Globe Life Inc (GL) 2002 Q4 法說會逐字稿

Please stand by for realtime transcript. Good day, everyone, and welcome to the torch mark Corporation fourth quarter 2002 earnings release conference call. Please note that this call is being recorded and is also being simultaneously webcast. At this time I'd like to turn the call over to the Chairman of the Board and Chief Executive Officer, Mr. C. B. Hudson. Please go ahead, sir.

Thank you. Good morning, everybody, and welcome. Joining us from our operating companies this morning are Mark MacAndrew, CEO of Globe Life, United American and American Income, Tony [INAUDIBLE] , CEO of Liberty National and United Investors. Also joining us are Gary Coleman, Chief Financial Officer; Larry Hutchison, Torchmark General Counsel, and Joyce Layne, Vice President,, Investor Relations. For you who have not seen our supplemental financial reports and would like to follow along as I discuss some of the details, you can view them on our website, www.torchmarkcorp.com at our investor relations page. Select financial reports from the menu. Some of our comments or answers to your questions may contain forward-looking statements that are provided for general guidance purposes only. Accordingly you are referred to the company's cautionary statement regarding forward-looking statements contained SEC form 10Q for the quarter ended 9-30-2002 which is on file with the SEC and is a matter of public record. Operating income for the quarter was $106.3 million, or 90 cents per share, an increase of 8% over the 83 cents in the fourth quarter of last year. In order to keep things on an apples-to-apples basis, we've adjusted last year's earnings to exclude amortization of goodwill. Our return on equity for the quarter was over 16%, and we ended the quarter with a book value of $22.46. Treating our preferred stock as debt, our debt-to-capital ratio was about 25%.

Now turning to our insurance operations. First I'll talk about life insurance. Total sales for the quarter increased 13% to $83 million. American Income sales increased 22% to $23 million, and we evened the year with 1975 producing agents. Over 200 more agents than at the beginning of the year. American Income continues to be our fastest growing life operation, and it's also our highest margin operation, both in terms of dollars and as a percentage of premium revenue. Direct response sales increased 18% to $32 million. Our expenses for the year were 63 cents per dollar of sales. Our annual sales increased 10% to $103 million but our acquisition expenses declined over 2% to just under $78 million. For 2003 we expect double-digit growth in direct response sales and our acquisition costs should continue at about the rate 63 cents per dollar of production. With respect to the remaining life distribution systems, sales were $28 million, up 2% for the quarter. Total life premium income increased 7% to $309 million with double-digit increases in American Income and our military operations, and with near double-digit increase in direct response. Our life underwriting margins increased 5% to $77 million. Our policy obligations were in line with expectations but were 2 percentage points higher than a year ago. Policy obligations in the fourth quarter of last year as a percentage of premium revenue were the lowest in the last two years.

Turning to health insurance, total sales for the quarter declined 8% to $52 million. United American general agency sales increased 24% to $25 million due to strong sales in our non-Medicare supplement market. Although med supp sales declined 32% to $8 million, other health insurance sales doubled to $17 million. With respect to the United American branch office operation, sales declined 31% to $20 million. However, after three consecutive quarters of declining sales in the branch office, we're pleased to report that the fourth quarter sales exceeded third quarter sales by $4 million. In addition, for the first time in over a year, we increased our producing agent count during the quarter. The year-end count was 1280 producing agents. In 2001 United American's Medicare supplement rate increase was overall in excess of 16%. In 2002 the overall increase was just over 10%. But for this year we expect a 7% to 8% rate increase with a lower med supp rate increase and with continued growth in sales in our non-med supp business, we expect a turnaround for health insurance sales for 2003. Health insurance premium income and underwriting margins were $251 million and $40 million low pressure respectively, basically unchanged from last year.

Now returning to our annuity business. Our underwriting margin declined 53% to $2.8 million. This business has been a major unpleasant surprise for 2002, with yearly margins declining 46% to $13 million. The margins continue to be pressured by Waddell and Reed replacement activity, adverse market conditions, and guaranteed minimum death benefits. Our administrative expenses increased 2% to $31.6 million. Included in our administrative expenses were $1.2 million for litigation costs. Turning to investment operations. Our excess investment income increased 10% to $75.3 million. On a per-share basis, which reflects the effect of our share repurchase program, excess investment income increased 15% to 63 cents per share. Throughout the quarter and the year, we acquired investment grade bonds, north of 740 basis points and as stated in previous calls, we are not acquiring securities with below investment grade ratings. Those are my comments with regard to the underwriting and investment operations.

During the quarter we repurchased 365,000 shares of stock. For the year we repurchased 4.8 million shares, at a total cost of $182 million, or just under $38 per share. We began 2003 with $118.6 million shares outstanding on a fully diluted basis. Now I'll turn to guidance for 2003. During the fourth quarter of last year or during the fourth quarter conference call last year, we gave 2002 guidance of $3.47 to $3.51 per share. Excluding the beneficial effect of our stock repurchase program. Well, we earned $3.51, but those earnings included the results of the repurchase program. The unpleasant surprise for 2002 was the sharp drop in our variable annuity margins. In developing our estimates for 2003, we've attempted to be realistically conservative. Hopefully we won't have any significant unpleasant surprises for the year. Turning first to life insurance, we expect our sales to grow roughly 11% for the year versus 13% for 2002. Our premium income should increase roughly 7% versus 7% for the prior year. Our underwriting margins should grow at a little over 7% for the year versus 5% for 2002. For health insurance we're looking for roughly a 10% rate increase in sales versus a 5% decline this past year. Because this is the 7% to 8% is the lowest rate increase that we've had in many years, it's difficult to estimate what the premium income will be for the year. Nonetheless, we're estimating that no growth in premium income in health insurance for 2003 versus 1% growth in 2002. With regard to health insurance underwriting margins, we're likewise projecting zero growth versus a 3% decline in 2002.

With regard to the annuity business, that is very difficult to estimate due to continued replacement in market conditions. We're just putting a number in there of $8 million margins for 2003 versus the $13.4 million of margins in 2002. Administrative expenses should increase about 4 1/2% for the year versus 4.7% last year. And our total underwriting income after administrative expenses should increase around 3% for the year versus a 2% decline in 2002. Turning now to excess investment income, in 2002 we benefited from the refinancing and the swap agreements implemented in late 2001, and that boosted our excess investment income during the year. That will be an ongoing benefit, but it won't help us in growing, increasing the investment, excess investment income for 2003. Consequently, we're estimating a 10% growth in excess investment income for the year versus 15% in 2002. Overall and given that we have 118.6 million shares outstanding and assuming no repurchase of our stock for the year, we're estimating earnings to increase about 8% to roughly $3.78 a share. Those are my comments this morning. Now, James, we can open it up for questions. Thank you.

For our phone audience today, if you would like to ask a question, simply press the star key, followed by the digit 1 on your touch-tone telephone. If you are using a speakerphone, please make sure your mute function is turned off. We will proceed in the order that you signal us and take as many as time permits. We'll take our first question from Ed Spiher with Merrill Lynch.

Good morning. I apologize if I've missed a little bit. I think some of us are coming on late from the Unum call. But, C. B., could you expand a little bit on the comment that it's difficult to estimate health premium income for '03? And is that because -- I mean, just, is it difficult to estimate that it could be better because persistency is better, or is there something else that's -- .

Well, as I mentioned earlier in the call, 2 Persian we implemented 16% rate increases. Last -- 2001 -- or 2002 it was 10%. We haven't had rate increases below double-digit in years. Furthermore, the premiums today are roughly $2,000 a policy versus the last time we had single-digit rate increases, they were closer to $1,000 a policy. It's just hard. We know that the persistency should be better as a result of the lower rate increases, but it's just, it's difficult to know for sure what thosepolicies are going to be. It's more difficult to predict it this year than when we've had double-digit rate increases. So that's the only thing. I think it will be, as I said, roughly flat. As far as premium income, although we're going to grow the sales, we haven't got sales at a high enough level yet to overcome the lapses in the business.

Just following up on that, is it fair, though, to categorize this if we look at the uncertainty, let's say you go back a couple of years ago when you had 16% rate increases. We know what the rate increases are going to be, we know what kind of impact that has and then the question is, how much business do we lose because of those actions? Now we have lower rate increases, we know what the impact of those rate increases are going to be. Isn't it kind of the opposite as sort of saying, now the question is, how much extra business might we keep if these rate increases are trailing others?

That's right. It's how much lower the lapses will be, but again an 8% rate increase, 7-8% on an average $2,000 premium is something we don't have any experience on, Ed. The last time we had these low a rate increases, we were looking at a $1,000 premium.

But assuming people are still going to buy this product, though, it's better than a 20% rate increase.

We're anticipating better persistency. It's not the lapses that are going to keep the premiums roughly at the same level in 2003. It's the fact that we haven't got the sales high enough yet even though we expect 10% growth in sales to overcome normal lapses.

Okay.

Again it's an estimate. I think -- it's an estimate. I think if I had to bet one way or the other on zero or if I had to bet on negative growth or positive growth, I would bet on positive growth.

Okay. If we look at the life margins, I think you said margins and top line equivalent for life insurance in '03; is that correct?

That's right.

Okay. You know, I know I've asked this question a few times and I think you've asked it probably many more times. We have higher margin business that's coming on the books in direct.

That's right.

We have your highest margin business growing the fastest, which is American In come. Why wouldn't we expect the margin to go up in life insurance?

Well, we have other businesses that are in here, too. Actually for American Income and direct response, we think the growth in the margins will be a little better than the growth, greater than the growth in the premiums. But some of our other businesses, we might have a little slide in margins, or not much growth in margins. And again, we do -- if you want to get it down to tenths of a point, we are projecting overall, in health insurance, a little more growth percentage-wise in the margins than we are in the premiums.

Did you mean in life insurance?

In life insurance, yes.

Okay. And then in terms of, you put the $3.78 without any share buyback. You know, obviously the rating agencies for the industry have been a lot tougher to deal with in the last 12 months, but from your standpoint, is $200 million of cash after dividends, after interest expense, still a number that we should be thinking about as a potential use for share buyback?

Well, Gary can give them our best estimate on that number.

Ed, I think our free cash flow will probably be in excess of $200 million. I think it will probably be around $210 million, somewhere in that level. And as far as the rating agencies, we're in good shape there. You know, we've averaged over $150 million of stock repurchases for the last five years and I don't see any constraints at this point.

Thank you very much.

Yes, sir, Ed.

We'll take our next question from Tom Galonletter with Legg Mason.

Good morning.

Good morning.

Just, I guess first question is can you give us a figure for gross credit losses for the quarter? I know your operating versus net was pretty solid relative to what we're seeing from other companies. Did you have any offsetting gains that it lowered the gross credit loss number?

Gary?

Yeah, we -- excuse me. We did have credit losses of $4.4 million pretax -- excuse me, yes, that's -- after tax this year. And that was -- primarily we had united airline bonds that we wrote down, but we had gains to offset that so that our net loss during the period was about $800,000.

Okay. And can you just talk about remaining outlook for '03 on the credit side, looking at your -- low investment grade has sort of creeped up here as a percent of total portfolio. Can you just talk about, you know, are there -- maybe a watch list and just give us some color for where you expect credit to trend as it relates to your portfolio looking ahead to '03, for this year?

Well, as far as our portfolio, I think things are improving. For one thing as C. B. mentioned, early in the first quarter we have not bought any below investment grade bonds and will not do so going forward. The thing that has gotten us this year has been the downgrades, and downgrades in the fourth quarter were half of what we averaged each quarter for the prior three quarters. Mask, our below investment grade -- as a matter of fact, our below investment grade portfolio declined by $13 million in the fourth quarter. We're selling some of those bonds, we'll probably continue to do that. We're not buying any and if the downgrades do stabilize, I think you'll see that portfolio decline.

And would you also be able to give us a figure on unrealized losses that are embedded in your portfolio right now?

I don't have gross unrealized losses as a whole. We have an unrealized gain in the portfolio of $300 million. Below investment grade portfolio, we do have a net unrealized loss there of $95 million, but also that's improved over where it had been at the end of the third quarter.

Okay. That's helpful. Then can you just talk about your asset liability management program and looking at the fact that you are still getting very good yield there on the new money side? Are you taking more asset liability, mismatched than you previously had and then can you just, I guess walk us through, you know, how you were able to get such good yields. Go ahead.

Let me comment on that and then I'll ask Gary to do the same. Our life and health business, really there's no need to match assets to liabilities. If we did so we could be buying 30- and 40-year securities. Our reserves are forever going to be increasing. We just don't need to match assets to liabilities. Our insurance policy liabilities which I think net liabilities, $3 1/2 billion, they are fixed at 6., actually 5.6%. That yield is not going to grow. It's frozen there. In our short-term, in our debt, our total debt, not just counting the variable debt, but our total debt is less than the cash that we generate in Torchmark over a 12-month period. We generated in 2003 cash from operations -- this is money we can give to shareholders, some of it belongs to policyholders -- but it was almost $700 million. And in addition to that, we had $300 million of fixed maturities that matured. So we have almost a billion dollars to reinvest. Granted we've used $182 billion of that to buy back stock, but in my view a billion dollars that we could reinvest for our total debt of $880 million was variable and interest rates went up on that, it's dictated by short-term rates. I just can't imagine we couldn't invest longer term to overcome the increase in short-term rates given that we would have a billion dollars. So we are buying long Erma tutors, 15- and 20-year ma tutors. I'm not concerned about maturity risk or rising interest rates. We are concerned about credit risk, and we're trying to be careful there. Gary, any additional comments?

No.

Okay. And then just, can you just give us an update on sort of the macro picture in the med supp market, what's happening there?

Mark, would you like to comment on that?

Oh, again as C. B. mentioned, we are going to see lower rate increases this year, which will help there. I don't expect to see a dramatic turnaround but again I think we're seeing our agent count starting to grow and we expect during the course of the year for those sales to improve and as he mentioned, too, we also would hope that persistency improved as a result of the lower rate increases.

How about on the competitive front? Are you seeing more companies exiting? Is that an issue? Or are you still seeing fairly aggressive competition? Can you just give us an idea there?

Well, again, we're not seeing a whole lot of companies exiting the market. I do expect, and we have seen some indications that some of the competitors are exceeding our 7% and 8% rate increases. So it will, over time, make us more competitive. I haven't really noticed anyone exiting the market.

Okay. Thanks.

As a reminder for our phone audience, if you have a question, press star 1. We will now move on to Bob Grasseagle with Lincoln Mckelany.

Good morning.

Good morning.

C. B., I was interested in your discussion on the annuity business. It sounds like ironically what L&reed might be doing you a favor be replacing the book because now we're worried about the end force and guaranteed minimum death bents and sort of volume tilts of the earnings. I think if you had a strong relationship and that business will be much bigger, we would be nervous about that line of business going forward and it certainly has a business that's much more volatile than what you've been used to managing over the years. I guess the question is, is this a fight still worth pursuing, particularly when you've got a lot of shareholders that own shares in both stock and lawyers are getting well rewarded as the battle's being fought and I know you think you've got great principle and you are right, but is this a battle, if you win, is worth fighting for still?

Well, I certainly don't believe Owen Reed has done us a favor in replacing that business. It's true that right now in the variable annuity business the margins are down quite a bit, but there are still margins there and they have done damage to us as evidenced by the $50 million lawsuit that we won, and we will be pursuing additional litigation against Waddell and Reed and, yes, I think that litigation is worthwhile. I'm sorry today, in 2003, that our shareholders of Torchmark may still be shareholders of Waddell and reed, but that doesn't have any influence on our protecting the shareholders. The variable annuity business, I would not want to be writing very much of that right now. I don't know that anyone who is writing it is getting a decent return on their investment, given where the market is and given its decline. So I'm not unhappy that we're not a major player in that business going forward.

You know, I might say -- this is Tony [MCARTHUR], too. It's my believe that absent the Waddell and reed replacement activity, you know, the dollars of underwriting income would have been greater to this point than they -- you know, in the fourth quarter, for example, than they turned out to be.

It's a question of what's your return on equity and capital that you have in that business, and how much time and energy of management to a really tiny line of profit and loss, and I would guess it's taken a decent bit of your legal time now and some of your time, C. B., certainly on this issue, I would assume, right?

Well, we spent our $6 million of litigation expenses in 2003, $4 million of it was involving Waddell and Reed. But again, we have a $50 million verdict that's earning 12%, that it's on appeal. That seems like a decent return on investment to me.

I'm just thinking if you were still in this business and growing it, you know, it would be a source of questions and concern and anxiety going forward. What's your exposure to guaranteed minimum death benefit, you know, those sort of questions would be bogging down your calls, and outlook. So I wasn't trying to imply that you are thrilled that you are going through this, but I think from a business perspective, focusing in on life and health is what you should be doing going forward.

Well, I do, too. I think contrary to opinion, public opinion of three years ago, people realized that the variable business has high risk, and it's become far, far more competitive than it was five years ago. I really, given the compensation that is paid and the guarantees that are in variable annuity contracts today, I consider it the highest risk life insurance business.

Is exiting the business altogether a viable strategy?

Well, we are writing a little bit of the business, but we're writing it with some folks who are also writing life insurance. So it's not going to be a major source of earnings in the future with respect to the business that we're producing today.

Thank you.

David Lewis with SunTrust Robinson Humphries has our next question.

Good morning, C. B. and others.

Good morning, David.

A couple of questions. Since you are talking about the Waddell and Reed case, do you actually book that 12% return that you are getting on the $50 million award, or does that just build up the award once it's complete?

We haven't booked anything other than the litigation cost. We haven't booked the $50 million or the interest.

Okay. And what is your outlook on what bush is trying to do with Medicare? It seems like the bush plan is trying to shift the elderly back to managed care which obviously didn't work the first time. So I don't know why it would work this time. Do you have any thoughts on that for us?

Well, there is a need for Medicare reform, there is a need for Medicare supplement reform, and we're active in Washington pursuing that. David, it's just too early for me to know where it's headed right now. With respect to Medicare supplement, we are covering too much first outer costs. The standardized plans that we sell today that have been in place since 1992 were developed really by the regulatory world and then blessed by the federal government but it's just, it's way too much prepaying expenses, regular routine expenses, and when we're operating at a 65% loss ratio, it doesn't make sense to, if everybody has $200 or $300 a year of medical expenses, it doesn't make sense for us to cover those expenses. It's inefficient for the customer and that's not good business. We are working to increase deductibles, coinsurance, co-payments, things that will be changing on a calendar year basis to minimize future rate increases, and these things will not be permitted to be insured by an insurance company. We've got some good ideas and I think some people in Washington are finally listening to us. Where it all goes, it's too early. We're not going to be involved in the prescription drug. I hope the administration decides that they should, like Medicare, handle all the prescription drug coverage. I don't think the private sector can possibly do that.

Let me back up on what you said about changes in the Medicare policies as it stands right now under the regulation, you have to provide the determent benefits under the A through K policies. Are you saying that you would create a new policy that -- .

Yes.

-- would not be marketed under an insurance company?

No, no, it would be an insurance pod but we would just like to get that insurance product but we would just like to get that $2,000 rate back down, down dramatically. Think of it this way. The first $1,000 of that $2,000 is by and large covering expenses that everybody has, and if that means it's covering $650 that everybody has, then that's a pretty inefficient system. And it results in large rate increases. We would like to go back to -- I would love it if we could come up with a product that would have a $600, $700, $800 premium and lean more towards major out-of-pocket expenses. We need help from the Government on that so that other companies couldn't cover those first-dollar expenses. Unfortunately the senior market likes everything to be covered. I don't know why they have never made the transition that they have made in the automobile coverage, but they haven't. Does that answer your question, David?

So that's a product that probably won't be introduced in 2003 because you have to get the -- .

Oh, no, it won't be in 2003.

May not be 2004.

We may not, but we'll see. We are active in pursuing this, and we have the support on the national level from Blue Cross/Blue Shield. They see the same problem.

Okay. That's helpful. Can you talk a little bit about the HIP product? Obviously that's come on very strong and been a big producer and a source of sales for you and some of your peers out there. Maybe talk about what some of the drivers are? Is it just the increase, out-of-pocket expenditures that are making that attractive again out there in the marketplace? And how do the margins on the HIP product compare to, say, the Medicare supplement?

Mark?

Okay. Well, first off I guess taking the last part first, the margins on that product are a couple of points higher than what we see on our Medicare supplement. Again, the persistency on it hasn't been as good. So it's kind of a trade-off, but as a percentage of premium, the margins are slightly higher. The primary thing driving those sales is just the affordability versus -- it's become very difficult for people to find an individual major medical policy. And there are, last thing I saw, was something like 42 million people uninsured under age 65. They are affordable and actually what we see, hospitals are kind of notorious for billing what an insurance policy will pay, and we have good benefits, but we have caps on those benefits, and we see that -- in most circumstances we provide very good coverage but because we have internal caps in those policies, they are not susceptible to large rate increases and not susceptible to inflation.

On that, if you look back in the '80s, a lot of companies had pretty good sales in HIP product. They kind of fizzled in the Nineties. Is that a -- and then have come back again. Is that a function of Medicare -- or the managed care kind of coming and going?

Well, I don't have numbers on that, but I don't see the individual major medical market really ever coming back. I just think that's a product that is very difficult to sell and I don't see -- for individuals, the managed care is on the client. That could turn around. Your guess is as good as mine really there, but we expect to see continued high interest in our products. In fact, we're continuing to develop some new products that we feel like will have broad appeal and we expect to see continued growth there.

David, I think Conseco was the last company to cancel its major medical coverage, and there really just isn't anyone out there and I don't think there's anyone smart to write it. The association group coverage has come under attack in the regulatory world. This is where they file group contracts and they can raise rates annually without departmental approval. They have come under attack. That's, in my opinion, a very questionable business, and we never wanted to participate in that, and it's now somewhat in decline. So what's broad coverage, major medical coverage I believe is, if not dead, it's certainly dying, and there is a great need today for this supplemental coverage that can pay a major portion of most hospital bills. In addition to that, employers are cutting back on their group health benefits, and that's creating some holes for supplemental coverage.

Final question. C. B., this may be for you. But the excess investment income was up, what, 15% in 2002, expected to be up 2003 by 10%. What's your assumption on interest rates? Does that assume a flat interest rate? And if, say, interest rates were to bump up today 100 basis points, you would have a squeeze on the -- I mean the excess investment income, wouldn't you?

Well, first of all, we've assumed 725 basis points even though we've been earning north of -- we haven't had a quarter below 740 basis points. If interest rates rise -- and we want them to rise -- all I can say is I know some people have problems with this. We're generating, counting the $300 million of maturing assets on our bond portfolio, we generated almost a billion dollars of cash in 2002. Granted we used $182 million to buy back stock, and that got us a pretty high return on investment. Our variable debt is 3751. Now if interest rates went up 500 basis points tomorrow, no question about it, that variable debt, we would feel the immediate impact of that versus the billion dollars of -- billion-plus for 2003 comes in over a 12-month period. But in the long run, after a one-year period, if not sooner than that, we benefit from rising interest rates. Please move them up.

Just to make sure I'm clear, so you are saying even in the short run? I mean, the short run you would have --

No, if they went up 500 basis points tomorrow, we would see 500 basis point increased in our financing costs on that 751 of cash debt and we're getting in, maturing investments, that billion-plus dollars comes in a twelfth a month, yeah, one twelfth of it a month spread out over time. So immediate impact on interest rates would hurt us for a short period of time but in the long run it helps us.

Right. Okay.

David, on two of those swaps, one of the swaps is a monthly swap. So increase in rates would hit you immediately there, but the other two, one of them's quarterly and one's semi-annual. So, you know, it wouldn't be the next time they reset is when you would get the -- get hit with the higher rate.

Okay. Great. Thanks very much.

We'll move on to Ed Spiher with Merrill Lynch.

Thank you. Just a couple of quick follow-ups. On the interest rate swaps, can you give us just sort of the magnitude, Gary, of each of those, the monthly, quarterly, and semi-annual resets and maybe when they reset?

Okay. The -- first of all let's take the swap that's related to our five-year debt due in 2006. It's a five-year swap, $180 million and it sets semi-annually. And I think the next one will be in June, the next time it resets. We have $150 million that's related to our trust referred. That's a quarterly reset and I think the next time that resets is in March. And the third one is the $200 million that's related to the old MIPS that we had and that's the one that's set monthly. Each one of those were, you know, we're swapping the fixed rate for the appropriate liable rate plus a spread.

Okay. And then in terms of the assumption that you've made when you think about what you are going to earn in '03, have you taken where LIBOR is today and assume that that's where it is when all of these reset?

Yes.

Okay. Thanks. And then C. B., the comments you made about Medicare and the comment about the first $1,000 of premiums is basically going to pay $650 of expenses that everyone incurs.

That was an illustration.

Right, no, I understand. I'm just trying to think about what happens, you know, what happens if you are correct and that that's the way it should be and that that's where we go? Isn't that going to be tough for you from an earnings standpoint if, you know, you got -- instead of getting $2,000 of premiums where you are making $1300, you are getting $1,000 of premiums where you are making $650?

Well, one, the affordability of the product will be much greater. I think it will have a positive, great positive impact on sales, if that happened. Persistency would be dramatically better because these products would not be subject to the rate increases that we've had in the past. Alternatively, Ed, if something doesn't happen, we're, like, five years away from five, six, whatever years away from a $4,000 premium, $5,000 premium. People are going to conclude, remember, operating at a 65% loss ratio, people are going to conclude, shoot, I'm just better off putting this money each month into my savings account or checking account and fund my own expenses because in the large majority of cases, they wouldn't go through that $5,000 or $6,000. Med supp today is becoming less and less of an insurance product, and we would like to get it back for the long-term future of the business, back to insurance.

Do you feel the need, given sort of the two directions you think we need to go, either there's going to be a revolt five years or major change, do you feel the need to change at all sort of the business mix, I mean to sort of broaden it out? I know we've had some good growth in some of the other supplemental health products. Is that part of the reason we're seeing that?

Well, we've had growth there for the reasons that Mark outlined, but the med supp business is still a good business, and it's the best persistency health business that I've ever been in. We want to stay in that business. It just has some problems to it. So does Medicare. Medicare, through the HMOs, have not been able to control utilization and the only way to control utilization is to have any impact on utilization is for the beneficiaries to be paying more of the expenses out of pocket that are not covered by insurance. Unfortunately, if they are covered by insurance, they don't view it as an out-of-pocket expense even though they have large rate increases.

Okay. Thank you very much.

There are no more questions in the queue at this time. We'll turn the call over to Mr. Hudson for any additional or closing remarks.

No further remarks. I thank you for being with us today and have a good day.

And that concludes today's conference call. We thank you for your participation and have a nice day.