Primerica, Inc. (PRI) Q3 2015 Earnings Report, Transcript and Summary

Good day and welcome to the Primerica Third Quarter 2015 Financial Results Conference Call and Webcast. All participants will be in listen only mode. [Operator Instructions]. Please note this event is being record. I would now like to turn the conference call over to Ms. Kathryn Kieser, Executive Vice President, Investor Relations. Ms. Kieser, the floor is yours then.

Thank you very much. Good morning, everyone. Welcome to Primerica's third quarter earnings call. A copy of our earnings release, financial supplement, presentation and the webcast of today's call are available on our website at investors.primerica.com. Glenn Williams, our Chief Executive Officer and Alison Rand, our Chief Financial Officer, will deliver prepared remarks, then we'll open it up for questions. We reference certain non-GAAP financial measures in our press release and on this call. These non-GAAP measures have limitations and reconciliations between non-GAAP and GAAP financial measures are attached to our press release. You can see our GAAP results on page 3 of the presentation. We will also make forward-looking statements in accordance with the Safe Harbor provisions of the Securities Litigation Reform Act. The company will not revise or update these statements to reflect new information, subsequent events or changes in strategy. Risks and uncertainties that could cause actual results to differ materially from these expressed or implied are discussed in the company's 2014 annual report on Form 10-K, as updated quarterly by our reports on Form 10-Q. Now I'll turn the call over to Glenn.

Thanks, Kathryn. Good morning, everyone. Today I will discuss our third quarter financial performance as well as distribution results. Beginning on Page 3 of the presentation, you can see that during the third quarter of 2015 operating revenues increased by 5% and net operating income grew 18% versus the prior year period. The strong operating results were driven by growth in the term life segment, including 21% growth in life insurance policies issued and a 12% increase in adjusted direct premiums. Investment and savings products segment revenues remained consistent with strong performance in the third quarter of 2014 despite market volatility and the declining Canadian dollar value. Comparisons of year-over-year companywide net operating income were impacted by approximately $3 million of unusually high incurred claims in the prior year period as well as $5.1 million of employee equity award expense related to the addition of retirement provisions to the 2014 awards in the third quarter of last year. The declining Canadian dollar value reduced operating revenues by approximately $11.5 million and net operating income by approximately $2 million versus the prior year period. Strong performance and ongoing share repurchases drove record EPS of $0.98 and record ROAE of 17.7% on an operating basis in the third quarter. Year-to-date ROAE is 16.4% and we expect ROAE to increase to around 18% for the full year 2016, driven by solid performance as well as continued capital deployment next year. During the third quarter of 2015 we repurchased $71.4 million or 1.6 million shares of common stock for a total of $181 million or 3.9 million shares repurchased through September 30, 2015. Year-to-date we have returned over 100% of Primerica’s net operating income to our stockholders through common stock repurchases and shareholder dividends. For the full year 2015 we expect to repurchase a total of $200 million of Primerica’s common stock and have board authorization to deploy another $150 million of capital in 2016. In addition to strong financial performance we've also experienced very positive distribution results. This year we have successfully engaged all of the generations of the sales force from our newest emerging sales force leaders to seasoned leaders who have grown their already strong businesses. We leveraged this dynamic in the July convention with announcements focused on attracting millennials incentive to drive sales and distribution growth and fundamental business enhancements to improve our product offerings and client experience. During the convention we focused sales force leaders on stretching their personal goals and the importance of growing the licensed sales force to achieve long-term success. The results speak for themselves. As you can see on Page 4, our life licensed sales force grew 7% to 104,702 at the end of September compared with the year ago period and was up 4% from the end of the second quarter. Deposit momentum in the first half of the year combined with convention messaging and initiatives drove a 34% increase in recruiting of new representatives and 27% growth in new representatives obtaining a life insurance license versus the prior year period. In the third quarter we achieved the highest number of new life licenses in a single quarter since becoming a public company. This success was driven by strong recruiting and recent orders as well as the fundamental changes we’ve made to our licensing processes over the past several years to build licensing momentum simultaneously with recruiting growth. The percentage of license non-renewals and terminations in relation to the size of the sales force remained low with continued consumer confidence within the middle income market and increasing optimism in the ability to achieve success as a Primerica representative. This ratio tends to increase slightly in the fourth quarter with heavier state renewals at year end. Our underlying fundamentals are strong and we expect the size of our life licensed sales force to increase in the fourth quarter. The size of our mutual fund licensed sales force also continued to grow in the third quarter, up 4% from the year ago quarter primarily due to ongoing growth in the size of the life insurance sales force and our continued focus on mutual fund licensing as well as enhancing investment and saving products offerings. Now that we’ve spent some time on how we are growing the front end of the business, let’s walk through how life insurance licensed representatives progressed through the business. As you can see on Slide 5, we have 104,700 licensed representatives and 81,100 of those have only a life insurance license. Approximately 90% of our representatives will remain part-time throughout their Primerica career as they learn about the business, serve clients and build an organization. After representatives achieve success in the business they may choose to obtain the mutual fund license. This can be a few months to several years after they become life insurance licensed. We currently have 23,600 mutual fund licensed representatives most of whom are also appointed to sell variable annuities in the US and segregated funds in Canada. Once representatives are successful in the investment business, they may go on to become investment advisor representatives and sell managed accounts. We currently have over 2800 investment advisor representatives. It’s also helpful to understand our retention of life licensed representatives. The average tenure for our 104,700 life licensed representatives is six years. As would be expected, representatives with both the life insurance and mutual fund license have a higher average tenure of eight years and our investment advisor representatives have been with the company an average of 14 years. Overall we have a large number of representatives who have been with the company a substantial amount of time, including over 23,000 representatives who have been here more than 10 years and 8600 who have been with us over 20 years. Now turning to production results on Page 6. Term life issued policies grew 21% compared with the prior year quarter, significantly outperforming the industry which increased 2% year-over-year according to the Medical Information Bureau Life Index. Our larger life insurance licensed sales force and productivity that was in the high end of the range drove strong growth in the third quarter. Productivity increased in the quarter to 0.22 policies issued per life licensed representative per month from 0.19 in the third quarter a year ago and remained in the similar range to 0.23 in the second quarter of 2015. Productivity was driven by continued middle-market consumer confidence, post convention initiatives and our ability to successfully meet the needs of the growing middle market. With only a 4% market share of the individual life insurance face amount issued in 2014 we continue to see significant opportunity for the future. Investment and savings products had net inflows of about $200 million while ending client asset values declined 3% year-over-year to $45.85 billion primarily reflecting market performance and the declining Canadian dollar value in the third quarter of 2015. Investment and savings products sales of $1.37 billion were consistent with the strong sales in the prior year period. Canadian segregated funds experienced significant sales growth due to recent product enhancements and positive media recognition of product performance in the first half of 2015. Fixed index annuity sales increased 22% with the addition of another product provider and the recent introduction of a fixed index annuity provider in Puerto Rico. Conversely, variable annuity and managed account sales declined year over year as these larger ticket sales respond more quickly to market volatility than smaller investments. On a sequential quarter basis, total investment and savings products sales decreased 13% from the seasonally strong sales in the second quarter. Total client asset values were 7% lower than the end of the second quarter, primarily reflecting market performance and the declining Canadian dollar value in the third quarter of 2015. Regarding the Department of Labor, we remain actively engaged in the process and have continued to provide comments to help get the final rule to the right place. We are hopeful the DOL will make changes to the proposed rule as their leadership has been quoted saying but regardless of what happens we will make the necessary adjustments to our business to ensure middle income families receive sound investment advice for retirement savings. Now let me turn the call over to Alison to discuss financial results.

Thank you, Glenn and good morning everyone. Before I go through the quarter’s results, let me spend a few minutes discussing the change we made this quarter to our basis of our allocating net investment income and interest expense between segments. As you can see on Slide 7, this change had the effect of moving the majority of net investment income and all interest expense previously reflected in term life to our corporate and other distributed product segment. There was no impact on the company’s consolidated financial statements as a result of this change nor does it influence the way we view the profitability of our products. We believe the new allocation to DAC [ph] is a better reflection of how we evaluate our term life business and manage our invested asset portfolio. Historically we have used statutory reserve and required capital as the basis for allocating invested asset and income to term life. Over the last several years we have successfully executed statutory reserve financing transactions, have greatly reduced the level of invested assets we need to hold to support statutory reserves. As a result, we have chosen to allocate net investment income to term life such that it equally offsets the net interest accreted to the segment’s GAAP future policy benefit reserve less the DAC acquisition costs in lieu of using a statutory based approach. This method is consistent with our view that net investment income is not a key driver of earnings for the term life segment, nor does it heavily influence product pricing decisions. Going forward net investment income should be a small but modestly increasing component of the term life segment’s operating income. We believe this change provides a clearer view of long term income dynamics for term life while showing the full performance of our invested asset portfolio and C&O such that market trends and their effect on investment incomes can be viewed holistically. Let me take this opportunity to reiterate that our term life business by nature generates predictable long term recurring income that could withstand fluctuations in the economy and the market. Slide 8 helps to highlight this. We believe that the term life segment’s operating income should grow at a rate consistent with the growth in adjusted direct premiums with periodic fluctuations for an usual level for incurred claims persistency and insurance expenses. We expect adjusted direct premiums to continue to show attractive growth rate around 10% annually for the next several years as a result of the reinsurance transactions we entered into at the time of the IPO. There was further upside in growth from continued sales growth as earnings from higher sales emerged meaningfully over time. As an example, given the growth we have experienced in 2015, if we assume that term life sales grow by 5% annually for the next four years, our pretax term life earnings will be about $40 million higher in 2019 than they would have been had sales remained at 2014 levels for the five year period. Term life’s operating income before income taxes as a percentage of adjusted direct premiums should be in the 17% to 18% range on an annualized basis with quarterly fluctuations for incurred claims persistency and insurance expenses. Known seasonality in these items such as higher than average first quarter employee related expenses for equity award vesting and the benefit of seasonally higher persistency in the second quarter will continue to impact quarterly results. Now let me walk through this quarter’s segment results. Starting on Slide 9, our term life segment experienced strong growth year over year. Operating revenues grew 11% driven by a 12% increase in adjusted direct premiums and the inherent growth trajectory in the segment as well as strong recent sales trends. Operating income before income taxes was 37% higher than the same quarter last year as the prior period results included heightened employee equity award expenses as well as $3 million of incurred claims that were above historical levels. Current period results were also modestly impacted by the reprocessing of certain reinsurance transactions which increased operating income before income taxes by $1.4 million. Term life’s operating income before income taxes as a percentage of adjusted direct premiums was 18.2%, up from 14.9% in the prior year period. The ratios we used to assess the business were all in line with expectations and improving versus the third quarter a year ago. The ratio of benefit and claims to adjusted direct premiums decreased to 59.3% and 60% in the prior year period and reflect incurred claims that were generally in line with historical levels this quarter. The ratio of term life’s DAC amortization and insurance commissions to adjusted direct premiums declined to 15.25% from 15.4% in the third quarter of last year, reflecting slightly improved persistency. The ratio of insurance expenses to adjusted direct premiums at 8.2% was in line with expectations. On a sequential quarter basis, operating income before income taxes as a percentage of adjusted direct premiums was consistent with the second quarter primarily reflecting solid premium growth and the impact of the previously mentioned reprocessed reinsurance transactions in the third quarter as well as somewhat elevated incurred claims in the second quarter. Persistency was lower than the strong seasonal persistency in the second quarter as expected. Moving now to our investment and savings products segment. On Slide 10, you will see our ISP operating revenues were flat with the current year while ISP operating income before income taxes was 6% lower than the year ago period. The lower Canadian dollar value relative to the prior year negatively impacted the year-over-year comparison of pretax operating income by $1.7 million in the third quarter. Revenue generating product sales and sales-based revenue declined 2% and 3% respectively from the strong results experienced in the third quarter a year ago. Sales-based net revenue as a percentage of revenue generating sales was 1.33%, down slightly from 1.37% in the third quarter a year ago. The variability in this metric was caused by fluctuations in sales mix of our products during the quarter. Asset based revenues and average client asset values were consistent year over year despite volatile market performance and the lower Canadian dollar value in the third quarter. We continue to see strong net inflows as our sales are balanced with a relatively low and stable level of redemptions as a percentage of assets. We believe our redemption rates are well below the industry average reflecting the long term relationships we have with our clients as they save for retirement. During the third quarter, the ratio of asset based net revenue as a percentage of average client asset values declined to 0.049% from 0.054% in the third quarter of last year. While the US ratio was consistent between periods, the Canadian ratio declined to 0.11% from 0.123% I the year ago period primarily due to about a $1 million acceleration of DAC amortization related to lower segregated fund performance in the third quarter. Account based revenues grew 12% year over year largely reflecting the addition of a mutual fund provider to our record keeping platform earlier this year. On a sequential quarter basis, ISP operating revenues decreased 5% and operating income before income taxes declined 8% primarily reflecting 13% lower revenue generating product sales and the seasonally strong second quarter and a 3% decline in average client asset value. Canadian segregated fund performance led to a slightly higher DAC amortization quarter over quarter. Moving to the corporate and other distributed product segment, as discussed earlier the allocation change in net investment income results in the majority of net investment income and all interest expense being reflected in the C&O segment. In addition, this segment includes the run-off business of our New York subsidiary’s non-term life insurance products, our non-core product line, and corporate expense not allocated to term life or ISP. On Slide 11, you can see that corporate and other distributed products operating revenues decreased $2.5 million from the prior year period and the operating loss before income taxes decreased slightly to $6.1 million. Benefits and claims for our New York subsidiary’s non-term life insurance products were somewhat higher than in the prior year. Insurance and other operating expenses were lower than the prior year period largely due to heightened employee equity award expense in the prior year. Net investment income for this segment was down $2.1 million to $17.2 million due to lower income from called fixed income securities, lower yield on invested assets and the continued deployment of excess capital. Our investments and cash, excluding the held to maturity assets held as part of a redundant reserve financing transaction, totaled $1.92 billion as of September 30th, down from $1.97 billion as of June 30. This decline primarily reflects stock repurchases of approximately $71 million during the quarter, and a decrease in the net unrealized portfolio gains due to widening credit spreads and the currency translation impact of the lower Canadian dollar on our Canadian invested assets. Slide 12 provides a more detailed review of company-wide insurance and other operating expenses. Expenses of $70.7 million were $5.6 million lower than the third quarter of 2014 and more in line with the second quarter of 2015. The year-over-year change largely reflects 5.1 million of expense that was incurred in the prior year period as we introduced the employee equity award retirement provision in the third quarter of 2014 for that year’s award. Expenses were also impacted by an increase of 1.9 million for premium and growth related expenses and about 1 million in DOL related expenses. General reductions throughout the business more than offset these increases. Looking forward, we expect insurance and other operating expenses in the fourth quarter to be at a level consistent with third quarter results. Our effective tax rate for the third quarter decreased from the prior year period and the second quarter. This decline reflects the recognition of certain tax benefits due to statute of limitations that expired during the third quarter, which lowered the effective income tax rate by 1.3% for the current period. We continue to maintain a strong capital position with Primerica Life Insurance Company’s statutory risk-based capital ratio estimated to be in excess of 400% and holding company liquidity of 55.6 million at the end of the third quarter. With that, I will open the call up to questions.

[Operator Instructions] The first question we have comes from Suneet Kamath of UBS.

I wanted to start with the DOL if I could. I think on the last quarter call we’d talked about -- if the plan goes through as proposed, you’d operate outside the big and as such you’d have to have these levelized commissions. Have you spent any time talking to your manufacturing partners about how feasible it is to have levelized commissions across a variety of different products?

Good morning, Suneet. Good question. We have open conversations with of our product providers on a preliminary basis, without details of the final rule it’s a little difficult to frame it exactly. But we have talked with them about the topic, engaged in some very good conversations and shown that they’re interested in continuing those conversations but we’ve been unable to take them to a detailed level without more understanding of what the final rule might be. But we certainly have those lines of communications open.

As you think about sort of next steps here, I mean, I am not asking for details but are your conversations leading you to suggest that it’s feasible to have levelized commissions across a variety of different products?

Yes. Of course as we talk to each provider, we’re speaking with them about their products, and of course our product providers have numbers, large numbers of products under – each umbrella. So as we talk to those providers we’re discussing with them about levelizing or equalizing compensation if you will among all of their products, and then of course as we move from one provider to another we make them aware of the potential for us to talk across providers in the future. So yes, absolutely we are doing that and we’ve got a good indication that that’s a possibility if it should become necessary.

And I will say and we mentioned this last quarter, that given the amount of work that goes into this, it is likely that we would have to limit the number of providers we work with but that being said, we feel like we could still have a full breadth of opportunity for our clients.

Okay but I guess then doesn't limiting the number of product providers in some ways go against what the DOL is trying to do, which appears to me to be give as many options as possible?

No, first of all, Suneet, we operate in a simpler model with a simpler product set already and there are a set of products which we believe is appropriate to the middle-market. That said each of our mutual fund, providers, mutual fund providers more specifically have a large number of products within their product set. They cover all the asset classes. And so we can give appropriate coverage to the asset classes as needed through a narrower set of providers than perhaps a more traditional up market company might find it necessary to do to meet the demands of the consumer. But we don't believe there's a conflict in this view of what we’re trying to accomplish and the DOL’s view of breadth of product offering because we will have coverage of all asset classes.

And then I guess the last one on this is just -- we talked again I think about this on the last call. But just on the expense side there has been a lot of figures thrown out there about expense increases for the industry related to this. Have you done any more work on where expenses could go if this thing goes through?

Again we haven't looked at that and of course we have a very robust process in place today to operate under the current rules and feel like that covers most of the basis. Some of the things that are being discussed by the DOL that have been mentioned by the leadership of the DOL as potential for change as the rule evolves, or managing the types of processes they create these expenses. So number one, we feel like we have most of the basis covered with our infrastructure in place today. The things that may not be covered that we’re going to try to get clarity on are the topics of discussion that the DOL is working to address and simplify because the entire industry has raised that as an expense question and the possibility of building that infrastructure in time. So we feel good on both fronts that the things that are new and unusual if you will are being looked at by the DOL and yet we have infrastructure in place that can accommodate most of what we anticipate we needed.

Next we have Ryan Krueger of KBW.

Just one follow up on the level of commission option. Do you think it would be feasible to have the level of the commissions to be similar to I guess the average all-in commission that you have now under that type of option?

That is the discussion that we’re having with our product providers is to equalize if you will the commissions of a product set sort of on a weighted average of what we’re experiencing today. That’s correct.

And I will just add to that, it may mean to some degree that there is movement by product if you will toward averages on both asset and account based – and sales based, all three of those combined. So part of it will be -- in the aggregate I think your point is, the answer is yes. You might see different composition than you see today by components.

And then I had a question on productivity of the sales force, the last couple of quarters it’s been pretty strong. Do you feel and you’ve always talked about a 0.18 to 0.22 range, I guess you’re kind of starting to run more towards the upper end of that, do you think that’s sustainable going forward?

We're excited about the progress that’s been made and we are always in process of trying to improve productivity to the upper end of that range. We've been successful in that as you can tell not just for a single quarter but for several quarters now. And I think that reflects the excitement level our sales force, great field leadership have stepped-up in an incredible way throughout 2015 not just in this quarter. And so we're encouraged by that and believe that we do have some momentum that’s sustainable into the future. So we hope to stay within that range, toward the upper end of that range.

Last one, RBC ratio, the release said over 400, I think the comment last quarter was over 430. Can you just discuss – I guess how much the RBC ratio declined and I guess how you feel about where it stands at this point?

Sure, and the specific reason for the decline was that as part of our plan to go ahead and increase our capital deployment this year to 50 million, we went ahead and extracted certain dividends from the Primerica Life, so that was a key driver for the decline. I will say the other component of the decline is the fact that we’ve been having very strong life production and obviously on a short term basis that does create some statutory strain but in the long run obviously creates a far more capital than the short term strain. With that said, we really do think the ratio is going to be somewhere in the low 400s, let’s say between 400 and 420, generally. There are some things that will happen periodically, just based on the timing of when we take out statutory dividends et cetera but for the most part we think we’re going to be in that low 400s range in the near term.

Next we have Steven Schwartz of Raymond James.

Just a quick one are back on the levelized commission before I ago up north. The issue here – is the issue here so much getting like – Franklin full disclosure, Franklin came to Raymond James and discussed this with us. Is the issue getting Franklin to do it or is the issue really getting Franklin and Legg Mason to match each other?

Again in working with our product providers we do believe that we have a single product provider that can accomplish that, that had the coverage of asset classes, then that would give us what we need. I can’t speak on behalf yet of how the product providers might work together but clearly we would engage them in that conversation, and that would be a benefit. I think the broader our product set is, up to a certain limitation of too much complexity would help us. So clearly we’re leaning in that direction but we started talking with our product providers individually and get a read on their reaction and then talk to them about working together to try to give us and the rest of the industry, that might use this model by the way, a broader product set.

I have a series of questions on Canada. While we discussed the DOL I think the Canadian thing is happening sooner. So everything I've read on the Internet and of course everything on the Internet is true – is that the new test is definitely coming January 1. I think you mentioned that it's -- I think on the last call you mentioned that the tests are going to be broken up in the four segments instead of one and everything I've read suggests that the test is going to be a lot harder than it has been. Do you agree with those statements?

Well I think you’ve captured, Steven, our concern that with the change was so radical, if you will, that it was impossible to predict the impact, and so you have to assume that a modular test, four mini tests is more difficult to pass than one larger test because if you fail any one of the modules, you are out until you pass that module. On the positive side, if you pass three modules, you only have to go back and take the one you failed. And so there is some give-and-take in this but the concern that we had was we couldn't figure out how to predict the impact and even though we were sure about regulators that the intent was not to make the test more difficult, we felt like the structure of the exam was going to make the test more difficult to pass, even if the questions were of similar difficulty level. And of course as you know we feel very strongly about that, and brought legal action against two provinces as a result. One thing that has happened since we last spoke is that we have settled those legal actions and dismissed our cases and the reason we’ve done that is because we were able to negotiate a transition process beginning with the change that you mentioned in January 1 going for a period of time where we could ease into the new process in a number of provinces by continuing to have compensatory score in a single exam rather than a modular exam. As we change those, there will be some changing questions in administration but we could start to see impact on a transition basis over a period of time. There is not an exact period of time, there's a number of exam attempts to determine the length of the transition. And so what that does is it gives us a chance to see impact as we go and isolate these various facets that I just talked about that we are not sure of the impact going forward. And so one thing about the transition period that was part of our settlement agreement which by the way these changes have been announced to the industry, so we’re very confident that they actually are in place, it’s not just a discussion that we’ve had with the two provinces and of course the Québec who administers the program. But one is the compensatory scoring, the single scoring for some provinces so we can compare the two exam methodologies. We are also having the new exam reviewed by a professional psychometrician third party independent that can assess, has the exam got more difficult, both the questions themselves and the process and then that psychometrician will recommend changes to the exam should there be unintended consequences in the process. In addition, there are ongoing stakeholder sessions that have been committed to in the settlement, transparency around the change in fees, transparency about the data metrics and even a complaint process. And so we feel like with these changes it was appropriate to dismiss our cases and that we could manage through this and minimize the unintended consequences inflicts our business model around what is happening. In addition to that, while all of that in the Commonwealth provinces and the nine Commonwealth provinces and territories is a change to what appears to be a more difficult exam process although time will tell. It actually is a simpler process than what we’re experiencing in the province of Québec which is the second most populous province for our business and we anticipate to actually get a benefit from this change in Québec that will help offset some of the very difficult major possible negatives in the other provinces. So net net, we feel very good about this settlement. We believe we’ve got the appropriate changes that have been introduced and talked about to the rest of the industry. So it’s not unique to Primerica, these are industry changes and as we prepared for 2016 we believe we’re going to be able to manage though this and minimize significant disruption to the business.

So it seems lot of my question looks like you’re going to be up in here but I do want to ask – this one, with regards to Canada. Do you know off the top your head, what percent of recruits in newly licensed reps were in Canada this quarter?

Generally if I can just -- I don't know the answer for this quarter, we can look at up, but generally what we see is Canada does run in the normal kind of 10% rule of thumb number for recruiting and because the process is longer there we see the licensing pull-through slightly lower in Canada, so you’ve got about 10% of recruiting, 8% to 9% of licenses are general rules of thumb, we have to go back and look at those numbers exactly for the third quarter.

And then one for Alison, the reserve adjustment – what line item does that affect?

It will go through adjusted direct premiums and it would go – and net premiums for that matter and then it would also go through benefits and claims.

Do you have those numbers handy?

I believe it was just about over 3 million of adjusted direct premium increase and the net would make it about 1.6 to benefits and claims for a net pretax of 1.4.

I am sorry, it was – adjusted was 3 million, net premium was how much?

1.6 increase.

And then the benefits and claims?

I am sorry – no, I am sorry, let me repeat that. The 3 million is the same for adjusted direct premiums and net premiums, and then the 1.6 is the increase to benefits and claims for a net of 1.4. End of Q&A

At this time we have no further questions. This will conclude our question-and-answer session and today's conference call. I’d like to thank management for their time today and we thank you all for attending today’s presentation. At this time you may disconnect your lines. Thank you. Take care and have a great day everyone.

Thank you.

Thank you.