Horace Mann Educators Corp (HMN) 2008 Q1 法說會逐字稿

Good morning, my name is Lynn, and I will be your conference operator today. At this time I would 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. 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. Sir, you may begin your conference.

Thank you. Good morning everyone, and welcome to our first quarter 2008 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'll cover our results of the first quarter in our prepared remarks. The following management members will make presentations today, and as usual, will be available for questions later in the conference call; Lou Lower, the President and Chief Executive Officer; Pete Heckman, Executive Vice President and Chief Financial Officer; Doug Reynolds, Executive Vice President Insurance Operations; Frank D'Ambra, Senior Vice President Life and Annuity; and Rick Schulenberg, Vice President of Sales.

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 risks 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, changes, or 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 2, 2008. Now I'll turn the call over to Lou Lower for his comments.

Good morning, and thanks for joining our call. As we reported after the market closed yesterday, Horace Mann recorded net income before realized net capital losses of $0.38 per share, about $0.05 less than consensus expectations, and $0.09 less than prior year. This was a tough quarter for us with a number of the insurance risks that we assumed collectively impacting us adversely during the same reporting period. As you'll hear in some detail over the course of this call, compared to last year's first quarter, weather, in the form of CATS, hurt us by $0.04 per share; the performance of the stock market through DAC unlocking and GMDB reserving impacted us by $0.03, and unfavorable life mortality cost us an additional $0.03.

We also, but as expected, had less in the way of favorable prior year P&C reserve development, accounting for about $0.04 per share. Positive variances in the quarter of roughly $0.05 came from our share repurchase activity, and reduced reinsurance expense.

Despite the unexpected adverse factors, we're positive about prospects for the balance of the year. Underlying property casualty results, excluding CATS and prior year development, are performing slightly better than last year's first quarter. Annuity pre-tax operating income, excluding the impact of DAC unlocking, is ahead of last year at this time. All in all, while we'd like to have gotten off to a better start to the year, we're encouraged by the underlying fundamentals relative to our expectations for the full year.

In property casualty, voluntary auto and property written premium increased 1.7%. Sales declined from last year's strong first quarter due to a couple of factors, the first being the economy, with auto and light vehicle sales being down 8% and home sales down 19%. In addition to the economy, our risk exposure reduction actions in Florida accounted for 25% and 60% of our country wide declines in auto and property unit sales respectively.

On the positive side, we're holding on to more of our in force business, with retention in auto and property increasing by a half, and 1.3 points respectively. At the same time average written premium for auto, which has declined for some time now, appears to be bottoming out. Our expectation is that average written premium for auto should begin to increase year-over-year going forward as our rate filings of price increased begin to take hold.

In the annuity line, our core flexible premium flow business increased 3% for new flexi sales, but the IRS 403(b) transition rules are producing their expected impact on new single premium rollover business, which was down 22%. On the other hand, those same rules are curtailing outbound rollovers from us to other carriers with a positive impact on our net flows.

Negative returns in the equity markets have taken their toll on variable annuity account values, down about 13% since their high water mark last September, obviously reducing fee income. Fixed annuity account values were up modestly and spreads on that business have improved about 15 basis points as compared to a year ago, thanks to the benefit of the new business we are writing.

As you'll hear, our key long-term growth initiative, the Agency Business Model continues to make good progress. We're using agent feedback from the schools and their field experience to modify and strengthen the models' processes and how we embed them in their operations. Agents transitioning to the model are outperforming their peers.

From a balance sheet perspective, property casualty reserves remain strong and stable, as reported in the past we have relatively small investment exposure to sub-prime or Alt A issues. The capital losses taken in the quarter are reflective of the uncertainty and volatility in the financial markets.

Having said that, our commitment to a conservative, well diversified investment portfolio, with disciplined risk control, is serving us very well in a difficult environment for the broad credit markets. At the same time, our key capital ratios continue to be strong, providing a solid financial base for future growth. So with that as an overview, let me now turn the call over to Pete Heckman.

Thanks Lou, and good morning. As Lou just elaborated, Horace Mann's first quarter operating earnings, while below prior year on a reported basis, were comparable to 2007 in terms of underlying results across each of our operating segments.

Given that, along with having three-quarters of the year still ahead of us, we continue to be comfortable with our current full year 2008 earnings guidance of $1.70 to $1.90 per share of net income before realized investments gains and losses. With the somewhat wider than normal range that we acknowledged three months ago still appropriate in light of the relatively volatile and difficult external environment that we and others in our industry are facing.

One of the more obvious and pervasive environmental forces at work is the persistent volatility, some would even say dysfunctionality, of the financial markets, which definitely carried over into the first quarter. While the impact on Horace Mann continued to be relatively modest, as expected, we did realize net investment losses of $2.4 million pre-tax for the first quarter, which were comprised of $2.7 million of impairment write downs and $3.9 million of realized impairment losses on securities that were disposed of during the quarter; partially offset by $4.2 million of realized gains.

As you know, spreads widened considerably in the first quarter with significant movement in the commercial mortgage backed, asset backed, CDO, and high yield bond asset classes. An unusually high level of volatility in the municipal bond market resulted in duration extension and valuation pressures in that asset class as well.

While Horace Mann's diversified and high quality investment portfolio continues to serve us well in this unsettled market, the spread widening I just mentioned obviously did have an adverse affect on the fair value of our investments over the last three months.

Net unrealized investment losses at the end of the first quarter totaled approximately $58 million pre-tax, up from about $5 million at December 31. The increase of $53 million in the quarter was spread across virtually all asset classes, but from a percentage standpoint our CMBS and CDO portfolios were most affected.

We had approximately $255 million of book value in CMBS securities at March 31, which represented about 6.5% of our total invested assets. The unrealized loss on this portfolio increased during the quarter to approximately $31 million, as a result of spreads widening more than 175 basis points since the beginning of the year.

Nonetheless, we continue to feel very good about the overall quality and performance of our CMBS portfolio based on the following; the portfolio is 100% investment grade with an overall credit quality of AA. It contains only one commercial real estate CDO security, with a book value of $5 million. In terms of collateral, less than 10% of the portfolio is represented by single borrower loans, while 75% are so-called conduit fusion securities with diversified collateral, and the remaining 16% are government sponsored loans.

With regard to vintage, approximately 75% of the CMBS portfolio is represented by securities issued in the more preferred 2005 and prior time periods. And lastly, all securities in our CMBS portfolio are currently performing in line with contractual terms, and did not experience any material increase in delinquencies or foreclosures during the quarter.

In addition to the one CMBS security I just mentioned, our CDO holdings are minimal, comprised of just six securities with a total book value of only $15 million, less than four-tenths of one percent of our total invested assets, and an unrealized loss at the end of the first quarter of about $4 million, certainly very manageable for us.

And likewise, consistent with my report during last quarter's call, our exposure to sub-prime and Alt A RMBS remains at about one-quarter of one percent of our total investment portfolio, with an unrealized loss at March 31 of only $0.5 million, not really much of an issue for Horace Mann.

So all in all, despite the unprecedented dislocations in the financial markets, we are very pleased with the quality and overall performance of our investment portfolio and believe our conservative investment philosophy will continue to serve us well in the current environment. With that, let me turn it over to Doug Reynolds for more detail on our P&C results.

Thanks Pete, and good morning. The total property and casualty combined ratio for the quarter was 93.5%, up four points over last year. Catastrophes in the quarter totaled $5.4 million, and increase of 116%, and representing 4.1% of earned premium, up 2.3 points over 2007 first quarter.

Because of the first quarter storm activity, catastrophe losses were the highest first quarter since 1994, over 70% higher than our expected amount. We had favorable prior years reserve re-estimates of $2.7, or 2% of earned premium, which is 2.2 points less than prior year. Our underlying accident year combined ratio, excluding both catastrophes and the effect of prior year reserve re-estimates was 91.4% in the quarter, five-tenths better than our underlying combined ratio for the first quarter of 2007.

Our underlying combined ratio for auto in the quarter of 96.5% is a slight improvement of two-tenths better than prior year, while property posted an underlying combined ratio of 79.8%, a modest increase of nine-tenths of a point when compared to first quarter of last year. The property line results were especially impacted in the New England region, which posted a non-CAT loss ratio increase of 17 points, due to winter weather.

For both lines, excluding catastrophes, we experienced increases in frequency, which was impacted by first quarter weather conditions across the country. Continued favorable severity results drive pure premium trends consistent with our expectations. In both lines we are projecting continued price increases consistent with others in the industry, to match increasing loss costs.

We continue to experience gains in new business quality. For auto, our percent educator was up slightly to 82%. The percent of auto new business written through our payroll deduct program was 11%, up two points, with the actual number of true new units written on auto payroll up 12% compared to last year.

And finally, the percent of auto customers in force with three or more lines of business with us continues to increase, now representing almost 20% of our book. Our quality improvements have favorable impacts on policyholder retention results. This quarter auto was up a half point, and property is up over one point compared to a year ago.

Our total property and casualty policies in force are down slightly compared to prior year, with auto holding steady, and property down about 1,000. Our property policy count is influenced by a continued coastal exposure reduction action, especially in Florida, where we continue to decrease policies.

Educator policies in force continue to grow, for combined P&C lines we are up 3.2% to a year ago, and 2,200 policies over year end 2007. This represents three full years of consecutive sequential quarterly growth in educator policies. Total voluntary property and casualty written premium is up 1.7% for the quarter, with auto up two-tenths of a point, and property up 5.8%. On a direct basis, before reinsurance costs, voluntary P&C us up three-tenths of a percent over prior year.

In summary, catastrophe losses had a large impact on our results, as well as the rest of the industry. We also experienced increased non-CAT weather related losses in the North East region, where we have policy penetration levels higher than other regions. Our unit count and written premium trends are essentially flat in a very tentative market, as evidenced by the continued high levels of advertising spend in our industry. Our four-tenths percent three month increase in Educator PIF, at 12 consecutive quarters of sequential growth is a result of focusing on programs differentiating ourselves from the competition in our target market, the educator community. Now, I would like to turn it over to Frank D'Ambra to cover life and annuity results.

Thanks, Doug and good morning everyone. As Lou remarked, the first quarter was a challenging one for the annuity and life lines of business. The sustained decline in the financial markets impacted our annuity results through its effect on DAC unlocking and asset based fees, while a spike in mortality adversely affected our life results.

Total annuity sales in the first quarter decreased by 16%, in line with our expectations. Our recurring deposit business increased 3% for the quarter, while our single deposit, or rollover business, including partner sales, decreased by 22%. As discussed in our past two earnings calls, many school districts have placed a moratorium on participant 403(b) transfers industry wide. This restriction on 403(b) transfers accounts for 13% of the decline in single deposit sales.

The remaining 9% decrease in single deposit sales is the result of our refocusing our independent agent annuity (inaudible) production on 403(b) and qualified business and away from non-qualified sales. We expect the moratorium on 403(b) transfers will continue to impact single deposit and rollover sales through the third quarter of this year, at which point we anticipate many school districts will have their new 403(b) programs in place.

Meanwhile, total policy count continues to grow, with cash value retention in the 91% to 92% range. Total annuity assets under management decreased 1.3%, with fixed annuity assets increasing 4% and variable annuity assets, due to market performance, decreasing 8%. First quarter pre-tax income for the annuity segment was $3.6 million, compared to $4.9 million for the prior year. Earnings for the quarter benefited from increased interest margins but were more than offset by decreased charges and fees in an unfavorable change in DAC unlocking, driven mainly by market performance. Excluding the DAC impact, first quarter results increased slightly compared to last year.

Turning to the life segment, total first quarter sales were down 19%, driven by a decline in partner product sales of 28%, with Horace Mann's proprietary products down 8%. First quarter life premiums and contract deposits, which consist of Horace Mann products only, were up 2% compared with last year. Looking at the bottom line, first quarter pre-tax income was down $1.1 million, compared to the prior year. Increased investment income was more than offset by higher than expected mortality in the quarter.

And just an update on the 403(b) environment; school districts are continuing their process of analysis and review, which will lead to the adoption of their new 403(b) programs. As a reminder, the mandatory compliance date is January 1st, 2009, though, as I mentioned earlier, we expect many districts to have their plans in place for back to school 2008. We believe Horace Mann is well positioned through our district relationships, enhanced and expanded product and service offering, which include group annuity products, 403(b)7 (sic) mutual funds, plan level administration, online enrollment and other web based services, to increase our 403(b) market penetration.

And now, to discuss the status of the Agency Business Model and sales results, is Rick Schulenberg.

Thank you, Frank. Good morning to everyone. Today, I'll focus on our continued momentum with the Agency Business Model, or ABM, distribution and sales results. The Agency Business Model initiative continues to take hold among agents, as we began to phasing in the model. As a reminder, ABM agents have gone through our four-day agency business school and have adopted, or are in the process of adopting, documented, repeatable processes in their operations that include conducting business in an outside office, with licensed producers and other support staff.

This model, coupled with other key corporate initiatives, designed to support ABM, will sustain our agents' profitable growth in educator multi-line business. Our agents now engage 284 licensed producers, representing an increase of 12% in the last three months. In addition, we continue to grow the number of agents in outside offices with licensed producers, now totaling 200 -- over 200, while decreasing the number of agents working out of their homes.

We are focusing on our previous agency business school graduates to provide one-on-one counseling, coaching sessions and a second business school, assuring that the repeatable business practices and processes, are imbedded in their operations. As we concentrate more of our resources on strengthening the operations of our current graduates, we are slowing the number of new agents coming through our Agency Business school.

As far as the total agent force is concerned, we ended the first quarter with 758 agents, which is down 4% from December and down 9% from 12 months ago. The primary reason for the declines was a significant change in our hiring practices. We installed hiring and selection criteria that better meets the characteristics of an agent who can perform and succeed in the new Agency Business Model. This has impacted the number of qualified candidates we see who meet these more stringent guidelines. This change requires field managers to not only increase the number of candidates, but to look for a candidate with the required skills to be successful in the Agency Business Model.

The number of agents terminating in the quarter was relatively flat, compared to the first three months of 2007. Typical agents who terminate are, one; predominantly working out of their homes, two; significantly lower productivity than our average agent and three; not at a level that would support their transition to ABM.

Now, let's look at our sales results. Total auto sales, that is new and ad cart units, were down 12% in the quarter, compared to the first quarter of 2007, which was one of our best performing first quarters. Our true new auto sales, that is sales to customers who did not previously have Horace Mann, were down 16.5% compared to a year ago.

Similarly, property sales saw a decline of 13.5% for the quarter. Interestingly, our ABM agents saw a more moderate decline in sales, only down 6% for both true new auto and property, from the first quarter of 2007. These declines can be attributed largely to a slowdown in the economy and less shopping for insurance products. These circumstances require agents to increase marketing programs in the schools to build customer interest. And we are still seeing the impact of our [coastal] management programs on sales.

If you look at sales results for ABM Agencies, excluding Florida, the decline in the first quarter was only off by 1.5% in true new auto and actually up 7.5% in property sales.

Life sales were down 19% compared to the first quarter in 2007, with Horace Mann products down 11%. Annuity sales showed positive trends in our flexible sales but total annuity sales, including single deposits, were down 16% for the quarter. As I mentioned, the bright spot was our flexible annuity sales, predominantly our new 403(b)(inaudible) deposits, which were up 3%. And, as with other lines, our ABM agents out performed all other agent groups. They were up 3.5%.

In conclusion, we continue to see a lift from our ABM strategy and believe recruiting through this model and helping current agents, who have made the transition to outside offices with licensed producers, and supporting agents who are capable of making the transition, will have long-term payoff. We will continue to make the necessary investments in training, mentoring and coaching ABM agents to help them as well as their licensed producers to take full advantage of the opportunities in the marketplace.

Thank you and with that, I'll turn it back to Dwayne.

Thank you, Rick. And that concludes our prepared remarks. Lynne, please move to the question and answer session.

(OPERATOR INSTRUCTIONS)

Our first question is coming from Bob Glasspiegel of Langen McAlenney.

Good morning. I'll hit these one at a time, maybe. Do you have the level three assets available, the size?

Yes; we're just in the process of finalizing our 10Q Bob and right now, on a base of about $4 billion in total investments, I think about $1 million or so is level three.

$1 million out of $4 billion?

Correct.

Okay. That's a good number. California and Florida are your two biggest states and there are some sort of dynamics on pricing in both of them going on. Remind me on whether California's been put to bed. I know Allstate's been just settled there and declared a loss in their battle with the state.

Yes, Bob; this is Doug Reynolds. On California, we've continued to work with them and there're some changes in their rating laws, as you know, that had to be finalized by, I think, around the middle of this year. And although we're not fully implemented with that, we have reached all the agreements and it's just a matter of finalizing programming and final implementation of those changes.

Are there rate cuts, I assume, as part of the ultimate resolution?

Yes. Actually, it was relatively minor, you know a percent or two. That was about it.

Okay. That won't change your top line trends, materially?

No.

What about Florida and homeowners?

Yes. I think on the Florida side, we continue to really work with them on a number of issues. And really trying to recoup the reinsurance cost is the biggest challenge there. We've had some success with that but are really gearing that more towards the non-renewal program and just reducing the exposure and giving our agents the opportunity to write through partner companies, of which we now have three partner companies and pretty much have representation around the state.

So, obviously, still some challenges there but we feel that we're moving along fine with the state.

So, no discontinuous rate cuts from Florida homeowners to come?

No, not anything different from what we did last year with the changes to the FHCF.

Right. The last question is, I mean, a cynic might be a little nervous, seeing that you're showing year-over-year underlying ex-CATS, ex-reserve improvement, year-over-year. And I think your response might be that last year's first quarter actually developed favorably over the year. Do you happen to know --- do you have a developed first quarter, '07 combined ratio, as opposed to actual, [reported]?

We try to be relatively conservative in the first quarters of accident years. We were in the first quarter of '07 and we were in the first quarter of '08, in terms of relative comparisons of conservatism. We really --- that would be a tough thing to make a call on.

But you might know how first quarter of '07 actually developed, you know, that there was some intra-year reserve releases, you know, as the year progressed.

Yes. I think it's fair to say that the first quarter did develop somewhat favorably through the year.

Okay; that'll do it for now. Thanks.

You bet.

Thank you. Our next question is coming from Dan Farrell of FPK.

Hi, good morning. Can you talk a little bit more about the decrease that we're seeing in agents, both the experienced and the financed? And, you gave a lot of numbers and comments with regard to the shift of the agents, the ongoing shift of agents to the new business model but can you talk about how much that's impacting the overall numbers and maybe just give a little more color on that stuff?

Yes, this is Rick Schulenberg. We continue to manage around those agents who meet the qualifications for our Agency Business Model. And that requires more than just sales skills. It's also the ability to manage staff to have outside offices. It requires a higher level caliber than what we've had before.

We have many agents in the field who more than meet those characteristics. We have identified those agents, are working with those agents and will continue to work with them.

With that said, there are some agents that we have had and may still have in our agency ranks that may not meet those qualifications. That also, on our new hires, we are not going to sacrifice the quality of new hires around lowering standards so that we don't have agents who can't meet those requirements, moving forward. We're committed to ABM and we're committed to working with our agents and our future agents, who can meet those requirements.

Okay, thanks. And then I apologize if I missed it, but can you just give us the fixed annuity spreads this quarter, vs. fourth quarter?

Well they've continued to improve, and as Lou mentioned, we're probably up somewhere in the neighborhood of 10 or 12 basis points quarter-over-quarter here.

Sequentially or year-over-year?

I think we're looking at year-over-year.

Year-over-year it's 14 basis points, but we'll get you the quarter number Dan.

Okay, all right, that's helpful, thanks guys.

I think the spread is 150 basis points, the actual number.

Thank you. Our next question is coming from Rohan Pai of Banc of America.

Hi, good morning.

Good morning.

First question, following up on Bob's question, what, in your view, are the factors that are driving the year-over-year improvement in the underlying auto combined ratio? Is it a mixture of different states? I guess basically if you could give some kind of a break out.

I think there's a couple of things, it's stayed fairly consistent to the quarter year-over-year, so one of it is obviously, as I talked about, just the improvement, continued improvement, in the quality of the business, higher percentage of educator, our better tier business, utilization of the discounts, the Tri-line discount. Two is retention continues to go up, which typically drives a little bit better loss result. And three is a lower percentage of new business to our total, true new, which as you know the true new business also has a little bit higher loss ratio than your average. So you're getting a little bit of benefit on the loss side from the true new shortfall that we've seen.

So those are really the three things, and just continuing to apply the underwriting discipline. I think the other component that's there is really our continued work on claims with our ACE initiative that we've covered a number of times. We continue to drive what we would consider to be very consistent strong results on the severity side on both auto and property, and we're seeing some better results in the property than what we've seen in recent years, at least as severity changes year-over-year. And we continue to track well, at least when we look at the fast track results, compared to the industry on the severity side.

And then if you could quantify, what kind of price increases are you putting through on the auto side, and how does that compare with where you're seeing your loss cost increase?

On the auto side, at least in the first quarter, we saw a 1% to 2% change only in a few states, and as I think we indicated end of year last year, we're expecting the auto rate change in 2008 to fall in that 3% to 4% range, and actually the same with the property, although in the first quarter, and I recognize you didn't ask specifically about the property, we were up in the 3% to 4% range. So right at our targets on those.

And how are loss costs trending on average?

From a loss cost standpoint, from a pure premium side, is really about flat from quarter-over-quarter. Obviously we've seen it trend up a little bit over the last couple of years, so we feel that those rate changes will continue to be able to keep our loss costs in line with what we've been seeing.

Great. And on the agency side, I notice you said you were reducing the number of -- at least at the pace of agents going through the Agency Business Model. Is there some thing that maybe did not meet your expectations, or is there any reason for that change in policy?

What we've tried to do is really make sure that the agents who've been through the school we're giving the full attention and resources to help them fully leverage the skills that they're learning in their base of operation. That's requiring a lot of focus on our part. We are continuing to have agents come through, but we want to make sure we're getting the lift in the quality of those agents, not just trying to meet a number to come through the school, but get the quality and get the results and the sales lift.

And these agents who have gone through the ABM school, they're meeting your productivity targets, has anything changed on that side?

We feel we still have more opportunity for lift of those agents who've been through, but they continue to exceed, in all of our core lines, the sales results of our other agents. So we see very positive trends, as we said earlier, on those agents who've been through and are very committed to this strategy.

With that said, any time you start changing your business practices it takes a while for that to really take hold in any business. So we recognize that, as these agents go through these changes they need more time to really develop and build their skill sets.

Thank you for the answers.

Thank you. (OPERATOR INSTRUCTIONS) Our next question is coming from David Dusenbury of Dalton Greiner.

Good morning guys. This is a question for Frank; can you just review for me the changes in the 403(b) tax code? What I'm looking for is, my understanding was coming out the other side of this process that the school districts would be putting out more formalized process of narrowing down their providers, and certainly your product set would fit pretty well, given what they're looking for. When do you expect to see that kind of increase in activity? Is that what you were referring to in the third quarter, or are you actually referring to flow through business coming through the third quarter going forward?

Okay you've got a couple of questions going on there, so let me address the latter part first. The schools are going through this process now of looking at how they want to proceed with these programs. What we expect is that by the end of the third quarter many schools will have finalized those decisions and they will have identified who the providers are that they're going to then be able to service their programs at that point in time. So we would expect to see, I guess, a more normalized market return for those who are selected, and that should positively impact business moving forward past the third quarter of this year.

The absolute drop dead date, as we mentioned earlier, is that 1-1-2009, and that's when everybody needs to have their plans in place, with just a few minor exceptions; for example, if a plan is subject to collective bargaining. What we expect, or what we see happening right now is in this process of analysis there isn't just one course of action that schools are taking. There's a number of ways schools could approach this. Some are going to a very formal RFP process using consultants in many cases, in some cases driving it on their own, where they're asking almost like you'd see in a private sector type situation where they're asking for all sorts of information about the program we're going to offer, how we're going to support it, the product pricing, etc.

And as they go through that process they're narrowing it down to a finals group, and then they're narrowing it down to a number of selected providers. Other schools are kind of going through the same thing but using a less formalized approach. Many schools at this point are focused primarily on putting their plan in place so that they meet that deadline of 1-1-2009, but without really going through any kind of a formal approach toward the providers. What we see in those cases is they're putting their plan in place, and they may be retaining most, if not all, the providers that they originally had in that school at the outset.

So at this point it's still kind of early in the process, and we don't see a one size fits all approach to how this is going to unfold. We see, as I'm indicating here, many variations of how schools are approaching it. But at the end of the day again all schools have to have plans, they will all have to have named providers, and we'll see how it all works out in terms of how many have reduced those numbers, and how many stay with the groups that they already have.

Is this playing out differently than you'd expected?

No, not really. In fact I think what we're seeing is exactly the kind of environment that we expected, and that we prepared for.

Of those districts going through a formal process, what's your win rate?

Well it's kind of early to say, I mean what's happened is, we've done an awful lot of RFPs but we have very few responses back. Where we have the responses back, our hit rates have been pretty good, we're faring fairly well. But like I said, it's very, very early in the process. So I hesitate to give out specific numbers, because I'm not sure that they're indicative of what the end result may be.

Okay. And if I could just shift gears to the sales force training process, if you could give me some kind of sense for the improvement in productivity that you're seeing out of these retrained, if you will, agents, that would be helpful. I mean I know each quarter you've been saying "There's much higher productivity", but give me some metric if you can.

From each quarter to quarter it continues to increase, I don't have from the onset, but we are seeing a lift, I think as I put in my formal remarks, on each line of business, or like on the auto where we saw a decline, we saw much less of a decline in those agents who have been through our training process. It's still early; we continue to expect even higher returns on what those agents' lift will be as we move forward.

Okay.

Thank you. At this time I would like to turn the floor back over to management for any closing remarks.

Thank you for participating on the call this morning, we certainly appreciate your questions, and we look forward to visiting with you next quarter. Have a good day.

Thank you. This concludes today's Horace Mann conference call, you may now disconnect.