Horace Mann Educators Corp (HMN) 2004 Q2 法說會逐字稿

Good morning and welcome to the Horace Mann Educator second quarter conference call. At this time all participants have been placed on a listen-only mode and the floor will be open for questions following today’s presentation. At this time it is my pleasure to introduce Mr. Dwayne Hallman. Mr. Hallman the floor is yours.

Good morning and welcome to Horace Mann second quarter earnings release conference call .Yesterday after the market closed, we released our second quarter earnings including financial statements, as well as, supplemental business segment information. If you need the copy of the release it is available on our website under Investor Relations.

Today we will cover our results from the second quarter. The following senior management members will make presentations today and usual will be available for questions later in the conference call. Lou Lower, President and Chief Executive Officer; Pete Heckman, Executive Vice President and Chief Financial Officer; Doug Reynolds Executive Vice President, Property and Casualty, and Butch Joyner, Senior Vice President of Marketing.

The following discussion may contain forward-looking statements within the meaning of Untied States security law. Our actual results may differ materially from those projected in the forward-looking statements. These forward-looking statements are made based on management's current expectations and beliefs as of the date of this conference call. For a discussion of the risks and uncertainties that could effect the actual results please refer to the company’s public filings with the SEC and in the earnings released issued yesterday. We undertake no obligation to publicly update or revise such forward-looking statements to reflect actual result or changes and assumptions or other factors that could affect these statements. As a reminder this call is being recorded and is available live on our website. An internet replay will be available on our website until September 6, 2004.

Now I‘ll turn the call over to Lou Lower for his comments

Thank you Dwayne and good morning everyone and thank you for joining us. As you read in yesterday's earnings release Horace Mann reported solid profitability, substantially better than prior year fueled by another quarter of significantly improved results in property casualty. While underwriting income benefited from industry-wide low levels of catastrophe experience and no adverse prior year development we are very pleased to see continuing and meaningful improvement in all key current accident year P&C ratios compared to where they ended the year in 2003 even after adjusting for the benefit of cats this year.

As you'll hear from Doug continued progress in our leading business quality indicators of both about percent Educator business and percentage from business from the more favorable underwriting tiers continues to drive improving frequency. At the same time our claims initiatives are delivering further improvements in both severity control and expense management.

In Pete's commentary you'll note that life segment income is less than prior year, both for the quarter and first six months but it is tracking our expectations year-to-date.

In the annuity segment, while we are ahead of prior year, and at expected profitability levels year-to-date, the benefit of pre-payments on invested income slowed somewhat in the second quarter. So we are expecting to feel some pressure from spread compression in the second half of the year.

Good progress is being made in shifting the mix of our independent agent annuity business to higher levels of variable sales which we think is appropriate in the low interest rate environment. At the same time both cash value and premium persistency across both life and annuity continue to improve.

On the marketing front, total sales including independent agents increased 23% for the quarter with career agent sales up a very healthy 17%.

As Butch will describe the aggressive P&C pricing and underwriting actions that we taken have impacted auto new business as we refocused our distribution channel to concentrate on high quality educator business, deemphasizing the mass markets.

But now that we have engineered that shift and are widening margins to acceptable levels, we do see opportunities to begin the focus or attention on growth with care on the auto side of the equation in our target market.

Sales in the other three major lines of annuity, property and life have increased significantly compared to last year. Life's increase above the 30% for the quarter reflects continuing and building momentum in the sale of our partner company products.

On the annuity front our agents continue to grow that line by leveraging the value of our payrolls slots, career agent total productivity increases of 26% in the quarter more than made up for a modest decrease in number of agents, which we do believe will begin to reverse itself as our agent retention programs kick-in and as we succeed in the auto new business growth in our target market.

Putting it all together, results from operations in the quarter and the first half confirm to us that our company-wide profit improvement initiatives not only continue to gain traction but are demonstrating sustainability as well. So we feel very good about the pace of operational improvement and the strength of our balance sheet as reflected in both reserved levels and invested asset quality.

Accordingly and as we promised you we have revisited earnings guidance and are increasing our full year estimate of net income before realized investment gains of losses by 25 cents to a revised range of $1.45 to $1.55. That new level is primarily reflective of the favorable improvements in property casualty underwriting income that we have enjoyed and delivered so far this year but it is appropriately conservative in recognizing the potential for cat losses in the remaining six months of the year.

And now for some additional financial commentary we'll turn Pete Heckman.

Thanks Lou. In light of another relatively noise-free quarter my remarks this morning will be rather brief and will include a high-level assessment of second quarter operating earnings, comments on property casualty reserves and investment results, and some perspective on our revised earnings guidance.

Net income, excluding net realized investment gains and losses, was 45 cents per share in the second quarter compared to the First Call consensus of 33 cents and a prior year result of 2 cents per share.

Like last quarter earnings in current period benefited from a relatively low level of catastrophe losses and an absence of prior year's property casualty reserve charges.

Year-to-date reported net income excluding realized gains and losses with 88 cents per share compared to 28 cents for the first 6 months of 2003. A significant portion of the increase was due to the favorable P&C reserves and catastrophe comparison.

However adjusting both the first half of 2003 and 2004 to exclude catastrophes and reserve development income excluding realized gains and losses improved from 70 cents to 94 cents per share, reflecting a 34% increase in underlying results. Doug will comment on the key drivers in property and casualty which was the major contributor to those results in just a moment.

With regard to property and casualty reserves, our internal actuarial analysis found the emergence of prior year [claimants] to be generally consistent with our expectations, which resulted in no reserve adjustments in the period. Deloitte performed a complete independent review of our reserves as of June 30 and their findings were consistent overall with our internal assessment.

In terms of investment results we had a small pre-tax net capital loss in the second quarter of $800,000 primarily related to the sale of fixed income securities issued by Delta Airlines Year-to-date we've realized pre-tax capital gains of $4.5 million versus a net loss of $2.5 million in the first six months of 2003. We’ve had no impairment charges during the first six months and our securities watch list remains minimal.

Pre-tax unrealized gains were approximately $40 million at June 30th, down from about a $180 million at the end of the first quarter.

Investment income in the second quarter exceeded prior year by 2.9% pre-tax and 4.2% after-tax .However the investment earnings were down compared to the first quarter due to the expected decline in pre-payment income.

The good news is that underlying investment income in the second quarter excluding pre-payments moved above the prior year quarter for the first time in some while and we expect this trend to continue through year end as cash flows in P&C and asset growth in the annuity business offset the overall decline in portfolio yield, which brings us to the subject of our 2004 outlook.

As you saw in the earnings release and as Lou mentioned we raised our full year guidance for 2004 net income before realized investment gains and loses to a range of $1.45 to $1.55 per share. We would expect this range to generate a 2004 ROE of between 13 and 14% excluding FAS 115.

If we continue to have favorable catastrophe experience in the second half and P&C frequencies remain relatively benign our guidance could prove to be conservative. We will of course reassess the trend next quarter and update our estimates if appropriate at that time.

And now here is Doug Reynolds to comment further on our property casualty results.

Thank you, Pete. It is nice to be in position to once again relay positive results. Our pricing, underwriting, and claims initiatives that we have been putting into place over the past two and a half years are continuing to drive improvements in both auto and property.

Before I begin commenting on some of the numbers let me again -- let me once again point out that all the operating ratios in my comments are on a GAPP basis.

For all lines of business combined in the second quarter of 2004 the property and casualty division achieved a combined ratio of 90.8% and just over $143 million of written premium. That result is 20.4 points better than our 111.2 % combined ratio during the second quarter of last year.

Several factors contributed to this dramatic improvement. First of all our loss and LAE ratio excluding catastrophes and prior year's reserve development was 5.7 points better than the second quarter of 2003 and our expense ratio was slightly improved over last year. Favorable weather caused a drop in our catastrophe losses and LAE which resulted in a benefit of 6.7 points.

Finally last we experienced the negative effect of adverse development on prior year's loss and LAE reserves. Adjusting numbers to exclude catastrophe losses in prior year's loss and LAE development we achieved and improvement of 6.3 points on a combined ratio.

Voluntary auto had another solid quarter with a combined ratio of 93.5% for the quarter compared to a 104.5% in the second quarter of last year. Our auto loss and LAE ratio declined to 71.1% from 82.4%.

Adjusting these ratios to exclude catastrophe losses and prior year's reserve development our combined ratio for auto was 2 points higher than the combined ratio during the second quarter of 2003. But, as we stated in the first quarter, a better parameter to use is the year-end 2003 result due to the accident year strengthening that took place over the course of 2003. Using that more appropriate measure, auto results so far in 2004 have improved approximately 3 points. We are also continuing to see improvements in pure premium demonstrating the continued impact of our underwriting and claims enhancements as well as the favorable weather that has continued through the second quarter.

Auto average written premium increased 4.5% in the quarter, reflecting our pricing activity aimed at rate adequacy. Implemented rate changes averaged 5.5% for auto in the quarter. Reflecting our pricing and underwriting focus on growing our target markets, we are continuing to increase our percentage of total auto educators. They now comprise almost 68% of our total auto book of business.

Clients paying via automatic payment methods represented over 25% of our in force book, a 1% increase from year-end 2003. Year-to-date almost 33% of our new business has selected automated payment options, which continues to have our highest retention rates.

Our property line also had another outstanding quarter with a combined ratio of 81.8% for the quarter versus 129.9% during the second quarter of last year. Excluding catastrophes and prior year's development, the combined ratio was 76.3 compared to the second quarter of 2003 result of 107.4.

Our property loss and LAE ratio excluding catastrophes and prior year's development was 54.5, 28.5 points better than last year. However, as with auto, a better parameter is to look at the full year property results for more relevant comparison. Viewed from that perspective, our combined ratio improvement so far this year has been approximately 8 points.

The percentage of our new business that is coming from the educational community is over 69% in 2004, 3 points higher than at the same time last year. Like many insurers, we have experienced favorable weather this year; however, you can see from these results that our property business is continuing to reflect the benefits of our underwriting pricing and re-inspection programs as well as our renewed focus on the educator market.

For the quarter, property written premium increased 11.4% while our average written premium compiles the increase of 12.3%. Both of these reflect our steadfast commitment to adequate pricing. We have continued to aggressively price where we needed in the second quarter with an average implemented rate change of approximately 13%.

We also see positive trends continuing in the quality of our property business. Compared to the end of the second quarter of last year, educators as a percentage of our in force business increased 2 points to 61.4% and we have continued to increase the percentage of our best tier business.

Our claims initiatives continues to contribute to improving operating results. Some examples of the expense control measures we have implemented in our claims department which are driving at an improved LAE ratio are employing our own claims adjustors in areas where we have enough policy to leverage the benefits of scale and tools in the forms of software within our claims workstation that we have provided to our claims employees. We have also benefited from more aggressively pursuing subrogation in salvage.

As we continue to embed our claims initiatives into the organization, we expect to see more stability in our severity results and expense improvements. We have put together two strong quarters and we have stabilized our reserve position. Our claims processes, reserving, pricing, and underwriting initiatives have put us in a more stable financial position, which was our goal. We have planned to take the next step and refine our pricing model to better segment of our risks and establish more price points for our business.

Overall, the first half of 2004 has been very solid. As I stated in our last call, the work to produce exciting financial results started 2 plus years ago. Our underlying results and trends show solid progress from the benefits of the initiatives we have put in to place. And now let me turn back to Pete.

Thanks Doug. Just a few brief comments on life and annuities. In our life segment while premiums and contract deposits in the second quarter declined compared to 2003, life sales including universal life and variable universal life partner products were up a healthy 30% over prior year. Life segment's pre-tax earnings were below prior year by $700,000 in the second quarter. On a net basis, virtually all of that variance was due to DAC unlocking.

Year-to-date life pre-tax income was down about $1.8 million compared to 2003, half of that variance was due to DAC unlocking with the remainder resulting from a variety of factors including lower group earnings and the commission adjustment, partially offset by higher partner products fee income.

Our revised 2004 earnings guidance contemplates life earnings in the second half of the year to be relatively consistent with the first 6 months excluding the impact of DAC unlocking.

With regard to the annuity segment, second quarter 2004 total cash values grew by 14% over prior year driven by a 20% increase in variable deposit values due in large part to financial market performance over the past 12 months. Variable annuity fund flows continued positive with the year-to-date net flows surpassing 2003 level by more than 50%. Total contracts in force grew by nearly 5% and cash value retention for both variable and fixed business increased by over a point to levels comparable to mid-1990s.

Annuity segment pre-tax income of $3.9 million in the second quarter was $1.4 million lower than the prior year. As was the case on the life side, virtually all of that negative variance was due to the impact of DAC and VIF unlocking and change in guaranteed minimum death benefit reserves. Year-to-date, excluding the impact of unlocking and GMDB, annuity pre-tax income was up approximately 7% or $600,000 over last year driven primarily by increased contract fees.

On a sequential basis, annuity pre-tax income was down about $1.5 million in the second quarter excluding DAC and VIF unlocking and the change in GMDB reserves. Most of that variance was due to the impact of fixed annuity spread compression on the interest margin, which was exacerbated by the expected decline in prepayment income.

Looking towards the last half of the year, our revised earnings guidance calls for a modest decrease in annuity earnings in the last two quarter compared to first half results excluding unlocking and GMDB reserve changes. As we anticipate a bit more spread compression before spreads bottom out near the end of the year.

And now I‘ll turn it over to our Senior VP of Marketing, Butch Joyner.

Thanks Pete, and good morning. I am happy to report that the strong start to the sales reported at the end of the first quarter continued into the second quarter. Through June, our total sales wee up 31% over last year. Sales in life, annuity, and property experienced double-digit increases over the first half of 2003. Career agent sales are up17% over mid year 2003 and career agent productivity increased 24% compared to the same period a year ago. Sales in the annuity line leads to the strong sales year with an increase of 60% compared to the first half of 2003. Half of this growth came from career agent sales increase of 35% and the other half from independent agent sales which were four times the level produced in the first half of 2003.

Life sales gained additional momentum on the second quarter with an increase of just over 30% over the second quarter of 2003 and a total increase of 23% over the first half of last year. The gain in life sales was driven by increased productivity and the sale of our partner company products. New business premium and property increased 14% over the first six months of 2003 while auto sales were down 11% for the same time period. Pricing and underwriting actions have been the major factors impacting auto new business.

As Lou and Doug both mentioned, our improving margins better our position to address growth opportunities. Focusing on agent productivity, changes in our agent compensation program, and identifying profitable growth opportunities will provide new auto sales as well as the retention of in force business. At mid-year, we are beginning to see positive results from the new agent retention program initiated at the beginning of the year. Retention of 2004 hires is up 2 points 94% and the productivity of our 2004 hires is 39% higher than the 2003 hires at the same point a year ago. While the retention program with fewer planned hires contributed to an overall decrease in the total agent count, our experienced agent count increased 2% from one year ago. We continue to be excited about the progress of our high priority market initiatives. Sales in these markets are up 19% over mid year 2003, slightly exceeding the increase in sales by the remainder of the career agency force. Our new selling system [Power] Solutions was introduced to our most productive career agents in the first half of 2004 contributing to the increase productivity in the life and annuity lines.

We will increase the number of career agents with the new sales system in the second half of the year, as well as, implementing the program with our new hires later this year.

All in all a solid foundation during the first half we already look forward to as promising second half results. Now I turn it back over to Dwayne.

Thanks Butch. And that concludes our prepared remarks. Lynn please move to the question-and-answer session.

Thank you. The floor is now open for questions. If you have a question please press "*" "1" on your touchtone phone. If at any point your question is answered you may remove yourself from queue by pressing the "#" key. Questions will be taken in the order that they are received and we do ask that while you pose your questions that you pickup your handset to provide optimum sound quality. With those instructions in mind if you do have a question please press "*" "1" on your touchtone phone at this time. Please hold while we poll for questions. Our first question is coming from JF Tremblay of Credit Suisse First Boston.

Good morning.

Good morning.

Good morning.

Good morning.

I would like to hear your thoughts on the company's environment and I'd like to get a sense for what's you are aiming for in terms of at a rate increases or decreases in your auto and homeowners line. And I think as the fair number of competitors out there who are implementing a rate decreases. So I was wondering what your plans are for the rest of the year? And also I'd like to hear what you are hearing from your sales force in terms of how competitive your product is relative to that of the national carriers and the regional carriers?

Okay. There were few questions there, and this is Doug Reynolds let me try to address on the property and casualty and the rate changes. One, obviously, the ability to take the rate increases that we have taken in the past are far lower, now just because of the combined ratios, obviously, you can’t get to those levels. Really, for the auto I would expect it to continue to run through the rest of this year around the 5% level. Number of those have already been filed etc. Property we would expect that to be a little bit lower again in the third quarter over we were in the second quarter.

A couple of things, you know, obviously as you we are going to the marketplace, we’re trying focus on the educators. In a number of markets as we have implemented rate changes, we have taken reductions or held flat on the educator business to better tier -- better results tiers. So, we have implemented some of those. But we’ve continued to make sure that we’re pricing the Mann educator or the core experience tiers or higher tiers more aggressively then -- we have continued that aggressiveness as we started there over the last year. So, really there is a couple of things that are going on.

From our agent standpoint as we look at each one of the markets, I think been able to achieve the combined ratios that we are achieving now really allows us to become more surgical in our pricing methods in each one of the states and by that I mean really identifying were we got opportunities to grow the educator. I think the high priority markets are good example of that where we've seen excellent growth rates. We analyze those markets and we priced it to really attract the educators and I think the growth rate that Butch mentioned is showing that that is beginning to take hold.

It's very helpful. And now that you have shown some improved results can you comment on the state of your conversations with the rating agencies?

We have not had recent conversations with the rating agency other that the normal discussion when they release commentary on our earnings. We would certainly expect to have a -- annual review meeting is coming up towards the end of this year into the first quarter of next year and would be optimistic in terms of our ability to get those ratings raised.

And have your ratings being mentioned as a source of concern from a customer standpoint?

We have not.

Okay, thank you very much.

Thank you. Our next question is coming form Mark Finkelstein of Cochran Caronia.

Hello, good morning.

Good morning.

Morning.

Couple of quick follows questions, one on the prior question. Just looking at the [tif] decline in the quarter I think was 1.9%. Can you just break that up between educator and non-educator?

As far as breaking off between educator and non-educator that's not what we want to -- that we want to release. The only thing that I would say that the manage -- we continue to, as I indicated to grow our percentage of the total of educators as a percentage of our total book of business. And the Mann educator especially the higher tiers is continuing to lead at a much more rapid rate

Okay. So I guess just going back to the comment made on last quarter's call, I think made by Butch regarding seeing favorable trends in terms of growing the educator book, you're still as comfortable or more comfortable with that comment?

We are comfortable with it Mark, I would also tell you that, just from an overall perspective we are keeping the business that we want to keep.

Right. Okay. Quick numbers question .What is your new money yield versus kind of portfolio yielded cost?

Well our portfolio yield, I'll break it down between, P&C and life and annuity. Life and annuity portfolio yield is about 590 and –P&C pre-tax yield is about 481, of course we invest quite a bit in municipals and P&C, so the pre-tax equivalent there would be about 630. And recent new money rates in our bond portfolio would be, hang on a second, somewhere in the mid 5 but -- I'll see through for the most recent information here.

Okay, perfect. And then just on the annuity segment I just wanted to clarify a couple of the comments on spreads. I think you did about 8.1 million of net interest spread in the quarter and you are growing the general and comp balances in the 3% range. I just want to make sure that is the 8.1 million actually going to decline even though you have pretty strength growth in the general account or is it really just spreads you are compressing by the 8.1 million, you know, could stay flat or modestly up as you know even with the modest decline in kind of spreads?

Well, we -- we are going to continue to see the portfolio yields decline for a period of time and given our product guarantees we don’t have substantial room to reduce credit and rate to follow that. So as I indicated you'd expect spreads themselves to compress a little bit further through the end of this year but obviously as rates assuming they do begin to continue to be a little strong and that that growth grows the dollars of margins I think should be not under the same amount of pressure as the percentage spread.

Okay. And then one final question. On the independent channel just slightly down sequential sales growth is that just due to the lumpy nature of the business or is there any kind of change in the number of agents out there?

Mark in our last call I believe that -- and maybe even two calls ago we talked about in that business engineering a shift of mix of business to get more variable annuity business from that channel as opposed to fix annuities. And as we have gone through that transition we have had a significant drop off in fix, which is fine with us, variables beginning to grow. So it's just a shift in mix that’s causing the overall dollar volume to decrease somewhat but we are seeing increasing trends in -- beginning of increasing trends in the variable annuity business from the independent channel.

Okay. That makes sense. Thank you.

Mark this is Pete Heckman let me just fall back up with your new money yield question. Through six months in the annuity and life portfolio year-to-date we’ve acquired bonds that have yield of about 4.94% recent, recent months it has been up over 5, but year-to-date it's right about 5.

Okay. Perfect.

Thank you. Our next question comes from Mark Sarafin (phonetic) of Bank of America.

Hey, guys, just quick question. Could you share with us what your expectation is for second half catastrophes embedded in your guidance?

Yeah, for the second half, the catastrophe that we -- and properties -- basically what we are doing is for property we are keeping a full year load end. So, in other words by end of year -- our year-end guidance, we say that we are going to have what we've typically plan to have for catastrophes for the year. On auto, we recognized a little bit of that catastrophe benefit in the first half of the year because that typically occurs more in the first half of the [inaudible] etc. So the property is the full load and the auto would just be what we would normally plan for the second half of the year. So, typically that portfolio that's in the 3.5-4% range.

And then in terms of pricing, segmentation, I don't know if you guys have talked about that in that past -- I mean, is there anything could elaborate on in terms of either systems or expenditure that you are looking at on the horizon?

Well, on the pricing side, what we are spending a large amount of time on right now is analyzing our book and going through cuts to segment it further. A couple of examples would be just really breaking down age more finally that what we have it today, the experience of some of the educators in the marketplace with how long that they have been in the educational community, if there are two educators in a house versus one, those types of things that we will be able to break down and really develop a number of price points for risk, as well as really analyzing the weight of insurance score or credit scoring by the insurance score and how that, you know, relates with that various experienced, both our new business as well as renewal business. But that's really at a high level, but --

Yeah. Do you got a -- like a timeline that you are looking at on those types of initiatives?

From a timeline what we would be looking at is trying to bring up a [states] by the first quarter of 2005.

Okay and could you just --.

Mark, let me just add to that. If you think about what we’ve been through given the unacceptable margins in the book of business, the first thing we had to was kind of do some, what I will, call macro-segmentation of the book to get to where we need to be and that segmentation is basically educator and non-educator and then some tiers based on credit scoring. Now, we have, as Doug said earlier on, the opportunity to get more surgical -- have more underwriting segments and also do a better job of pricing at the local market level.

Okay. That’s it from me.

Thank you. Our next question is coming from Darin Arita of Deutsche Bank.

Hi, good morning. Just three questions here. The first one is on the PMC tax rate for the investment income, seems to have declined quite a bit in the second quarter. I was wondering if you could talk about that if that's more investments in [UNIS] how do we think about that going forward?

Yeah, about 80% of our portfolio has been [UNIS] at this point. So that's obviously effecting the tax rate as you've noticed. I believe the effective GAAP tax rate that is in the books at June was about 26.5% and that is consistent with our year-end outlook for that segment. So, if we remain on track, then I would expect that could be a number that would apply going forward.

Okay and in the annuity segment, can you quantify the impact of the prepayment income in this quarter, the quarter a year ago and also the first quarter?

Yeah, we -- in total, we had about $2 million pre-tax prepayment income in the third quarter and a little under $1 million in the second quarter. The annuity segment share of that prepayment income was close to 900,000 pre-tax in the first quarter and it dropped by a little over a $0.5 million in the second quarter and prior year we really didn't have material amount.

Okay and last question here. I believe for your EPS guidance, the combined ratio embedded in there was 95-97%. I am not sure if I caught what the updated combined ratio would be under the new guidance?

Yeah that would be around 93.5-95.5 range and really what -- that's based on if you think about our earnings range, the $1.55 would at the levels of catastrophe that I spoke to earlier and the lower end of that range would be that we would start to see a slight uptick from the historical lows that we had on frequencies.

Okay, great, thanks very much .

Thank you. Our next question comes from Steve Labbe of Langen McAlenney.

Good morning. Two quick question. One, with the agent retention programs you have in place, at what point do you think agent count will actually increase or stop decreasing? And second, what is the biggest hindrance you face or the biggest difficulty or challenge that you face on recruiting new agents today and whether or not you see that changing in future periods?

Well, I think the agent count is an issue that we are focusing on. We are focusing on bring in quality new hires and with the retention program that we put in place at the beginning of year, we plan for fewer hires and we plan to change some of the selection process as well as our training program and which is resulted in fewer hires in the first half of the year. As far as forward looking, we would expect an upturn in the second half of the year in the total agent count and then seeing greater acceleration next year.

Okay, thanks.

Thank you. We have a follow-up question coming from JF Tremblay.

Hi, seems to me with the results you have shown this quarter, some could argue that Horace Mann is becoming a more attractive merger partner or target -- acquisition target. So can you comment on any discussions you may have had regarding the topic of acquisitions or mergers.

We haven’t had any discussions and the company is not up for sale. I would tell you we are operating as our Board of Directors would like us to as an independent company and making substantial progress on all of the fronts that you just talked about and we think if we continue to do that that we will be able to drive significant increases in shareholder value that way.

So, there's been no significant change to your thinking in terms of managing the company as an own organization?

No.

Okay, thank you.

Thank you. Once again, if anyone does have a question, please press "*" "1" on your touchtone phone at this time. We have a question coming from Tim Hasara of Kennedy Capital.

Would you anticipate utilizing the shelf that you filed sometime in the back half of 2004?

We don’t have any plans at this time to do that, Tim.

How long would that be in effect for from the registration effective date?

I think about 3 years is my recollection.

Okay. Thank you.

Welcome.

Thank you, there are no further questions at this time. I would like to turn floor back over to management for any closing remarks.

Thank you for your participating on our call this morning. Have a good day.

Thank you. This does conclude today's teleconference, you may disconnect your line at this time and a have a great day.