Horace Mann Educators Corp (HMN) 2006 Q1 法說會逐字稿

Good morning, ladies and gentlemen. My name is Denise, and I will be your conference facilitator today. At this time I'd like to welcome everyone to the Horace Mann Educators first-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) It is now my pleasure to turn the floor over to your host Mr. Dwayne Hallman, Senior Vice President of Finance. Sir, the floor is yours.

Good morning, everyone, and welcome to our first-quarter earnings conference call. Yesterday after the market closed we released our earnings report including financial statements as well as supplemental business segment information. If you need a copy of the release it is available on our website under Investor Relations. Today we will cover our results for the first-quarter in our prepared remarks. The following senior management members will make presentations today and as usual will be available for questions later in the conference call.

Lou Lower, President and Chief Executive Officer; Steve Heckmann, Executive Vice President and Chief Financial Officer; Doug Reynolds, Executive Vice President, Property Casualty; Frank D'Ambra, Senior Vice President of Life and Annuity; and Butch Joyner, Senior Vice President of Marketing. Following the call please feel free to contact me for further clarification on our results if necessary.

The following discussion may contain forward-looking statements regarding Horace Mann and its operations. Our actual results may differ materially from those projected in the forward-looking statements. These forward-looking statements were made based on management's current expectations and beliefs as of the data and time of this call. For a discussion of the risk and uncertainties that could affect actual results please refer to the Company's public filings with the SEC and in the earnings press release issued yesterday. We undertake no obligation to publicly update or revise such forward-looking statements to reflect actual results 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 June 5, 2006. Now we will turn the call over to Lou for his comments.

Welcome to our call, and thanks for joining us today. As you've read Horace Mann reported net income before realized capital gains and losses for the quarter of $0.46 a share. While somewhat below a very strong period last year, the result is slightly above our expectations consistent with the First Call consensus and a solid start to the year. From a P&C profitability perspective the elements of success continue to be the benefits we are realizing from pricing and underwriting actions, transformation of our claims organization and continued improvements in quality trends. We have hit the quality sweet spot in terms of percent educator and percent of new business from the preferred underwriting tiers. There is really no economic benefit to driving those percentages any higher, so we will be focusing our efforts going forward on increasing business on EFT and cross selling, both of which should drive continued improvement and retention.

We continue to feel very good about the strength of P&C reserves with favorable prior year development confirming the stability and consistency of results, reserves were made at the high end of the range and with respect to the new accident year we are starting with the same degree of conservatism in the first-quarter as when we entered 2005. Life and annuity combined have delivered positive variances and pretax operating income both sequentially and to prior year, overall sales have increased thanks to solid growth in career agent production in both lines.

Interest spreads have flattened sequentially, account values are growing thanks to sales and good equity market performance and fee income has increased. And we're anticipating that those trends will continue as we benefit from our new life and annuity product rollouts. In addition to their normal elaboration of quarterly financial results, I've asked the senior leaders today to highlight some key things happening at the Company to help you better understand our future. Pete will comment on our successful refinancing transaction which will serve us very well in mitigating the financial uncertainty associated with our senior convertible notes which most likely would have been put to us a year from now.

We will then change our normal batting order for the balance of this call with Butch following Pete to describe our new agent business model. This is the engine that over time will remove the capacity constraints inherent in how a typical Horace Mann agent operates today. It is designed to unleash the potential of our distribution system, significantly increasing agent productivity and growth together with market penetration. While there is a great deal to accomplish to realize that full distribution potential, the strategy that we've embraced is time tested both in the multiline industry and within the ranks of our own top producers today. We will follow that discussion with Doug and Frank who will lay out for you what the rest of the organization is putting in place to enable a successful transition to that new model. Their comments will cover initiatives along the dimensions of product, service and technology.

I've also asked Doug to describe other initiatives either deployed or under development to further differentiate Horace Mann in our niche market. Additionally both Doug and Butch will highlight actions that we've taken to reduce Cat exposure and how they've impacted current results. As you will see from our overall commentary, we now have the ability to focus on growth and are allocating more resources to that side of the equation. But let me emphasize that this will be profitable growth. We will not sacrifice the financial gains and stability we have worked so hard to put in place. And the current quarter results certainly reflect that commitment with solid book value growth, both year-over-year and sequentially, and continuing improvements in our operating leverage ratios while absorbing the impact of additional reinsurance expense to reduce the potential earnings volatility associated with Cat losses.

And now for some additional commentary on the financials here is Pete.

Thanks, Lou and good morning. Horace Mann reported another quarter of solid earnings, a bit ahead of our expectations with all segments of the business contributing. Strong financial market performance in the quarter benefited our annuities segment contributing to increased fees and contract charges and the positive DAC unlocking impact. In the life segment favorable mortality helped to beat a relatively strong prior year result which had been bolstered by a reserve release in our Group business and the sizable DAC unlocking benefit.

In property and casualty increased catastrophe reinsurance premiums and a higher level of catastrophe losses in the quarter versus last year, were offset in part by a favorable reserve development primarily related to the 2005 and 2004 accident years. We have not reflected any carryover benefits to the '06 accident year however, opting to wait another quarter or two to confirm the potentially favorable results. We had previously disclosed the [debt] transaction that culminated two weeks ago with the issuance of $125 million of 10-year, 6.85% Senior Notes. The offering went extremely well with a high-level investor interest resulting in the issue being broadly placed at attractive spreads. We were able to take advantage of this still relatively low-interest rates and at the same time get a head start on refinancing our convertible notes which have a put call date in May of next year. We expect this transaction to be marginally accretive to earnings per share, a penny or two in 2006 and approximately $0.05 on a full-year pro forma basis. As a result of the higher interest expense on the new Senior Notes, being more than offset by the reduction in diluted shares associated with the retired convertible notes.

So while some positive results have begun to emerge, it is still early in the year. We will have a better read on catastrophes after the second quarter along with another quarter of underlying results and an opportunity to further assess the 2006 accident year. And we will update our year end outlook for you if appropriate at that time. With that let me turn it over to Butch Joyner for his comments on marketing results and initiatives.

Thanks, Pete. Before I share our plans for the new agent business model with you I'll begin by reviewing the new business sales premium results in the first-quarter followed by an update on auto sales and agent count. Total new business sales improved modestly over the first-quarter of 2005 with career agents contributing with a 3% increase in their total new business premium. Starting with annuity sales, business increased 9% on the career agent side, offset by a decline in independent agents sales, bringing the overall increase to 3% compared to last year's first-quarter.

On the life side target premium increased by 11% for the quarter. This was driven by 23% increase in the sales of Horace Mann products reflecting the very positive response to the rollout of our new products. First quarter new auto sales units increased by just over 1%, a slow start in January was offset by improved results in the balance of the quarter. Agent auto productivity in the latter part of the quarter trended slightly ahead of the very solid auto productivity results in the fourth quarter of 2005. We believe this trend should continue similar to the pattern we experienced last year.

Agent count at the end of the quarter totaled 833 agents or a 2% increase over the number of agents at the end of 2005 first-quarter. The number of experienced agents increased by 7% during the same time period, making eight excessive quarters where we have marked year-to-year growth in our experienced agent group. However, our total count decreased by 22 agents compared to year end 2005. Strategic actions taken in the first-quarter in areas of postal risk contributed in part to the decrease in agent count and is having an impact on our hiring plans, as well. Specifically in Louisiana we closed one of the two agencies in the state. This resulted in a decrease of about 50% in the number of agents in the southern half of the, state. In Florida an agency in the southern portion of the state was also closed. With hiring restrictions, planned rate actions and tightened underwriting guidelines, we expect a further reduction in agent count in both states.

Offsetting these closings, we established three new agencies in Texas during the quarter. They are positioned in the central part of the state where we have favorable conditions for both agent and profitable top line growth. In addition to the challenges of agent placement in territories exposed to catastrophes, we also faced a continuing challenge of identifying and hiring qualified candidates. However, we fully expect to increase our agent numbers during the balance of the year.

Turning to the new agent business model, Lou mentioned in his comments that the model is in its developmental stage. Our plan is to transition agents from a one person, in-home based operation to fully staffed agencies located in outside offices. This concept, while in its infancy at Horace Mann, is a standard mode of operation for the multiline industry. At present approximately 5% of our agents work in this environment, employing support staff and licensed solicitors to remove the capacity constraints of a solo operation. The sales productivity and the book of business growth of this group is substantially higher than that of the average agent. With a growing group of agents electing to move to this model on their own, we are developing a formalized program that will be introduced to another 6 to 8% of our agents this fall through an agent business school. The school will include a detailed operational blueprint of best practices for the management of an outside office, training on how to fully leverage support staff and licensed solicitors, a personalized business plan and financial modeling to fully maximize the opportunity of an entrepreneurial agent-owned agency. And as you will hear from Doug and Frank, all parts of the Company are aligned to support this transformation.

The transition to this model will continue at an accelerated rate in 2007 and 2008, and I emphasize transition. As we want to ensure that candidates are both ready and able to successfully operate in the new model. At a point to be determined new agents joining the company will be hired directly into this model. While we will continue to focus on growing the number of agents, we will also be increasing the points of distributions. That is licensed solicitors at an even faster rate through the agent business model. It is this two-pronged approach that will drive greater gain in market share. And rather than swim against the tide, I am pleased to tell you that our agents have been very receptive to this change and are looking with enthusiasm for us to deliver on our plan.

Now Doug Reynolds to discuss property and casualty results.

Thanks, Butch, and good morning. This morning I'd like to provide context for you around our P&C results and discuss actions we are taking to drive further improvement. The total combined ratio increased over prior year by more than 3 points in the quarter, made up of 1.2 points in loss and LAE* and over 2 points in expense ratio. The combined was primarily driven by a few key components. First, our increased reinsurance costs added about 2 points to the total combined ratio and 6 points to the property combined ratio.

Second, the rate reductions we took last year in the educator business segment have had the expected effect of reducing the auto average written premium. The offsetting benefit of a higher percentage of educator and better quality business being submitted is being reflected in frequencies for both auto and property. While severities are higher than prior year, they are still within our expectation. Third, catastrophes in the quarter, while not high enough to change our year end estimate were higher than a typical first-quarter adding about a point to the combined ratio.

Lastly there was the impact of positive prior year reserve development which had a 3 point favorable impact in the quarter. Although we are continuing to experience favorable development of loss as reflected by our release of reserves from prior year, as well as favorable frequency and severity results, we elected to maintain a conservative reserving approach for the 2006 accident year in the first-quarter. However, as we move through 2006 and continue to see current and prior accident year emergence similar to the first-quarter, we will most likely recognize the favorable trends more quickly as we believe we now have enough consecutive quarters of consistent results to take this action.

Now let me move to an update of the multi-pronged approach we are taking to manage our catastrophe exposure. As we discussed last quarter, we have increased and improved our reinsurance coverage while at the same time placing restrictions on new business in coastal, catastrophe prone areas. We are not accepting any new business in southern Louisiana and we have expanded distance to coast guidelines in other coastal states while beginning coastal nonrenewal programs. We have also reduced our marketing presence in these states by closing two agencies and not allowing any new or replacement agent hires. We are increasing rates countrywide to reflect generally higher reinsurance costs and are allocating those reinsurance costs more appropriately by territory.

Other actions we have taken in coastal areas include maximizing wind and hail deductible usage, decreasing limits for additional living expense and increasing our participation in state wind pools. Retention of our business continued the positive trends we have been experiencing over the past twelve months. Our total auto retention has increased 7/10 of a point over prior year with auto educator household retention increasing a full point. Total educator auto policies in force have increased 2.2% over prior year. We are seeing similar positive trends on property where total retention is up slightly in spite of active coastal nonrenewal programs. In fact, educator property policies have increased almost 3% over prior year.

For both auto and property I view this as extremely positive news that the actions we are taking are having the desired effect, and we are growing in our target segment with growth coming in both new and longer-term educator customers. Contributing to our retention improvements is our continued attention to ACE, our claims initiatives. The 2005 storms are behind us and virtually 100% closed, our adjusters and agents have worked very hard over the last two years to help our customers in their time of need and we are extremely proud of their efforts. As a result of their efforts we have seen major upswings in our customer satisfaction numbers. Those customers who are likely to renew or would recommend Horace Mann as a result of their claim experience increased by more than 7 points over prior year.

Additional process upgrades are planned via our claims desktop initiatives which will interface all of our claims tools and establish mechanized best practices to ensure compliance and consistency of performance across the country.

On the pricing front we continue the rollout of our educator segmentation model adding North Carolina in the quarter where the targets have implemented 12 to 15 states by year end. We have seen very positive results from the two states implemented last year. Both Virginia and Colorado have seen an increase of more than 50% in new business sales compared to first-quarter 2005, along with improving loss ratios and retention. Early indications reflect similar results in North Carolina.

As Lou mentioned, in support of our differentiation strategy we have started to deploy additional products, services and unique coverages and benefits. Educators have indicated these are important, and they see them as valuable to meeting their insurance protection and financial planning needs. In previous calls I've mentioned other differentiators, such as our claim vans, our mobile claims offices from which we can write claim estimates and issue checks on the spot. For example, in faculty parking lots. Our call center service hours both client and claims are more aligned to when teachers are available and to our payroll deduction capabilities, Horace Mann is one of a few companies offering educators the convenience of an auto payroll deduction with a corresponding discount.

The three 2006 brought tactical components of differentiation strategy include expanding product offerings to complement our existing multiline product portfolio, introducing educator specific coverages and benefits which they have identified as most valuable, and developing product and marketing strategies for specific segments of the educator market. We piloted a segmentation tactic in the last half of 2005 for young educators. We made product modifications, incorporated the tri-line discount with our marketing materials and build website functionality for the young educator segment of our market and realized nationally a 50% increase in young educator customers. The young educator segments are being expanded in 2006.

We have identified a number of educator specific differentiation tactics which will be developed and implemented throughout the course of 2006 and 2007. All these tactical plans address preferences held by our market, add value and/or create another level of security and protection that educators have identified as a concern. Overall for the quarter we continue to experience financial results in both auto and property that were better than expectations. At the same time we increased educator PIF over prior year and sequentially by quarter. Introduced additional DSM states, continued to drive claim satisfaction improvements and finally, added support to our agent business model by further refining our differentiation tactics.

Now let me turn it over to Frank D'Ambra to discuss life and annuity results.

Thanks, Doug, and good morning. During the fourth-quarter call I shared with you news of the release on February first of our new Horace Mann life product series Life by Design, and the planned release of our new fixed and variable annuity product, Expanding Horizons in GPA. The annuity products were brought to market in a phased rollout to our career and independent agent channels on March 1st and March 15th. Additionally on May 1st we released within our variable annuity productline our new life cycle target maturity funds developed in partnership with Wilshire Associates. Available with target dates ranging from 2010 to 2045, these funds are designed not only to optimize asset accumulation, but also to take clients through their postretirement years. The successful deployment of these improved products represents the most ambitious release of new Horace Mann life and annuity product offerings in several years. In a moment I will discuss additional actions that are underway to support the agent business model initiative and to fully leverage Horace Mann's potential in the educator marketplace. But first let's review the current results.

Industrywide sales showed gains in variable annuity and declines in fixed annuity reflecting strong equity market returns and the impact of the flat yield curve. This was reflected in our results as well. Total annuity sales in the first-quarter increased by 3% driven by a 9% gain in our career agent channel. Our single deposit or rollover business increased by 14% which was offset in part by a decrease in our recurring deposit business. Our policy account increased at a 2.5% rate with cash value retention in the 91 to 94% range.

Total annuity assets under management grew close to 10% with fixed annuity assets increasing 7% and variable annuity assets aided by increased sales and market performance, about 14%. First-quarter pretax income for the annuity segment of $5.6 million represented a $2 million increase versus prior year. Earnings benefited from increased charges and fees and DAC and [dif] unlocking, offset in part by an increase in scheduled amortization of prior acquisition costs.

Turning to the life segment sales in the first-quarter reversed 2005's declines increasing 3% with an 11% increase in target premium. The result reflects a 23% increase in the sale of Horace Mann manufactured products, partially offset by a 10% decline in partner products. Buoyed by the enthusiastic reception of our agents and educator customers to the new Life by Design series, our pending business is now higher than at anytime in the last three years. First-quarter life premiums written for Horace Mann's proprietary products decreased slightly by 1% as compared to a 4.6% decline in the fourth-quarter of 2005. With continued success of the new products we anticipate positive premium growth in the second half of 2006.

Looking at the bottom line, pretax income for the life segment increased marginally in the first-quarter versus a year ago. As increased investment income and lower claims were partially offset by changes in DAC unlocking and increased credited interest. The new agent business model presents an opportunity to leverage the market access we already enjoy through annuity payable spot. To help our agents realize this opportunity we must identify, develop and effectively manage product offerings and services which meet our customer needs and requirements. Hence the importance of a robust product management function and client service initiative. The development and resulting output from our product management process has been the array of products we have launched todate in 2006.

Additionally, we have significantly strengthened our customer service processes through initiatives like document management to create a paperless environment and improved information access. As we look forward to the balance of 2006 and into 2007, we're focused on several key product and customer service initiatives. With respect to our retirement products we have assembled a dedicated team to position the company to respond to changes in our customer needs, driven by the proposed IRS 4, 3 B regulations. And with the aging of the educator workforce approximately 40% of teachers are expected to retire in the next five to ten years. We need to deliver the right products and services so that our educator customers choose to stay with us during their postretirement years. The life cycle target maturity funds are a first offering to address this need.

In our life insurance segment we're developing a single premium whole life product and return of premium term products under the Life by Design series to release in the first half of 2007. And we expect to move forward with cobranding with one of our life product partners in the second half of 2006. In the area of client services we are continuing to drive service improvements for our customers and agents to make it easy for them to do business with us. These include increased use of electronic forms and data, more efficient underwriting processes including teleunderwriting so the agents can focus on relationship development and sales.

With the recent product launches and ongoing and planned initiatives, we will be well positioned to take full advantage of the increased distribution power of the new agent business model and to deliver to our educator customers the products and services they require and desire. And now here is Dwayne Hallman.

Thank you, Frank. That concluded our prepared remarks. Denise, if you could move to the question-and-answer session, please.

(OPERATOR INSTRUCTIONS) Dan Farrell, Fox-Pitt, Kelton.

Good morning. Can you just talk a little bit about the expense ratio which has trended up in recent quarters? And I think some of that is probably from expenses related to the strategic initiative that you are implementing, but can you just give us a little more detail on some of the specific things that are driving it up and also when you think you might start seeing some improvement in that?

A couple things. One, obviously the expense ratio is going up a little bit because of the premium reductions that we've seen especially the, for example the reinsurance premiums. The other main component is really some of the investments that we are continuing to make in our infrastructure around the IT side with some of the advancements. One of the things that I've talked about in the past is the P&C administrative system and investing in that. So those are probably the two biggest contributors to that that we are seeing right now. I would expect that we want to at least from a P&C standpoint, we still want to be able to run our business in the mid 22 expense ratio. And that is obviously a little bit higher but until we get through some of these investments that we got in the technology, we will see it running a little bit higher than that.

Okay, and can you just give us a little more detail on the increased reinsurance purchases and the protection that you have this year now versus what you had a year ago?

We really enhanced our program primarily in two ways compared to last year. We increased the amount of our single event coverage from $80 million to $110 million. And then very importantly we purchased an aggregate treaty, $20 million -- in excess of $20 million to address the frequency of large loss issue. And the combination of those two coverages plus just overall price increases in the reinsurance market, generated the increases that we saw which is about $3 million per quarter.

Okay, great. Thank you.

Alain Karaoglan of Deutsche Bank.

I have three questions. Could you tell us what are the assumptions that you are implicitly in your pricing with respect to loss cost trends frequency and severity what are you assuming there? Going forward?

Well from both of those the frequency side we are assuming that that's going to continue to run at the levels that it is right now, which it is indicated down. On the severity sides we are really looking at that as that we're going to be able to run slightly below what the consumer price indexes would be for the various coverages, whether that be the medical index on bodily injury or replacement parts, etc. on the physical damage. So essentially we are looking at that as continuing to run about flat from a loss cost standpoint.

Okay. And in terms of some of the initiatives in Louisiana and Florida, what are your expectations in terms of what it is going to do to the revenue line going forward?

Well, there's a couple things. Just from those two events or situations we are really looking at a reduction in the PIF that would be somewhere in the 5% range, maybe a little bit higher than that. And that would include programs that we did last year in Florida and ones that that we are continuing this year in Louisiana and Florida. As long as -- as well as other coastal up along the Carolinas and over around Texas, although those are we have far less exposure along the coast. The other thing, though, that we're trying to do is look at opportunities where we can grow the property inside what we are calling the heartland area which is really not in coastal exposure. So there is a couple things that we are doing to try to offset that, the premium loss that we would have in those coastal states.

And in terms of the recoupment of some of your insurance costs, do you have any estimate or idea of how long -- you know how much will you be able -- do you expect to be able to recoup most of it? And if you do, how long will that take?

With all the states that we (indiscernible) again specifically Florida and Louisiana, would be largest impact areas, we are continuing to work with the states and those are two difficult states to work with from a completely recover the reinsurance costs. So it is a little hard to say how long that will take except that we are increasing the lows for the reinsurance in those two states substantially and we're trying to operate at much lower target loss ratios than we were certainly three years ago. Florida has come down substantially from a target loss ratio standpoint and Louisiana has dropped quite a bit as well. So it really is a couple year process to try and get the rate level to really what we need and specifically in those two states.

Thank you very much.

(OPERATOR INSTRUCTIONS) Mark Finkelstein, Cochran, Caronia and Waller.

I guess just going back to Alain's question, how much of the PIF declines in the quarter were related to the Florida and Louisiana territories that you're scaling back in?

There is really a couple impacts on that; I mean we still are carrying over the 3200 from prior year in Florida. And probably from a percentagewise I mean -- I don't have, I would have to look and find the number exactly off the top of my head to tell you the truth, Mark. So let me see if I can find that before the end of the call.

Okay.

Let me also point out on the retention side though, on the PIF side that what we've done or especially in Florida, is that our initial nonrenew activity was geared towards the non educator. So with both auto and property the educator PIF is up over prior year, and it is also up sequentially. In property that has been occurring for quite some time. So although the PIF is dropping on auto obviously, as well as property, it is really in the market. It is in the non educator market. So that is really part of the strategy that we want.

Okay, and let me just go back to that, the educator PIF continues to increase both sequentially and year-over-year?

Correct.

What levels -- I'm sorry if you addressed that in your opening remarks?

Yes, I mean on a year-over-year basis the auto is up a little over 2% educator policies in force, and on the property side it is up about 3% year-over-year.

Okay. I guess I just want to go back to the comments on sales growth. I know you had strong, I think stronger growth in the fourth quarter year-over-year then what you reported in the first quarter. You mentioned that you had kind of a slow start to the year. I guess what is causing that, and what gives you the optimism that that is on the right track?

I think the push at the year end that our agents have for some compensation purposes and incentives drive production to a higher level at year end. And we did as a big finish in 2005 and have led to a pretty slow start in January. And we've seen it pick up each month and based on the activities, the leading indicator activities point to increased sales going forward.

I guess in thinking through that you've rolled out your new segmentation model, which should theoretically increase competitiveness though a slight increase in the first quarter of '06, is it at least stronger in areas where the new model has been rolled out and you get the benefits there, or is there any noticeable trends on that?

Before Butch answers that question, let me just -- as Doug said in his remarks, ESM was piloted in only two states last year as being introduced in North Carolina in the first quarter, so it is only in three states.

Okay.

I think that is and the indications have been very positive in those two states and we have seen a nice increase in sales. And again, that is a reason for optimism going forward. We have also had some impact in the states of Florida and Louisiana that have been in the past reproductive states for us, and they have had a negative impact on sales results in the first quarter.

Okay. And then just on the losses for the quarter, do you happen to have either the paid loss ratio or the paid to incur ratio at the first quarter of '06 compared to what you booked at the first quarter of '05?

We're going to have to get that one to you.

Perfect. And then I guess just with the repurchase of the CoCo's, can you just give us kind of how we should think about the weighted average share count, if it is simple as diluted share count -- is this as simple was taking the 4.3 million shares or whatever that is subject to the convert and straightlining it as a get repurchased, or how should we think about that?

I think that is generally the way to go about it. As we footnoted in this press release and others, as well, the adjustment for the CoCo accounting is to add about on an annual basis prior to our actions in March was to add about 2.7 million annually of after-tax interest back into income, and then add about 4.3 million shares to the diluted share number. That was based on at least throughout '05 $116 million [maturing] value of converts. At the end of March that $116 million is down to $45 million, although that happened at the very end of the quarter. So there wasn't too much of a reduction in terms of the quarterly interest and diluted shares that get added in. But starting in the second quarter, for example, I think it would be reasonable to take a proportionate reduction in the carrying value of the converts and apply that to both the interest and the diluted shares that you calculate to make the adjustment, just realizing that its going to be a weighted average of shares as you go through the year.

Okay. That's all I have. Thank you.

Thank you. Seeing there are no further questions I would like to turn the floor back to Mr. Dwayne Hallman for any closing remarks.

Thank you, and we appreciate you joining us on the call this morning. We look forward to visiting with you next quarter. Thank you, and have a good day.

Thank you. This does conclude today's Horace Mann Educators conference call. You may now disconnect your lines, and have a wonderful day.