Horace Mann Educators Corp (HMN) 2006 Q4 法說會逐字稿

Good morning, my name is Sierra and I will be your conference operator today. At this time I would like to welcome everyone to the Horace Mann Educators Corporation fourth-quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) Thank you.

It is now my pleasure to turn the floor over to your host, Dwayne Hallman, Senior Vice President of Finance. Sir, you may begin your conference.

Thank you. Good morning everyone and welcome to our fourth-quarter and year-end 2006 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 fourth quarter and full year 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; Pete Heckman, 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.

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 are made based on management's current expectations and beliefs as of the date 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 updates or revise such forward-looking statements to reflect actual results or changes in 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 March 7, 2007.

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

Welcome everyone and thanks for joining us. Horace Mann produced a solid fourth quarter with net income before realized capital gains of $0.56 a share completing a strong year of record earnings. At $2.03 for the full year we delivered up the upper end of the last guidance we provided and $0.05 per share above consensus expectations. That positive earnings picture translated into pre-FAS 115 book value growth of 17% for the year accompanied by an operating return on equity pre-FAS 115 of 16%.

From a profitability perspective the drivers of our success continue to be the benefits we're realizing in the P&C segment from pricing in underwriting actions, transformation of our claims organization and continued improvements in quality trends all of which contributed to an overall combined ratio for the year of 87.6 coupled with further gains in retention. We continue to be very comfortable with the strength of P&C reserves. Favorable development during the year confirmed the stability and consistency of operations; at the same time, our year-end reserve position remains near the high end of the range determined by independent evaluation.

Elsewhere on the balance sheet the investment portfolio is solid performing as expected with minimal watch list concerns. Our key capital ratios continue to strengthen providing a strong financial base for future growth.

For the full year our annuity business delivered a positive variance in pretax operating income to prior year. We are seeing an uptick in annuity spreads thanks to a slight year-over-year rise in interest rates and a growing block of new business which is being written at our pricing targets with substantially wider spreads than the in-force.

From a growth perspective, the full year was one in which we began to realize benefits from the strategies we're deploying both internally and throughout our field organization.

As you will recall from prior calls, the key to future growth is our new Agency Business Model. It's designed to remove the capacity constraints inherent in how a typical Horace Mann agent operates today unleashing the potential of our distribution system to significantly increase agent productivity, points of distribution and market penetration. Early returns from the agents who went through our training in the fourth quarter of last year are encouraging.

Just as important, auto sales growth, which is the key enabler to allow agents to make this transition has been very strong with pure new business units up 20% for both the quarter and the year thanks to a number of factors including field training and marketing programs, the Educator Segmentation Model, our Product Management Organization, meaningful gains in auto payroll slots and additional differentiation in both our product lineup and how we serve customers. In fact, sales of all lines of business increased for the quarter and the year with fourth-quarter results being particularly strong.

These increases come even as we continue to make progress on reducing coastal exposure. Agent morale is high, their productivity is increasing and they are very excited about entering the new business model we've designed to create new opportunities and greater success for all of them.

So what do we expect for 2007? First for Property/Casualty, while the headwinds of the underwriting cycle will pressure our combined ratio, we fully expect a year of solid profitability albeit not at the record levels of 2006. At the same time, however, we see very strong organic growth opportunities in our niche market.

Auto unit sales should continue to be very positive building on the momentum established this past year. We've delivered seven consecutive quarters of sequential growth in auto educator PIF which closed the year up 5% over year end 2005. Also at year end, total auto PIF and that includes the non-educator crossed over prior year a trend which we fully expect to continue in 2007.

While total written premium growth will likely be flat for the coming year, a combination of unit growth with some growth in average written premium over the course of this year should combine to deliver premium growth in the 5% to 6% range in 2008.

In our life business, life product sales are targeted to increase 6% while we like others in the annuity business will continue to be challenged by low nominal interest rates and a flat yield curve, we do expect annuity account value growth of around 7% to 8% with improving spreads. We're anticipating pretax operating income percentage growth for life and annuity combined in the high teens.

So taking into account the pace of the business and the initiatives we're putting in place to drive future growth, our earnings guidance range for net income excluding capital gains and losses for 2007 is $1.80 to $1.95. That range does contemplate some deterioration in the combined ratio partially offset by a solid increase in annuity pretax operating income. It also includes greater catastrophe reinsurance expense than 2006 and additional expenditures to fund the initiatives that are critical to growing our business totaling about $0.15 per share split evenly between the two categories.

So in summary a solid performance for the quarter and full year of 2006 with a strong foundation in place for future profitable growth in our educator target market.

And now I will turn it over to Pete Heckman.

Thanks, Lou, and good morning. The fourth quarter reflected a continuation of the positive growth and underlying earnings trends we've been seeing over the last several quarters. Excluding the impact of DAC and VIF unlocking, both the annuity and life segments exceeded prior year in pretax income for the quarter and year to date.

Our Property and Casualty combined ratio excluding catastrophes and prior year's reserve releases was in the 87% to 88% range for both the quarter and full year and was a bit better than we expected. Catastrophe losses were minimal in the quarter. For the year, however, in spite of a relatively benign hurricane season cat costs were not that far below what we would consider normal. It's important to note here that the low level of net catastrophe losses in the fourth quarter was consistent with our expectations in light of the 20 million excess of 20 million aggregate cover we purchased last year. And we have another very strong cat reinsurance program in place for 2007 as Doug will describe in a few moments.

Property and Casualty reserve estimates resulted in a $2 million benefit to pretax income as the favorable development of prior years reserves continued in the fourth quarter although at a reduced level compared to what we've experienced over the last several reporting periods. And while it's virtually impossible to predict future reserve development, one could reasonably expect that moderation to continue in 2007.

Our investment income growth rate continued to accelerate with growth in our portfolio and a higher portfolio yield driving an increase of 9% in the fourth quarter and over 7% year to date. Meanwhile the credit quality of our portfolio continues to be extremely high and stable.

Looking forward to 2007 we would expect investment income to grow in the 5.5% to 6% range assuming rates remain at current levels. As Lou mentioned, book value growth also continues to be strong excluding unrealized gains as well as the positive impact of adopting FAS 158 in the current quarter, book value per share increased 15% over the last 12 months. And on a reported basis including adoption of the pension accounting standard, pre-FAS 115 book value per share grew nearly 17%.

As you saw we provided initial guidance for 2007 net income excluding realized investment gains and losses of between $1.80 and $1.95 per share with the midpoint of that rage comparable to the current consensus estimate. The drivers of the expected decline in EPS compared to 2006 are the anticipation of a reduced level of favorable P&C reserve development, higher catastrophe losses and related reinsurance costs and an increased level of investment in our strategic growth initiatives.

Excluding those factors, the underlying Property and Casualty combined ratio is expected to be flat to slightly improved; forestalling all or at least most of the turn in the underwriting cycle through modestly lower frequencies, claims inflation being partially mitigated by our ongoing claims initiatives and the aggressive management of nonstrategic operating expenses.

And last but certainly far from least, assuming no significant DAC or VIF unlocking in 2007, we're looking for a high teens percentage increase in annuity operating income compared to 2006 resulting from strong growth in the net interest margin and contract charges and fees along with our ongoing expense management initiatives.

With that let me turn it over to Doug Reynolds who will take you through some of the details of our P&C results.

Thanks, Pete, and good morning. As Lou and Pete indicated, the fourth quarter continued our string of strong quarterly results in both auto and property. For 2006 our total combined ratio was better than our planned expectations for both calendar year as well as the accident year. This was especially true for property as we substantially outperformed our targets. The combined ratio for 2006 at normal catastrophes including prior year development was about 88 and excluding prior year development, the combined ratio was in the 92 range about 2 points over 2005 with the expense ratio driving half of that increase.

In the fourth quarter we again achieved auto policy in-force growth for the third quarter in a row. Total auto policies also grew year-over-year for the first time in a number of years increasing by 2000 policies. Educator policies continued their strong growth increasing by 5500 over prior quarter and approximately 18,000 or 4.8% over year end 2005. Auto educator household retention ratio also continued to improve sequentially for the quarter and over prior year.

Property policies also grew slightly in the quarter and are about flat year-over-year. However, like auto, educator property policies grew by about 3000 in the quarter and are up approximately 7000 or 4.2% over year end 2005. These are excellent results driven by our improved customer contact programs, claim procedures, and client service processes.

We've made additional progress in our coastal management programs in the fourth quarter as we continued to nonrenew business in Florida. We, like the rest of the industry, will be examining the changes in Florida and analyzing the impacts on our business. As you know we did not have any hurricanes in 2006, however, as a result of the many smaller catastrophes we experienced close to expected levels for the year.

For 2007 we have made a few changes to our catastrophe reinsurance program as a result of the increased reinsurance pricing and updated predictive loss models. We've increased our top end of coverage for any one storm from 110 million to 130 million. Obviously in Florida this would be higher due to the [FACF].

We have also increased our attachment point from 15 million to 25 million for any event. However, we have purchased second and third event coverage that attaches at 15 million. Lastly, we will maintain our catastrophe aggregate coverage at [19 ex 21 million].

The results of these changes have increased the cost for our reinsurance coverage by approximately $4 million pretax. Overall, we have put a very strong program in place.

Our business quality has continued to remain strong in both lines with approximately 80% of our new business being educator. We also continued to grow the percentage of educator tri-line business increasing about 4% over year end 2005.

The auto payroll deduction process that we implemented in 2006 creates another differentiation opportunity for Horace Mann to provide additional value to our educator market and grow our business and now accounts for over 10% of our true new business.

On the claims side, our pure premium continues to be well within expected ranges for both auto and property. Also in the fourth quarter we continued to roll out claims desktop which will drive further improvements in both loss control and claim costs. We also finished the year with our Educator Segmentation Model in 16 states and our product management organization in place for our 18 larger premium states.

As we look to 2007, we expect both auto and property to continue the longer-term trend of frequency reduction although at a slower rate than the last few years. We also expect to continue getting favorable results from our ACE initiatives with severity trends that beat the CPI measures. We are projecting little change in auto rates and a slight increase in property rates.

Overall we would project the 2007 combined ratio at normal catastrophes in the 90 to 92 range, which includes about 0.5 point increase in the expense ratio primarily driven by the strategic initiatives Lou mentioned and some continued reduction of average auto written premium.

And now let me turn it over to Frank D'Ambra for his commentary on life and annuity.

Thanks, Doug, and good morning everyone. We continue to see positive sales results from the introduction early in 2006 of our new fixed and variable annuity offerings and our new suite of term and whole life products.

Total annuity sales in the fourth quarter increased by 12% and increased by 6% for the full year. Our single deposit or rollover business which includes partner sales, increased by 17% for the quarter and was up 10% for the full year. Our recurring deposit business increased 2% for the quarter but did decrease 8% for the year. Our policy count increased at a 2% rate with cash value retention remaining in the 91% to 94% range.

Total annuity assets under management grew 8.6% with fixed annuity assets increasing 6% and variable annuity assets aided by strong market performance growing over 12%.

Fourth-quarter pretax income for the annuity segment was $3.9 million compared to $4.5 million for the prior year. Earnings for the quarter benefited from increased interest margin and charges and fees but were more than offset by an unfavorable change in DAC, VIF unlocking. For the year pretax income of $17.9 million reflected a $1.6 million increase versus the prior year. This improvement was driven by increased interest margin and contract charges and fees.

Looking to 2007, annuity pretax operating earnings adjusted for the impact of DAC and VIF unlocking are expected to increase significantly from 2006 driven by growth in contract fees and charges and improved interest spreads.

Turning to the life segment, fourth-quarter sales were robust building on the trend reported in the prior three quarters. Fourth-quarter sales increased 23% including a 36% increase in the sale of Horace Mann's proprietary products. For the year, sales of the Horace Mann products increased 26%. Partner product sales increased 21% for the quarter and were up 5% for the year as extremely strong variable universal life sales more than offset declines in fixed universal life sales.

Fourth-quarter life premiums and contract deposits for the Horace Mann proprietary products were relatively flat with last year while the year to date comparison showed a slight decline. This improvement over past quarters is a result of the ongoing success of the new products and stable retention. In 2007 we expect life premiums and contract deposits to grow year-over-year.

Looking at the bottom line, fourth-quarter and full-year pretax income were flat when compared to the prior periods. For the quarter, increases in investment income and lower expenses were completely offset by increased mortality, higher life reserves and an unfavorable change in DAC unlocking. For the year, increased investment income and lower expenses were offset by additions to life reserves and an unfavorable change in the DAC unlocking.

Looking ahead with continued improvement in sales of Horace Mann's proprietary products, premium deposits and investment income we expect a modest increase in life pretax operating earnings adjusted for the impact of DAC unlocking.

As I noted last quarter, the IRS has indicated the earliest date new 403B regulations could take effect would be January 1, 2008. It will likely be several more months before we know anything definitive. In the meantime, we continue to work on initiatives that will enable our distribution channel to deliver retirement brand solutions designed to meet the needs and requirements of school districts and their employees.

And now to discuss the marketing results and the status of the new Agency Business Model is Butch Joyner.

Thanks, Frank, and good morning. In earlier calls this year, I spoke of sales momentum that we saw building throughout the year. I'm pleased to report today that the fourth quarter of 2006 continued that positive trend.

As noted before, we introduced the new Agency Business Model and the early signs they had is indeed very improved. The fourth-quarter sales results were fueled in part by the increasing number of agents with a licensed product specialist and to the first two groups of agents completing the agent business school. But before I provide an update on the progress into the new model, I'd like to share the sales results for the fourth quarter and for the entire year.

Starting with auto, new auto sales units improved by 8% on a quarter-to-quarter and year-to-year basis. Agent auto unit productivity increased by a robust 11% in the fourth quarter compared to the same period of 2005 bringing the productivity increase to a solid 8% for the full year. These positive results in auto are being driven by the increase in auto unit sales to new customers with sales increasing by a substantial 20% compared to both the fourth quarter and the full year of 2005.

While sales to new customers are an important part of the total auto unit sales picture, there is another benefit. New customers provide our agents with additional cross-sell opportunities especially on the Financial Services side of the business. So let's take a look at that.

There's great news on the life side of our business. Life sales increased by an impressive 23% in the fourth quarter and 12% for the full year compared to the same periods of 2005. While partner product sales increased by a respectable 5% for the year, Horace Mann life products increased by an outstanding 26% over the previous year. You will recall the introduction of new life products in the first quarter of 2006. As evidenced by these results, the response by our agency force to the new products has been bit more than positive.

On the annuity side, new sales premium increased by a respectable 12% for the quarter and 6% for the full year compared to the same periods in 2005. Sales in each period included increases in both the career agent and the independent agent channel.

Moving on to the agent count, we ended the year with 848 agents. This represents a 2% increase over the prior quarter and 1% fewer than at the end of 2005. While the restructuring of agencies in Florida and Louisiana affected the decline in agent count the increase in points of distribution more than offset the small decrease in agents. The number of career agents who have decided on their own to employ one or more licensed product specialists continues to grow. By the end of 2006, the number of license product specialists has grown to 117 bringing the total points of distribution to 965.

Finally, I'd like to give you an update on the new agent business school an integral part of the transition from a one-person in-home base of operation to fully staffed agencies and outside offices. In the fourth quarter a second group of agents participated in the agent business school. The school provides a detailed operational blueprint for the best practices for the management of an outside office including how to fully leverage the support staff and license product specialists. In short, it supports the agent in maximizing the opportunity of a growth oriented entrepreneurial agent-owned agency.

This brings the total number of agents who completed the school by the end of 2006 to 34. While these first two groups of agents are early in their transition to the new Agency Business Model, the sales lift following the schools has more than met our expectations. And looking ahead to the end of this year approximately 225 of our agents will have completed the agent business school. These are our top producers who write a healthy percentage of our business and are answers to tap into the growth potential of their respective agencies.

By the end of 2009 we anticipate that the entire agency force will have attended the agent business school. At a future date yet to be determined, newly hired agents will attend the agent business school and move directly into the agent business model.

In summary, we produced strong evidence that our strategies are paying off as seen in our 2006 sales results and the growth in agent productivity. We expect these trends to gain even more traction in 2007 as we accelerate agent participation in the new Agency Business Model.

And now back to Dwayne.

Thanks, Butch. And that concludes our prepared remarks. Sierra, if you would please move to the question-and-answer session.

(OPERATOR INSTRUCTIONS) Bob Glasspiegel, Langen McAlenney.

Good morning and I appreciate the thorough rundown on prospects and current operations. Two housekeeping questions and one sort of strategic question. What was going on in the expense ratio in the quarter sequentially? You highlighted sort of '07 trends, but I'm not sure I heard on the quarter.

And two, the average share count went up -- I thought we were trying to sort of retire some of the old costly ones. What is going on there? And then I have a strategic follow-up.

Yes, Bob. Pete Heckman. Sequentially we generally have a little seasonality going on in our expenses in the fourth quarter. So the blip in the first fourth quarter compared to the third is in large part a result of that.

It wasn't incentive comp or any catch up there?

A little bit of that but again we generally have a little bit of a spike in the fourth quarter. So again, Doug's outlook for about 0.5 point increase in '07 from where we ended the year is still reasonable but it will come in a little bit lumpy by quarter.

That's a 0.5 point increase over full year '06, right? Not the Q4 spiked rate? Okay.

Yes. That is correct.

Okay. Share count, what is going on on average shares and outlook for '07?

Well, again we are impacted by the [COCO] accounting and as we have retired the majority of those convertible notes the COCO adjustment for diluted shares has gone down a bit. So you can see at the end of the quarter there we're at about 45 million down a little bit from on a diluted basis from the end of '05 and that reflects primarily the retirement of some of the COCO notes.

I thought it was up a hair sequentially. But maybe I have the wrong number.

I don't have the September month end but there may be a little bit of options noise going on there, more options in the money than in the past.

Okay. Where do you stand on Florida's strategy in light of the new legislation, how do you that impacting where you are, what you want to do?

This is Doug Reynolds. Really at this point a couple of things. We're number one, waiting to see what still comes out of the Department of Insurance down there for some definitions around some of the actions that they have taken.

The cherry picking part or the anti-cherry picking provision?

That plus what other companies will do. You've got situations about how they're going to view your current reinsurance program, how much of that cost you'll be able to pass along. As you know even though they expanded the amount of insurance that you can buy through the Florida Hurricane catastrophe refund it still is at fairly low levels of 1 in 50 or thereabouts. So we still have issues around that.

You've got situations with Citizens which as you know is -- can operate under a little bit different financial guidelines than the industry. You've got just the buildup of the catastrophe fund of if there are hurricanes next year how are those costs going to be passed along to the consumer? We are still looking at how the [TECO] and the [TICL] will impact us, the TECO appearing to be somewhat higher priced than what we would be willing to get involved with. The TICL obviously at a very low rate so we'll get some benefit out of that.

But we then have to just look at that as to how we wrap around our entire reinsurance program and how that can be -- and how that is going to affect our business down there. So (multiple speakers) that we're dealing with.

Are you tapping your brakes here in response because you can't figure out quickly what it means or are you putting the foot to the gas pedal or just keeping its steady-state?

Wall, we are still looking to try and develop our nonrenewal program and see how that is going to impact. We certainly are not writing as much new business as we would have written before even though we had already implemented some pretty stringent coastal programs. And then trying to work with a couple partner companies for our agents to place new business as well as what we have for opportunities to roll some business to some other companies. So we are right in the middle of that as well.

So tapping the brakes gently would be the sort of rough strategic reaction?

Yes.

Okay, thank you.

Mark Finkelstein from Cochran Caronia.

Good morning. A couple of questions here. Firstly, can you remind us what the normalized cat load that you are assuming in your combined ratio guidance for 2007?

Yes, in 2007 we are in the 4% to 5% range.

So 50 to 150 basis point increase over current period. Okay. I want to go back to I guess Pete's comments and when I think about the combined ratio guidance, just I guess the pieces that I'm isolating -- you are assuming 50 bps of higher expenses -- about $4 million of higher reinsurance costs, which I guess is 70 bps higher, lower favorable development at this stage and a guidance. And if I go back to what you did in the middle of the year you actually reduced rates in most states -- depends by state.

But -- and then obviously you have a higher cat load baked in. So the guidance implies 2% to 4% higher combined ratios. Does that actually suggest that accident year ex cat, ex development ratios are kind of flat to down for 2007? I'm just trying to reconcile all those pieces.

Yes, that is exactly what we are looking at in our guidance. If you take out -- cat's prior year development particularly strategic initiative expenses which is driving the majority of our expense ratio increase we've got an assumption for modestly declining frequencies, severity increases less than the CPI as a result of our claims programs and very good expense control on the nonstrategic expenses.

And I think the other component of that as we've talked about, the continued shift to the better quality business which has worked not only on the new business but into the renewal book as well and I think some of the rate changes that you referenced, Mark, are all geared toward that educator market which we know performs better than the non-educator market for certainly for our book of business.

Okay. And then I guess moving on here. I think you -- going back about a year you were planning on nonrenewing some policies in Louisiana and I think that there was an order stopping you from doing that. Can you just give us the update on where that stands and how that is going to affect the PIF count you think in 2007?

Yes. In Louisiana basically what they said was you could not go in and just do mass nonrenewals by area, etc., that you actually had to go in and inspect the home prior to nonrenewal. What we would expect in 2007 to probably be in the 500 to 1000 range that we would reduce the Louisiana policies in-force by and that would be versus our original attempt which would have been in the 5000 range in Louisiana. So overall when we take Louisiana and we take what we still anticipate being able to do in Florida, we would expect the property policies in-force to on a country-wide basis to reduce -- to be reduced next year.

Okay. And I think you may have addressed this -- I don't think I heard it. But how many states will you be rolling out the segmentation model for 2007 in?

In 2007 we would expect to introduce that in another approximately 15 states. And that will put us up to -- that is going to be close to 80% of our total premium base will be under the Educator Segmentation Model, maybe even a little bit higher.

Just roughly if you think about what you rolled out in 2006 and the sales performance in those regions, how does that compare to the rest of the book?

The states that we roll out the Educator Segmentation Model?

Yes.

In the states that we rolled that out we saw a number of things -- generally we saw production that was higher than the average we saw retention rates that were higher than the average. And we saw higher levels of educator business being written than what we saw in the rest of the country.

Okay. And then finally can you maybe just talk about capital a little bit? I mean obviously you raised your cat retention about $10 million but I mean you're looking at higher margins on the life side, strong P&C results, flat top line, a little bit of investment on the expense side in terms of the new agent model you are developing or rolling out. How should we think about your current capital level and are there any potentials for whether it is higher dividends, buybacks, etc.?

Let me take a shot at that for you. You are right if what you are asking is have we built up some excess capital. Yes we have. But as I noted, we see very good organic growth opportunities. We are beginning to capture quite a bit of it as evidenced by our 2006 sales. We're absolutely confident that that is not only going to continue in 2007 but accelerate as we go forward as we continue to roll out the Agency Business Model.

So I just think we are far better off from a shareholder value creation perspective to use that capital that we have to capture and support additional revenue growth rather than try to achieve a short-term benefit through financial engineering programs.

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

(OPERATOR INSTRUCTIONS) Brian Hagler from Kennedy Capital.

Good morning, guys. I guess Mark stole my thunder a little bit with the capital management question. But maybe could you just give us an update on where you are at on retiring the convertible securities?

As we've disclosed over the last several quarters, we have repurchased the majority of those convertible notes. Right now carrying value of about $32 million is still outstanding. The converts have a put and call date of May of this year and we have sufficient capital at the holding company to retire those notes which is at least as of now where we are headed.

Can you remind me what that was kind of at that peak versus the $32 million now?

About 167. And just a little bit of elaboration on that. Our debt to cap ratio excluding unrealized gains at the end of the year was just a tad over 26%. On a pro forma basis if you assume those converts are gone, it is under 24%.

Okay, that is all I had. Thanks.

Thank you. There are no further questions at this time.

Thank you very much. Appreciate you joining this morning. Look for to visiting with you next quarter. Have a good day.

Thank you. This concludes today's Horace Mann Educators Corporation fourth-quarter earnings call. You may now disconnect your lines and have a wonderful day.