CNO Financial Group Inc (CNO) 2001 Q1 法說會逐字稿

Thank you for holding, and welcome to the Conseco teleconference. We will begin with an address by Tammy Hill, Conseco's Senior Vice President. During the presentation, all teleconference participants will be in a listen only mode. A question and answer session will follow the presentation. If you need operator assistance at any time during the call, please press the * followed by the 0, and an operator will help you. Thank you for your attention and here is Tammy Hill.

Good afternoon, and welcome to Conseco's first quarter 2001 conference call. Whether you are joining us by telephone, through our live Internet broadcast, or on taped replay, we certainly appreciate your interest. Before we begin the day's call, a couple of announcements. First, we'll be referring in the call today to information contained in our first quarter earnings release. You can obtain the earnings release by visiting the CNC shareholders section of our website, conseco.com, or by calling our fax-on-demand service at 1800-344-6452. Next, our usual announcement on forward-looking information; forward-looking statements to be made in this call are subject to a number of factors, which may cause actual results to be materially different to those contemplated by the forward-looking statements. Please refer to today's earnings release and to our latest Form 10-K annual report for additional information concerning the forward-looking statements and related factors. And now, I'll turn it over to Gary C. Wendt, our Chairman and CEO. Gary?

Good afternoon to all of you who are on our network. We're coming to you from the Conseco auditorium on the campus of the Conseco organization here in Carmel, Indiana. I am joined on the podium today by President Tom Kilian, the President of the Consumer Finance Business, Bruce Crittenden, and our newest addition, and we're happy to welcome to Conseco, our new Chief Financial Officer, Charles Chuck Chokel, but I think if you can say Chuck Chokel six times fast, you've really done a good job. So, we're all up here, and we will be ready to answer your questions after we go through the report, which you should either have received or will be receiving in the next few minutes. The adage of course goes that when you're addressing a group, you should tell them what you're going to tell them and tell them, and then tell them what you told them, and we're really going to follow that this morning, because there are five main points in our earnings release at this time. They are, first of all, for the first quarter our operating earnings are coming in at the high end of our target or ¢16. In addition to that, we have a one-time gain from the sale of the riverboat, which although announced earlier was booked in the first quarter of 2001. We have, during the first quarter, also strengthened the balance sheet in a number of areas we will discuss, and as importantly, set up a reserve for restructuring which will make this a more efficient, more productive cost organization in the future. When we net those two items together, the positive sale of the riverboat and the balance sheet strengthening plus the reserve for restructuring, we do come up with an additional ¢7 of income, so total income being reported for the first quarter of this year is ¢23. It is about 23% over, but ¢23 is the number, and I apologize for that slip. And then the final item we're going to talk about is that our extensive efforts during this quarter and for the rest of this year are going to be finding as many cost savings and making the business as productive and as customer conscious as is possible, and those initiatives are starting to bloom, and we'll be talking to you a little bit about them. I want to remind you just very quickly that we have defined ourselves as the new Conseco. The old Conseco being a company that was very successful in growing via acquisition, had very strong growth through the mid to late 80s and into the mid 90s, but then after borrowing too much money, caused us to change the business model, to change the business plan, to change the focus of we're doing, and we're now operating under the new Conseco, which is an operating business meant to be world class as we build it over time. Getting into the financial results. For the first quarter, our insurance and fee-based operations produced $203 million of pre-tax income, and the finance business produced 63.6 million for a total of nearly 267 million pre-tax. Corporate charges, which are principally interest as we still have an extensive amount of debt in the company, were $138 million for pre-tax profits of $128 million. Now, as you know, it's highly probable that the world is going to be adopting a new accounting convention at the end of the second quarter, which will not include goodwill charges. So we are showing our income as we have in the past two quarters, first, before goodwill charges and that's $80.8 million or ¢23 a share. Goodwill charges for Conseco all of which, almost all of which, come from the insurance company, are ¢7 a share or $26.8 million, and after-tax, after-goodwill operating income, we arrived at ¢16 for the first quarter, that's at the high end of the range of ¢13-¢16 which we gave guidance on in December, I believe. Now even though Chuck Chokel has been with us for only a few weeks, we are going to press him into immediate duty and let him give you a little more depth on the first quarter financial results.

Thank you Gary. Following your convention, I'll talk about the insurance segment briefly, the headlines in our finance segments, the corporate holding company liquidity and charges, and then turn it back to you. First, in our insurance segment, as Gary mentioned, our operating earnings for the quarter were $203 million, up 10% over the prior year, and we have revenue growth in virtually all lines, except for the annuities lines. Total collective premiums were up 7% over the prior quarter and excluding the annuity sales, which were down significantly here and throughout the industry. Insurance margins improved as expenses declined 15% during the quarter, and there were a number of strong pockets of sales growth, particularly in Supplemental Health business and in the life business. In our Conseco finance segment, the operating earnings were strong at 63.6 million, up 78% from a year ago. Our on-balance-sheet assets for continuing lines grew 52% with net interest margins up 60% quarter over quarter. Our most recent securitization spreads are at historically wide levels. For those of you who have access to the web page, you can see a chart that we have up there, manufacturing housing spreads and mortgage service spread on the most recent securitization, which show most recent one done in the spreads for manufactured housing, 613 basis points, which were nearly double the spread of 2-3 years ago, and mortgage servicing spreads were at 735 basis points, again historical high. Also, the cash executions on the current securitizations are running better than planned, and we hope will continue in the next quarters. 60+ day delinquencies fell 24 basis points in manufactured housing, and recovery rates were at 46%, despite our competitors withdrawing from this business and selling repo inventory wholesale. Also, the 30-day delinquencies fell even further, dropping 61 basis points, a manufactured housing 30 to 60-day delinquency rate of 1.12% for the quarter. And now those of you who have owned the shares for a long time have seen a lot of IO impairment charges come through quarter after quarter, and I am pleased that this quarter they were more modest than in prior periods. The IO impairment charge was 7.9 million pre-tax, $5 million post-tax, and we book only those pools that go down in value or those that perform less well then what we have modeled. There are a significant number of pools that outperform our model, but we are not able to write those out by the accounting rules. Instead, those valuations go into equity and get earned out as the pools mature. Net, all our IO, valuations, in total, rose during the quarter by $23.7 million. On the holding company front, we're in a good liquidity position. There was continued improvement in balance sheet strength during the quarter. The holding company had an increase in cash on hand of $460 million during the quarter, in addition to a decrease of $130 million of outstanding debt. This was achieved by a combination of in-the-box asset liquidations and strong operating cash flows. We ended the quarter with $836 million of available cash, well in excess of the $600 million needed this coming June, and remain confident we will be able to pay off the debt that comes due by December, even without the sale of Telecorp. On the press release, we have outlined some charges that Gary mentioned we had to gain on sale of 122.6 million from the riverboat sale, and offsetting this were some legacy items. First, we marked to market the Telecorp value change, quarter over quarter, after tax that increased to 17.5 million for the decrease in the value of the Telecorp. I should mention that the market value of our holding at 331 was $267 million, but we were carrying it on our books at $211 million to reflect an inability to sell it until later this year. It is currently restricted from sale. Also, we had some, as I mentioned, IO impairment charges that went through in the quarter. We had some discontinued operation losses, principally in major medical, and had some disputed reinsurance recovery associated with those, and settled one lawsuit outstanding in that area, for a total of $10.6 million after tax, in the discontinued operations charge. We had realized losses from investments of $24.4 million, and basically this is our $23 billion investment portfolio, which is principally fixed income security. Each quarter, we have gains and losses from those, but this was a particularly strong quarter, in the sense that as interest rates fell, our fixed income holdings appreciated. Nonetheless, there were some that were under water, and we took the opportunity to sell those and harvest the losses to reduce our taxes, and those totaled 24.4 million. In addition, we wrote down some of our private equity investments. These are investments that have been made 3, 4, 5 years ago, that are volatile, I mean liquid, and we've marked them as best we can at March 31, and that totaled $34.7 million after-tax charge, and I think you have seen, if you've read the Wall Street Journal today, you saw considerable private equity write downs as have Chase, Banc of America, and others that have invested heavily in this area, so I don't think our results in this area were anything unusual, and I should mention they have been particularly strong in prior years. Lastly, there was organizational restructuring. We announced the elimination of a number of jobs, both in St. Paul, Minnesota, and here in Carmel, and took severance benefit charges of $13.9 million pre-tax and nearly $10 million post-tax. We also are closing some offices and selling off some artwork and took the opportunity to write those down as appropriate, and lastly, had a loss related to the sale of certain finance receivables. So the total was 122.6 million gain on the riverboat, less 96.7 million of charges, and after-tax net gain of 25.9 million, which equals the ¢7 Gary was talking about. It gets added to the ¢16 operating earnings for the quarter.

Thanks Chuck. I want to go back to the last of the charges that you mentioned, the organizational restructuring, and spend a few minutes before we take our question. Talking about the need to do this, our shareholders will recall that it was a year ago, not quite a year ago, nine months ago, when we took some charges to restructure the finance company, and the finance company with a reduced organization and with fewer businesses to operate is performing just superbly at the moment. Their spreads, as you showed them on the graphs, are up. Their delinquencies are down after peaking at the end of last year. Their getting more for the manufactured housing repos than is the general industry because they have set up their own lots, and they are selling them on a retail basis; just lots of good statistics. I think the earnings were up 62% versus a year ago, and so you can see what the benefit of bringing an organization back to very clear focus can do, and we are doing that now in the insurance and on the corporate side of the business, and there are number of things that you will read in our press release, which I'd like to just spend a couple of minutes and talk about. We are going at this from every direction that we know of. In the first case, I brought back one of the restoration activist who helped us find the nonstrategic assets that we were going to sell, to pay off debt, and had him lead something he had done with me when we worked together at General Electric, cost-out teams, and he has gone business by business, around. I think he has one, maybe, or two more to do, but he is going in and bringing in the organization to decide what's there today. What is the low hanging fruit that we can find where we can reduce cost immediately? He has been very successful so far in doing that, and we think that if he continues to be as successful the rest of the way, as he completes the rest of the businesses, that we can have $50 million of savings in just this year, and then of course those savings will reoccur in future years. As importantly as the fact that we are taking the low hanging fruit now, Ruth Fattori, who we announced last quarter has joined us as our Manager of Process Excellence, is off to what I can say only is a blazing start in putting Six Sigma approach into the organization. I know that Ruth, if she were talking now, would say she is, if she is surprised by anything she is surprised at the enthusiasm which everyone in Conseco is putting into the effort to become trained into this very valuable management tool. She is recruiting and is very close I think to having the 21 "master black belts" identified. Is that true, Ruth? The 21 "master black belts" are identified, and I will try my best not to confuse those of you who are not familiar with Six Sigma approach, but a "master black belt" is a highly trained person in process and variances, and I will leave it there, and I will show you how far I am trained in those things, but the 21 "master black belts" will each have 10 "black belts" who are very qualified to do process mapping and to make decisions and changes, but who don't quite have the mathematical skills that are given to the "master black belt." So that's 210 people in this organization that are going to be working on projects, and as soon as one project is done, they go onto another. Ruth thinks that each team of 21 can get $5 million of annual savings by the end of next year, and 21 times 5 is darn near over $100 million of savings and that's long-term continuous savings, plus we think our customer service is going to be better because if we have more defined usable processes to take to the market. And then third, the third thing we are doing is to outsource to another country where we have proven evidence that cost and quality can both be improved. We announced just yesterday the acquisition of a small company called EXL, and we announced, I believe it was last Friday, that we planned on moving 2000 jobs to India in the next 21 months. There possibly are more than that, what we have identified are only 2000 during that period of time. I happen to have a great deal of experience with India. While I was in my former job with GE, I started the same activity together with our Indian organization with just three people in 1996, and today General Electric has over 5,000 people doing jobs where the information can be telecommunicated to India, processed in India, and then sent back and that, because of increases in technology, even includes voice activity today. So phone calls can be made directly with no knowledge of the recipient of the phone call as to where that call is coming from. So we also have a very large savings opportunity in India, but I think what excites me most about India is that we have a chance to build truly world-class customer service. When we hire people in India, they're college graduates. These are college graduates who find the type of jobs that we have available highly satisfactory in their lives. They're paid a very good salary. In India, they speak English well, and they try very hard to do things better. It isn't very often when in the United States in the same type of jobs you experience 30%-50% annual average turnover in these jobs, and so when you just get a person trained very often they'll move on to another position, and in India, the turnover rate is between 6% and 8%. So we will be able to build people who really understand our business, who understand our customers, and who can communicate with them, I think, in a way much better than we have been able to do in the past. So we are very excited about that. Now, finally, and then I'll stop for questions, I want to make sure that everybody understands that the corporate office is a part of this cost savings productivity gain as well. We had inherited a good number of pieces of art and antique furniture, which quite frankly it's all a question of taste, and it didn't meet my taste, so we've sent that to the auction house to be auctioned off; I think, we'll maybe get $3 million. Additionally, even though private planes are very helpful in some parts of our business, we just think our fleet of private planes is too large and that fleet of 6 is going down to either 3 or 2 over the next two months, over the next several months I should say, as the leases run off on those planes. So we're going to downsize our private aircraft fleet, and we think we'll save at least $3 million a year from that activity as well. So, gosh, cost savings doesn't sound so exciting when you have to do it, but it is exciting when you know what comes out the other end, particularly when that word productivity is attached to it. When we get our company position correctly in cost and in customer service quality, we'll able to grow the dickens out of this, because not very many competitors will be able to keep up with us. So with that, as comments about the sheets we have sent out to you, either over the Internet or over the fax, we will open the floor for questions.

Ladies and gentlemen we will now begin the question and answer session. If you have a question, you may now press the 1 followed by the 4 on your pushbutton phone. If your question has been answered and you wish to withdraw your polling request, please press the 1 followed by the 3. One moment for the first question. Your first question is from Anthony [_______________] of Merrill Lynch. Please proceed with your question.

Good afternoon, I guess one question and one comment. I guess first with the comment, it would be helpful if we could get the financials before the call, just so we could ask I think more intelligent questions, but having said that, the one question I have for you Chuck is looking at the goodwill asset, when you came in and you thought about that asset what was sort of the factors that you consider in terms of positives and negatives, and why do you feel particularly comfortable with the carrying value of that asset? Thank you.

As you know, we had about $3.8 billion of goodwill on the books, most of that related to the insurance enterprises through periods of acquisitions done over the prior years. Conseco had done an M&R reserve study and testing not only reserves but the coverability of the goodwill and our debt balance, and I've read over that study, and I'm not an actuary, so it's difficult to fully digest the 180 pages that are in there, but my summary was their conclusion line by line was that it is recoverable. Secondly, I know there are pockets of our business that have losses, particularly for example the long-term care area. We have the opportunity to segment our business as we choose to. I think when July 1st comes around, we will segment our business by small business units our SBU units as opposed to just particular sub-segment of line, and within that, when you see our full financials, you'll see that everyone of those SBUs, save our risk management area, made a substantial profit in first quarter. So not only did M&R think the goodwill was recoverable through year end, but we now have an additional data point of the first quarter of 2001, but these business made further profits; I think that's going to enhance the recoverability. I also feel pretty optimistic about the expense reductions and savings and thus the improved margins going forward.

And also, just to add to that Chuck and to remind the person that asked the question, that the Milliman & Robertson study was commissioned in the late spring of the year 2000, before I even came, and it was a study done in great depth; over 4 months of work were put in. I was very relieved when I got to study, and it was what was necessary to take to AM Best to get them to give us our A- or excellent rating back, and they studied that in great detail and were comfortable with it, enough to be able to restore our rating.

Just one quick followup. I'm wondering, is there a plan at some point to maybe provide us with more detail on the profitability of each year business segments so we can sort of track the progress?

Yes, I think there is. That's how I intend to run the business, is by looking at the SBU, and I expect the SBU leaders to be making progress, both short and long-term, and I think we'll be more than happy to share that with you.

Thank you.

And we take your point on trying to get the financial information out a little bit sooner.

We should maybe have our call a little bit later then we could get out our information a little bit sooner. Next question, please.

Your next question is from Eric Berg of Lehman Brothers. Please proceed with your question.

Yeah. Thanks very much, and good afternoon. Maybe this should be directed to Bruce Crittenden. Explain to us why you're doing as well as it seems you are in the recoveries. I'm thinking that, I'm certainly not a full-time student of your business, but from following it, call it peripherally here and there, I am of the impression that there still is a lot of excess manufacturing capacity in manufactured housing, a trend that, if I'm right, should presumably lead to downward pressure on pricing of new homes, which in turn should be affecting, broadly speaking, the price of re-sales, and in concept, this should be affecting everyone. How are you able to buck that trend? I need to hear a little bit more before I'm a believer that it's just that you have your own lots? What else are you doing to allow you to win in what, I believe, is a tough environment? And then I have a quick followup question for Chuck.

Okay. Well Eric, let me first talk a little bit about the manufactured housing industry because some of your observations are, the industry is changing right before us. First of all what we are seeing at the dealer units is that the dealer inventory is decreasing, and there are actually 50,000 less units in dealer inventory today. In addition to that, with the manufacturers in the industry cutting back, reducing their plant capacity, reducing the number of retail outlets, supply and demand is coming more into line. We're also seeing customer traffic pickup and delinquencies are being reduced and, of course, we're the largest player in the market, which in turn will reduce the repossessions. But specifically about recovery rates, the first quarter our recovery rates were 46%. Now that's down 1.9% from Q1 of '00. However, it's virtually flat with Q4. Now, the trend as we move through the quarter is very interesting because as we are getting more and more into our own retail lots and more captive distribution at that end of it, we saw our recovery rate actually, from January through March, move up 170 basis points. Now, keep in mind, this strategy of not fire-selling our inventory is a stated goal of ours that we stated back in December, and in preparation for that, we now have 30 contractually exclusive or owned lots. We have over 1000 dealers aiding us in the disposition of our assets, and approximately 205 of these dealers exclusively sell our inventory. And I think that has a lot of do with our two-sided prong approach to the industry with both the wholesale and the retail piece of it. Now, there is significant improvement coming on our company owned lots. Our recovery rates are probably 8%-12% early experience hire, and as you know, repo refis have been giving a lot of coverage with us, and now to say this about that piece of the business, that's part of our strategy. We stated the strategy, since 1987, has been that we will keep the wholesale retail blend of our repossessions at about a 70-30 range. We stuck to that strategy. We have been refinancing repos since 1976, that's not something new to us, and about 51% of our total sales are refinanced by us. A couple of other points on that, very predictable outcome, they fall within our scoring models for that product. Our margins are matched to the risk, and we know the outcome. In addition to that, that customer puts down more money on the asset as well.

And I'd like to just put all that together in one sentence and say, what Conseco Finance does in manufactured housing is a proactive approach towards managing their business. It's not at all reactive, and I have seen it time and time again, when lending organizations take a proactive approach, they outdo competition by a good amount. Now, Eric, you had a question for Chuck?

Yeah, just a real quick one. I think in connection with maturing assets, maybe I just misheard you, did you use the expression 'out of the box' or something along those lines with respect to asset sales?

Maybe I should answer that a little better, because I am the one that coined that phrase Eric.

Oh that's a Wendtism, okay.

When we negotiated with the bank, we took this group of assets, I am sure you will remember, that totaled around $2 billion, and we said those are going to be in the box. All the proceeds that we get from that are going to go to repay debt, either publicly issued debt or bank debt.

Okay, I got you now.

That's what he was after, our box cash.

Thank you.

Next question.

Your next question is from Caitlin Long with Credit Suisse First Boston. Please proceed with your question.

Thank you. Good afternoon. Echo Eric's comments on getting the numbers, but one thing that does jump out at me in just looking at the first flash of the insurance numbers. The expenses were down very nicely sequentially, but there was also a big drop in that investment income. I am curious, what we should think about in terms of modeling that investment income going forward, and what happens in the first quarter? And then a followup question, also interested in where you think the rating agencies are with respect to your senior debt ratings. 00:33.03 THOMAS J. KILIAN: Caitlin this is Tom. I think the investment income was a cyclical thing, and it's more clearing the decks. I think modeling it going forward, you don't want to use just this quarter. I think you want to blend a couple of quarters together, is what I'd suggest, although you build your model the way you see fit. As far as rating agencies, I am going to defer to Chuck on that. I assume you are talking about the financial rating agencies.

Yes.

I'll report them. First, let me just mention on the investment income, I think about a 150 million of the $240 million decline that you see related to annuity investments that were dropped and they were pooled in with our overall investment category, so they were offset on the balance sheet there. So if annuity sales and/or if the market were to pick up, you'd see investment income come on strong, but that's not net to us, we hedge that and....

This is the equity-index annuity line?

Yes it is.

Okay. It would be helpful to see a breakdown of that again, at some point. I know, in your prior disclosures you used to break that out, so hopefully we can see that again next quarter.

I think, made a note, we didn't hold it back for any particular reason.

OK. Thanks, and then on rating agencies. Where do you think that they are with respect to potential upgrades?

Well, we think they are moving forward, but rating agencies are not exactly the quickest organizations in the world. They are careful in their analysis, and they like to see things happen. As we produce quarterly income the way we are forecasting over the next two quarters and as we continue to pay down the debt, we will be continuing to talk to them, and we know they are looking at us in a positive basis.

We know they are listening to this call. We just want to say 'Hello and appreciate your consideration going forward.'

That's great. Congratulations on a solid quarter.

Your next question is from Steven Eisman of [_______________] Advisors. Please proceed with your question.

Yeah, hi, could you give a little more color on the manufactured housing credit quality? You've got lower delinquencies but higher losses and higher repossessions. When do you think you are going to reach, or have you reached, the peak in terms of repossessions and losses?

Okay, yeah, let me just say that we hit the peak in March, and actually, our incurs were down about 12.4%, Q1 versus Q4, and we've laid out a forecast, I think, for the marketplace on what's going to happen with our manufactured housing inventories, and I think it was part of our release today, so we are seeing that go down. I think that the drivers for the future, I think the important thing is on the delinquency; everybody focuses on the 60+, and I am not saying that that's not important, but ultimately, you have to be low-level delinquency before you get the 60+, and our just casual delinquency in manufactured housing has been reduced by over $1 billion since the end of the year, and the 30+ day delinquency is down 228 million since the end of the year. So, if you catch them in the beginning, they don't come out the back, and that's kind of where we are right now. So we feel comfortable saying that it's peaked setting down. March had 500 less repossessions than February, and that trend will continue in the second quarter.

For more information on our projections, you can review either new Conseco memo #9 or 10, or was it #10 where we gave extensive detail on manufactured housing, the business, its delinquency, and where we believe it is headed.

Okay, thank you.

Your next question is from [_______________] of Greenlight Capital. Please proceed with your question.

Hi. I was just wondering on the spread of the chart, actually the numbers didn't come out, so I was wondering if you could say what were the 60-day delinquencies for the quarter, and also what the REO was for the quarter?

Okay, are you talking about the company as a whole?

For Conseco Finance?

Yeah, for the whole company not just manufactured housing.

Delinquencies for the quarter were 1.72% compared to 1.76 in the year-end 2000, and our inventory levels including discontinued lines were at 2.30 compared to 2.08 with majority of the uptake, we worked our way through the manufactured housing inventory.

And also on your receivable balance for Conseco Finance, it looks like the receivables dropped from the year end to March, and I was wondering what is going on there, and I thought part of the premise was that you were going to be rolling on more on-balance-sheet receivables to help bolster income going forward.

Yeah, two things happened during the quarter. The first one was the successful sale of our vendor services business which produced a tremendous amount of cash for Conseco Finance and Conseco Corporate, about $800 million worth of receivables there. In the second piece, we made a decision during the quarter, as part of our previously stated program, to begin whole loan sales of non-core assets, so we have the capability to originate. We made a decision to divest off about $560 million worth of high LTV, LTVs in excess of 100% in our mortgage business, and that was a highly successful sale as well. So those two things, I think, are the drivers on the receivables in our core businesses. We are coming out of the first quarter, volumes are growing monthly, and we expect a good second quarter.

Does that mean that we should expect on-balance-sheet receivables to start growing going forward?

Oh yes, in our core products they are growing, and we expect that to continue.

Where we are getting the income from did grow during the first quarter, but those two special items that Bruce mentioned are what brought the totals down.

As I remember, from the December presentation, you were targeting something like, I think, it was 23 billion dollars of receivables at year end, and I was wondering is that still the target?

Yeah, we have not moved off of our stated goals, and I don't have the net number right here in front of me.

I think that number if my recollection is appropriate here is the manufactured housing receivables both gain-on-sale and on book. It's the total managed receivables in manufactured housing.

Okay.

Don't think so? That's the number that I know for that, but that's what our recollection has shown. Next question.

Your next question is from Paul Goulekas of Conning & Company. Please proceed with your question.

Good afternoon. I have a couple of questions related to insurance ops. One was the strategy on your medical business. I noted on a statutory basis your medical lines lost more money in calendar year 2000 previously, and I know you are exiting. Can you give us an idea how quickly you can exit that, and what we might anticipate in terms of rate of improvement?

Coming under control. I mean, we are still seeing negative results and it's still our plan to exit that business. We had hoped to have that laid out by the end of the second quarter, but it's still a work in process. If we don't find a buyer for it, we will try to find a partner to help us exit over a period of a few quarters.

And we are having discussions with people in both regards.

Okay and can you help me on both long-term care and med sup, how you are finding the pricing environment both from a competitor and regulatory standpoint, and how close are you to being able to get the rates that you need?

Generally, we've been able to get the rates. I mean, we have seen a pretty good increase in renewal premiums, a good chunk of which is due to rate increases. Again, the rate increases are in our independent agent business. Our career generated long-term care doesn't need rate increases, and it's generating nice profits. But we have been able to get the increases we need, same is true of med sup. In fact, the med sup is much more formula driven.

Right, thank you very much.

Next question.

Mr. Wendt, Sir, there are no further questions at this time. Please continue with your presentation and closing remarks.

Alright, our closing remarks are that we will tell you what we told you, which was that we came in at the high end of our operating earnings target for the first quarter, ¢16. The gain on the riverboat was a positive. Our ability to, our charges plus our reserve for restructuring are going to give us the chance to continue the progress to make this a stronger company in the future and after that though another ¢7 gives us ¢23 total to report, and we are making good progress on productivity, cost savings, and we hope soon customer quality in the business. And that's what we told you. Thanks very much for listening and have a nice evening.

Ladies and gentlemen that does conclude your conference call for today. We thank you for participating.