Globe Life Inc (GL) 2010 Q3 法說會逐字稿

Welcome to the Torchmark Corporation third quarter 2010 earnings release conference call. (Operators Instructions) At this time, I would like to turn the call over to the Chairman and Chief Executive Officer, Mr. Mark McAndrew. Please go ahead, sir.

Thank you, good morning, everyone. Joining me this morning is Gary Coleman, our Chief Financial Officer, Larry Hutchinson, our General Counsel, and Mike Majors, Vice President of Investor Relations.

Some of our comments or answers to your questions may contain forward-looking statements that are provided for forward general guidance purposes only. Accordingly, please refer to our 2009 10-K and any subsequent forms, 10-Q on file with the SEC. Net operating income for the third quarter was $132 million. Or $1.63 per share.

A per share increase of 10% from a year ago. Net income was $115 million, or $1.41 per share, a 16% increase. Net income for the quarter was reduced by $31 million as a result of a GAAP loss on our pending sale of United Investors. Excluding FAS 115 our return on equity was 13.7% and our book value per share was $47.92. A 12% increase from a year ago.

On a GAAP reported basis with six maturities carried a market value, book value is $52.77 per share. In our life insurance operations, premium revenue excluding United Investors, grew 5% to $417 million and life underwriting margins increased 8% to $115 million. Life net sales were $79 million, down 3% from a year ago. Our first down quarter in two years. Life first year collected premiums, however, were up 8%, $61 million. Significantly better than our 3% growth in year-to-date sales and reflected of improving persistency.

At American Income, life premiums were up 11% to $142 million life underwriting margin was up 9% to $47 million. Life net sales increased 5% to 34 million. The producing aging count was 4,065, up 3% from a year ago, but down 3% from last quarter. The renewed growth in our producing agents at American Income is taking longer than we previously anticipated. In addition to changes in our management incentive compensation, we're working on growing our middle management ranks, as well as improvement in our sales lead volume and flow. We expect it will take another two to three months to see the impact of these efforts.

We're also in the fourth quarter beginning to implement a centralized recruiting call center for both American Income and Liberty National, which we believe will significantly increase our recruiting activity at both companies. In our direct response operation, at Globe Life, life premiums were up 6% to $142 million, and life underwriting margin grew 8% to $36 million. Life net sales declined 3% to $32 million. The sales and direct response were again less than anticipated as a response rates in our insert media segment continued to fall during the summer months.

For the June to August time period, response rates were 14% to 17% less than a year ago. For the last 60 days, however, we have seen improvement with response rates lagging only 3% from last year. Due to other positive developments in our testing and modeling, we expect to see mid-single digit growth in life sales and direct response for 2011, despite these lower response rates in our insert media. Life premiums at Liberty National declined 2% to $73 million and life underwriting margin was up 10% to $16 million.

Net life sales for the combined Liberty National United American Agency declined 19% to $11.4 million, although first year collected life premiums were flat at $8.6 million, again reflecting improved persistency. We're beginning to see an upturn in the recruiting activity at Liberty National as the result of our implementation of the recruiting call center which I mentioned. For the 2011, we anticipate 10% to 15% growth in net life sales at Liberty National. On the health side, premium revenue, excluding Part D, declined 5% to $189 million, while health underwriting margin grew 2% to $37 million. Health net sales decreased 29% from a year ago to $13 million, but first year health collected premiums increased 11% to $20 million.

While official numbers are not yet available, the contact person at CMS estimated 900,000 Medicare Advantage participants will be dis-enrolled at the end of this year, a 50% increase over last year. We believe we're in a significantly better position than we were a year ago to capture a share of the dis-enrollees. Premium revenue for Medicare Part D was $53 million, a 10% increase, or the underwriting margin was $6 million, down 4%. Part D sales grew 128% to $7 million for the quarter and first-year collected premiums were up 83% to $13 million.

Our administrative expenses were $38.4 million for the quarter, up 5% from a year ago. This increase is primarily the result of continued high employee healthcare costs. I would now turn the call over to Gary Coleman, our Chief Financial Officer for his comments.

Thanks, Mark. As disclosed, we entered into a contract in the third quarter where Liberty National will sell it's wholly owned subsidiary, United Investors to Protective Life. The sale is expected to close on or before December 31, 2010, at which time the final sales price will be determined based on the then statutory capital and surplus of United Investors. Any numbers discussed here regarding the sale are presented as if the sale had closed on September 30.

Prior to closing, United Investors will distribute approximately $327 million to Liberty in the form of dividends. At closing, Liberty will receive approximately $344 million from Protective, resulting in a statutory gain of approximately $190 million pretax or $124 million after tax. The $327 million of pre-closing distributions consistent of $188 million of Torchmark preferred stock, $132 million of fixed maturities and approximately $7 million of other assets and liabilities.

The fixed maturities, consisting primarily of below industrial grade bonds, were excluded from the sale because we did not want to sell them at a loss. We expect to hold them and receive full value and maturity for all of these bonds. Although the sale generates a statutory gain, we are recognizing a GAAP loss of approximately $35 million or $31 million after tax. And that is due primarily to the DAC, Goodwill and the difference in GAAP and stat benefit reserves. We expect the sale to result in approximately $15 million of lost income after tax in 2011. $25 million of foregone United Investors earnings, offset by $10 million of invested income on the sales proceeds, if all the proceeds are invested at 5.5%.

However, due to the sale, Liberty National should be able to increase the dividends to the parent company by $250 million to $320 million in 2011. To the extent the sales proceeds are dividended to the parent, the offsetting investment income will be less than the $10 million. For the remainder of my comments to any reference to investments from continuing operations includes the bonds that will be received in the pre-closing distribution.

Now, I want to spend a few minutes discussing our investments as well as excess investment income, capital and share repurchase. First, the investment portfolio on our website are three schedules that provide summary information regarding our portfolio as of September 30. As indicated on the schedules, invested assets are $10.9 billion, including $10.4 billion of fixed maturities at amortized costs. Of the fixed maturities, $9.6 billion are investment grade with an average rating of A minus. Below investment grade bonds are $822 million, 7.9% of fixed maturities, compared to $832 million at the end of the second quarter and $946 million a year ago.

Again, we expect that the percentage of below-investment grade bonds at 7.9% is still high relative to the peers; however, due to our significantly lower portfolio leverage, the percentage of below investment grade bonds to equity excluding OCI is 21%, which is like we left in the pure average. Overall, the total portfolio is rated Triple B plus, same as a year ago.

During the quarter, we recognized $5 million of after tax realized gains. For the nine months, we had net realized capital gains of $6.7 million after tax. We have net unrealized gains in the fixed maturity portfolio of $572 million, compared to net unrealized gains of $143 million at June 30, and net unrealized losses of $402 million a year ago. The increase in unrealized gains in the third quarter is due primarily to the decline in both treasury yields and credit spreads.

Regarding investment yield, in the third quarter, we invested $447 million in investment grade fixed maturities, primarily in the industrial sector. We invested at an average annual effective yield of 5.6%, an average rating of A minus and an average of 23 years to 25 years. For the nine months, we have invested $1.4 billion at an average yield of 5.9%. For the entire portfolio, the third quarter yield was 6.68%, compared to 6.74% earned in the previous quarter and 6.96% earned in the third quarter 2009. The decline in yield is due to investing a larger-than-normal amount of money at lower yields. In the last 12 months, we invested over $2 billion at an average yield of 5.95%. This unusually high amount of money invested in that period was due to the third quarter 2009 portfolio repositioning to reduce the low investment grade bonds and investing money that was previously held as cash for liquidity purposes. As of September 30, the yield on the portfolio is 6.66%.

Now, turning to investment -- excess investment income -- excess investment income is the net investment income less interest costs on the net policy liabilities and the financing costs for the debt. In the second quarter,(Sic-see press release) it was $75 million, up $9 million or 14% from a year ago. The year-over-year comparison of each component is as follows; first, net investment income was up $13 million. This represents an 8% increase in income, slightly higher than the 7% increase in average invested assets.

Despite lower yields in the bond portfolio, investment income increased at a higher rate than related assets, because we held significantly more cash in short-term securities in the third quarter of 2009, than we have in 2010. Next, the interest costs on net policy liabilities increased $6 million or 8%, in line with the 8% increase in the average liabilities. And lastly, financing costs are down $1.6 million due primarily to the maturity of a $99 million issue in mid-third quarter 2009. Regarding RBC, we plan to maintain our RBC ratio at 325%. This ratio is lower than some of our peer companies and but it is sufficient for our companies in light of our consistent and statutory earnings, relatively lower risk of our policy liabilities, and our ratings.

At year-end 2009 , the RBC ratio is 355% and adjusted capital was approximately $125 million in excess of that required for the target 325% ratio. We estimate that the ratio as of September 30 is around 350%, however that we estimate that RBC at the end of the year will be somewhere around 400% ,due to the impact of the sale of United Investors. None of the proceeds from the sale will be dividend to the parent company until after -- until 2011. Regarding share repurchase and parent company assets in the third quarter, we spent $66 million to buy 1.3 million Torchmark shares. For the nine months, we have spent $141 million to acquire 2.7 million shares. At September 30, the parent company had liquid assets of $220 million. In addition, we expect to generate another $50 million of free cash flow in the last three months of the year. Considering that we planned to maintain liquid assets around $200 million, this leaves $70 million of cash available for use in the fourth quarter.

For 2011, in addition to the $200 million of liquid assets, free cash flow at the parent company is expected to be approximately $590 million to $660 million, assuming no more imparements to the remainder of 2010. This consists of approximately $340 million of free cash flow from normal operations, along with $250 million to $320 million resulting from the sale of United Investors. The amount of free cash flow generated by the United Investor sale depends on how much cash will be retained in the insurance subsidiaries to maintain our consolidated RBC ratio at around the 325% level. As noted before, we will use our cash efficiency as possible. If market conditions are favorable, we expect that share repurchases will continue to be a primary use of those funds. Before I turn the call back to Mark, I would like to address a question that came up on the last call. The question was in light of the lower interest rate environment, what would be the impact of product pricing if we lowered the assumed interest rate. As we discussed on the last call, we're not crediting policy holder counts on our live policies. The GAAP interest rate is a discount rate that we use to calculate the GAAP reserves, and it's also the rate that we use in our pricing. For most policies issued since 2000, the weighed average rate is 6.75%. The weighed average discount rate on all policies in force is around 5.6%. The new money rate on third quarter investments was 5.6%, the lowest it's been in five years. If we felt that interest rates were going to remain at that level for a long period of time, we would likely reduce our GAAP and pricing interest rate.

For illustration purposes, if we lowered our GAAP interest rate and pricing rate 100 basis points, we could maintain the current underwriting margins by increasing premiums on new business by just 1% to 3% for most of our product lines. To illustrate the magnitude of such a change, 2% increase in premium on our juvenile whole-life business would average about $0.14 a month. And a 3% increase in our American Income whole life business, we would average about $0.75 a month. However, we don't have any current plans to make changes to the GAAP interest rates, as we don't expect the new money yields to remain this low for an extended period of time. Those are my comments. I will turn the call back

Thank you, Gary. As Gary mentioned, we are proceeding with the sale of United Investors and expect to close at the end of 2010. Assuming we use between $250 million and $320 million of the proceeds from the sale to repurchase shares, we anticipate a small dilution for our earnings per share for 2011 of roughly $0.05 a share, followed by an accretion of $0.10 to $0.20 for 2012, with additional accretion in subsequent years. In our guidance first for the fourth quarter of 2010, we expect earnings per share to be between $1.66 and $1.70.

So we are raising our 2010 guidance to a range of $6.38 to $6.42. For 2011, we expect earnings per share to be between $6.75 and $7.10 per share. Assuming that we spend between $590 million and $640 million on share repurchase. This guidance is wider than normal, due to our uncertainty concerning the timing and price of this share repurchase. Those are my comments for this morning. I will now open it up for questions. Thank you.

(Operators Instructions) We'll take our first question from Jimmy Bhullar with JPMorgan.

All right, thank you. I had a question on your comments on Liberty National sales. I think you said you expect sales to be up 10% to 15% in 2011.

They have been down 20% the last several quarters. I want to an idea on what gives you confidence things will improve there. And another one, just on the agent count at Liberty National, it was down this quarter. I wanted to see what was driving that? Was it more changes in agent compensation or was it anything related to mid-level management, if you could give us detail on that.

Okay, Jimmy, well obviously we are going to have a much easier year to compare against next year. If you looked in 2009, we had $46 million of life sales at Liberty National, where this year we expect it to be down closer to $36 million. So, even though we're expecting to see growth going forward next year, it really doesn't quite get us back to the level of sales we were in 2009.

But we do expect to see 10% to 15% growth over the current levels. I believe we are moving forward there, we have seen an improvement in our recruiting activity. Those are not big increases. As far as the agent count, at American Income, the plateau we have kind of hit in our agent count was a little more involved than what I had originally thought it was. It -- we have made some changes in management incentive compensation, but also we really haven't grown our middle management level, which for the people doing the training of these new hires, so, even though our recruiting activity was up, some we really didn't have more people there to train those people and also, our lead flow in some areas, really, hadn't grown to support an increased number of new agents.

I am encouraged that we have started again this -- or two actually be calling on internet resumes and the initial results we have seen there as we have gotten a very high response as far as people wanting to come in and be interviewed, but it's also involved -- way have to have more people there to train them and we also have got to do a little better job in some areas of increasing our lead flow. We're working on all of those things and I'm optimistic that, actually in September we have started to see some turnaround there but it's -- I really think it will be first quarter before we see the full impact of the things we're working on.

And then you mentioned the potential for growth in med -- [ Indiscernible ] because of med-advantage disenrollment. What is your view, could this reverse if the Republicans gain control of the House and/or the Senate?

Well, I will first say in our guidance, we haven't assumed any significant increase in our Medicare supplemental business. It is hard to say. We think, if obviously Republicans take control of the House, we think there would be a lot more just basically stagnation which, is not all bad. But it's too early to say what impact some of that will have on the health care reform legislation. I think the -- I think it's too late -- you'll see those disenrollees -- they've already been filed with CMS - you'll see those disenrollees this year, I don't think you'll see that change. But as far as what will happen down the road next year and the year after, it's hard to say at this point. But I think the number of dis-enrollees this year has pretty well been set.

And then lastly, you have had historically 2% to 3% share that you have picked up when there have been disenrollees. Should we expect something consistent with that? For next year?

Well, I would say, I have said in the past that in the last big round, we picked up roughly 3% of the disenrollees. I don't know if we can expect to pick up that many in this round. One, we have far fewer captive agents who are in that marketplace, even though we feel like our product pricing puts us in a better competitive situation. I think most of what we do pick up will be more in the general agency side of the business, but I wouldn't expect to pick up that much.

Okay, thank you.

We'll go next to Paul Sarran with Macquarie.

Hi, good morning. First on guidance, can you can share what the assumed new money yield is and also anything on margin and persistency in 2011 as compared to 2010 where both of those have been relatively strong metrics so far this year.

You want -- We're assuming 5.5% in new money interest rate Gary?

Right, that's correct.

And as far as persistency, I don't -- we're not -- we're expecting --

Anything that is stronger or weaker than what it's been this year?

I'm sorry, what?

Just, maybe directionally stronger or weaker, about the same as 2010?

Well, in our guidance, we're not expecting any significant changes in our persistency, although in most of our lines of business, we are seeing improving trends. We haven't assumed any significant improvement on our persistency as far as our guidance.

Okay. And on the American Income, if you gave it -- I may have missed it, did you give the expected sales growth for next year?

I don't think that I did. But, in our guidance, we're expecting 10% to 15% growth.

And what kind of agent count growth would you need to see for that to be achievable?

Well, historically, assuming -- it would be roughly the same. Over's year's time. We would need to grow our agents -- maybe a little bit higher because our first-year agents are not quite as productive, so it will probably be more in the 15% to 20% growth in agents for the full year to achieve that.

Okay and maybe one more, just on the recruiting call center, can you give -- maybe describe more how that will work and how it interacts with the two companies?

Sure, we've done some testing where, actually, well, I'll give you just a little bit of history. We started 10 or 12 years ago with internet recruiting, Hot Jobs and Monster, and initially, we ran just ads and got responses to the ads and we got responses to the ads, and that was a good source of recruiting inexpensively.

We later, a few years ago, I guess it's been five or six years ago, we started a program where we started selecting the resumes off that data base and sending e-mails to these people asking them to see if whether they would be interested in coming to work for us. That increased our response and potential candidates. I don't have the numbers in front of me, but substantially, we got far more responses to that than we did to our ads and now recently, we've been testing and doing automated phone calls to selected resumes in addition to the e-mails and, again, the response -- what we did, we would send an automated phone call.

People to selected resumes off the internet and if they wanted to schedule an interview, it was automatically transferred to a live person. In our test, that live person was in the local sales office, and the offices we use it for, both companies, we basically overwhelmed them with calls. So actually what we are working on now is a centralized place where those calls can come in to, where can schedule the interviews so that we can better handle the volume and -- and just have better control over it. The initial results are very encouraging and it is something that is going to take us awhile to expand that nationally in both companies, but it has a lot of potential to take our recruiting to a significant higher level. But again, we've got to have the middle management in place to then recruit and train those people.

Okay. And then I guess maybe your comments seem to suggest that the issue with the agent counts is more turnover of newer agents than slowing recruiting. You can confirm if that is the case?

Well again, at American Income, it's been flat since the first of the year. We've hit a level of recruiting that we haven't been able to take it to the next level, and again, that is -- even though our recruiting has been up somewhat, we have seen a little higher turnover and it's -- there is a number of factors involved there. We have to significantly increase the recruiting and have to have more people there in place to train those people and have to be able to generate a smooth source of leads for those people to go on, and again, we're working on all of those things.

Okay, thanks.

We'll go next to Steven Schwartz with Raymond James and Associates.

Hello, good morning, guys. I have a couple here. First, Mark, you made a statement in your prepared remarks that you thought you were in better position to capture disenrollees this year than last year. I was wondering, what why that was? What has changed?

Again, mid-year, we did reprice our Medicare supplement products as well as to introduce a new plan, which, I think, puts us in a better competitive situation, particularly in the general agency world which is driven by price. So, in that regards, we are in a better competitive situation in the general agency distribution world with our current products and pricing than we were a year.

Okay, fair enough. And on direct response, I don't know that you touched on this. You motioned your response rates were much lower in June and August. I gather there is a lag there and have gotten better. What was -- what do you think the issue was and did you do something to make them better or did they get bit or their own?

That is, and I mentioned this in the past. The insert media portion of our direct response is the only segment of our business that we have seen any indication that the economy has had an adverse effect.

And, what we were -- we were surprised by the decline in response, and though there is no good reason for it, other than the economy, and they have come back, but we are always doing thing to improve what we do, so again, even in our assumptions for next year, we are expecting mid-single digit growth in sales, but we're not assuming that the economy is going to improve, or that those response rates are going to improve on their own. If they do, we hope to see better growth than we are using in our guidance, but I think we have been fairly conservative in our estimates for next year as far as sales.

Just as a followup, the response rates that you're assuming in the guidance are kind of these slightly improved as opposed to the June-August numbers. Is that correct?

Well, we're not assuming as bad as they were in the June to August period.

Okay.

But they are less than what we have historically seen.

Okay, Gary, if you can just confirm something for me. If you take the proceeds and capital that you are getting out of UIL, and invest it at, I think you said, 5.5%, the dilution from the sale would be $0.20, but then if it is used for share repurchase, the dilution would be only be $0.05 for 2011, is that correct?

Yes, $0.05 is correct and what we were saying is if we invested all the money, the dilution would be $15 million.

That is roughly $0.20.

Yes, that is right. That is -- that would be the hindsight of $0.20 if we invest all the funds and as Mark indicated, the $0.05 if we use it for share repurchases.

Okay. And it's -- it becomes accretive in 2012. I haven't done my 2012 numbers yet, but what is the driver there? I guess it will all be done? Is that the deal opposed to maybe repurchasing over time?

Yes, I think the fact of 2011, we won't get the full effect of the repurchase because they will done through the year, but we will get the full effect in 2012 and also, the amount of the income that United Investors would have provided in 2012 will be less than what it was 2011.

It is basically a run off block of business.

Right.

Each year, those earnings will be less, and the revenues will be less going forward, and that is one of the reasons it's going to continue to be accretive in years to come.

Okay, great. Thanks, guys.

We'll go next to Jeffrey Schuman with Keefe, Bruyette & Woods.

Good morning. First, Mark, I wanted to confirm. You talked about the share repurchase kind of guidance, did you say 590 to 640, is that what you said?

Yes.

Okay, and Gary, you started to touch on this but given that much share repurchase, the timing is pretty critical, should we think about a big chunk early because of the United Investors cash and the rest of it kind of staged through the year? How should we think about timing?

In our guidance, what we assumed is the normal free cash flow, the $340 million expected, that would be spread throughout the year and that $250 million to $320 million, how ever much we pull up from the sale of United Investors, that's going to come -- that will be able to passed to the holding company in late March and we're assuming that money will be spent starting the last week of March and through the last week of April.

Okay. And if that is the share repurchase budget, then that contemplates that the $200 million cushion would basically remain in place. Can we think about that at some point potentially being drawn down?

As far as our guidance go, we did assume it was going to stay in place and that is our feeling now. We should have that cushion in -- and that could change. I am sure we will have some amount of cushion, we might change the dollar amount. But as far as the guidance goes, we assume to stay at $200 million.

Okay, great. That is it for me. Thanks.

We'll go next to Ed Spehar with Bank of America.

Thank you. Good morning. Mark and Gary, you have given out a lot of information on what is underlining the guidance. Seems like maybe more than what you have given in the past. So, I guess I'm going to push for a little bit more. Can you give us just some sense of what type of premium growth, earned premium, not just sales, but what type of premium growth -- I mean is this a sort of still 2% or 3% type of premium growth expectation?

Again, it gets skewed on an adjusted basis, I guess,

Adjusted for that.

I would have to -- it's -- it would be similar. Well, hold on. I actually -- I have it with. I can say including United Investors, leading it into 2010 numbers, pulling it out of 2011, we expect to see life premiums roughly flat , with 2010, and so that would be about 4% growth and if you pull United Investors out of the

And in terms -- when we are thinking about the overall, and I understand that the life is more profitable than the health, but the health is coming down, so the life is going up. If everything works as you hope it would in terms of your marketing efforts and let's say we get some benefit from the disenrollment over the next few years, what type of topline growth do you think you can get from your collection of businesses.

Ed, again, if we could continue to grow our life sales, we're growing life premiums at 5% right now and we should be able to see some gradual acceleration of that and just depends on how long and how fast we can grow the sales. The numbers I have been giving out, those are the numbers at the mid-point of our guidance and we obviously have calculated the range of sales and premium growth and we have such a big block of life business there that new sales really has not that much impact as you're aware of.

And as far as next year, could we grow at 6%? Sure. We can go from 5% to 6% and can we go from 5% to 10% in life premiums next year? No. Can we get there in three years? We could if we continue to grow our life sales but that takes a different amount of time.

The other thing, I think we sometimes focus too much on sales and again, as I mentioned in my comments, and not the first-year collected premiums, you know. And we have improved our first-year -- our persistency of the business and I think the first-year collected premium is a much better indicator of what is going happen to the future premium growth and as long as we continue to improve our persistency, we can continue to outpace the growth in sales with growth of first year collected premiums.

On the health side, Mark, is there any reason to think that the health business does not continue to come down over time?

Well, I think we're getting close to -- the first year and there, this -- that mix of the business is different. We put on a group Medicare business this year, which we expect to see that continue to grow mostly in the fourth quarter and first quarter, but look at the first year collected premiums on the health side were up 11% for the quarter. I think we're, -- we'll continue to see actually our new health premiums increase and again, that is going to take us long to get the total back up to flat. The persistency of the business that continues to fall off, that is very poor persistency business and very low margin business. So, no, I don't think the health premium will decline much further than where it is now. I don't think we're off from having it flat with margins increasing. We're already seeing improvements in the margin.

And you would think, is that a 2011 event or beyond?

We're at our midpoint and we're still expecting mid- single digit decline in our health premiums, although we're expecting to see the growth in our health margins for next year, at the mid-point of our guidance.

Okay. Perfect. Thank you very much.

We'll go next to Eric Berg with Barclays Capital.

Thanks very much. Pardon me, a number of questions. First, Gary, with respect to your comment about a possible, albeit unlikely discount rate cut on your GAAP preserves, if you were to do that, would that be what's called in the accounting literature, the result of a loss recognition study and if that were to happen, the discount rate cut, would that be a direct hit to the book value as the liabilities on the right-hand side of the balance sheet would be restated upward?

Not at all, Eric. It would only effect new issues.

Unique and new business. Right.

And that total book of business Eric is only has a 5.6% overall interest rate. Where the new business is a higher rate and that would only effect new business and if interest rates continue where they are, if we continue to invest new money at below 6% in 2012, we very likely will make those great adjustments and change our interest rates but, we're going give it a little more time before we make that decision.

Okay. My next question relates to a set of your guidance and this announcement about share repurchase or seems to be an announcement regarding share repurchase. It strikes me unusual in the sense that most companies, they tell us sort of what their authorization is and they say, well, if we have nothing better to do with the money, we'll buy back stock.

You have sort of, not committed to it, but I guess this is your intent and understanding an intent is not a commitment, but your desire and your intent. Why is this your approach to tell us this is your intent, is this another way of telling us that you do not expect any acquisitions. You could have easily said we have this money, you know we have a history of buying back our stock if we think that is the right thing to do, we'll do it and like many others, you could have been silent on the issue. Instead, you took the unusual step of saying we're going take all of this money from protective life, and barring something extroidinary, we are going to be buying back our stock. I find it note worthy.

And one, for us to give the guidance, with the amount of cash we're going to have available next year, we felt like we should indicate where we thought our earnings would be if we do use it for share repurchase. We're always looking at opportunities for acquisition. I guess I don't -- the way I look at it is any acquisition should be accretive to what the share repurchase would be. That's not to say that we're not looking at acquisitions of all means, we have -- are very much interested. If the right acquisition came along and it was a better use for the money, we would absolutely do it. But barring that, we wanted to make it clear we don't intend to sit on $850 million of cash and invest it at 5.5%

We will find a better use for those funds than buying bonds. Whether it be share repurchase or acquisition and again, the way we look at acquisitions, it needs to be accretive versus what buying back our own shares would be.

And does this explain the timing of your guidance in the sense that I believe that you provided 2010 guidance in 2010's first quarter , I haven't look in the past where you have done it, but is this early for to you provide the next

We provided it at the same time last year Eric.

Okay, I did see it in the first quarter as well.

In prior years we did. Last year, we decided we would move it up a quarter and started doing it at this time of the year.

Last year?

Because we have so much flack from analysts we needed to provide it earlier, so we bowed to your wishes, Eric.

Okay. I appreciate it. I wasn't aware that it took place at this time last year, I thought it was a little later. In any case, that was a very helpful explanation. Thanks very much.

We'll go next to Bob Glasspiegel with Langen McAlenney .

Good morning, Torchmark did better than Cliff Lee did last night.

Thanks for bringing that up. You don't have to remind us of that.

Sorry, Gary, I'm pulling for them and that is -- why I performed poorly. On the proceeds, you said you get it in to March and we'll use it in April or begin using it in April in.

In our guidance, we assumed we would get it in late March and we would start in March buying back shares. And our assumption was that we would buy the number of shares -- there is a limit as to how much you can buy each day, we would buy up to that limit and doing that would take us a full month, the last week of March the full month of April to be able to spend all that money.

Bob, understand that is the midpoint of our guidance and --we have used different assumptions obviously at the low-end and high-end of our guidance as far as the timing and price of the share repurchase.

This is the first time you have used buyback in guidance. Is that a seismic change that we should expect in the future? Or just one time because the proceeds the United Investors proceeds are so significant?

It's hard to say, but with -- there is no doubt that part of it is because of the amount of cash we're going to have available next year. We felt we should include it in our guidance.

Agreed. On the United Investors, you haven't spoken publicly on what drove the decision and, believe me, I think it's a great move and pleased with what you did. But, maybe you could articulate why and specifically, does this have any implications to your annuity block that has been volatile and a nuisance in the past? Is that going to continue to be as volatile in the future?

No, not obviously one of the big factors and not just the annuities, but there was some variable life business there. It really was profitability was definitely driven by how the equity markets performed and that and has been the single most volatile piece of our business and it was a runoff block of business that was on the decline and has been on the decline for a number of years. A volatile piece of our business. The value would decline on and we felt like when we put it out, we felt like we dot a good price for it and all of those things, we think it was a good deal for us.

Okay. And you still had a little bit of annuities in the results. The block goes with it? I just want to make sure I understand.

Bob, we had annuities that were not United Investors.

Fixed annuities.

They fixed annuities and it's sold through banks and it's not the volatile type business that the variable annuities that we had United Investors for.

And for some time, we had written wrote some fixed annuities.

What is the size of the blocked area?

Gosh, I think we have about a $900 million of reserves.

I was going to say I was thinking under $1 billion.

Yes. And that is right.

Guidance for administrative expenses for 2011?

Let's see. I have that here somewhere. Actually, for administrative expenses, we're expecting just about a 1% increase and our mid-point for next year.

Okay . You have taken almost all the fun out of being a Torchmark analyst for 2011 projections away, but I

Well, those are our mid-points. We obviously allowed some both ways from that and that is our best estimate.

Thank you very much.

We'll go next to Randy Binner with FBR Capital Market.

Thank you. To just to change the topic from guidance, the '09 G issue, we had good commentary from Gary on the last conference call that was going to be about 8% to 10% of book value. And think there were still issues of retrospective application of that and at least maybe some debate about how that affected globe and so just was curious for any update on the '09 G issue on DAC.

First of all, as far as globe, I am sure you're referring to the direct response. The final rules did clarify that although it will be accounted for under SOP93-7, it will be considered deferred acquisition cost on the balance sheet and there was some talk about that asset being amortized on a straight line basis and that was not put in the final guidance and that DAC for the direct response will still be able to defer what we're deferring and the amortization will be on the same method that we have been using and that is good news, there is no change to the direct response.

Okay.

There was one change, that was favorable and that was a consideration that have no -- of not allowing the commission paid to the employees and that was not put in the final document and that could have affected us at Liberty National and shouldn't have an impact there. As far as the estimates that I gave last time, that we apply retrospectively, we could have an 8% to 10% reduction in equity by the adoption, that is -- we haven't refined that yet.

We're in the process of getting started on the numbers together and as you remember, we talked about the fact that on a go-forward basis, the earnings impact, whatever expenses we won't be able to defer going forward should be offset by the fact that we'll have less amortization on the blog. In addition to, that we're going -- the write down we take at the beginning will be recovered over time as well and that is what we talked about last time and nothing, we haven't changed those numbers. At all.

Okay, and that is very helpful. Is the timing 2012?

Yes, 2012, which is really good. It's going to take a lot of work by all the companies to adopt these.

What -- it will be January 2012, and is there any thought developing that could slip again timing wise or is that still hard to hit?

I thank is hard.

I just wanted to -- and there is another thing in guidance I wanted to clean up. Given the large buyback component of the guidance, I take it by that the $10 million offset and kind of the UIL dilution number, you wouldn't get the $10 million offset because you wouldn't be investing that money in bonds, right? Is that would be going up to buybacks, is that correct?

That's correct.

Okay, thank you very much.

We'll take a followup from Steven Schwartz with Raymond James.

Hey, guys. I just wanted to follow up kind of where, I think Eric Berg might have been going. With regards to the low interest rate environment, you repriced anything that you sell if you decide to do that and obviously you're all good there and on the end-force business, though, you're getting premium, monthly and quarterly, yearly, however you're doing it and the rate on the premium that you invested at continues to go down. Is there any event, is there a reserve event, or anything like that or simply the reserves grow the way they're scheduled to grow, and you know, you're interest income gets slower.

Yes, Steven, the right to reserves continue to grow as they would, and as we talked about before, you're right, we're collecting premiums monthly and annually and we are also collecting over a very long period of time. And that GAAP interest rate, again we said for pricing, that is based on what we think we'll earn over the 20 to 30-year period that we're going to collect significant cash flow for the policies and yes, we're low now and we have low interest rate at this point in time. To use, we went back and looked at the -- our 2005 issues, the policies issued in 2005.

We know that the cash flow that we have earned in 2010 on policies issued in 2005, we have invested that 5.9% rate that we have invested money in this year. But, if you go back, all the way to '95 when they were issued and all the cash flows we received since then, we have invested that cash flow at over 7%. So, we're, even though we're low this year, cumulative wise, we have invested it higher than the rate, the price of that and it's hard to look at one year. It's really got to be a few years of low interest rates before it has an impact.

And let me ask you this then. We're going along and have QE 2, sitting here the same rate as today, nothing is working, the economy is kind of punk and the Torchmark branch decides that you know what, this is Japan and this is where we're going be and this is where we're going to be for a long time. What happens then?

Again, as we were explaining there, take for example, American Income. For us to have, even if we lowered our interest rate.

I'm not talking about your new sales but the end forces.

Well, again -- .

Does anything happen? Does reserves have to be taken up or anything like that? Or you earn what you earn on the cash flows? And the reserves keep on going.

Yes, we would -- there is not a reserve event.

Okay, that is what I was asking.

Okay.

Okay, great.

We'll tell a followup from Paul Sarran With Macquarie.

Thanks. I just wanted to approach the interest rate question I guess one other way. If 100 basis point drop in the yield you assume for pricing would cause a 1% to 3% increase in premium, is it valid to kind of flip that around and say that 100 basis point drop in your new money yield suggests that premium on your existing force business is 1% to 3% too low? That's the -- maybe the long-term impact on profitability of your existing business.

And when you say too low, if you look at, for example, American Income, where we have even after administrative expenses, we have a pretax underwriting profit margin of 25% or better. If, if we lowered our interest rate assumptions there, would those underwriting margins come down a couple of points?

Maybe over time as that -- .

They would over time. But that is not that it would be unprofitable. Instead of a 25%, 26% underwriting profit and we may have 23% or 22%, but, you know, it's not that it would be, that the business is not still highly profitable.

Right, not unprofitable but that is -- I guess the drag caused by lower rates versus if rates to stay higher.

But again, you have to understand, the entire block of business on the books, we're crediting 5.6%. The yield on the portfolio is still substantially higher than that.

Okay. I understand that. Okay, thanks.

And there are no further questions at this time.

Okay, well, thanks for joining us this morning, everyone, and we'll talk to you at the end of next quarter. Have a great day.

That concludes today's conference call, we thank you for your participation.