Lincoln National Corp (LNC) 2001 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to Jefferson Pilot Financial conference call. At this time all participants are on a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press the star then zero on your touch-tone telephone. As a reminder ladies and gentleman, this conference call is being recorded. I would now like to introduce your host for today's conference Mr. David Stonecipher. Mr. Stonecipher, you may now begin your conference.

Good morning and welcome to each of you to the Jefferson Pilot first quarter 2001 conference call. I am David Stonecipher and here with Dennis Glass, Ken Mlekush, Terry Stone, and John Steel. In the call we may make some forward-looking statements about future sales or other matters and obviously there are risk and uncertainties. They could affect actual results compared to expectations. So, we refer listeners to the risk and uncertainties reference in the last paragraph of our earnings release are available at our website www.jpfinancial.com. I will begin the day by making a few brief remarks about the quarter. We will then turn to Ken for review of marketing and distribution results in both the individual insurance operations as well as our group life and LTD lines benefit partners. Dennis will follow with a discussion of financial results, and then Terry will cover the communications company results. We will then open the floor to your questions, and as always I would ask you to use the Q and A section for broad questions as most participants on the call will have an interest in, and ask you to save the detailed questions. John Steel will be available to field those later. Well, let's begin. The first quarter was a generally good one for Jefferson Pilot considering the softening that we have seen in the economy. Total earnings per share were up 8% to 96 cents and earnings per share before investment gains increased 4% to 72 cents per share. These results are of course suggested to reflect three for two stocks we had accomplished last month. In our operating business segments, results were notably affected by decline in earnings at Jefferson Pilot communications. Advertising revenues were quite weak throughout the broadcasting industry, and we certainly were not immune. Terry will have more to say about this. In the individual products segment, we experienced high mortality that affected us somewhat. Annuity and investment products results were solid and we had a very good quarter in benefit partners. We availed ourselves during the quarter aggressively of the market opportunity to buy in shares consistent with our long-standing strategy. We retired over 2.2 million shares at an average cost of 43 dollars per share for an investment of 96 million dollars. Dennis will review the rest of the details of our financial results with you but first now I will turn to forward over to Ken for our marketing results and new initiatives.

Thank you David. My report, will focus, as David indicated, on the marketing and distribution progress being made within individual life annuity and benefit partner group and a broker dealer. Also, the various sources that work within the industry impacting those results and finally provide a marketing distribution update on the new premier partnering strategy that David commented on during last quarters call. First let's start with individual life. First quarter life sales were at 36.6 million. This represents a decrease of 12.9% compared with the first quarter of 2000. The key forces at work that impacted live sales were first uncertainty over the outcome regarding the state tax repeal and to close negative tax implications in the swift dollar market. They indicate that the impact is that survivorship sales were down 23% versus last year's first quarter. Secondly, we exhibited continued softness in the small bully market which had a 19% negative variance to last year's first quarter, and third key producers waiting for the new premier partner initiative to take place, particularly improvements in our fixed UL product portfolio and this was evidence, this is the fact that the fixed UL sales were down 31.1%. Finally, a 2.1 million year 2000 carry over of life sales production credit form the guarantee acquisition that was not repeatable in 2001. On a positive note, contrary to the overall market down turn the UL sales were up 21%. Despite that positive variance, we believe it would have been greater had the market performed more positively. Clearly the first quarter life sales were not where we had planned, however we are encouraged over the progress made on our premier partnering strategy and the reception by our field partners toward that progress among the key accomplishments in that area. Firstly, the invested money and resources toward the addition of an expanded wholesaler staff to tell that Jefferson Pilot financial story on a more effective basis. Four new relationship managers and five new recruiter activators were added during the first quarter. We have already increased recruiting activity with 28 new general agents recruited and another 27 with contracts pending. This activity is about double where we were last year. Excellent progress was made in our efforts to improve communications to the field, enhancement to our proprietary Internet site, and service improvement initiatives. We are starting to build out expertise in our three target markets, wealth accumulation, wealth preservation, and business planning, and examples of this would be the introduction of a marketing package for the charitable trust based estate planning market and enhancements to our proprietary life program. And finally, we were active in our efforts to bring competitive new product to market. Late in the first quarter, we continued to aggressively address our fixed UL portfolio by introducing Legend 300 and Dewett 300, the newest additions to our Liferider series. These products provide very competitive long-term current assumption performance in the single life and survivorship markets respectively. They also contain many innovative design features, such as an optional lapse protection benefit, living benefits in full death benefit extensions at age 100. Their innovative design and flexibility allow us to compete favorably in the wealth accumulation and wealth preservation target markets. We also updated our [term] portfolio with the introduction in late February of the Prelude series. We are encouraged that we received over 1200 applications in the first 40 days. Switching to annuities, first quarter total annuity premium receipts were 312.6 million dollars. This represents a 14.2% improvement over year 2000 and our best first quarter performance in history. Driving this increase was a 45.3% increase in fixed annuity premium receipts. Our fixed annuity sales with the financial institution channel resulted in a 11.4% improvement over 2000, and the agency channels delivered a significant 22.9% increase over the last year. The agency channels continued to have about 70% of our total annuity sales and the financial institutions about 30% of the total. These sales results enabled fixed annuity fund balances to grow at a rate of 5.6% for the first quarter. This quarter's surrenders were 16.8% of the total fund balances. That's a decline compare to 22.4% to the first quarter 2000 and fourth quarter of 2000 of 18.7%. Also, the fund balances with 5% or more surrender charges including payout annuities, increased to 41% of the total fund balances at the end of March from 32% at the end of the first quarter last year. Both very positive signs. Switching to the broker dealer, despite market conditions, JPFC sales measured by gross dealer concessions were down only 1.1% for the first quarter compared to prior year. We believe this result is very strong relative to the general industry experience. The average DDC per rep improved 8.8% from 62,767 dollars to 68,299 dollars. First quarter sales of JPBUL products to JPFC were up 13%, and finally we recruited a 169 new registered reps in the first quarter compared to 117 last year. That represents a 44.4% increase. And finally switching to benefit partners, first quarter results for benefit partners were excellent and reflect the emergence of the competitive advantages of a more effective business model that is being driven by technology and talent and is confident in the use of that technology. This is resulting in marketing expense and customer service advantages, a powerful combination. Sales of core business products were 46.5 million for the first quarter versus 38.5 million. That represents an increase of 20.8% from the first quarter a year ago. Disability sales remained strong, up 21.6% for the first quarter at 19.5 million versus 17.4 million, a result of again our focussed marketing efforts and our technological advantage service to our brokers. Life sales were up 9.8% for the first quarter, and dental sales were up 76% over the press levels last year, specifically 10.3 million versus 5.8 million. Regarding our product mix, we are seeking a balance in our new sales of approximately 20-25% in dental and the remainder split between life and disability. Our first quarter results show a dental mix of 22%, a life mix of 36%, and a disability mix of 42%. Voluntary sales up 71.7% from a year ago, continue to be strong due to strong marketing and impact of our technologically administrative advantages. Sales were 9.5 million for the first quarter compared to 5.5 million last year. All in all, it has been a great start to the year for benefit partners. We believe that the future of the benefit partners will continue to be quite promising. We will now turn to Dennis to review the overall financial results.

Thank you, Ken. Total operating earnings of 112 million for the year are 4% higher than last year results. In addition to David's comments regarding higher than expected mortality in the individual product segment and lower communications earnings, total operating earnings were reduced somewhat by interest expense and loss in investment income due to share repurchases which have totaled 123 million during the last four quarters. The share repurchases will contribute to earnings per share growth over time. Total operating earnings did not benefit from lower interest expense on average quoting rate borrowings of 800 million during the quarter because rates on much of these borrowings did not start repricing until the beginning of second quarter. The guarantee acquisition is fully reflected in both last years and this year's results. We are a little ahead of what we expected to be with respect to the impact on operating earnings for the guarantee acquisition. Total segment earnings, operating earnings, produce a 15.9% return on book equity before realized investment gains. Lets turn to our individual product segment results. Earnings of 69 million were 1 million ahead of the prior year. Policy benefits increased for both the first quarter of last year and this year due in part to mortality experience higher than what we expect in an average quarter. As I have mentioned in the past, swings are normal occurrences on a quarterly basis. Overall, our mortality experience has consistently been better than pricing expectations having averaged about 3% better than pricing in each of the past five years. Expense has declined year to year. The decline is in part due to the consolidation of the guarantee life acquisitions, other miscellaneous expense reductions, and summary classifications. Total individual revenue of 425 million was flat with last year. Average UL policyholder fund balances grew 5% over the prior year. The downturn in equity markets and subsequent decrease in average VUL separate account assets masked the impact on total fund balance growth due to the increased VUL sales which Ken mentioned. Adjusting for the decrease in fair market value net of dividends year over year, such account balances would have increased by 15%, and total fund balances would have increased by 6%. Moving on to the annuity segment, earnings of 21 million equalled prior year results. Lower surrender charge income and slightly reduced broker dealer earnings kept the earnings flat last year despite growth in fund balances. Both periods included modest earnings benefits due to one time events. A slight kick up of 3/10 of a percent in fixed annuity and general administrative expenses as percentage of average invested assets is a result of an expense reclassification. Expense management remains very favorable in this segment. Effective investment spreads declined six basis points year over year to 2.1%. This decline is due to continued strong sales of lower commission five-year product, which carries a lower spread requirement to achieve the desired hourly results. We expect to see further decline in this spread over the course of the year. Moving on to benefit partners, non-medical group insurance business had good first quarter as Ken has already mentioned. Total earnings are up strong 26% in the quarter 10.4 million from 8.3 million a year earlier. Good revenue growth coupled with normal loss ratios and good expense discipline produced the favorable earnings results for the quarter. Total non-medical premium income grew 21% to 110.7 million for the quarter reflecting the positive sales growth in this segment. The non-medical loss ratio returned to a more normal level of 73% for the quarter down from 75.6% in the prior quarter and in line with the full year results last year. Benefit partners remain focus on its execution of its strategy to use its advanced technological platform to provide a superior customer service experience and use this advantage to enhance margins and continue revenue growth. Moving on to the corporate segment, corporate and other recordable results were 4 million, an increase of 3 million over the prior year. A decrease of 1 million in earnings on investments was offset by reduction in debt interest expense. The year-to-year decrease in federal and state income taxes reflects implementations of strategies that reduced the federal income tax on investment earnings and resolution of tax issues for which we had previously established reserves. Results of this segment will vary quarter to quarter based on a number of factors such as strategic expenditures, corporate allocations, and tax cycles. I will now turn the program over to Terry Stone, President of our Communications Company.

Good morning. It has been referenced advertising related business, be they radio, TV or newspapers are experiencing their first decline in revenues in many years. In radio and television, national business has experienced the sharpest decline. National constitutes a much higher percentage of revenues in television where it generally approaches 50% than it does in radio. As a result, our combined local and national sales results and our broad cash flow results were weaker in television than in radio. In addition, our television results reflected the absence of substantial political revenues at all our television properties in the first quarter of last year. You also recall that in the first half of last year, radio registered sales increases in the 20% range, making year-over-year comparisons difficult in 2001. For our three divisions combined, total net sales were 50.6 million, a decline of 5% over the first quarter of 2000. Our focus in the current extremely soft advertising environment is to control expense and to start to outperform the gross rate of sales in our markets. Much of our sales effort has involved gaining share whenever local money is being spent on local buys. In both radio and television, our stations local revenue growth was faster than the pace of the local markets in which they operate. Local revenues show positive although very modest growth in both in our radio and television divisions but that positive local growth was more than offset by decline in national revenues to create a 5% decline in sales for our company overall. As to our second area of focus, operating expenses were tightly controlled and were 1% below the last year levels. Broadcast cash flow was 16.8 million, a decline of 17% from 2000 first quarter. With television declining more than radio on a year over year basis. The income for the quarter was 6.8 million down 22% from 2000. JP Sports had positive comparisons on sales for the quarter and the basketball season, particularly in the ACC generated great interest from fans. As to the rest of the year, we are currently still experiencing soft advertising demand. In a market it is difficult to say anything definitive about likely results for the balance of the year.

Thank you, Terry. Clearly as you have listened the spot where we see the most room for improvement is in our individual life operations, specifically our sales, and as Ken stated, we are aggressively addressing that issue through our premier partnering strategy discussed last quarter and reviewed at our annual report plus the new package of products that was then produced late in the first quarter. Neither of these are reflected in the quarter's results, and we are very positive about the potential that these initiatives will have as we go forward through the year based on the feedback that we are receiving from our key producers. That is our overview of the quarter and now Mike will be happy to go to questions from the audience, if we can please.

Thank you. Ladies and gentleman if you would like to ask a question, please press the 1 key on your touch tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. One moment for the first question. Our first question comes from David Lewis of Robinson Humphrey Please go ahead with your question, sir.

Good morning. Question: David or Ken, we look at the sale so many other companies have indicated that the weaker economy as well as the debate on the estate tax reform or appeal has not negatively impacted their sales. Now, I wonder what your thought is there. Obviously you think it is having an impact. How much of that is really coming from the estate tax reform considerations out there and what are you hearing out of congress and finally do you anticipate that the recurring premiums on sales will turn positive in the second half of 01.

Yeah I will take that, David. To be specific, on the estate tax area our survivorship sales which is a good indicator of the amount of sales in the estate tax specifically were down from $7.3 million for the quarter to $5.6 million. So that is negative 1.7 which is relatively minor so the sales will really not be just adequate as all four of the reasons that I gave you. Relative to the future as David indicated we are encouraged with reaction to our new strategy. We believe we will see net momentum of growth starting in the second quarter and starting some and building more so over the last half of the year.

How about as far as the impact if there is a substantial reform or a repeal on the estate tax. I mean would you just consider that some portion of that 5.6 million that you did in the quarter on survivorship price would be lost and that will be the only impact.

Yeah, we told you before our previous calls. We estimate that our estate tax related sales are represented by 10% of our sales so that is what is at risk.

Ok. Any outlook from congress?

David, [LAUGHTER]

We all can look and wait to see. I think when you look at however the bills that have been passed in previous sessions David, it is deferred 10 years and so I think more and more were beginning to see. We just had a meeting with our field producer, more and more we are beginning to see producers in the field really step up and talk about the lack of likelihood if you will that we will have meaningful reform or if we do have reform that it is pushed out so far in the future that you still got to have a state tax planning for this ten-year period. We probably assess it at low probability at our shop here than we are going to have a very meaningful reform that will eliminate taxes in total.

Thanks. If I could ask five questions, to Terry, obviously the communications sales down 5% but and you did a good job on expenses but given the reduced level of revenues is the further room to reduce those expenses so you do not get such a large reduction in the segment results which were down 22%.

We are holding the line very-very carefully on expenses but I think you can appreciate that if your sales are down 5% it's hard to have your expenses down 5 or 10% and still maintain a business. We do not think these business are long [term] deteriorating. So we do not want to detonate them. So we are trying to keep all the expenses as tight as we can but not to undermine the basic business because when your economy re-surges we will need to be in a position to take advantage of that.

Right. Thank you very much.

Thank you. Our next question comes from Michelle Giordano of J. P. Morgan. Please go ahead with your question.

Good morning. Had a couple of questions. I was wondering if you can tell us what the magnitude was of the mortality that differed from your expectations in the life segment this quarter and then secondly I was wondering if we could talk about the market conditions in the fixed annuity market as per the bank distribution channel.

Michelle, this is Dennis Glass. I'll answer first question and turn it over to Ken for the second. In the first quarter, the gross mortality was $7 million higher than average for the last four quarters. The amount of that which flowed through after DAK and tax effect was around $ 3.4 million or 2 cents a share.

On second point Michelle, Dennis made comment earlier that this annuity sales for the quarter were up 11.4% within the financial institution channel. We view that as a very important channel and one that has good potential for further growth. So the climate there in general is possible.

Have the markets gotten more competitive and what do you see happening to crediting rates in the bank channel.

Well again the market has always been competitive. I would not believe that this is more competitive than it has been in the past and obviously the future crediting rates and guidelines within that channel are contingent on where are our investment returns are and maintaining our spreads and so it's hard to speculate on what future interest rate can be.

Is there any truth that in the partner segment and results are actually pretty strong in the quarter. Would you consider this a normal quarter. If we do consider this a normal quarter, what would be the growth rate for the segment could be quite strong for the year. Is that ... am I reading into that correctly?

Michelle you are correct in saying it was a good quarter and we have expected good results whether or not we can each quarter reproduce this earning's level in a business that is by the nature of it can have some ups and downs but we prefer not to try to predict that but we are very confident about the quality of the business that we are writing that we could change it back to the technology advantage that we have which is both revenue generator as well as a risk management in cost control platform so we remain very positive about this business.

Thank you.

Thank you. Our next question comes from Paul Gleckis of Cunning and Company. Please go ahead with your question.

Good morning. Few questions. The first is back to benefit partners and I understand certainly the loss ratio can bounce around but you did have a very nice improvement from last year in your expense ratio, even if you look at the average of 2000 you are still about 200 basis points lower. Is that a sustainable number or was there a little bit less than there might be according to quarter's going forward.

Paul, Dennis Glass again. You have to remember this reflects the combination of the old Jefferson pilot business and a guarantee life business and expend savings were achieved so that the expense ratio that you see, we think is realistic on going forward base and in fact over time one will expect to improve on it.

) That is very helpful. That is excellent. Share repurchase you certainly did step up to the plate in the first quarter. What might we anticipate for the remainder of the year?

That is very difficult to ascertain as you know we have always been opportunistic we think or hopefully opportunistic in capturing shares at a price that we thought was very attractive. We will continue to have a focus and an emphasis on that and it all depends on where the market place is.

Okay. One last question, your variable annuities while I appreciate the strength of your fixed annuities fell quite a bit from a year ago. Is there anything other than market shift in terms of focus of agents over the other issues such as commission product or any other changes?

Paul, this is Ken. The variable annuity sales as you saw were down from the previous quarter and we were a late entrant to the variable annuity marketplace. We do not do that it being a robust market to enter for us as much as the fixed side. We are more focused on the fixed side.

Thank you.

Our next question comes from Vanessa Wilson of Deutsche Bank. Please go ahead with your question.

Hi good morning.

Good morning.

Would you give us a sense in the press release in the annuity investment products paragraph you mentioned there was an earnings benefit from the calling change derivative. What magnitude was that benefit and was in operating earnings or in net income?

Vanessa, Dennis Glass, excuse me. It was 1-1/2 cents which was footnoted on earlier in the news release and it was in the annuity operating earnings.

Okay, and then the release for tax issues of the release of reserves.

Yes, I am sorry. What is the question?

How much was the release of reserves for the taxes in the corporate segment.

If you turn back to the page on corporate and other.

I see a positive 2 million [inaudible] DENNIS Yeah a little, about one and a half million of that related to the reserve release.

Okay and with respect to the new programs of premier partnerships program and the new product launches, how should we think about sort of a cycle time in terms of products being launched, the partnerships being launched and actually realizing sales. Is it a one-quarter lag or should we think of the second half of this year showing the benefits of that?

Yes, I think you should. We see a little momentum that we feel will begin in the second quarter but most of it will come in the second half of the year.

Okay. Thank you.

Thank you. Our next question comes from Ed Star of Merrill Lynch. Pease go ahead with your question.

Good morning. Question that I have is also on life sales and I am just wondering if you could help us with how to think about what kind of life sales do you think you need to have over the next couple of years to achieve the 10% kind of EPS growth that you have laid out as a long-term target? And there are obviously a lot of lags, and I am just trying to figure in to what extent do we have to worry about, you know, slight decline in sales let's say in the early part of this year.

Ed, one of our key goals in establishing this program around premier partners is a two-year objective that we have and that we have shared elsewhere before and that is to double the number of our premier partners and achieve a 50% growth in the life sales over the two-year period. So, that is the bottom line of what we are trying to achieve, and it comes about by way of putting as we said last time a lot more feet on the street where Ken's outlined additional step, I think of about of nine this past quarter work. In the neighborhood of doubling the staff that we have as relationship managers and recruiters on the street attracting producers to the company, which is one very strong part of the program. Obviously, the product fix-up that has occurred this quarter primarily, particularly in the fixed product arena, and most of the sales shortfall there, we think it is product problem, which we feel we have now addressed. It is a second major ingredient in this process, a third major ingredient underway inside the company, and is what we're calling the manufacturing side of the company. I think we we comment on this in the annual report with the assistance of, First McKinsey and company, and now our own internal staff. We have been restructuring and redesigning all of our back office functions for not just improvement or expense savings, but more looking for strategic advantage in the way we deliver service. We are very optimistic about what is occurring there. So these are 3 high level programs under the way, some are just developing like the products very clearly we feel we have done most of the lion's share of that work, culminating in March with new introductions that have been received very well. We are just out of conference and we are getting very good feedback about those changes. The feet on the street is in process. This involves recruiting a number of new individuals to the company. There is a learning curve and training curve that will take a quarter or two as we see change, hopefully a plan change coming from that. The buildup of some of our back office functions is going to take longer as contact most of the here to complete those activities but as we go through them one department at a time, we are getting significant improvements in our service. So it is really a very large remake of our business strategy and our operational strategies and we think bottom line to come back to your question. The focus is on 50% growth rate in sales, life sales is where we would like to be a couple of years out as this program develops.

I guess I just would like to follow-up. I guess what I am I think I understand that you want to be, I think it is a run rate by the end of the two years out 50% higher to be comfortable with your long [term] EPS growth call.

Right. It is not 250 million, a little bit north to 250 million of life target premium sales. We measure everything by target premium and that excludes, I think we have 5% credit for single premium dump in funds in that measure.

I guess what I am trying to get out of this in terms of the near [term] here. You know we have to what kind of sales do we have to see sort of while we're in this transition mode to be comfortable that were not going to have to sort of reduce our near-term expectations about what you can do?

Well, I think as in the past we certainly are expecting and looking for positive sales growth this year from these programs. The economy might bear on that. I think time will tell, but I don't think at the moment the economy is in way of us achieving a positive sales growth for the year and continuing to move quite nicely from that.

Okay. Thank you.

Thank you. Our next question comes from Stuart Johnson of Lehman Brothers. Please go ahead with your question.

I had a question concerning your premier partnering program which you have highlighted. I think you are getting feedback from a lot of your top producers through I guess you are calling them corporate ambassadors, and I am just wondering you have mentioned compensations in service improvements. Can you give us any examples of these sorts of improvements that have put in place so far, and then just as a followup question, is there any feedback that you have got that might allow you to implement some cost savings going forward?

I'll take that particular one. First of all, you mentioned the program in the communication arena which has been very, very well-received, which is less than 20 or 21 of our very, very best employees. There has been in the company through we call premier partner ambassadors, which we proactively call each of our premier partners on a selected basis periodically through the course of the month. While the objective of that program is that to get that feedback in terms of how to our premier partnering program and to give ideas and suggestions on that how we can do better. But also if says an objective which would be able to be also show how our new programs are being received in the market place. The feedback that we are getting on that is excellent. They also gave us feedback on ways in which we can improve, so we have instantaneous communications each day. When I come into the office, I call up to recall reports from our premier partner ambassadors. I know instantly what is going on in the field, what reaction we're getting from the field, and we are able to act on that immediately. Dennis, you might want to comment on in terms of [inaudible] DENNIS Negative service trading what we refer to as a differentiated level of service for our premier partners used a philosophy of treating a 50 thousand dollar producer and same one in 250, 000 dollar producer, and we are trying to change that model, and so things like underwriting criteria access to direct phone lines a lot of those types of things are rolling into the program.

Okay great. Thank you very much.

Thank you. Our next question comes from Andrew from Bear Stearns. Please go ahead with your question.

] Good morning. Two questions. First Dennis, you mentioned these spreads at 210 basis points would be trending down. Dennis, could you give us a sense of where you expecting to go over the next year.

Andrew, this is ... I wanna try to get away from next year. I think that below 200 is what we expect by the end of the year but let me hasten to add to that that number's becoming slightly less meaningful because of this lower spread requirement that I mentioned on our product down 50% of our sales and the ROE on that product is the same ROE on our other product that would require a higher margin. But even though were having during the course of the year a declining that margin the impact on earning should not be as simple as changing the multiple of average fund balances times that change in spread.

] I got you. With respect to sales, I just want to make sure on the individual life side whether it was Ken or David who said it. But you expect individual life sales to double in the next two years to about 250 million, did I understand that correctly and the timeframe correctly?

No, I it is 50%, currently in the 170 range and we are looking for a 50% increase in two years.

] So meaning I would see that number in 2003?

Right.

] Ok, terrific! In terms of the MNA you are seeing right now and we just saw, we will likely see at least this is AIG in American General. We have seen a lot of consolidation going on. David, what is your sense in this environment? How does Jefferson Pilot compete here? Is it that you feel comfortable?

Well Andrew, I don't think anything is different this particular quarter than it was last quarter over a year ago. I mean the trend continues certainly because of what you mentioned and moved toward more acquisitions and more mergers and more global players, and we are very sensitive to that and watching that and studying that. But at the same time, we measure our success by our capabilities to grow ourselves and hold our producers producing with us, and we are very focussed on market share within a group of product lines. We have a very efficient back office in this company. So certainly, the business does not get easier, and that has been seen for the last several years. There is nothing different is my answer to you. I think we have to continue to get better in each and every thing that we do, and that's what we strive to do at the end of the day.

] ..and it sounds like you feel like you have variability over the next several years.

Well, I cannot look in a crystal ball Andrew and tell you that. I think it's a quarter by quarter, week by week, how are we doing, how are you developing, and as I look it what we are doing today, I think we are making the right move. So, with this new strategy to build our sales, we will share with you our goals and objectives and how we plan to get there, and now we have to perform on that basis, and we understand that in the meantime the world will also have to attuned to the world and what opportunities are forwarded us and our shareholders in particular and in the developing world around us, and as always we have said we will strive to keep all of our options open and do the right things for the shareholders as that unfolds and that hasn't changed.

] Thanks a lot.

Thank you. Our next question comes from Joan Chef from Goldman Sachs.

I have two questions, or a couple of questions. The first is on the individual life area. Your expenses in the first quarter were down dramatically. I know that you have been investing in all of these initiatives and I am wondering if there was something there or how I should think about that is the run rate. That's my first question. My second question is about FAZ 133 you have that is a little positive. How should I be thinking about that going forward? What are the issues whether interest rates or whether that will tell me whether that is going to be positive or negative, and do you think that's going to be a material swing in your efforts?

Joan, Dennis Glass. With respect to the expenses in the lifeline, which on page 8 a drop from 83 to 76. But if you go back over the last five quarters, that number has been as low as 2 million and as high as 86 million, and it is effective by both our general and administrative expenses as well as the amortization of DAK, and as you know, all of us know that amortization of DAK is affected by such things as we have this quarter, which was a increase mortality which resulted in a reduction in the amount of the DAK amortized in the quarter. So the run rate is something that I don't think is something that you can identify in any particular quarter because of these fluctuations. Having said that, if mortality went back as an example to the average level that we have seen over the last four quarters, that number would drift up from 76 to maybe 78 and a half million. And the 133, this 1.5 million dollar was cumulative effect, and people hear I will certainly say that I think as 133 is an evil pronouncement, because it causes fluctuations on one side of the balance sheet and not the other in many instances. Having said that, we don't have a lot of the kinds of embedded or actual derivatives that are affected by this. And so I don't see it as a significant item in our operation going forward.

Okay. I will ask my last question that's to do with the group area, where you talk about your technology performance as being a competitive environment and driving sales as well as expense cut. Could you just be a bit more specific and talk about what you actually have in place and how it works to drive the sales and the efficiency?

Let's say there is a long aspect to that Joan, but let me try to answer by saying that the technology is predicated on a single point of entry into the company, so that once an application is completed in a field, it's automatically sent in to the formal office over the internet and automatically to the administrative system it's automatically underwritten in most instances. And so, there is continuous flow of technology from the field to the formal office and interfaces around it that reduce cost and increase our risk management capability. We will be glad to put you in touch with Bob Base to give you a fuller explanation, but I think that's the substance of it Joan.

Thank you, great.

I think we have time for about one more question.

All right sir. Our next question comes from Al Capra of Putnam Lovell Securities. Please go ahead with your question.

Good morning and thank you. I was just hoping you could give us some color on pricing in the benefit partners' segment, particularly as is related to the disability lines in the

Just a second on that please. What markets did you want to comment on?

More specifically, disability and dental.

These are competitive markets, but again we think we are pricing well, where in the smaller group cases where the margins are a little bit better, again we have good risk management. So, it's a competitive environment, one that we are pretty comfortable with at the moment.

Okay, and I think you just circled very quickly back to this quarter's result. It looks like, if my math is correct, that the bulk of the mortality, the negative impact from mortality was offset by some of the accounting changes discussed in this call and the release in the tax reserves in, that's said. I was wondering if you could give us some commentary in terms of your comfort level on this year's consensus number of three dollars and 15 cents.

Let me back up to your first comment. I think we have isolated some numbers that are pluses and minuses, but I don't think we have covered all the ground, so it's very difficult to pick and choose, particularly when you are getting down to one million type numbers. We are fairly reluctant to discuss those types of swings. As an example, something we haven't talked about is the death interest expense with the maybe the cases from its last going forward on our short [term] borrowings. Our pressure was on the first quarter. So, I think there a lot of things possible on minus in the quarter some of which we discussed and some of which we didn't. With respect to the 315 for the year, I think it is, for the reasons we have discussed, difficult to I don't think it makes much given the difficulty in some of the businesses, such as Terry's, we will try to predict that is not a good idea.

Okay. That's helpful. Thank you.

Okay. Well, we thank everyone for joining us today and Mike we thank you.

Ladies and gentlemen! Thank you for joining today's conference