Horace Mann Educators Corp (HMN) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Horace Mann Educators first quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. Mr. Hallman, you may begin.

Thank you, and good morning, everyone, and welcome to our first-quarter 2010 earnings conference call. Yesterday 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 for 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, President and Chief Executive Officer, Pete Heckman, Executive Vice President and Chief Financial Officer, Tom Wilkinson, Executive Vice President Property/Casualty, Brent Hamann, Senior Vice President Annuity and Life, and Steve Cardinal, Executive Vice President Marketing.

The following discussion may contain forward-looking statements regarding Horace Mann and its anticipated or expected results of operation for 2010 or subsequent periods. 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 update or revise such forward-looking statements to reflect actual results or changes and assumptions or other factors that could affect these statements.

Finally, this call is being recorded, and is available live at our website. An Internet replay will be available at our website until May 28th, 2010. Now I will turn the call over to Lou Lower for his comments.

Thanks, Dwayne. Good morning, all, and welcome to our first call of 2010. At yesterday's market close, Horace Mann reported first-quarter net income of $0.55 per share, and net income excluding realized investment gains of $0.48 per share, exceeding both prior-year and consensus expectations.

With further improvements in the credit markets, we closed the market with a net unrealized gain position of just north of $100 million, as compared to a net unrealized investment loss position of $360 million we reported a year ago at this time.

That change, along with solid contributions from operations, resulted in reported book value per share increasing 75% year-over-year to just under $20 a share. In addition, book value per share, excluding the fair value adjustment for investment increased 11% to $18.29.

As we qualitatively forecasted on our last call, the benefits of our diversification between P&C and annuity life are expected to be clearly demonstrated over the course of 2010 and 2011. As you will recall, we described how combined annuity and life is anticipated to contribute more than its fair share to earnings growth in 2010, while P&C profit improvement actions take hold in 2010 and then subsequently take the lead in continuing our earnings momentum into 2011 and, indeed, that's exactly what happened in the first three months of this year.

So, as you'll hear from Brent, the annuity segment has and should continue to benefit from a combination of significant increases in variable account values and their related M&E fees, plus growth in fixed account values, with a 25% widening of spreads. Those elements, coupled with the turnaround in DAC unlocking associated with improved financial markets, produced a fivefold increase in pretax operating income year-over-year, as well as 7% sequentially.

Meanwhile, life segment earnings also benefitted from increasing investment income, driving growth in the quarter of about 30% compared to prior-year, in spite of an increase in mortality costs. So, all-in-all, annuity and life segment results are living up to our expectations.

Those favorable profit contributions from financial services more than made up for winter storm catastrophes and Florida sinkhole losses, which created adverse prior-year P&C comparisons, which were concentrated in the property line.

For auto, the current accident year combined ratio was down a point compared to 2009 on a reported basis, but taking into consideration one-time reorganization charges last year, the ratio increased, pressured by adverse prior-year comparisons and bodily injury frequency and severity.

With that said, finally, injury losses decreased substantially from the spike we experienced in the fourth quarter of '09, with autos combined ratios showing a positive trend sequentially. Prior-year development for both auto and properties provided a benefit, as it has for some time now, and, very importantly, our P&C reserve position remains near the high end of our range, making us consistently comfortable with the strength of what's on the balance sheet.

As you will hear from Tom, we're making solid progress, and are on pace in both our rate filings and exposure management actions to migrate P&C profitability back to our combined ratio targets.

Despite the headwinds of the economy, we produced stable levels of sales in true new auto, and our proprietary annuity products, which are Horace Mann's two lead lines. As you're going to hear from Steve and his report, true new auto sales results were flat to last year, but excluding Florida, increased 3%. Property, on the other hand, is under greater pressure from our rate actions, tighter underwriting, and non-renewals, plus anemic new and existing home sales. And that's all reflected in property unit sales being off 8% nationally and down 5%, excluding Florida.

Annuity sales are a tale of two products. Flex annuity sales were off compared to the spike that we enjoyed in last year's first quarter, which was largely driven by the shifting 403(b) landscape. While this year's flex sales return to more historic levels, futures concerns about job security are certainly a headwind to increasing periodic premium sales.

On the other hand, single premium sales, which are primarily rollover business, showed growth for both Horace Mann and the independent agents, increasing over 20% in the quarter, while total annuity sales, and that would be flex plus single premium, declined 9%, sales of our own proprietary products are about equal to prior year.

As those new sales build on continuing premium flow, total premium in deposits, as well as account values increased 23% and 18% respectively, with positive trends continuing in funds flow and persistency. On the agency front, our combined employee-agent and EA agency cap declined due to greater terminations and reduced appointments in the quarter. We are, however, seeing termination levels moderate thus far in the second quarter, and the recruiting pipeline has been refilled.

So, we fully expect to deliver growth over the balance of the year. We would also expect improvement in new business results as the agency business model continues to help us expand both geographically and in customer's share of wallet, to bolster our agent's sales results over the balance of the year, we're currently rolling out a new client and lead management tool. We call it Client 360, and we'll also be introducing new life and annuity products in time for the back-to-school selling season.

So, all-in-all, particularly given the continued weakness in the economy, we think we're off to a solid start for the year. We believe we're on a clear path to achieving the earnings levels provided in our guidance, as well as firmly establishing momentum for continuing earnings improvement beyond the current year. And now let me turn it over to Pete for some further elaboration.

Thanks, Lou, and good morning. Operating income of $0.48 per share in the quarter was comfortably ahead of prior-year, both on a reported basis, and adjusting for the first-quarter 2009 impact of our claims office consolidation and marketing initiative expenses. Current quarter earnings were generally consistent with our expectations in total, and clearly in line with our full-year guidance range of $1.65 to $1.85 per share.

This quarter featured another period of strong performance in Horace Mann's investment portfolio. The underlying book value per share, excluding FAS 115, grew 3% sequentially, and 11% over prior year. With the continued improvement in the credit markets, our net unrealized gains topped the $100 million mark at the end of March, driving reported book value to $19.84 per share, up 75% compared to the depressed level of a year ago.

We realized net investment gains of approximately $5 million pretax in the quarter, with less than $1 million in impairment write-downs, related primarily to a single high-yield name which we no longer have the intent to hold.

We've now had four consecutive quarters of net realized gains, totaling $32 million, but even with that, our net unrealized gain balance currently stands at its highest level since mid-2005.

Unrealized balances improved across virtually all asset classes during the quarter, with our CMBS and preferred stock portfolios gaining the most ground on a percentage basis. The underlying quality of our investment portfolio has certainly been demonstrated across multiple dimensions over the last twelve months.

Further to that point, total pre-tax net investment income grew by 14% in the quarter versus prior year, following on the heels of a 13% increase recorded in the fourth quarter. As I mentioned on last quarter's call, we've been reducing our cash and short-term investment balances over the last six months, picking up 400 plus basis points of incremental yield in the process, which has obviously contributed to those increases.

With a further reduction of short-term balances planned during the second quarter, we should be able to achieve an investment income growth rate in the 10% range for the full year. The annuity and life business segments have been the primary beneficiaries of our investment performance. Coupled with the strong showing in the financial markets, annuity pretax earnings have increased dramatically over the last six months, compared to prior year, reaching a quarterly run rate in the $10 million range, consistent with our full-year guidance.

Our life segment, in turn, has posted double-digit increases in pre-tax income over the same period, moving into the $8 million per quarter range, also consistent with our expectations. Brent will elaborate on our strong annuity and life results in just a moment.

On the P&C side of the business, while there are a few more moving parts, we had a very respectable quarter on balance, with the current accident year ex-cap combined ratio improving more than 2 points sequentially. The auto ratio showed meaningful improvements compared to the fourth quarter, but that was partially offset in our property line, where we're continuing to address some loss and exposure reduction challenges.

And with that as a segue, let me now turn to it over to Tom, who will review our P&C results in more detail.

Thanks, Pete. This morning, I will discuss the property and casualty financial results for the first quarter. I will cover our profitability by line, and also review our growth and quality trends. Our total P&C combined ratio in the quarter was 96.4%, compared to 94.6% a year ago. Total pre-tax catastrophe costs were $6.8 million, the second-highest first-quarter cat loss in our history, compared to $4.5 million in 2009.

Favorable prior-year reserve re-estimates of $4.5 million were $1.1 million more than last year. In addition, as discussed last year at this time, the first quarter of 2009 was impacted by $4.4 million of claims consolidation and marketing transition initiative expenses. So, when you exclude cats and the impact of prior-year reserve re-estimates, our underlying combined ratio for the first quarter was 94.7%, compared to 90.5% last year, when also excluding the 2009 initiative expenses.

Our auto combined ratio in the quarter was 95.2% compared to 96.4% last year. Our underlying accident year combined ratio, ex-cat and the impact of prior-year reserve re-estimates was 98%, compared to 94.7% last year, again, excluding the 2009 expense impact of our initiatives.

The driver of the increase over prior year was bodily injury coverage losses, with both accident frequency and severity above prior year and above our expectations. Losses from all other coverages were actually below prior year, and in line with our expectations.

Last quarter, we had a significant spike in bodily injury frequency. This quarter, BI frequency dropped significantly. It was 17% lower than it was last quarter, but still ended 9% above prior year. Sequentially, our underlying auto combined ratio improved nearly 6 points compared to the fourth quarter of 2009.

In our property line, we posted a 98.8% combined ratio, compared to 91% last year. Our underlying combined ratio, again, excluding cats and the impact of prior-year reserve re-estimates was 87.6%, 7 points above last year. In the quarter, sinkhole losses contributed over 4 points of the combined ratio increase. New sinkhole losses reported in the first quarter were significantly higher than new reports in the first quarter of 2009.

However, the number of new losses reported was consistent with new reports received in the last two quarters of 2009 and in-line with our expectations.

Last quarter, we introduced our Florida Profitability and Exposure Management program, designed to significantly improve our loss experience and reduce our coastal exposure. In summary, we are no longer accepting new homeowner policies in Florida. We implemented a rate increase of almost 15% on April 1st, and we began mailing non-renewal notices to 9600 policies in areas with unfavorable loss experience and hurricane exposure.

Our agents have the ability to place new property business with other companies in Florida, and they are also working closely with our current customers to find coverage with these companies. In the first three months of the year, we have reduced our Florida property policies by over 400, or 2.6%, with significant reductions in the high-loss areas of Hernando, Pasco and Hillsborough County. In addition, we are down policies in Palm Beach County, an area of high hurricane exposure.

We are projecting that 90% of these policies will be non-renewed before the 2011 hurricane season begins, and the program will be complete by mid-August 2011. Finally, on property, this year, we are beginning a program to update our property policy, and one of the components in the update is the introduction of the Homeowner Educator Advantage Program, or EAP.

This endorsement contains additional coverage and benefits, available to our educator policyholders, with a few of the benefits targeting the unique needs of the educator market. The homeowner version of EAP is similar to the auto program introduced a few years ago, and will serve as another differentiator between Horace Mann and the competition in our target market.

Now, let's recap our overall topline growth trend, which is being impacted by our Florida strategy. Our total policy count of 786,000 was down 9000, a little over 1%, with auto down 7000 and property down 2000, compared to the end of the first quarter of last year.

But within our niche, educator policies in force continues to track above prior year. With educator PIF up 2000 policies for auto and 3000 policies for property, both compared to last March. Our book of business quality indicators continue to improve. In the quarter, the percent of our book that is educator, preferred-underwriting tier, cross-sold to both lines, and the percent of auto customers paying via automatic payment methods, continued to increase. This is helping our retention ratios stay at high levels, and about even with prior year, with auto down a tenth, and property up a tenth in the quarter.

Total premium trends remain favorable, driven by increases in average premium per policy. Total P&C net written premium increased 1.6% in the quarter, with voluntary auto up 0.4% and property up 3.7% compared to last year.

In summary, we had an acceptable quarter in P&C, not quite up to our expectations, but showing improvement from the last couple quarters. Winter weather, with near-record catastrophe losses, impacted our property renewals.

The recent bodily-injury loss trends, although showing some sign of improvement, are a challenge for us and others in the industry, and we will continue to monitor and take actions to improve our results.

Meanwhile, we are on pace to achieve our filed premium rate change expectation of 6% in auto, and are currently ahead of our 8% expectation in property, and finally, our Florida property reduction strategy is on pace, and we expect to see loss savings and exposure reductions beginning in 2011 and fully earned in 2012.

Now, I would like to turn it over to Brent Hamann, to cover some pretty strong annuity and life results.

Thanks, Tom, and good morning, everyone. I will spend the next few minutes going over the results of the annuity and life segments. As noted in our release, the annuity receipts were again stronger in the first quarter, with premiums and deposits up 23% as compared to the prior year. This was largely driven by a 45% increase in our single-premium and rollover business. The 11% increase in flex premium deposits builds upon the dramatic sales increases we experienced throughout 2009.

In fact, as some of you may recall, our flex premium sales in 2009's first quarter were up 99% as compared to 2008 as a result of the new 403(b) regulation becoming effective on January 1st, 2009. In 2010, flex premium sales returned to more historic levels. For those results, combined with the strong increase in single premium sales, and a sizable decrease in sales of third-party vendor fixed-index annuities, resulted in a total annuity sales decrease of 9%.

Horace Mann's proprietary annuity sales were roughly even with the prior-year results. Finally, independent agents were again significant contributors to our total production. Independent agents also benefitted from strong single-premium results, with their total sales of 3% as compared to the prior-year quarter.

Our annuity liabilities continue to be extremely stable. Annuity net funds lows find the deposits received, less surrenders, deaths and maturities, were again positive in the first quarter, as they were throughout 2008 and 2009. Our total twelve-month account value persistency of 94% is up about 1 percentage point over the prior year.

Total annuity account values reflected these positive deposits and persistency results, as well as improvements in the fair value of the variable annuity balances, producing a combined increase of 18% compared to a year ago.

Fixed account values increased over 8%, and the associated net interest margin improved significantly as new money is being invested at attractive rates compared to crediting rates.

As noted in the press release, net interest spreads reached 190 basis points, an increase of 47 basis points compared to 2009's first quarter. Variable annuity account balances increased a strong 45%, continuing their sequential growth with a commensurate increase in M&E charges earned. As in the past three quarters, market performance had a favorable impact on both evaluation of deferred policy acquisition costs and the level of guaranteed minimum debt-benefit reserves. Combining all of those drivers, annuity pre-tax operating income increased $9.4 million in the quarter over prior-year results.

As we've shared in prior quarters, we have minimal equity market guarantee exposure on our variable annuity product line. In fact, over 90% of our account value has either a simple return of premium debt benefit or no debt benefit guarantee at all. Our current gap GMDB reserve balance is only $400,000, and that decreased $100,000 in the quarter. We do not offer other guarantees, and we have no hedging or derivative program exposure.

Turning to our life segment, first-quarter sales of Horace Mann's individual life proprietary products were down 6% compared to prior year. While reflective of overall industry trends, the results highlight the need to continue to strengthen our life insurance portfolio of products, and we will be launching new products and support services over the coming quarters toward that end.

Third-party product sales were down 19% for the quarter as compared to prior year. Life total premiums and contract deposits, which consist only of Horace Mann products, were down less than 1% for the quarter as compared to prior year. In terms of earnings, first-quarter life segment pre-tax income increased 31%, or $1.7 million compared to prior year. Strong growth in investment income and lower expenses were somewhat offset by increased mortality costs.

So, in closing, the first quarter of 2010 demonstrated and, in fact, exceeded, the significant improvement in earnings power that we expected in both our annuity and life insurance businesses. While on the sales front, we believe the addition of a new annuity product in the second quarter of this year, followed by the expansion of our life insurance portfolio, which I referenced earlier, will go a long way to counter the challenges of the current economic environment, and these new offerings will also further reinforce our core strategy of developing products and services tailored to the needs of our educator markets.

So, with that, let me turn it over to Steve Cardinal, for his comments on distribution and sales.

Thank you, Brent. Good morning to everybody. This morning I will update you on the migration of our agents to the Exclusive Agent model that we introduced at the beginning of last year. Following that, I will cover where we stand with the overall agency force, and then, I will address sales results. It was on January 1st, 2009, that our first group of Employee Agents migrated to the Exclusive Agent model.

We worked on the development of our model over several years, and, as you'll recall, it was designed to get agents out of their homes and into outside offices with licensed staff. And during the course of 2009, we had a number of additional agents migrate to the new model. I think it's fair to say we are pleasantly surprised at the number of agents who migrated.

Additionally, we began making new appointments directly into the model, and I can tell you, we are impressed with the quality of the business people we are attracting to this unique opportunity. We now have 305 exclusive agencies, accounting for 45% of our agency force, and we have 144 employee agents who operate from an outside office with licensed producers. Together, these two segments account for two-thirds of our agency force.

Another 103 agents are in outside offices, but have yet to hire a licensed staff. So, we feel we continue to be in a good spot with another group of agents well-positioned to grow their business. Overall, we've made great progress with the model, and will continue to work with our agents to help them maximize their opportunity.

Turning to staffing in the first quarter, we made some changes to our agent program to ensure even greater alignment between our growth objective and the agent's sales results during 2010. In addition, we had some agent turnover because of our actions in Florida.

Altogether, these changes impacted our agent turnover rate for the first quarter of the year. Overall, our agent-- our total agency count is up 9 combined Employee Agents and Exclusive Agencies compared to the first quarter of 2009, but decreased from a year-end count of 716 to 684 as of March 31st. The agents terminating during the quarter were predominantly agents not operating the agency business model and, generally, a low-performing group.

But with that done, we expect fewer terminations through the balance of the year. In addition, we have focused on keeping our recruiting pipeline filled, and we're pleased and encouraged by the number of candidates planning to open offices during the second quarter and beyond. We fully expect to show agency growth in the second quarter and for the full year.

Now, let's take a look at sales results for the quarter, beginning with property and casualty. We're not immune to the effects of the economy, and continue to feel its pinch, based on weaker automobile and home sales. In addition, new business sales were impacted by our decision to cease writing new homeowners business in the state of Florida. Countrywide, true new auto sales were flat to 2009's first quarter, and with a reduction in ad cars, total auto sales units decreased 3.5% compared to prior year.

However, when we exclude Florida from the equation, true new auto sales units increased 3.4% over prior year. This reflects the impact our Florida property actions had on true new auto unit sales. Countrywide, property sales were down 8% in the quarter compared to a year ago, but, excluding Florida, sales reflected only a 4.7% dip for the rest of the country.

Looking at annuity and life sales, our single annuity sales and rollover deposits remain healthy, increasing over 20% compared to the first quarter of 2009. These sales come from both Horace Mann and independent agents. The large, favorable spike we saw last year in flexible annuity sales was largely the result of changes in 403(b) regulation.

So, as we anticipated, we've seen fewer flexible sales during this year's first quarter, ending down 57% compared to the year ago, and looking at it altogether, total annuity sales were down almost 9% in the quarter, compared to the same time last year. Our Horace Mann individual life insurance product sales were down about 6% during the quarter. When we include the sales of our third-party vendor products, total life sales decreased almost 14%.

As Brent already mentioned, we're introducing a new annuity product in the second quarter, and we believe this will help strengthen sales. I can tell you that as we've discussed the new product, both our Horace Mann and independent agents have expressed their excitement about the product, as well as the timing of the second-quarter launch. In addition, we are rolling out a new client and lead management tool to our Horace Mann agents.

Client 360 will help our agency force better manage their office leads and client contact programs. The early word from the field is extremely favorable, and it should have a positive impact on productivity and retention. To sum it up, we've made great progress with our agency business model, and believe that we will accelerate sales growth as we move ahead.

Agent migrations continue into the new model, and turnover continues to come primarily from low performers. We are optimistic about growing the agency force in the second quarter, and through the balance of the year, and even with the challenges in the economy, we remain committed to our sales goals for the year, because we're appointing the right people, we have a strong product offering, and we have our focus on serving America's educators. Thank you, and now back to Dwayne.

Thanks, Steve. That concludes our prepared remarks. Chartea, please move to the question-answer session.

(Operator Instructions). We will pause for just a moment to compile the q-and-a roster. Your first question comes from the line of Bob Glasspiegel with Langen McAlenney.

Morning. If I look at the mid-point of your prior earnings guidance range, which I don't think you adjusted, that would be $1.70 plus-- that works out to about a 9% ROE. I was wondering where that is, sort of relative to your intermediate term goals, and are we-- seems like it's below what your company has historically been able to achieve in an environment where rates are improving and personal lines, and the outlook for life and annuity seems pretty satisfactory.

Should I just throw out the historic ROE achievements being related to maybe more leverage than you can operate today, or is there some sort of excess underleveraged position that needs to be addressed?

Well, Bob, Lou Lower, it's good to hear from you. I would say that we certainly don't have a target of a 9% ROE, and what we're striving to achieve over the next two, three years, is to begin to drive that back up to double digits and low teens, and the way we do that is through a combination of three things, the two most important are improving margins in our two major lines of business, so, property/casualty, that would entail getting our combined ratio, driving it from its current level to 95%, and then to 93%, which we-- which we're fully taking actions across the board to achieve that, although, as you well know, it takes a while for all the pricing actions that we're taking to be earned and reflected in our P&L.

And then on the annuity side it's continuing to improve the spreads in that business. Which, as we had said on our last call, we believed would take hold faster than the combined ratio improvements. And then the third element, although less critical to your point is-- and this would be the frosting on the cake, but not the cake, and we don't want to get ahead of ourselves here, would be to begin to reduce over time the cushion that we have in our current capital levels. And we'll do that as we begin to feel more comfortable with the-- that the economy is on more substantial footing than we feel today.

But, again, the two most powerful contributors to that ROE improvement and getting it back over the next few years to the 11%, 12%, and then 13% range, would be combined ratio improvement and continuing improvement in spreads in the annuity line.

Am I right that the macro environment is more hospitable to those objectives today than six months ago in both personal lines and annuities?

I think that is true, but to get the-- our pricing actions in property/casualty to take hold and be earned, is not something that happens overnight. So, as Tom described, we think we've got some pretty aggressive rate action plans on the auto and property front to get to where we need to be, 6% in auto and 8% in property.

We're achieving those rates, certainly, from a regulatory perspective, so those were on our plan. And I think, as you can appreciate, taking rates in a weak economy when there's a lot of competition in the marketplace, will improve our profitability. But it does put a-- there is a built-in damper from all of those effects on driving growth in PIF.

Okay. Thank you very much.

Your next question comes from the line of Peter Seuss with Lincoln Square Capital.

Hey, guys. Just two quick questions. The first one, in your annuity line, the other expense line item within that segment. I guess, historically, it looks like there has been some seasonality in the first quarter in which that expense item has been around $12 million, while this year it came in at $8.6 million. And I think you mentioned you had some back benefit, and I was just wondering if you could quantify what that benefit was? Or if the seasonality from the past -- are those expenses just gone now, or does it move to a different quarter?

Pete Heckman, Peter. On the exhibit attached to the press release that I think you're probably looking at, if I understand your question. The impact of DAC unlocking and change in minimum death-benefit guarantee is noted about the middle of that annuity section. So we actually had a benefit of $1.3 million pre-tax in this year's first quarter, and we had a hit of $3.5 million going in the other direction in the prior-year quarter.

So, $4 million plus, almost $5 million difference between the two quarters in DAC and GMBD, and I think those are part of what goes through the operating expense line there.

Yes, that's helpful. Thank you. And then, the other one, just, the reserve release in the property book, if you could just give some color as to what drove that?

Well, the property increase-- or the release in property was primarily 2008 and 2009 accident years, and just reflected some emergence that was a bit more favorable than we had anticipated at the time.

Okay, I mean, is that part of a general trend, or is this-- was this part of an annual study or is it a quarterly study that you do?

We do an internal study quarterly and in a lot of detail, and we've had favorable emergence, although it has primarily been in the auto and liability coverages in prior years. Over the last five years or so, but occasionally, we'll have some better-than-anticipated development in the property line, which occurred this time.

We have the independent actuary which does a full review of our reserves at the fourth-quarter timeframe.

Got it, and, sorry, actually one more. Just-- you've been pretty forthcoming about your objectives longer-term, which is really helpful, and I was just wondering in terms of the agent counts, what are your objectives there, and what you do you need to achieve your other objectives?

Hi, Peter, this is Steve Cardinal. How are you doing?

Hi, good, thanks.

Good. We see that agent growth will be happening-- will happen again this year. It has been a kind of a combination of two things. One is, we've had this migration of agents, we had-- and we still have a number of agents that are operating out of their homes. But that number used to be virtually-- a very, very high percentage of our entire agency force, and that number has shifted over to a large, large percentage of them going to the outside.

So, as we look at our agency count, we will see fewer of those agents operating out of their home, and more of them moving into the model. So we see this year, net-- when you net all that out, some more decreases in that universe of agents that are working on their home. And we continue-- and we feel very good about the group of new folks that are coming on board and the quantity of them coming on, kind of in the second quarter going forward. So we expect a-- kind of a moderate growth this year of a low, low single-digits percentage. And then building from there, as we kind of continue to build that foundation of getting the vast majority of the agents into our agency business model. Which would be out in (inaudible) with license producers, whether or not their employees are Exclusive Agents. +

Okay, great, thank you.

Sure.

(Operator Instructions). There are no further questions at this time. I will now turn the call back over to Mr. Hallman.

Thank you, Chartea. Thank you for participating in our call this morning. If you have any further questions, please feel free to contact me. Have a good day.

This concludes today's conference call. You may now disconnect.