Lincoln National Corp (LNC) 2002 Q1 法說會逐字稿

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 STAR, THEN ZERO ON YOUR TOUCH-TONE TELEPHONE. AS A REMINDER, THIS CONFERENCE CALL IS BEING RECORDED. I WOULD NOW LIKE TO INTRODUCE YOUR HOST, MR. DAVID STONECIPHER. STONECIPHER, YOU MAY BEGIN.

THANK YOU. GOOD MORNING TO ALL OF YOU AND WELCOME TO THE JEFFERSON PILOT FIRST QUARTER 2002 CONFERENCE CALL. I'M HERE THIS MORNING WITH DENNIS GLASS, KEN MALAKIS, TERRY STONE, AND JOHN STILL. TODAY DENNIS WILL COMMENT ON THE OVERALL RESULTS AND THEN TURN THE FLOOR OVER TO TERRY WHO WILL WALK THROUGH OUR FINANCIAL RESULTS IN SOME DETAIL, FOLLOWED BY KEN'S REVIEW OF MARKETING RESULTS IN OUR INDIVIDUAL PRODUCTS AND ANNUITY AND INVESTMENT PRODUCTS BUSINESSES. DENNIS WILL ALSO TALK ABOUT SOME OF THE TREMENDOUS STRIDES WE'RE MAKING IN OUR OPERATIONS, AND THEN WE'LL OPEN THE FLOOR TO YOUR QUESTIONS. AS ALWAYS, WE ASK THAT YOU USE THE QUESTION AND ANSWER SESSION FOR BROAD QUESTIONS THAT WILL BE OF INTEREST TO MOST PARTICIPANTS ON THE CALL AND SAVE DETAILED QUESTIONS FOR JOHN STILL, WHO WILL BE AVAILABLE LATER TO HANDLE THEM. ALSO, I NEED TO REMIND YOU THAT WE MAY MAKE FORWARD-LOOKING STATEMENTS IN THIS CALL ABOUT FUTURE SALES OR OTHER MATTERS. OBVIOUSLY THERE ARE RISKS AND UNCERTAINTIES THAT COULD AFFECT ACTUAL RESULTS COMPARED TO OUR EXPECTATIONS. AND SO WE REFER LISTENERS TO THE RISK AND UNCERTAINTIES REFERENCED IN THE LAST PARAGRAPH OF OUR EARNINGS RELEASE WHICH IS AVAILABLE ON THE CORPORATE WEBSITE AT JPFINANCIAL.COM. DENNIS, GET US STARTED, IF YOU WILL.

THANK YOU, DAVID. AS MOST OF YOU HAVE SEEN, OUR OPERATING EARNINGS PER SHARE FOR FIRST QUARTER INCREASED 8% FROM 72. WE ALSO HAD NET REAL LIFE INVESTMENT GAINS IN THE QUARTER OF 14 CENTS VERSUS 24% LAST QUARTER, BRINGING NET INCOME PER SHARE TO 92 CENTS COMPARED TO 96 CENTS LAST YEAR. LET ME JUST TOUCH ON SOME HIGHLIGHTS AND TURN IT OVER TO TERRY FOR DETAILS UNDERLYING THE FINANCIAL. HIGHLIGHTS INCLUDE THAT INDIVIDUAL LIFE SALES WERE VERY STRONG AGAIN. OPERATING EARNINGS ON OUR INDIVIDUAL PRODUCT SEGMENT HURT BY UNUSUALLY HIGH MORTALITY WERE BASICALLY FLAT. ANNUITY AND INVESTMENT PRODUCT SEGMENT PROFITS WERE UP NICELY COMPARED TO FIRST QUARTER LAST YEAR. BENEFIT PARTNERS HAD ANOTHER GREAT QUARTER IN TERMS OF BOTH SALES AND EARNINGS. JEFFERSON PILOT COMMUNICATIONS SAW A PICKUP IN THE TELEVISION AND RADIO RESULTS, BUT OVERALL RESULTS WERE PUSHED DOWN BECAUSE OF THE JP SPORTS DIVISION. OUR CORPORATE AND OTHER SEGMENT WAS UP HELPED BY LOWER INTEREST EXPENSES AND ELIMINATION OF GOOD WILL AMORTIZATION. WE DID NOT BUY ANY STOCK BACK IN THE QUARTER, BUT I THOUGHT I WOULD NOTE AVERAGE DILUTED SHARE COUNT IS DOWN A BIT DUE TO OUR 2001 BUYBACKS. FINALLY, OUR INVESTMENT PORTFOLIO REMAINS STRONG, BUT INVESTMENT BONDS DROPPED SLIGHTLY IN ABSOLUTE DOLLARS IN A PERCENTAGE OF TOTAL ASSETS, AND NO NEW SIGNIFICANT PROBLEM CREDITS DEVELOPED DURING THE QUARTER. LET ME ASK TERRY TO GIVE YOU THE DETAILS ON THE FINANCIAL RESULTS AS WELL AS AN OVERVIEW OF BENEFIT PARTNERS AND COMMUNICATIONS.

GOOD MORNING. I THINK THAT MOST OF YOU KNOW THAT WHEN WE DISCUSS OUR RESULTS, WE USE THE TERMS "OPERATING EARNINGS" AND "REPORTABLE SEGMENT RESULTS" INTERCHANGEABLY. WE'RE REFERRING THERE TO EARNINGS BEFORE REALIZED INVESTMENT GAINS AND LOSSES. WE USE THE TERM "NET INCOME" WHEN WE REFER TO EARNINGS INCLUDING REALIZED INVESTMENT GAINS AND LOSSES. I'M GOING TO GIVE YOU SOME DETAILS ON THE TRENDS THAT LED TO OUR 8% EARNINGS PER SHARE INCREASE OVER THE SAME QUARTER IN 2001. OUR INDIVIDUAL PRODUCT SEGMENT RESULTS FOR THE QUARTER WERE ESSENTIALLY FLAT COMPARED TO 2001 QUARTER. ADVERSE MORTALITY OVERSHADOWED WHAT OTHERWISE WOULD HAVE BEEN GOOD OPERATING RESULTS. THE FIRST QUARTER MORTALITY -- EXCEEDED THE AVERAGE OF THE FOUR 2001 QUARTERS BY ABOUT 3 TO 5 CENTS A SHARE. WE HAVE COME TO EXPECT SEASONAL MORTALITY INCREASES DURING THE FIRST QUARTER; HOWEVER, THE SIZE OF THIS YEAR'S INCREASE EXCEEDED OUR EXPECTATIONS. GROSS MORTALITY EXPERIENCED BEFORE ANY ADJUSTMENTS FOR DEK WAS 8 MILLION GREATER THAN THE PREVIOUS HIGH QUARTER, WHICH WAS THE THIRD QUARTER OF 2001, WHICH OF COURSE YOU REMEMBER INCLUDED THE SEPTEMBER 11th EVENT. WE'VE REVIEWED OUR MORTALITY DATA AND FOUND NO TRENDS THAT CAUSE CONCERN. OUR AVERAGE UL FUND BALANCES GREW AT A 7 PERCENT RATE OVER THE 2001 QUARTER AND CONTINUED THE STRONG MOMENTUM THAT WE EXPERIENCED IN THE FOURTH QUARTER. THE GROWTH IN AVERAGE VUL FUND BALANCES CONTINUED TO BE MASKED BY DECLINES IN THE EQUITY MARKET. WITHOUT CHANGES IN MARKET VALUE AND ADJUSTING FOR DIVIDENDS, THE AVERAGE VUL FUND BALANCES WOULD HAVE GROWN BY 12%. OUR INDIVIDUAL AND INVESTMENT PRODUCTS SEGMENT REPORTED 3% EARNINGS GROWTH RESULTING IN ITS HIGHEST REPORTABLE SEGMENT RESULTS EVER. IT WAS A VERY STRONG ABSOLUTE NUMBER FOR US. SEGMENT RESULTS WOULD HAVE BEEN UP 11% IF YOU ADJUST FOR THE FACT THAT IN 2001 THIS SEGMENT RECEIVED A ONE AND A HALF MILLION AFTER-TAX BENEFIT FOR A CHANGE IN ACCOUNTING FOR DERIVATIVES THAT WAS NOT REPEATED IN 2002. CONTINUING IN ANOTHER FAVORABLE TREND SURRENDERS AS THE PERCENTAGE OF BEGINNING FUND BALANCE DROPPED TO RECORD LOWS. OUR BROKER-DEALER RESULTS ARE ABOUT EQUAL TO THE PRIOR YEAR. AVERAGE FIXED ANNUITY FUND BALANCES GREW BY 15% OVER THE PRIOR YEAR DESPITE REDUCED SALES IN 2002. THIS REFLECTS THE SIGNIFICANT DEPOSIT GROWTH WE EXPERIENCED IN 2001. FUND BALANCES WITH 5 PERCENT OR MORE SURRENDER CHARGES INCLUDING PAYOUT ANNUITIES INCREASED TO 44% OF THE TOTAL FUND BALANCES AS OF MARCH 2002 UP FROM 41% AS OF MARCH 2001. THE 25 BASIS POINT DECLINE IN EFFECTIVE INVESTMENT SPREADS REFLECTS THE CONTINUED SALE OF OUR LOWER COMMISSION THAT REQUIRE A SMALLER INVESTMENT SPREAD TO MEET OUR RETURN CRITERIA. OF THIS 26 BASIS POINT DECLINE FOR THE ENTIRE FIXED ANNUITY PORTFOLIO, ONLY 8 BASIS POINTS OR ABOUT $1 MILLION AFTER TAX REPRESENTS TRUE ECONOMIC SPREAD COMPRESSION THAT FALLS TO THE BOTTOM LINE. WE RECOUPED THE REMAINDER THROUGH LOWER EXPENSES. BENEFIT PARTNERS CONTINUES TO PRODUCE STRONG RESULTS. NET REPORTABLE SEGMENT RESULTS WERE 13 MILLION, UP 25% OVER THE FIRST QUARTER OF 2001. SALES GREW 21% TO 56 MILLION IN THE FIRST QUARTER OF 2002. LIFE, ACCIDENTAL DEATH AND DISMEMBERMENT AND DISABILITY SALES WERE ALL STRONG. POLICY BENEFITS INCREASED IN LINE, BUT THE GROWTH IN PREMIUMS WHILE WE MANAGED TO KEEP THE INCREASE IN EXPENSES TO 11%. ALL LINES IN THIS SEGMENT INCLUDING LIFE, DISABILITY AND DENTAL SHOWED GOOD EARNINGS MOMENTUM OVER THE PRIOR YEAR'S QUARTER. THE MARKETPLACE IS RESPONDING TO THE CUSTOMER-FOCUSED, TECHNOLOGY-DRIVEN DIFFERENCE THAT JEFFERSON PILOT FINANCIAL PROVIDES. AND WE ARE EXERCISING TIGHT CLAIMS MANAGEMENT AND EXPENSE DISCIPLINE. WITH RESPECT TO COMMUNICATIONS, THE SEGMENT RESULTS DECLINED 4% FROM LAST YEAR TO $6.5 MILLION. BOTH TELEVISION AND RADIO SHOWED GOOD EARNINGS PROGRESSION OVER THE 2001 FIRST QUARTER, BUT THEIR PROGRESS WAS OFFSET BY A $1.9 MILLION DECLINE AS THE RESULT OF JP SPORTS WHOSE BASKETBALL SALES REFLECTED THE WEAK SPORTS ADVERTISING MARKET IN THE FALL SELLING SEASON. AS I MENTIONED A MINUTE AGO, WE ARE PLEASED WITH OUR T.V. RESULTS, WHICH HAD REVENUE GROWTH IN THE MID-SINGLE DIGITS AND BROADCAST ACTUAL GROWTH IN MID TO HIGH TEENS. OUR NBC AFFILIATE IN RICHMOND HAD GREAT SUCCESS WITH THE OLYMPICS, AND OUR CHARLOTTE CBS STATION CONTINUES TO GAIN MOMENTUM IN SALES AND RATINGS. WE'RE ALSO PLEASED WITH OUR RADIO RESULTS. OUR MARKETS WERE ROUGHLY FLAT FOR RADIO REVENUES AS WERE OUR SALES. BUT THIS WAS AN IMPROVEMENT FROM THE PREVIOUS SEVERAL QUARTERS. STRONG EXPENSE CONTROL ALLOWED BROADCAST CASH FLOW TO GROW IN THE MID-SINGLE DIGITS. JP SPORTS HAD A CHALLENGING QUARTER. SALES IN BCF WERE OFF SIGNIFICANTLY FOR OUR FIRST QUARTER BASKETBALL PRODUCT REFLECTING THE VERY NEGATIVE T.V. AD ENVIRONMENT DURING LAST FALL'S DOWN SEASON. YOU WILL REMEMBER THAT OUR SPORTS RESULTS ARE WEIGHTED HEAVILY TO THE FIRST AND FOURTH QUARTERS BECAUSE WE HAVE THE BASKETBALL AND FOOTBALL PRODUCTS, AND THAT REALLY IS THE VAST MAJORITY OF OUR BUSINESS. AND WE HAVE A SIGNIFICANT SALES EFFORT UNDERWAY FOR OUR FALL FOOTBALL PRODUCT. WE CONTINUE TO EMPHASIZE EXPENSE CONTROL AT JP COMMUNICATIONS, AND THAT'S EVIDENCED BY THE FACT THAT TOTAL EXPENSES WERE DOWN 1% ON A QUARTER-TO-QUARTER COMPARISON. THE REPORTABLE SEGMENT RESULTS BEFORE REALIZING GAINS FOR CORPORATE AND OTHER SEGMENTS INCREASED 2.6 MILLION OVER THE COMPARABLE 2001 PERIOD. THE CHANGE IN ACCOUNTING FOR GOOD WILL AND OTHER INTANGIBLES FROM SYSTEMATIC AMORTIZATION WHICH WE USED TO GO TO AN ANNUAL [INAUDIBLE] ACCOUNTED FOR 2.3 MILLION OF THE 2.6 MILLION INCREASE IN NET INCOME FOR THIS SEGMENT. WE HAVE TESTED OUR CARING VALUE OF GOOD WILL AND HAVE DETERMINED THAT WE DO NOT NEED TO REPORT ANY IMPAIRMENT. THE DROP IN EARNINGS FOR INVESTMENTS REFLECTS LOWER INVESTED ASSETS RESULTING FROM SIGNIFICANT EXPENDITURES FOR STOCK BUYBACKS AND DEBT REPAYMENTS AS WELL AS A LACK OF EARNINGS ON IMPAIRED ASSETS THAT ARE HELD AT THE CORPORATE LEVEL. LOWER INTEREST EXPENSE REFLECTS THE COMBINATION OF BOTH DECREASED RATES, INCLUDING THE REPLACEMENT OF THE MED SECURITIES WITH SHORT-TERM BORROWING AND OVERALL LOWERING AMOUNTS OF [INAUDIBLE] DURING THE PERIOD. THE QUARTER-TO-QUARTER INCREASE IN INCOME TAXES REFLECTS THE 2001 IMPLEMENTATION OF STRATEGIES THAT REDUCED FEDERAL INCOME TAX ON INVESTMENT EARNINGS AND THE RESOLUTION OF CERTAIN TAX ISSUES TO WHICH WE HAD PREVIOUSLY ESTABLISHED RESERVES. THESE ITEMS NOT RECURRING IN 2002. AS YOU KNOW, THE RESULTS OF THIS CORPORATE AND OTHER SEGMENT WILL VARY QUARTER TO QUARTER BASED ON A NUMBER OF FACTORS SUCH AS STRATEGIC ACTIVITIES, CORPORATE ALLOCATIONS AND TAX ITEMS. WE ALSO REPORT REALIZED GAINS AND LOSSES NET OF FEDERAL INCOME TAX IN THE CORPORATE NOTICE SEGMENT. THE 22 MILLION NET REALIZED GAIN FROM INVESTMENTS FOR THE QUARTER INCLUDED A NET AFTER-TAX LOSS IN THE BOND PORTFOLIO OF $9 MILLION DUE TO ADDITIONAL WRITE-DOWNS. THESE WRITE-DOWNS REFLECTED SEVERAL INDIVIDUAL BONDS THAT BECAME OTHER THAN TEMPORARILY IMPAIRED. SO, IN CONCLUSION, WE'VE HIGHLIGHTED SOME OF THE POSITIVE SIGNS THAT WE SEE IN OUR OPERATING SEGMENTS THAT CAUSE US TO BELIEVE WE ARE CORRECTLY POSITIONED TO TAKE ADVANTAGE OF ADDITIONAL OPPORTUNITIES. WE'RE PARTICULARLY PROUD OF OUR SALES [INAUDIBLE] IN OUR INDIVIDUAL PRODUCTS AND BENEFIT PARTNERS SEGMENT. WE'RE IN A STRONG FINANCIAL POSITION WITH SIGNIFICANT EXCESS CAPITAL GIVING US THE FIRE POWER FOR EXPANSION OF OUR BUSINESS. OUR COMPANY RETURN ON EQUITY REMAINS NORTH OF 15%. SO ALL IN ALL, DESPITE ADVERSE MORTALITY IN OUR INDIVIDUAL SEGMENT AND THE SOFT BASKETBALL SALES IN JP SPORTS, THIS IS A GOOD QUARTER. AND WE'RE LOOKING FORWARD TO WHAT REMAINS IN THE REST OF 2002. I'LL TURN IT OVER NOW TO KEN WHO IS GOING TO TALK ABOUT INDIVIDUAL.

GOOD MORNING. AS INDICATED BY BOTH TERRY AND DENNIS, WE ARE PLEASED TO REPORT STRONG LIFE SALES FOR THE FIRST QUARTER AND EXCELLENT PROGRESS WITH OUR PREMIER PARTNERING STRATEGY, BUT CHALLENGES ASSOCIATED WITH FIXED ANNUITY SALES. LET'S BEGIN WITH THE INDIVIDUAL LIFE RESULTS. WE STARTED 2002 WITH OUR BEST FIRST QUARTER IN OUR COMPANY'S HISTORY IN LIFE SALES. TOTAL LIFE SALES REACHED 61 MILLION COMPARED WITH 36 MILLION IN 2001. THIS REPRESENTS A 70% INCREASE. HAVING SAID THAT, 22 MILLION OF SALES THIS QUARTER CAME FROM OUR TARGET MARKETING CHANNEL, WHICH IS NOT EXPECTED TO SUSTAIN THAT RUN RATE FOR REMAINING QUARTERS. HOWEVER, EXCLUDING TARGET MARKETING FROM THE NUMBERS STILL LEAVES US WITH AN IMPRESSIVE 34% GAIN IN OUR CORE CHANNELS, DEFINED AS BEING OUR AGENCY BUILDING GA CHANNEL, SOMETIMES REFERRED TO AS THE CAREER CHANNEL, OUR GA CHANNEL AND OUR INDEPENDENT MARKETING ORGANIZATION CHANNEL. IN ADDITION, THIS IS OUR SECOND BEST LIFE QUARTER IN OUR HISTORY EXCEEDED ONLY BY THE FOURTH QUARTER 2001, AND FOURTH QUARTERS HAVE HISTORICALLY BEEN OUR HIGHEST SALES QUARTERS. WE CONTINUE TO BE PLEASED WITH THE MARKET ACCEPTANCE OF OUR FIXED UL LIFE WRITERS SERIES INTRODUCED IN THE SECOND QUARTER OF LAST YEAR. THIS HELPED US IMPROVE OUR FIXED UL MARKET POSITION FROM 7th TO 4th AT YEAR END 2001. FIRST QUARTER NON-TARGET MARKETING FIXED UL SALES WERE UP 164%. VUL SALES WERE AT 14 MILLION. 29% BEHIND LAST YEAR. AND WE CONTINUE TO HOLD THE 15th MARKET POSITION IN VUL AT YEAR END 2001. A NUMBER OF PRODUCT IMPROVEMENTS TO OUR VARIABLE LIFE PRODUCTS ARE PLANNED IN THE SECOND QUARTER. INCLUDING THE ADDITION OF NINE NEW FUND OFFERINGS BRINGING THE TOTAL INVESTMENT CHOICES TO 32. A KEY ELEMENT IN PROVIDING OUR CLIENTS THE DESIRED FLEXIBILITY WITHIN OUR VUL PRODUCTS. THESE NEW MANAGERS ALSO OFFER GREAT BRAND RECOGNITION WITH NAMES LIKE VANGUARD, T. ROWE PRICE AND AMERICAN SENTRY, TO NAME A FEW. OTHER EXCITING DEVELOPMENTS TO OUR SINGLE LIFE VUL PRODUCT INCLUDE LONG-TERM PERFORMANCE ENHANCEMENTS AND THE ADDITION OF DEATH BENEFIT GUARANTEE FEATURES TO PROVIDE OUR CLIENTS GREATER PEACE OF MIND. THESE IMPROVEMENTS COMBINED WITH THE HOPE THERE WILL BE SOME EQUITY MARKET RECOVERY SHOULD LEAD TO INCREASED SALES IN THIS PRODUCT LINE. THE PREMIER PARTNERING STRATEGY IS CLEARLY BEING WELL RECEIVED IN THE MARKETPLACE. AND TO ENHANCE THIS SUCCESS FURTHER, WE CONDUCTED AN INTENSIVE MID-COURSE REVIEW OF OUR PROGRESS WITH THE ASSISTANCE OF THE MCKENZIE CONSULTING TEAM. WE ENDED 2001 WITH A TOTAL OF 293 PREMIER PARTNER PRODUCERS FROM THE THREE CORE CHANNELS I DEFINED EARLIER. THAT REPRESENTS A 12% INCREASE OVER OUR BASE YEAR OF 2001. THIS GROUP PRODUCED 40% OF OUR TOTAL LIFE SALES LAST YEAR. AND ON AVERAGE HAD 277,000 PLUS OF PAID ANNUALIZED PREMIUM PER PREMIER PARTNER PRODUCER. WE ALSO HAD A TOTAL OF 63 MANAGEMENT-LEVEL PREMIER PARTNER QUALIFIERS IN 2001, GIVING US A GRAND TOTAL OF 356 PREMIER PARTNERS. FIRST QUARTER SALES INDICATES WE'RE MOVING POSITIVELY TOWARD THE ATTAINMENT OF OUR ORIGINAL SALES GOAL TO INCREASE LIFE SALES BY 50% OVER YEAR 2000 LEVELS. IN A RECENT SURVEY OF OUR CURRENT PREMIER PARTNERS, 86% INDICATED OVERALL COMPANY PERFORMANCE IMPROVEMENTS WITH THIS INITIATIVE. 75% OF THE PREMIER PARTNERS SURVEYED FELT COMPETITIVENESS OF OUR PRODUCT FEATURES AND WRITERS HAD IMPROVED SUBSTANTIALLY. EXCELLENT GAINS HAVE ALSO BEEN MADE IN GETTING NEW PRODUCTS TO MARKET. THE PRODUCT DEVELOPMENT TEAM IS ACHIEVING A 12-WEEK AVERAGE TURN-AROUND TIME. WE BELIEVE THIS IS A MARKET-LEADER PERFORMANCE. WE LAUNCHED A NEW -- KEY NEW ADDITION TO OUR FIXED UL SERIES, THE LEGEND 400, IN MARCH. THIS IS A HIGH TARGET CASH ACCUMULATION PRODUCT THAT COMPLIMENTS OUR POPULAR LEGEND 300 PRODUCT WHICH WE OUTLINED IN EARLIER CALLS. YOU RECALL LEGEND 300 IS EXCELLENT IN THE VARIOUS PROTECTION MARKETS. WE COMPLETED A NEW FIELD COMPENSATION PLAN FOR OUR INDEPENDENT CHANNELS, THE GA AND IMO CHANNELS DESIGNED TO PROVIDE GREATER INCENTIVES TO PRODUCERS AT PRIMARY PARTNER PRODUCTION LEVELS. THOSE PREMIER PARTNERS WITH OUR BROKER DEALER JPSC AS A PERCENTAGE OF ALL PREMIER PARTNERS INCREASED 16% FROM 25% TO 41% DURING 2001. AND THIS EXCELLENT TREND SERVES US WELL IN THE AREA OF RETENTION OF PREMIER PARTNERS. IN 2001 THE RETENTION RATE OF PREMIER PARTNERS REGISTERED WITH JPSC WAS 91%. DESPITE A NUMBER OF POSITIVES IN OUR EFFORTS TO CONVERT FROM A PRODUCT-DRIVEN TO A MARKETING-DRIVEN FOCUS, WE PLAN TO DO MORE IN THIS AREA IN 2002. THE MAIN THRUST WILL BE TO RESTRUCTURE MARKETING FROM A SEGMENT, BY THAT I MEAN WEALTH ACCUMULATION, WEALTH PRESERVATION AND BUSINESS ORIENTATION TO A FUNCTIONAL ORIENTATION EMPHASIZING CASE SUPPORT CAPABILITIES. WE ALSO INTEND TO RATCHET UP OUR TRAINING INITIATIVES ON THE VARIOUS MARKETING PROGRAMS. TOWARD THAT END, WE CONDUCTED OVER 50 CONFERENCES FOR AGENTS IN THE FIRST QUARTER. WE HAD A RECORD YEAR IN GA RECRUITMENT IN 2001, AND WE WANT TO MAINTAIN FOCUS ON RECRUITING AND ACTIVATING PREMIER PARTNER LEVEL PRODUCERS. WE ALSO WANT TO IMPROVE RESULTS IN DEVELOPING AND SUPPORTING HIGH POTENTIAL NON-PREMIER PARTNERS. TO ACCOMPLISH THIS WE PLAN SOME ADJUSTMENTS TO OUR FIELD STRUCTURE AND THE ADDITION OF STRONGER TALENT IN THE FIELD MANAGEMENT TEAM. AS QUOTED IN OUR ANNUAL REPORT, OUR FIRST YEAR RESULTS AND THE POSITIVE FEEDBACK WE'VE RECEIVED FROM OUR PRIMARY PARTNERS GIVES US MANY REASONS TO BELIEVE THAT PRIMARY PARTNERING IS WORKING, AND WE BELIEVE THE BENEFITS OF PREMIER PARTNERING WILL BE SIGNIFICANT FOR JEFFERSON PILOT SHAREHOLDERS. SWITCHING NOW TO ANNUITIES, OUR FIRST QUARTER FIXED ANNUITY SALES WERE 186.4 MILLION. THIS REPRESENTS A 30% DECREASE COMPARED WITH THE FIRST QUARTER OF 2001. A KEY IMPACT ON ANNUITY SALES WAS OUR UNWILLINGNESS TO MATCH CERTAIN KEY COMPETITORS' CREDITED INTEREST RATES, BUT INSTEAD TO FOCUS ON PROFITABILITY. AS I'M SURE YOU KNOW, OUR CREDITED INTEREST RATES ARE CLOSELY TIED TO OUR ABILITY TO ACQUIRE ATTRACTIVE ASSETS AT YIELDS THAT MAKE SENSE. DURING THE FIRST QUARTER, WE WERE NOT ABLE TO FIND ASSETS THAT COULD SUPPORT CREDITED RATES THAT MATCHED SOME COMPETITORS. FRANKLY, WE'RE SKEPTICAL THAT THEY COULD EITHER. THE SALES SHORTFALLS WERE BROAD BASED IN THAT SALES IN BOTH THE FINANCIAL INSTITUTION CHANNEL AND THE AGENCY CHANNELS EXPERIENCED A 30% NEGATIVE VARIANCE TO 2001 FIRST QUARTER SALES. DESPITE THE LOWER SALES, WE REMAIN COMMITTED TO THIS PRODUCT LINE AS EVIDENCED BY A NUMBER OF PRODUCT INITIATIVES SLATED FOR THE SECOND QUARTER. WE ARE EXPANDING ON OUR SUCCESSFUL MVA PRODUCT LINE WITH ADDITIONAL GUARANTEE PERIODS IN BOTH THE AGENCY AND FINANCIAL INSTITUTION CHANNELS. THESE LONGER DURATION PRODUCTS WILL ENABLE US TO TAKE ADVANTAGE OF THE YIELD CURVE TO OFFER A HIGHER RATE TO OUR CLIENTS. ADDITIONALLY, WE ARE ENHANCING OUR NEW YORK OFFERINGS TO IMPROVE ITS COMPETITIVE POSITION. THE MOST EXCITING NEWS IN ANNUITY LINE WAS THE ANNOUNCEMENT THAT JP AND VANGUARD HAVE ENTERED INTO AN ALLIANCE TO MARKET A PROPRIETARY VANGUARD SINGLE FIVE FIXED ANNUITY. HISTORICALLY VANGUARD HAS ALSO OFFERED A VARIABLE ANNUITY PROGRAM THROUGH ANOTHER CARRIER SINCE 1991. THE $5.6 BILLION VANGUARD VARIABLE ANNUITY PLAN. THE VANGUARD SINGLE FIVE MIXED ANNUITY OFFERS THE COMBINATION OF VANGUARD'S VALUE AND SERVICE TO A VERY LARGE TARGET MARKET AND JP'S FINANCIAL STRENGTH AND PROVEN ABILITY AS AN ANNUITY PRODUCT PROVIDER. THE ACTUAL ROLLOUT OF THIS PRODUCT STARTED IN LATE FEBRUARY AND WE'RE -- AND WE HAVE HIGH HOPES FOR ITS SUCCESS. FINALLY, IN JPSC, OUR BROKER-DEALER, WE'RE STARTING TO SEE SLIGHT SALES PERFORMANCE IMPROVEMENT WITHIN THE BROKER-DEALER FROM OUR LEVEL AT YEAR END. WE HAD A 4.1% INCREASE IN GDC AND A 13.5% INCREASE IN SALES VOLUME FROM THE FOURTH QUARTER OF LAST YEAR. GDC IS RELATIVELY FLAT VERSUS THE FIRST QUARTER OF 2001, PRIMARILY DUE TO LOWER ASSET BASED FEES AND TRAIL COMMISSIONS RESULTING FROM THE EROSION OF ACCOUNT VALUES DUE TO MARKET DECLINES. WE RECRUITED 151 NEW REGISTERED REPS DURING THE FIRST QUARTER GIVING US A GRAND TOTAL NET OF TERMINATIONS OF 2,318. I WILL NOW TURN THE REPORT TO DENNIS FOR THE OPERATION REVIEW AND WRAPUP.

THANKS, KEN. SUPPORTING THE PRIMARY PARTNER PROGRAM AND THESE SALES RESULTS THAT KEN HAS JUST MENTIONED HAS BEEN OUR FOCUS ON OUR -- OUR CONTINUING FOCUS ON IMPROVING QUALITY, COMMUNICATION WITH OUR DISTRIBUTION AND CONTINUING WHAT WE CALL OUR WAR ON COST EFFECTIVENESS. LET ME GIVE YOU A FEW EXAMPLES. OUR LEAN MANUFACTURING PROCESS WHICH FOCUSES ON QUALITY PERMITTED US LAST YEAR TO REDUCE TURN-AROUND TIME FOR NEW BUSINESS AND UNDERWRITING AND PROCESSING BY HALF AND WITH IMPROVED CONSISTENCY. WE BELIEVE THAT WE HAVE CREATED A COMPETITIVE ADVANTAGE IN THIS REGARD WHILE AT THE SAME TIME LOWERING UNIT COSTS. MCKENZIE DID A 12-MONTH CHECKUP WITH OUR KEY DISTRIBUTION AND 80% RESPONDED THAT THEY HAD SEEN SIGNIFICANT IMPROVEMENT IN OVERALL -- IN THE OVERALL QUALITY OF OUR PRODUCTS AND PROGRAM. WE ALSO LEARNED OF SOME FINE-TUNING OPPORTUNITIES WHICH KEN MENTIONED AND WE ARE PURSUING. OUR PREMIER PARTNERS AND THEIR RESPONSES PARTICULARLY FOCUSED ON OUR AGENT INTERNET SITE WHICH CURRENTLY RANKS 16th IN ITS USEFULNESS OUT OF 500 SIMILAR FINANCIAL SERVICES SITES. IMPROVEMENTS SUCH AS TRACKING THE PROGRESS OF NEW BUSINESS ON A REALTIME BASIS AND NEW MARKETING TOOLS ADDED REAL BUSINESS VALUE FOR OUR DISTRIBUTION. FINALLY, WE ARE EMBARKING ON A NEW TECHNOLOGY INFRASTRUCTURE INVESTMENT WHICH WILL FOCUS ON FURTHER SERVICE IMPROVEMENTS IN NEW BUSINESS, LICENSING, COMPENSATION AND OTHER SERVICE AREAS. WE EXPECT THIS SIGNIFICANT INVESTMENT TO BOTH FURTHER IMPROVE OUR OVERALL QUALITY AND ALSO RESULT IN LOWER TOTAL COSTS IN THE AFFECTED AREAS WHEN FULLY IMPLEMENTED. TO CONCLUDE, WE THINK THE QUARTER WAS A GOOD ONE OVERALL. WE MADE EXCELLENT PROGRESS IN OUR INDIVIDUAL LIFE SALES, AS YOU HEARD US SAY. BENEFIT PARTNER REMAINS ON TRACK WITH EXCEPTIONAL RESULTS TIED TO THEIR TECHNOLOGY DRIVEN AND SCALABLE VALUE PROPOSITION. WE'VE SEEN MOMENTUM BUILD IN OUR RADIO AND T.V. PROPERTIES. WE HAVE SIGNIFICANT EXCESS CAPITAL TO PURSUE ACQUISITIONS WHICH ADVANCE OUR STRATEGY, AND/OR CONTINUE TO REPURCHASE OUR OWN STOCK WHEN APPROPRIATE. FOR SURE WE ARE NOT WITHOUT CHALLENGES, BUT OUR BUSINESSES ARE ON TRACK AND WE REMAIN OPTIMISTIC THAT OUR INITIATIVES WILL BUILD EARNINGS AND VALUE OVER TIME. NOW WE'LL BE HAPPY TO TAKE YOUR QUESTIONS.

THANK YOU. LADIES AND GENTLEMEN, IF YOU HAVE A QUESTION AT THIS TIME, 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, PRESS THE POUND KEY. IF YOU HAVE A QUESTION, PRESS THE 1 KEY. OUR FIRST QUESTION COMES FROM DAVID LIST OF SUN TRUST ROBINSON.

COULD WE TOUCH MORE ON THE ADVERSE MORTALITY? ONE, HAVE YOU SEEN A REVERSAL IN APRIL, IF YOU HAVE ANY DATA ON THAT. TWO, CAN YOU GIVE US THE NUMBER OF CLAIMS YOU SAW IN THE FIRST QUARTER VERSUS THE FOURTH QUARTER OR VERSUS A YEAR AGO AND WHAT IS MORE NORMAL RATE OR WAS IT MORE THE SEVERITY OF CLAIM?

WE DON'T HAVE ANYTHING THAT WE CAN REPORT ON APRIL CLAIMS AT THIS POINT. NUMBER OF CLAIMS WAS DOWN IN THE FIRST QUARTER.

SO THE NUMBER OF CLAIMS ARE DOWN, ADVERSE MORTALITY IMPACTS, SO YOU ARE SAYING SEVERITY WAS HIGHER? I MEAN THE AVERAGE DEATH CLAIM OR THE HIGHER END POLICYHOLDERS DIED? I GUESS I'M TRYING TO GET MORE DETAIL ON THE ADVERSE MORTALITY. IT WAS SPREAD OUT IN A NUMBER OF AREAS.

CONSIDER WE HAD AN INCREASE IN THE NUMBER OF SMALL CLAIMS FROM OLDER POLICIES. WE HAD AN INCREASE IN THE UNDER 500,000 -- WE HAD AN INCREASE IN THE 500 TO A MILLION. SO IT WAS SPREAD OUT THROUGH VARIOUS CATEGORIES.

OKAY. IT WAS SPREAD OUT, BUT YOU ARE SAYING THE NUMBER OF DEATH CLAIMS WERE LOWER THAN THE FOURTH QUARTER A YEAR AGO?

NO, THE NUMBER OF DEATH CLAIMS WAS UP.

OKAY. I THOUGHT YOU SAID IT WAS DOWN A MOMENT AGO.

SORRY.

JUST ANOTHER QUESTION ON THAT. IF YOU EXCLUDE THE ADVERSE MORTALITY, THE INDIVIDUAL SEGMENTS EARNINGS WERE UP 9%. I BELIEVE THE ASSETS WERE UP 7%. ASSUMING NO ADDITIONAL ACQUISITIONS, DO YOU THINK THAT THAT 9% RUN RATE IS A REASONABLE RATE?

DAVID, WE CONTINUE TO TARGET 10% IN ALL OUR BUSINESSES AND WE THINK THAT AS THE PREMIER PARTNERING STRATEGY UNFOLDS WE SHOULD BE ABLE TO GET THAT NUMBER OVER TIME. TO TRY TO PREDICT THAT ON A QUARTERLY BASIS, ONE, WE NEVER DO THAT.

I UNDERSTAND. THANK YOU.

THANK YOU. OUR NEXT QUESTION COMES FROM MICHELLE GIORDANO OF JP MORGAN.

CAN YOU GIVE US MORE DETAILS ON THE FIXED ANNUITY ENVIRONMENT? CAN YOU TELL US WHAT YOUR CURRENT CREDITING RATES ARE ON YOUR PRODUCTS AND DO YOU OFFER ANY STEP UP OR STEP DOWN PRODUCTS? AND THEN ON THE NEW MULTI-YEAR GUARANTEED CREDITING RATE PRODUCT THAT YOU ARE OFFERING ON THE FIXED ANNUITY SIDE, CAN YOU TELL US HOW MANY YEARS YOU ARE GUARANTEEING THAT CREDITING RATE FOR?

YEAH, LET ME TAKE THAT, IF I CAN, MICHELLE. IN TERMS OF CREDITING RATES, IF YOU LOOK AT THE AGENCY SIDE, OUR CREDITING RATES WERE IN THE NEIGHBORHOOD OF ABOUT 15 BASIS POINTS OFF OF THE MARKET LEADERS THAT WERE OUT THERE. WHERE WE REALLY GOT HURT, HOWEVER, IN THIS AREA WAS MORE ON THE BANK SIDE WHERE IT WAS AS HIGH AS 50 TO 60 BASIS POINTS LESS THAN ANY OF OUR COMPETITORS. IN TERMS OF THE NEW ANNUITY INITIATIVES, AGAIN, WE'RE GOING TO BE INTRODUCING THESE IN THE MAY TIME FRAME, FOR YOUR INFORMATION. THE AGENCY SIDE WILL HAVE A SIX-YEAR MVA VERSION AND THE FINANCIAL INSTITUTION SIDE THERE WILL HAVE A THREE- AND SEVEN-YEAR VERSION. AS INDICATED IN MY REMARKS, THIS ALLOWS TO US TAKE ADVANTAGE OF THE YIELD CURVE IN ORDER TO OFFER A HIGHER RATE TO OUR CLIENTS. WE'RE ALSO INTRODUCING IN NEW YORK A FLEX 7 BONUS PRODUCT THAT RESPONDS TO THE CHANGES IN THE NEW YORK REGULATORY ENVIRONMENT WHICH ALLOWS A MORE FLEXIBLE BONUS STRUCTURE TO THE CLIENT, MORE IN LINE WITH NON-NEW YORK STATES. WE DO NOT HAVE A PRODUCT THAT HAS THE STEP UP IN BASIS THAT I BELIEVE YOU ASKED AS WELL.

OKAY. JUST ON THE CAPITAL SIDE, COULD YOU UPDATE US ON HOW MUCH EXCESS CAPITAL YOU CURRENTLY HAVE AND COULD YOU UPDATE US ON THE ACQUISITION ENVIRONMENT? WHAT ARE YOU SEEING IN TERMS OF POTENTIAL PROPERTIES THAT ARE OUT THERE? WHAT'S THE PRICING ENVIRONMENT LIKE AND WHAT'S YOUR APPETITE LIKE?

JUST ON THE EXCESS CAPITAL SIDE, IF YOU LOOK AT EQUITIES THAT WE HOLD AT THE HOLDING COMPANY -- EXCUSE ME -- AND SECURITIES THAT WE HAVE INVESTED AT ABOVE OUR RISK BASE CAPITAL REQUIREMENTS AND OUR COMMERCIAL PAPER CAPABILITIES, YOU KNOW, WE COULD EASILY RAISE $800 MILLION, AND THERE ARE OTHER AVENUES THAT WE COULD PURSUE IF WE WERE TO DESIRE TO, YOU KNOW, INCREASE OUR ABILITY AND OUR FIRE POWER BEYOND THAT. SO WE'VE GOT A LOT OF FLEXIBILITY.

AND THE ACQUISITION ENVIRONMENT?

ACQUISITION ENVIRONMENT WE CONTINUE TO SEE A FLOW OF PROPERTIES. AS WE'VE SAID IN THE PAST, THE PRICE END OF THESE PROPERTIES BECAUSE THERE IS FEWER -- PARTICULARLY FEWER STRATEGIC PROPERTIES ARE VERY COMPETITIVE. WE'RE OPTIMISTIC THAT THE FLOW WILL CONTINUE. WE'LL CONTINUE TO LOOK AT THESE PROPERTIES, AND IF WE CAN FIND SOMETHING THAT BOTH MEETS A STRATEGIC NEED AS WELL AS A REASONABLE RETURN, WE WILL BE IN THE GAME.

THANK YOU.

THANK YOU. OUR NEXT QUESTION COMES FROM VANESSA WILSON OF DEUTSCHE BANK. YOU MAY PROCEED.

THANK YOU. GOOD MORNING. COULD YOU GIVE US A LITTLE COLOR ON THE MORTALITY IN TERMS OF THE ISSUE AGE?

THERE IS NO PARTICULAR PATTERN OTHER THAN THAT IT IS SPREAD THROUGHOUT THE ISSUE AGE. AGAIN, WE'VE LOOKED AT THIS TO LOOK FOR TRENDS, FOR WARNING SIGNS, AND QUITE HONESTLY EVERYTHING WE SEE SAYS THAT THIS IS RANDOM.

THANK YOU. THEN ALSO, TERRY, COULD YOU WALK THROUGH WHAT HAPPENED WITH THE DEBT ON YOUR BALANCE SHEET? IT LOOKED LIKE THE EXCHANGEABLE IS GONE.

YES, WE PAID OFF THE EXCHANGEABLE.

AND HOW DID YOU FINANCE THAT?

WITH SHORT-TERM BORROWING. AND NEEDLESS TO SAY, GOING FROM THAT EXCHANGEABLE TO SHORT-TERM BORROWING, THERE IS A GOOD INTEREST RATE SAVINGS ASSOCIATED WITH THAT.

YOUR COMMERCIAL PAPER IS ALSO DOWN, SO SHOULD WE CONSIDER OBLIGATIONS UNDER REPURCHASE AGREEMENTS SHORT-TERM BORROWING?

WELL, YOU KNOW, WE USE THEM OPPORTUNISTICALLY, AND AT THE MOST -- THAN COMMERCIAL PAPER, BUT WE USE BOTH.

SO YOUR ENTIRE DEBT CAPITAL STRUCTURE IS SHORT TERM RIGHT NOW?

THAT'S CORRECT.

ARE YOU PLANNING TO FIX IT?

AT THE -- WE LOOK AT THAT AND WE'VE LOOKED AT THAT OVER THE LAST QUARTER. AT THE MOMENT WE HAVE NO CURRENT PLANS TO DO SO.

OKAY. AND THEN ALSO ON YOUR BALANCE SHEET, YOUR DEK IS UP ABOUT $100 MILLION FROM YEAR END. I UNDERSTAND YOU HAD VERY ROBUST LIFE INSURANCE SALES, BUT COULD YOU GIVE US SOME OF THE INS AND OUTS IN TERMS OF THE DOLLAR AMOUNT OF CAPITALIZATION, THE DOLLAR AMOUNT OF AMORTIZATION SO WE CAN UNDERSTAND THE SIZABLE NET INCREASE?

RIGHT. THE PRIMARY FACTOR THERE IS THE INCREASE OF CAPITALIZATION VERSUS AMORTIZATION -- I'M SORRY.

AND THE DOLLARS WERE WHAT?

HANG ON A SECOND. I'VE GOT THEM. AND THERE'S ALSO THE IMPACT OF [INAUDIBLE] 115 IN THE NUMBERS. ARE YOU TALKING SEQUENTIAL QUARTERS?

YES.

THE DIFFERENCE IS A NET -- I'M LOOKING AT MY NUMBERS HERE. IT'S A NET 66 MILLION IN NET INCREASE FROM THE DIFFERENCE BETWEEN CAPITALIZED AND AMORTIZED.

WHAT'S THE GROSS AMOUNT OF CAPITALIZED AND AMORTIZED.

SLIGHTLY OVER 100 VERSUS 42.

GIVEN YOUR SALES LEVEL, IS THE 100 A CHANGE FROM HOW YOU CAPITALIZED IN EARLY 2001 OR IN 2000? IT LOOKS LIKE IT'S REALLY RISEN QUITE A BIT.

THERE'S NOT A METHODOLOGY CHANGE, BUT YOU SEE A SIGNIFICANT CHANGE IN SALES AND THAT'S WHAT'S REALLY DRIVING THE INDIVIDUAL DEK CAPITALIZATION DYNAMIC. CONSISTENT POLICY WITH MUCH HIGHER SALES.

OKAY. THANK YOU. LET ME JUST ADD TO THAT, WE ONLY CAPITALIZE EXPENSES THAT MEET OUR PRICING, WHICH IS A HIGHER THRESHOLD THAN WHAT GAAP WOULD REQUIRE IN TERMS OF JUST RECOVERABILITY. IN A SENSE WHEN WE CAPITALIZE SOMETHING WE BOTH WANT A RETURN ON THE INVESTMENT AS WELL AS A RETURN OF THE INVESTMENT. SO OUR QUARTER-TO-QUARTER AMORTIZATION WOULD FLUCTUATE WITH THE AMOUNT OF SALES BECAUSE OF THAT PRACTICE, WHICH WE THINK IS A GOOD PRACTICE OF JUST A FEW OTHER COMPANIES THAT EMPLOY THE SAME PRACTICE.

I UNDERSTAND THAT AND I APPRECIATE THAT COLOR. I THINK IT WOULD BE HELPFUL IF WE COULD HAVE MORE DISCLOSURE ON THE DEK SINCE IT IS RISING VERY RAPIDLY.

OKAY.

THANK YOU.

THANK YOU. OUR NEXT QUESTION COMES FROM STEWART BYRD OF LEHMAN BROTHERS.

WELL, YOU COMBINED THE NAMES OF TWO PEOPLE. STUART JOHNSON AND ERIC BURG. GOOD MORNING, IT'S ERIC BURG. COUPLE OF QUESTIONS. FIRST, WITH RESPECT TO THE MORTALITY, CAN'T HELP WONDERING, AND WE'VE BEEN DOWN THIS ROAD WITH OTHER COMPANIES IN THE PAST, WHETHER IT WOULD BE BETTER NEWS IF YOU SAID WE HAVE A MORTALITY ISSUE, IT'S NARROW, IT'S DEFINED. RATHER WHEN YOU [INAUDIBLE] THAT THERE DOESN'T SEEM TO BE ANY PATTERN IN THAT THERE WAS ADVERSE MORTALITY IN VARIOUS PARTS OF THE BUSINESS. I GUESS MY QUESTION IS HOW CAN YOU BE SURE THERE IS NOT A SYSTEMIC PROBLEM. THAT'S QUESTION ONE. AND QUESTION TWO IS, WHAT HAPPENED IN THE FIXED INCOME MARKETS IN THE MARCH QUARTER THAT MADE YOU LESS ABLE TO FIND APPROPRIATE INVESTMENTS THAT WAS DIFFERENT FROM THE DECEMBER QUARTER WHEN I BELIEVE IT WAS THE CASE THAT VERY STRONG SALES OF FIXED ANNUITIES. WHAT IS NEW IN THE BOND MARKET THAT HAS MADE YOU LESS ABLE TO COMPETE? THANK YOU.

LET ME ANSWER THE MORTALITY QUESTION. MORTALITY IS WHAT IT IS, AND WE LOOK AT THIS VERY CLOSELY ON AN ONGOING BASIS. SO WE CAN'T MAKE THE MORTALITY CONFORM TO THE PATTERN THAT YOU WANT. AS FAR AS WE CAN TELL IT'S A RANDOM SET OF EVENTS THAT HAS OCCURRED.

ERIC, I'LL TAKE THE SECOND QUESTION. FIRST OF ALL, LET ME START BY SAYING THAT WE HAVE A VERY SPECIFIC ASSET MODEL WHICH DETERMINES THE KINDS OF ASSETS THAT WE CAN INVEST IN FOR EACH OF THE VARIOUS LIABILITIES WITHIN THE ANNUITY PRODUCT PORTFOLIO, SUCH THAT A FIVE-YEAR LIABILITY HAS LESS -- OR HAS A DIFFERENT MIX THAN AN SPDA. BACK IN SEPTEMBER OF LAST YEAR, THAT PORTFOLIO MIX INCLUDED MAYBE ABOUT 50% OF THE ASSET TYPE OF PRIVATES AND COMMERCIAL MORTGAGES WHERE YOU SEE ON AN ONGOING BASIS A BETTER SPREAD THAN YOU WOULD ON JUST, SAY, CORPORATE BONDS. IT WAS THOSE ASSET CATEGORIES WHICH IN THE MARKET BECAME LESS AVAILABLE IN THE FIRST QUARTER SUCH THAT IS WE HAD TO CHANGE OUR ASSET MIX FROM SOMEWHERE IN THE NEIGHBORHOOD OF 40% IN THOSE WHAT WE CALL SPREAD ASSETS DOWN TO ABOUT 20%. AND IF YOU ADJUST OUT THE INTEREST RATE, THAT CAUSED THE 30 BASIS POINT REDUCTION IN WHAT WE WOULD BE WILLING TO PAY ON OUR ANNUITIES AND STILL MEET OUR RETURN [INAUDIBLE]. HAPPILY THE INVESTMENT FLOW IN BOTH OF THOSE CATEGORIES IS RECOVERING. WE'VE BEEN ABLE TO INCREASE THE MIX AND IN FACT HAVE SEEN SOME IMPROVEMENT IN SALES IN THE LAST 30 DAYS.

THANK YOU.

THANK YOU. OUR NEXT QUESTION COMES FROM [INAUDIBLE] JONES OF GOLDMAN SACHS.

THANK YOU. GOOD MORNING. I HAVE A COUPLE QUESTIONS. THE FIRST RELATES TO YOUR CAPITAL STRUCTURE. YOU HAVE A VERY LOW DEBT TO CAPITAL RATIO EVEN IF YOU JUST TAKE ALL THE SHORT-TERM DEBT, AND I GUESS MY QUESTION IS WHAT IS IT ABOUT THE BUSINESS THAT ALLOWS YOU TO MAINTAIN SUCH A HIGH RETURN ON EQUITY WITH SUCH LOW LEVERAGE, AND IF YOU THINK THAT THAT'S GOING TO CONTINUE OR YOU FEEL THAT EVENTUALLY YOUR DEBT LEVERAGE IS GOING TO HAVE TO GO UP TO, YOU NO, SOMETHING A BIT HIGHER. THE SECOND QUESTION I HAD IS COULD YOU GIVE US A LITTLE BIT MORE COLOR ON WHERE YOU ARE GETTING THE GAINS, IF IT'S STILL HARVESTING THE EQUITY PORTFOLIO THAT YOU HAVE. AND THEN I GUESS MY OTHER QUESTION IS ON THE INDIVIDUAL LIFE SIDE WITH THE SALES GIVING YOUR NEW DISTRIBUTION, ARE YOU DOING A LOT OF COLI AS WELL AND IS THAT PART OF THE SALES CHARACTERISTICS?

FIRST QUESTION WAS WITH RESPECT TO RETURN ON EQUITY. OBVIOUSLY WE LOOK AT OUR RETURN ON EQUITY IN EACH BUSINESS, AND WE'RE CAREFUL TO MAKE SURE WE'RE WRITING BUSINESS AND MANAGING THE BUSINESS SO THE RETURN ON EQUITY ON THE INDIVIDUAL BUSINESSES WILL BE AT THE LEVELS THAT WILL SUSTAIN THIS 15 TO 16% RETURN ON EQUITY THAT WE'VE BEEN REPORTING. SO IT'S REALLY THE FUNDAMENTAL MANAGEMENT OF THE OPERATING BUSINESSES THAT IS DRIVING THE RETURN ON EQUITY RESULTS.

WHEN YOU THINK OF RETURN ON EQUITY THEN, ARE YOU ALWAYS -- DO YOU ALWAYS THINK ABOUT IT ON AN UNLEVERAGED BASIS?

WITHIN THE BUSINESSES, AND IN PARTICULAR, AS YOU KNOW, WE'VE BEEN ABLE TO MANAGE EACH OF OUR BUSINESSES WITH VERY STRONG EXPENSE CONTROL, WHICH IS A KEY PART OF THE -- THE NUMERATOR, IF YOU WILL, IN THE RETURN ON EQUITY CALCULATION. THAT'S BEEN ONE OF THE SECRETS OF OUR ABILITY TO HAVE THIS KIND OF ROE PERFORMANCE. WITH RESPECT TO THE GAINS QUESTION, THE GAINS ARE YES, VERY MUCH THE EQUITY PORTFOLIO GAIN OFFSET BY SOME WRITE-DOWNS ON BONDS ON A NET BASIS.

JOHN, THIS IS KEN. THERE WERE NO COLI SALES IN THE FIRST QUARTER.

SO I WOULD LIKE TO GO BACK TO THE CAPITAL STRUCTURE. SO ARE YOU THEN -- SHOULD WE EXPECT THAT YOUR DEBT TO CAPITAL RATIO WILL REMAIN AS LOW AS IT IS OR WILL IT BEGIN TO RISE AGAIN? DOES IT GIVE YOU EXTRA FLEXIBILITY IN FUNDING BUYBACKS?

IT GIVES US FLEXIBILITY TO FUND BUYBACKS AND STRATEGIC ACQUISITIONS AND FOR ANY OTHER OPPORTUNISTIC FINANCIAL [INAUDIBLE] AS WE LOOK AT THE MARKET. WE USE THE BALANCE SHEET PRUDENTLY AND SOMEWHAT OPPORTUNISTICALLY.

THANK YOU.

THANK YOU. OUR NEXT QUESTION COMES FROM [INAUDIBLE] BAR OF MERRILL LYNCH.

GOOD MORNING EVERYONE. I HAVE A FEW QUESTIONS. FIRST OF ALL, ON THE INDIVIDUAL PRODUCT SEGMENT, IF WE ADD BACK THE ADVERSE MORTALITY, I THINK YOU WOULD HAVE REPORTED SOMETHING AROUND $76 MILLION AFTER TAX, WHICH IF YOU LOOK AT THE RECENT -- THE THREE PREVIOUS QUARTERS, THE EARNINGS LEVEL WAS AROUND 76 AND A HALF TO 78 AND A HALF OR 76 TO 78 AND A HALF MILLION A QUARTER. AND SO I GUESS THE QUESTION IS IS THERE SOMETHING ELSE GOING ON IN THAT NUMBER BECAUSE I GUESS I WOULD HAVE EXPECTED A LITTLE BETTER PERFORMANCE THAN THAT EVEN IF WE EXCLUDE THE MORTALITY. THE SECOND QUESTION IS, DENNIS, WHEN YOU TALK ABOUT YOUR APPROACH TO CAPITALIZATION, DO YOU CAPITALIZE THE EXPENSES THAT ARE IN THE PRICING OF THE PRODUCT OR THE ACTUAL EXPENSES? AND IS THERE AN EXPENSE GAP THAT IS SIGNIFICANT WHERE IT'S REALLY RELEVANT TO EVEN DISCUSS THAT? AND THEN A FINAL QUESTION ON THE FIXED ANNUITY SIDE, YOU TALK ABOUT THE PERCENTAGE OF ASSETS THAT YOU HAD IN PRIVATES AND COMMERCIAL MORTGAGES, AND I'M CURIOUS ABOUT LONG TERM, DO YOU REALLY THINK THAT 40 PERCENT OF THE ASSETS BACKING A FIXED ANNUITY PRODUCT SHOULD BE IN MORE ILL-LIQUID SECURITIES? THANK YOU VERY MUCH. ED, ON THE INDIVIDUAL PRODUCTS EARNINGS, I THINK WE DISCLOSED WHAT WE THINK ARE THE IMPORTANT VARIATIONS, AND WE DON'T HAVE MUCH MORE TO ADD TO IT. WITH RESPECT TO THE CAPITALIZATION QUESTION, THE ISSUE I WANTED TO CONVEY WAS THAT THE ASSETS THAT WE HAVE ON THE BALANCE SHEET, INCLUDING DAK, ARE EXPECTED TO MEET OUR ROV REQUIREMENTS AND TO THE EXTENT THAT PRICING IS DIFFERENT THAN THAT, WHICH COULD BE A VOLUME-RELATED ISSUE IN ANY QUARTER, CAN AFFECT THE AMOUNT OF DAK THAT GETS CAPITALIZED. AND WITH RESPECT TO THE FINAL QUESTION, WE CONTINUE TO REFINE OUR MODELS. I'M NOT PARTICULARLY CONCERNED ABOUT THE LIQUIDITY ISSUE THAT YOU'VE RAISED. ON THE OTHER HAND, DEPENDING ON THE LIABILITY STRUCTURES OF THE PRODUCTS, I WOULD GUESS THAT WE WOULD PROBABLY HAVE A LITTLE BIT LESS IN THE COMMERCIAL MORTGAGES AND PRIVATE PLACEMENTS THAN WE HAD LAST YEAR, BUT NOT MATERIALLY SO.

THAT'S HOPEFUL. I GUESS STILL ON THE INDIVIDUAL PRODUCT SIDE, ALL I'M TRYING TO FIGURE OUT IS IN TERMS OF IF YOU ARE WRITING A PIECE OF BUSINESS TODAY AND YOU ARE SETTING UP THE CAPITALIZATION, ARE THE EXPENSES THAT YOU ARE CAPITALIZING THE ACTUAL ACQUISITION COSTS ASSOCIATED WITH THE BUSINESS, THE ACTUAL EXPENSE LEVELS, OR IS IT RELATED TO WHAT IS BUILT INTO THE PRICING?

IT'S THE LATTER.

OKAY. THEN ON THE INDIVIDUAL PRODUCT SIDE, IS THERE -- I UNDERSTAND THAT THE MORTALITY WAS THE BIG VARIANCE, BUT WAS THERE ANYTHING ELSE IN THE NUMBER -- YOU TALK ABOUT INVESTMENTS YOU ARE MAKING. WAS THERE ANYTHING THAT WAS PARTICULARLY HEAVY IN THE FIRST QUARTER, AND I GUESS ALSO IS THERE ANY REASON TO BELIEVE THAT THE FIRST QUARTER EARNINGS WOULD BE SEASONALLY WEAKER THAN WHAT YOU WOULD SEE, SAY, IN THE MIDDLE QUARTERS OF THE YEAR? THANK YOU.

A LOT OF QUESTIONS IN THERE. I THINK WE'LL --

SEASONAL -- [INAUDIBLE].

DAVID MENTIONED THAT THE FIRST QUARTER'S MORTALITY IS TYPICALLY SEASONAL. I GUESS IF YOU LOOK OVER OUR HISTORY SOMETIMES THE FOURTH QUARTER IS HIGHER THAN THE OTHER QUARTERS. BUT BACK TO OUR COMMENTS, WE DON'T SEE ANYTHING UNUSUAL IN THIS QUARTER IN INDIVIDUAL EARNINGS IN ANY OF THE REGARDS THAT YOU ASKED ABOUT OTHER THAN MORTALITY.

I THINK THE DEVELOPMENT OF THE VUL FUND BALANCES, THE DEVELOPMENT IN INVESTMENT INCOME PRODUCT CHARGE, THEY ALL SEEM TO US IN LINE WITH THE DEVELOPMENT OF THE BUSINESS. THE ONE THING THAT SEEMS OUT OF LINE IS THE MORTALITY. SO WE VIEW IT AS A REASONABLY -- I DON'T WANT TO SAY PREDICTABLE, BUT IN LINE KIND OF QUARTER FOR THE BUSINESS GIVEN THE GROWTH IN SALES AND THE GROWTH IN FUND BALANCES, THEY ALL SEEM TO BE PRETTY MUCH CONSISTENT.

ED, WE WILL LOOK FURTHER AT YOUR QUESTIONS AND IF THERE IS ADDED CONTENT THAT WE CAN PROVIDE THAT IS CORRECT WILL BE AVAILABLE THROUGH JOHN LATER.

THANK YOU. THANKS.

THANK YOU. OUR NEXT QUESTION COMES FROM ANDREW KLEGERMAN OF BEAR STEARNS.

GOOD AFTERNOON -- GOOD MORNING. COUPLE OF QUESTIONS. FIRST, YOU CAME IN IN A VERY MUCH IMPROVED -- IN THE BENEFIT PARTNERS SEGMENT, YOU CAME IN AT A LOSS RATIO OF 71% -- 37%, I'M SORRY. ROUGHLY 73 LAST YEAR. OR 73 PLUS. SO I WAS WONDERING WHAT YOUR TARGET MIGHT BE. ALSO THE EXPENSE RATIO IMPROVED TO 23.1% VERSUS 21 -- 24.4% IN THE YEAR AGO QUARTER. I'M WONDERING WHAT YOUR TARGET IS THERE. THIRD QUESTION WOULD BE WITH RESPECT TO THE NEW FIXED ANNUITY PRODUCTS WITH SIX OR THREE TO SEVEN YEAR GUARANTEES. TALK ABOUT WHAT YOU WERE PREVIOUSLY GUARANTEEING IN TERMS OF THOSE PERIODS AND THEN FINALLY ON YOUR WRITE-DOWNS WERE THERE ANY SUBSTANTIAL NAMES IN THERE, TYCO, WORLD COM, ANYTHING THAT WAS LARGE OR OF NOTE?

JUST ON THE LOSS RATIOS, YOU KNOW, IF YOU LOOK OVER THE LAST EIGHT OR TEN QUARTERS, YOU WILL SEE NUMBERS IN THE LOW 70s AS WE'VE HAD THIS QUARTER. SO WE'RE IN THE RANGE HERE OF WHAT WE SHOOT FOR AND HOPE FOR AND WE THINK THIS IS A CHARACTERISTIC QUARTER. WITH RESPECT TO THE EXPENSES, YOU ARE SEEING SOME ONGOING BENEFITS FROM PUTTING GUARANTEE TOGETHER WITH JEFFERSON PILOT AND THERE WILL BE AN END TO THE IMPROVEMENT THAT COULD BE MADE THERE, BUT WE'RE IN THE RANGE OF RATIOS THAT WE'RE VERY PLEASED WITH.

TERRY, SLIGHT IMPROVEMENT ON THE 23.1 RATIO?

WELL, AS YOU CAN SEE AGAIN IN THE DEVELOPMENT, THEIR EXPENSES GREW AT 11%, WHEREAS THEIR REVENUES GREW AT HIGHER LEVELS THAN THAT. SO THEIR SALES AND -- BUT WE'RE SEEING THE DYNAMIC THERE OF THE CONSOLIDATION BENEFITS AS WELL AS VERY TIGHT EXPENSE CONTROL ON THEIR OWN PART.

ANDREW, THIS IS KEN. PREVIOUSLY ON OUR MVA PRODUCT, OUR GUARANTEE PERIOD WAS FIVE YEARS, AND AGAIN, WE NOW HAVE A SIX-YEAR VERSION AND A SEVEN-YEAR VERSION.

OKAY. AND THAT'S SOMETHING YOU'VE BEEN SEEING A LOT OF COMPETITORS PROVIDING LATELY?

THAT'S CORRECT.

THANKS, KEN.

THANK YOU.

WE HAD A QUESTION ON WRITE-DOWNS.

THERE WERE NO PARTICULARLY NOTEWORTHY NAMES, THE TYPE THAT I HEARD YOU ASKING ABOUT ON WRITE-DOWNS.

THANKS VERY MUCH.

THANK YOU. OUR NEXT QUESTION COMES FROM SENEKA [INAUDIBLE] OF SANFORD BERNSTEIN.

GOOD MORNING. I THINK WE COVERED A LOT OF QUESTIONS. I DID HAVE A QUESTION ABOUT BOLI SALES. IS THERE NO LARGE BOLI SALES IN THE QUARTER, AND THERE'S BEEN SOME ARTICLES IN "WALL STREET JOURNAL" RECENTLY ON THAT. I WAS WONDERING IF YOU COULD COMMENT ON THAT MARKET IF YOU ARE SEEING BANKS PULL AWAY FROM THAT OR YOU SEE THAT AS A SOURCE OF GROWTH GOING FORWARD. THANKS. THE ONLY THING THAT WE'RE DOING IN THIS AREA, AND OBVIOUSLY WE'RE VERY FAMILIAR WITH THE ARTICLE YOU ARE REFERRING TO, IS PERHAPS WITHIN OUR TARGET MARKETING DIVISION, BUT IT DIFFERS IN THREE RESPECTS FROM WHAT WAS DESCRIBED IN "THE WALL STREET JOURNAL" ARTICLE. FIRST OF ALL, WE WORK PRIMARILY WITH SMALL COMMUNITY BANKS, AND THE COVERAGE IS ON THE OFFICERS AND DIRECTORS OF THOSE BANKS AS OPPOSED TO THE, QUOTE, JANITORS, QUOTE. THE SALE IS LINKED TO BENEFITS. IT'S NOT A TAX ADVANTAGE INVESTMENT PLAY. THE THIRD KEY DIFFERENCE WOULD BE THAT THE INDIVIDUAL PARTICIPANTS HAVE TO SIGN APPLICATIONS AND CONSENT FORMS. SO YOU DON'T HAVE WHAT WAS DESCRIBED IN THE ARTICLE AS PEOPLE WHO WERE NOT FAMILIAR WITH THE FACT THAT THEY HAD COVERAGE.

I THINK WE HAVE TIME FOR ABOUT ONE MORE QUESTION.

THANK YOU. OUR FINAL QUESTION COMES FROM MICHAEL DAHLE OF MORGAN STANLEY.

THANKS. TWO QUICK QUESTIONS. FIRST ON THE UNREALIZED GAINS YOU HAVE ON THE COMMON STOCK PORTFOLIO, I WANTED TO GET UPDATE ON WHAT LEVEL OF GAINS YOU CURRENTLY HAVE AND HOW THAT COMPARED TO THE PRIOR YEAR. THEN JUST ON THE FIXED ANNUITY SIDE, ARE YOU COMING TO THAT SALES HAVE PERHAPS BEGUN TO PICK UP IN THIS QUARTER. DOES THAT MEAN THE COMPETITIVE LANDSCAPE IS PERHAPS IMPROVED SOMEWHAT FROM WHAT -- ON AVERAGE THROUGHOUT THE FOURTH QUARTER OR IS THIS STILL A VERY COMPETITIVE LANDSCAPE? THANKS. YEAH, I CAN COMMENT ON THE SALES PART WHILE THEY ARE WAITING HERE, MICHAEL. THE COMPETITIVE LANDSCAPE HAS REALLY NOT CHANGED. IT'S STILL VERY, VERY COMPETITIVE. AND AGAIN, AS DENNIS HAD MENTIONED IN HIS REMARKS, EVEN THOUGH WE ARE DOING SOMEWHAT BETTER, IT'S STILL A SITUATION OUT THERE WHERE IT'S VERY COMPETITIVE.

GREAT.

WE HAVE ABOUT $500 MILLION IN GROSS GAINS IN OUR EQUITY PORTFOLIO.

AND HOW DOES THAT COMPARE TO THE PRIOR YEAR?

I THINK IT'S ABOUT EVEN WITH THE PRIOR YEAR.

OKAY. AND THE IMPACT OF THE EQUITY MARKET DECLINES, PERHAPS LIMIT THE ABILITY TO REALIZE SOME OF THOSE GAINS WOULD WE LIKELY SEE LOWER GAINS GOING FORWARD?

WE LOOK AT THE GAINS ON A VERY OPPORTUNISTIC BASIS AND IN OUR PORTFOLIO IT'S AGAIN AN ISSUE-BY-ISSUE DECISION.

THAT'S GREAT. THANK YOU.

THANK YOU VERY MUCH.

THANK YOU. PLEASE PROCEED WITH ANY FURTHER COMMENTS.

WE THANK YOU FOR JOINING US TODAY, AND THAT ENDS OUR REPORT FOR THE QUARTER. THANK YOU FOR JOINING US.