2012, and we'll be placing heightened emphasis on retention, both aimed at achieving sustained and profitable growth in our auto business. Number 3 is a continued focus on property profitability, maintaining throughout the year the favorable underlying margins in this line of business that we recently achieved. And the fourth is to continue leveraging the strong growth trends we've enjoyed over the last few years in our annuity business, while effectively managing our profit margins in the current low interest rate environment. The fifth and the final performance priority for 2012 is a new one, and that is to achieve a double-digit growth in sales of Horace Mann Life products, with a strategic objective of growing our underwritten, mortality-based business over the long term. Our emphasis in the months ahead will be on agent training and education, focused on the existing portfolio of Life products that we manufacture. At the same time, we'll be assessing product development opportunities, along with process and technology enhancements to further support and sustain this initiative. And like last year, we'll be updating you throughout the coming year on how we're doing relative to these priorities. Now before I turn it over to Dwayne, I wanted to acknowledge and introduce to you a new member of our senior management team. Matt Sharpe, our new Executive VP of Annuity and Life, joined Horace Mann on January 1 after a successful 12-year career at Genworth Financial where he was most recently Senior Vice President of their long-term care product line. Matt has an extensive Annuity and Life background, with both Genworth and Aegon and was involved in the 403(b) business early in his career. We're excited to have Matt as part of our team and you'll hear from him shortly. But first, I'll turn it over to Dwayne to provide additional detail on the quarter.

Thank you, Pete, and good morning, everyone. Horace Mann reported fourth quarter operating income of $0.72 per share, which was $0.33 per share more than the same period in 2010, primarily driven by expanded annuity investment margins and materially improved property line earnings, including favorable prior year's reserve development and a reduced level of catastrophe and sinkhole losses. Relative to our expectations, operating earnings of $1.11 per share for the full year were better than our revised guidance and favorable to analyst consensus estimates. These full year results were $0.49 less than prior year, with 2011 significant P&C catastrophe claims accounting for more than the difference. All in all, our operating results, excluding cats and DAC unlocking, were generally consistent with our expectations for the full year and clearly point to the strength of our underlying operations. We reported a 23% increase in GAAP book value per share year-over-year, driven by our solid operating results and investment portfolio, which continues to perform very well. With the combination of continued low Treasury yields and tightened spreads during the quarter, the net unrealized gain was approximately $441 million at year end, pushing book value to $27.33 per share. The book value per share, excluding net unrealized gains, was $20.66, an increase of 6% over prior year end. First, focusing on investments, we produced another quarter of solid results. We realized net investment gains of approximately $5 million of pre-tax in the quarter, with only a de minimis level of impairment write-downs. The realized gains resulted primarily from strategic sales, driven by the significant drop in Treasury rates and a minimal level of portfolio rebalancing, reflecting a slight bias towards shortening the duration in the Annuity and Life portfolios. As we've stated in the past, we remain confident in the quality of our conservative investment portfolio, but we continue to be cautious as the U.S. economic recovery is ongoing and the uncertainty in the European markets persist. Pre-tax net investment income was up over 8% in the quarter versus prior year, with Annuity and Life segments continuing to be the primary beneficiaries, reflecting growth in the portfolio size, as well as previous efforts to reduce excess cash and short-term balances over the last year. The Property and Casualty segment investment income was up 1% for both the quarter and year-to-date compared to prior year, despite cash outflows for the significantly higher level of catastrophe losses in the current year. Looking forward, we would expect the overall growth in investment income to continue to moderate, particularly in the Annuity line, considering the low interest rate environment. As we look to 2012, '13 and '14, we recognize that the low interest rate environment, as well as possible increased call and refinancing activity, will most likely pressure net investment income. We regularly model a variety of interest rate scenarios to quantify possible impacts on future earnings, particularly with regard to spread compression in our Annuity line. Given the Federal Reserve's recently announced strategy of keeping interest rates low for an extended period, I'll share an updated scenario with you that models the impact of a low interest rate environment into 2014. A very conservative scenario that we have discussed from time-to-time assumes the reinvestment rate over the next 3 years of approximately 3.25%, which is roughly 125 to 150 basis points less than current reinvestment rates. Under this scenario, the gross earnings per share impact in each of 2012, '13 and '14 would be approximately $0.06, $0.16 and $0.24 per share, respectively, before any reduction in annuity crediting rates on in-force contracts. Assuming reductions in crediting rates to contract minimums, however, the impact in 2012 would be basically offset while the impact of 2013 and '14 could be cut to about $0.08 and $0.14 per share, respectively. As you can see, even under these conservative assumptions, the impact on operations would be very manageable. Turning to the subject of earnings guidance. As noted in the press release, our range for full year 2012 operating income is $1.80 to $2 per share, primarily reflecting a significantly lower level of property catastrophe losses consistent with modeled results, offset somewhat by a reduced amount of favorable reserve development and an expectation that the auto line produces a combined ratio result generally consistent with 2011. Annuity segment operating earnings are expected to continue to be strong in 2012, slightly higher than 2011, reflecting growth in assets under management, partially offset by a modest decrease in spreads. We anticipate Life segment operating earnings to decrease slightly compared to 2011. For purposes of our 2012 operating income per share guidance, we've assumed an average number of diluted shares of approximately 41.7 million, which excludes any additional repurchase activity. In terms of our year end 2011 capital position, we estimate that our Life RBC ratio will approximate 500%, consistent with year end 2010, despite our reliance on the Life company for holding company cash flow during the past year. On the P&C side, 2011's premium-to-surplus ratio improved to just under 1.5:1, and we expect the RBC ratio to approximate 525%, while positioning the P&C companies for growth. As Pete mentioned, in early December, we announced a new $50 million stock repurchase program. As noted in the press release, we've begun making repurchases at average prices of $13.21 in December and $14.29 per share in January, for a total amount of $2.6 million under the program. Our repurchase program is purely opportunistic in nature, taking into account such items as price-to-book ratio, trading volumes, current year actual results and macroeconomic factors. Lastly, I'd like to make a few comments regarding the adoption of new accounting guidance related to the deferrable costs associated with the acquisition of insurance contracts. Our preliminary analysis indicates the impact on book value will be approximately $34 million after tax or approximately $0.85 per share, which is consistent with our previous disclosures. Going forward, the impact of lower expense deferrals and amortization on operating earnings is minimal and has been considered in our earnings guidance discussed today. And now, Tom Wilkinson will discuss the performance of our Property and Casualty operations.

Thanks, Dwayne, and good morning. Today, I will summarize our Property and Casualty profitability and growth results, as well as providing an outlook for 2012. Starting with profitability, for the quarter, we posted a 92.5% total P&C combined ratio, which was 9 points better than prior year. Our underlying combined ratio, which excludes cat and the impacts of prior-year reserve reestimates, was also 92.5%, 7 points better than last year's fourth quarter. Our profitability gains in the quarter were driven by significant improvement of 26 points in the underlying property combined ratio. Our 62.5% combined ratio, again excluding cats and reserve reestimates, was the lowest quarterly combined ratio in the last 5 years. The completion of the Florida property nonrenewal program in August has virtually eliminated sinkhole losses. Our underwriting programs have contributed to reduce non-cat losses, and we are earning the effects of aggressive rate increases in the last couple of years. For the full year, our property underlying combined ratio improved almost 15 points when compared to 2010. Reduced sinkhole losses contributed over 8 points to the decrease. Again, underwriting programs and increased rates also contributed to the improvement. Moving on to auto results. Historically, the fourth quarter is our highest underlying combined ratio quarter. This quarter, it was 107.7%, up 2.5 points above last year's fourth quarter. For the full year, we posted an underlying 99.9% combined ratio, an increase of just under 3 points compared to last year. The quarterly increase is consistent with the full-year variance and each are impacted by about a 1 point increase in the expense ratio and about a 1.5 points on the loss ratio. The expense ratio is up as we have invested in our growth initiatives, and is in line with our expectations. The loss variance is being driven by increases in physical damage frequencies. As mentioned on prior calls, the increases started in the second quarter, primarily in states impacted by the severe and unusual auto weather patterns we have experienced this year. Taking a look at our top line trends and results. For the year, written premium declined 3.5% for auto and increased 1% in property, with total P&C down 2% compared to last year. Adjusting for the impact of our Florida nonrenewal program, property premium increased almost 5%, with total P&C then down 1%. As discussed on previous calls, our product staff is partnering with marketing, developing and implementing state- and market-specific auto growth initiatives to improve our auto growth trends. So far, we have implemented auto new business growth initiatives in almost 80% of the country. We are encouraged by our fourth quarter results, with increased quote activity leading to a 26% increase in true new auto units. Additionally, we have been introducing national initiatives to improve policyholder retention. We have introduced auto eDelivery for customers to receive communications and policy documents electronically. We have also enhanced and expanded our auto payroll and Easy Pay EFT process, making it easier for our customers to make automatic premium payments. Early results indicate that our policyholders are increasing their use of eDelivery and automatic payment options, which should favorably impact retention and we are seeing some recent improvement. At year end, our auto retention on a 6-month trailing basis was even with prior year, after posting declines in 2010 and the first half of 2011. As you know, the lead indicators for future policy and premium growth are increased new business units and increased retention ratios. And we expect these favorable recent trends to continue into the coming year. And now, for our outlook on 2012. Our total P&C combined ratio expectation is in the 96% to 98% range. As we described last year, we continue to expect our auto combined ratio will run above the total P&C range, in the high 90s. And property should run well below this range, in the low 90s, as we continue to invest in targeted auto growth opportunities while continuing to improve the property bottom line. Additionally, we have increased our overall cat load to be above 7% of total premium. This aligns with the recent changes in the cat models, as well as incorporating the impacts of our recent cat management actions, most notably the completion of our Florida program, reducing 9,600 property policies. Our cat exposure management actions will continue with targeted underwriting programs and pricing actions. Our rate assumptions are in the 4% to 6% range for both lines, as we aim for an appropriate profit and growth balance. Auto remains a very competitive marketplace, and we feel that the auto new business and retention initiatives implemented in 2011 will continue to improve in conjunction with our rate plans. We expect premium to be relatively flat in 2012, with premium and policy growth to follow in 2013. Now I would like turn it over to Matt Sharpe to cover Annuity and Life results.

Thanks, Tom, and good morning. I'll spend the next few minutes going over the profitability and growth results for the Annuity and Life segments. Focusing first on the earnings of our Annuity segment, we again saw strong increases in 2 key metrics, account values and margins. Fixed account values increased 12% compared to a year ago, and the associated net interest margin improved for the full year, reflecting management of both the investment portfolio and crediting rate. The resulting net interest spread was 202 basis points for the full year, an increase of 6 basis points compared to 2010. Variable account balances decreased 7% over the prior year end, but the associated M&E fee income increased 9% compared to the full year 2010 due to strong market performance early in 2011. As we have noted in prior calls, our annuity liabilities are very stable, with positive net fund flows again in the fourth quarter, as they have been for the past 4 years. Our total 12-month account value persistency of 94.4% has improved 0.7% compared to prior year. We continue to maintain a very conservative product risk profile, with minimal equity market guarantee exposure on our variable annuity product line. 94% of our in-force account value has either a simple return of premium death benefit or no death benefit guarantee at all. We do not offer other guarantees such as living benefits, and have no hedging or derivative program exposure. Improved market performance had a positive impact on both the valuation of deferred policy acquisition costs and the level of guaranteed minimum death benefit reserves for the quarter. For the full year, flat market performance relative to prior year plus realized capital gains were the main drivers behind the $2.9 million negative impact on the valuation of deferred policy acquisition costs. Combining all these factors, Annuity pre-tax operating income increased 19% in the quarter, but was flat for the full year. Excluding the valuation of deferred policy acquisition costs and the change in the GMDB reserves, the full year 2011 adjusted pre-tax income increased 15% over 2010. As Steve will comment in his remarks, annuity sales results for the quarter contributed to healthy growth in our total contract deposits received. This growth was driven by single premium and rollover business. In total, annuity deposit receipts increased 8% in the quarter and 10% for the full 12 months as compared to the 2010 period. Turning to our Life segment. Pre-tax income for the quarter increased 29% due to lower mortality cost and increased investment income. Full-year earnings were down 3%, reflecting growth in investment income, which was more than offset by higher mortality cost. Life premiums and contract deposits, which consist only of Horace Mann products, were even with prior year for the quarter and down 1% for the full year. Our consistently strong Life persistency increased slightly in the quarter from 95.2% to 95.3%. In closing, 2011 was a record year for annuity sales and a continuation of strong underlying earnings in both our Annuity and Life lines of business. And with that, let me turn it over to Steve Cardinal for his comments on distribution and sales.

Thanks, Matt, and good morning. I'll provide an update on our agency force, sales results and the continuing impact of our marketing programs. Momentum from the third quarter continued to positively impact sales results in all lines of business in the fourth quarter. As anticipated, we saw continued strength in the sales of auto, annuity and life insurance lines and also saw our property business improve over prior year's fourth quarter. In addition, our December 31 total agency count increased by 4 from the end of 2010 and sequentially by 10 over the third quarter. Let's take a line-by-line look, starting with auto. Our true new unit sales, which represent business from brand-new Horace Mann customers, increased 26% in the quarter and finished up 1% for the full year. Our total auto units, which include add cars or additional units from existing Horace Mann customers, increased 10% during the fourth quarter, but were still down 2% compared to the full year of 2010 as a result of lower volumes of units added to existing policies. We are encouraged by the production trends in the quarter and the second half of the year. In addition, our quote volume was again strong in the fourth quarter, which we believe is a good indicator that our marketing programs are having a positive effect. And just a brief comment on property, we are seeing some sales improvement with the line as new units increased 13% compared to the fourth quarter of 2010, moderating the full year decline to 5%. Annuity sales were once again strong in the quarter, up 17% compared to last year. That 17% reflects a 21% increase in single premium and retirement rollover sale and a modest decrease in flex sales. Single premium and rollover sales have been strong for several quarters, and for the full year, flex annuity sales increased 12% and single premium sales increased 22%, helping to produce our third consecutive record year of annuity sales. And now to life insurance. Horace Mann life product sales increased modestly for the quarter compared to fourth quarter of 2010. Our total life sales, which include our third-party vendor products, were up 20% for the quarter and were up 10% for the year. In addition, we announced some new initiatives in the fourth quarter to support higher sales of our Horace Mann life products. For all lines, we have a number of indicators that our sales momentum will continue, as we believe that the initiatives we invested in last year will support our ability to grow each line of business. The key bets we made in 2011 were on agent education, implementing a national structure to deliver state teacher retirement workshop educators; our partnership with DonorsChoose.org; and a new team focused on supporting relationships with school districts. We are encouraged by the results of these programs and the positive effect they had on sales. As I discussed over the prior 2 calls, our state teacher retirement system workshops are designed to teach educators about their respective retirement systems, and our agents are leveraging these opportunities to successfully write all lines of business. Through all of 2011, we conducted almost 5,000 workshops as compared to an estimated 400 workshops throughout 2010. We believe that these workshops are having a positive effect on sales of all lines of business. Our sponsorship with DonorsChoose.org has been beneficial as well, as we've taken a nontraditional advertising approach within our niche market to support funding for classroom projects. As a result of this program, our agents leveraged a partnership to establish or reinforce relationships in many school districts throughout the country. And we have a tradition of building great relationships with various education associations at the national, state and local levels. And last year, as part of our school district strategy, we introduced an additional national partnership with the Association of School Business Officials or ASBO. Working with ASBO has helped us better understand school district needs and how to -- how our agency force can best offer distinctive B2B services. These services include our school payroll deduction programs for auto, annuity and life, as well as Section 125 programs. These programs, combined with our agents' knowledge of the state teacher retirement system workshops and DonorsChoose.org, not only differentiate Horace Mann in a unique way, but are definitely proving successful. In summary, we are encouraged by the positive sales momentum that we are carrying into 2012. We are excited about having another record year of annuity sales, while increasing auto units and life sales for the full year. And we believe our marketing programs are taking hold and will generate additional new business in 2012. Thank you, and now back to Todd.

Thank you. And that concludes our prepared remarks. Tasha, please move to the question-and-answer session.

[Operator Instructions] Your first question comes from the line of Matt Rohrmann.

Just wanted to first start off with if maybe you could give a little color around what you're seeing, in the teaching market specifically. Obviously, over the last 1 or 2 years, we've seen a number of budget cuts and things like that. But I was just curious to see if you saw opportunities in any particular states in terms of expanding your market share there in the teaching submarket.

Matt, this is Steve Cardinal. Yes, we've seen this, that the districts all around are dealing with budgets in different ways. We kind of saw a lot of impact in 2010, where risk or buyouts or other things were happening and that probably helped cause our agency to kind of get in front of them and talk to them about annuities and retirement and work with some of the opportunities that happened from there. So we're seeing school districts manage through and have discussions around what they're going to do on that end, and we see some nice things on the annuity line. It's also -- a lot of places are starting to hire some new teachers and so we're seeing some opportunities in there. We think with both -- with our multiple product lines, it's -- and our agents out working in there, just having someone around to help them understand what they need to do, what -- in retirement or what's going to happen has really been beneficial for us and when we're able to help teachers, beneficial for them.

Okay. And are there any specific states or regions that you're seeing more or less of that compared to, say, the average?

We see it in -- it's kind of happened some -- we're seeing it throughout the country where there's impact on budgets. Places that have well-funded school districts, they're kind of business as usual and we have some of those in every state. And some places, they've had a little more dramatic actions they've had to take with closing a school or shutting down of some other programs within the schools or shortening days and things like that. But generally, it's -- they have a various level teacher count overall. A lot of the cuts that we're seeing are in the administrative side, in aggregate, and -- but I wouldn't look at any one state as more so or less. You can track where the property values are kind of moving more. We probably see a little more action in places like California and Nevada and Arizona and Florida. But overall, they seem to be managing through the cycle in the ways that you'd hope they would.

Okay, great. And then just wanted to quickly touch on the personal auto combined ratio. Sort of forgetting the potential weather impact or historic weather impact, I guess, what areas of improvement do you see there? Is that a type -- as you think over the near to medium term, assuming pricing and loss trends remained fairly stable, that perhaps you could get from sort of a high-90s target to more of a mid-90s target?

Yes, Matt. This is Tom Wilkinson. That pretty much sums up our long-term plan. Our short-term plan is kind of just what you said. We're in the high 90s. We're making some investments. We -- I think we've had a pretty good run with rate regulation and stuff. We're not really running into major issues there. And we anticipate the loss trends to be as -- to be fairly consistent just like they were in the last couple of years, absent the weather. We had a pretty unique auto weather here in 2011. But we think it's pretty stable going forward. And we see [indiscernible]

Okay. And then I guess, Tom, is that going to -- I guess the other side, for the property side, obviously the weather was about as bad as you could get in the Midwest, and then it was rough around the edges as well. Are there any particular states or sets of states that perhaps there's not just a rate opportunity but one that was outsized, that you'd go after more aggressively?

Well, I don't know if I would categorize any particular state as being outside of the norm. There's probably some areas in the Midwest that have been hit, have a higher frequency of the storms that have hit the last couple of years that may need a little more rate than others. Not all the states are getting hit. Some of the states are actually in pretty good profitable situation. So we'll target those to where we need the rates, depending upon the recent results.

And I guess what's the -- I don't know if you can provide this, but any area where -- is the Midwest typically up 5% to 10% on the property side? Is that consistent with what you've been seeing?

Yes, that's a pretty good range. The 4% to 6% range that I gave for rates for next year is -- auto is a little bit on the low side, on the lower end of that and property's on the higher end of that, and then -- so there's probably a little bit higher rate need in some of the Midwest states as well as -- we still have rate need in Florida that we're trying to track down.

Your next question comes from the line of Bob Glasspiegel.

Buyback is not in the projections, you say. Based on where the stock is today and capital picture, what would be sort of a rough view of how much stock you could get bought -- you could buy this year?

Well, Bob, we -- of course, when we announced that buyback, we announced it as being opportunistic. We don't have any timeline that we're under or any restrictions, and it will depend on a variety of items, some of which Dwayne mentioned. But we really don't have a firm estimate or commitment either on a monthly or quarterly basis. We just feel as though having that program available makes sense, given where our price is. Short of giving you any detailed estimates, which we really can't, probably thinking in terms of what we've done already, maybe continuing at that rate going forward might be my best counsel. But again, it is opportunistic and we'll make those calls day by day as we go forward.

Can you give me what the stat earnings were for last year and what the holdco position is?

Bob, this is Dwayne. For statutory, the net income year-to-date for P&C was roughly $10 million. You might recall, at the end of '09 -- the end of September, there's about a $11 million negative, so good fourth quarter there. And for Life, the year-to-date number was roughly $54 million.

So is $64 million the rough dividend capacity?

Dividend capacity without regulatory approval is roughly $75 million.

And what's the holding co assets now?

Well, as you know, we don't do any extracurricular activities at the holding company, but as far as a cash position, roughly $15 million to $20 million.

Okay. And just doubling back to -- I think great quarter, obviously. The one bounce-up was auto and I got sort of your guidance for next -- for this year and what's driving it, but was there anything special in the quarter that elevated the combined ratio?

Nothing, Bob. Nothing really extraordinary, just a little bit of seasonality. Historically, our fourth quarter bounces up, and we did see a little bit of a continuation of the non-injury physical damage frequency increases that we saw in Q2 and Q3 and due to, we think, primarily due to weather.

The 106 is not the run rate, what -- I mean, what is sort of like the run rate to get to -- you want to get to 99, it sounded like for 2012, I mean. And you're getting rates of 4%, I mean...

Yes, that's not -- I mean, it's seasonally adjusted or takes over -- a little bit longer period of time. It's -- we're running in the high 90s right now.

Okay. So it's not going to take a major lift to get -- to stay in the 90s?

No, no.

We do have a follow-up question from the line of Matt Rohrmann.

One more. I just wanted to follow up on Bob's question with the buyback. I know we have a ways to go, but looking ahead -- and you don't need too many more days like this in trading to get there. Some companies out there, once they sort of start trading around book value, kind of use that as a hard ceiling in terms of foot in the buyback on or off. Just wanted to get your thoughts in terms of that methodology.

Well, certainly, you're right. As the stock price approaches book value, it becomes less opportunistic, I guess you'd say. We have some dilution from our incentive equity grant programs, and we kind of want to make sure that we reel those in over a period of time. So again, like you say, if the stock price keeps on going up and begins to approach book value, we'll probably pause a little bit and think harder about any repurchases.

Okay. But no hard stop on and off either way?

No, it's how we're going to make kind of on a daily basis.

[Operator Instructions] At this time, there are no further questions.

Thank you, Tasha, and thank you all for participating on our conference call this morning. If you have any further questions, please feel free to contact me, Todd Nelson, directly at (217) 788-5738. Thanks again.

This concludes today's conference call. You may now disconnect.