Protective Life's CEO Hosts 2012 Investor Conference (Transcript)

Dec. 5.12 | About: Protective Life (PL)

Protective Life Corporation (NYSE:PL)

2012 Investor Conference Transcript

December 4, 2012 9:00 AM ET

Executives

Eva Robertson - Vice President, Investor Relations

John Johns - Chairman, President and CEO

Scott Adams - SVP and Chief HR Officer

Rich Bielen - Vice Chairman and CFO

Lance Black - Senior Vice President and Treasurer

Steve Callaway - Senior Counsel and Chief Compliance Officer

Paul Eder - Second Vice President, Agency Services

Brent Griggs - SVP and In-Charge, Asset Protection Division

Rebecca Horsley - Investor Relations, Administrator

Carolyn Johnson - EVP and COO, Life and Annuity Businesses

Carolyn King - SVP, Acquisitions and Corporate Development

Debbie Long - EVP and General Counsel

Wayne Stuenkel - Senior Vice President and Chief Actuary

Mike Temple - EVP and Chief Risk Officer

Carl Thigpen - Executive Vice President and CIO

Steve Walker - SVP, Controller and Chief Accounting Officer

Judy Wilson - SVP and Stable Value Business

Analysts

John Fox - Fenimore Asset Management

Tom Gallagher - Credit Suisse

Eric Berg - RBC Capital Markets

Steven Schwartz - Raymond James

John Nadel - Sterne, Agee

Mark Finkelstein - Evercore

Sean Dargan - Macquarie

John Hall - Wells Fargo

Joanne Smith - Scotia Capital

Dan Bergman - UBS

Sarah Dewitt - Barclays

Jonathan Haynes - Sun Life Insurance Company

Eva Robertson

Well, I’d like to officially say good morning. And welcome to the 2012 Protective Life Corporation Investor Conference. We are glad you are here with us in New York City and those who are joining us via webcast, we are glad that you’ve decided to spend your morning with us also. We hope its productive conversation. We certainly worked to make it so.

This morning we’ll start off with Johnny Johns, our Chairman. He will start off with just an overview of the day to let you kind of know the direction we are going. He will be followed by Carl Thigpen, our Chief Investment Officer, who will give you an update on the portfolio.

We’ll take a brief break after that time. And afterwards, Carolyn Johnson, our Chief Operations Officer will update you on the Life marketing and Annuities business. Our final presenter for the day will be Rich Bielen. He is going to give you our look ahead, our financial plans and some sensitivity about what’s been in the market lately.

After each session we will take a few minutes and answer one or two questions. We’ll try to keep that time brief, but we know sometimes there are burning issues that maybe we didn’t touch on and help to get those handle pretty quickly.

When our presenters are done, Johnny will come back to the podium and we will open it for another Q&A session. We want to really focus on making certain you got your answers today and that we really heard the things you are concerned about, trying to make sure that we’ve explained what we can about what’s going on at Protective.

I want to point out that there is a slide presentation that’s being webcast on the internet at protective.com in the Investor Relations section. So that is of course to accompany our comments this morning. The file is posted there for download.

And finally, today’s discussion does include forward-looking statements which express expectations of future events and/or results. Actual events and results may differ materially from these expectations.

You can refer to our press releases and the risks and uncertainties, as well as Risk Factors section of the company's most recent report on Form 10-K and subsequent 10-Q, for more information about factors that may affect our results.

Our discussion also includes non-GAAP financial information and reconciliation to the GAAP measures can also be found in the supplemental financial section on the website.

And with that, I’d like to introduce, John Johns, our Chairman, President and Chief Executive Officer.

John Johns

Eva, thank you very much and good morning to each of you. Once again, we’d like to extend our welcome and thanks for coming this morning to hear the Protective story and I think you’ll find a very interesting morning indeed.

Let me first introduce our management team who are here today with me and with you, and this is an alphabetical order. If you will, just kind of raise hand when I’ll call your name.

First is Scott Adams. He is our Senior Vice President and Chief HR Officer. Next is Rich Bielen, who is our Vice Chairman and Chief Financial Officer; Lance Black, Senior Vice President and Treasurer; Steve Callaway, Senior Counsel, Chief Compliance Officer; Paul Eder, Second Vice President, Agency Services; Brent Griggs, Senior Vice President, In-Charge of our Asset Protection Division; Rebecca Horsley, who works with Eva Robertson in our Investor Relations Group as an Administrator.

We also have Carolyn Johnson, who is our Executive Vice President and Chief Operating Officer, and responsible for all of our Life and Annuity Businesses; Carolyn King, Senior Vice President, Acquisitions and Corporate Development; Debbie Long, our EVP and General Counsel. You’ve met Eva. We also have Wayne Stuenkel, who is a Senior Vice President and our Chief Actuary.

We also have new to the team, in fact, this is his really first official day on the job is Mike Temple, who is Executive Vice President and Chief Risk Officer. Mike comes to us after almost three decades of experience in the industry, most recently as the Chief Risk Officer at Unum.

Carl Thigpen, he is our Executive Vice President and Chief Investment Officer; Steve Walker, Senior Vice President, Controller and our Chief Accounting Officer; and Judy Wilson, Senior Vice President. She runs our Stable Value business as well. So thank you all and again, we’ll all participate in the program to the extent, you have questions and so on later in the day.

Again, as Eva indicated, my role here at the beginning of the program is really just to give you an overview of where the company is, how we see the business, where we’re headed and what shadow will be at what we’ll hear from others later in the presentation.

I’ll start by noting and very pleased to note, needless to say that we do expect this year to finish on a strong note. We expect to have operating earnings at a record or near-record level around $300 billion after tax. We think our operating earnings per share if the plan falls into places, we think it will. We’ll be well ahead of the plan that we laid out for you when we were standing here last year.

And in our RBC ratio which is statutory, regulatory capital ratio is we believe at the end of this year, we’ll approach 500% which would be in the record area as well for our company. You will hear from call that our investment portfolio is very solid. We really don’t have much to talk about with respect to investments but thought you would be interested in just our perspective on it. But that’s what you will hear in a moment.

We are very well positioned in terms of our capital as well as our capabilities to do a major accretive acquisition. Also, this is a point that I’m going to emphasize because I’m not sure this is really something that’s well understood, is that we now are in a such capital. We’ve done a position that we believe we can do a $500 million acquisition without impeding our existing share repurchase plan.

So it’s not really a choice for us between doing an acquisition, repurchase shares. We think we have the capacity to do both. Our business model is evolving. As you know, in our primary retail businesses, Life Insurance, Annuities and Asset Protection products, we’re very kind of focused on the fact that particularly in the Life Insurance and Annuity business segments, there seems to be a disconnect in that business. It’s a business that’s not working.

I mean, I might even go so far as to stay I think the business model may be brokering in that Life Insurance Annuity space in the United States right now. That’s a pretty bold statement. But I think there is ample evidence that it is true. The problem is we see it. It’s both in the case of the need for debt protection, mortality protection as well as the need for retirement savings. There is an enormous pent-up need and desire on the part of consumers to do a better job of protecting their families and protecting themselves.

This is extremely clear when you look at the date of that LIMRA, the marketing trade association that most insurance companies remember. Their data shows that the ownership of individual Life Insurance in this country per family is at the lowest level it’s been since that’s been measured, which you go back 40 years or so.

When LIMRA goes out and interviews people on the street with their focus group to surveys, they find that there are about half the people they ask this question, do you need more Life Insurance, they say yes. That’s a 117 million people adults working around everyday saying, hey, I’m not doing a job I need to be doing to take care of my family.

If you flip it around and look at retirement side, I mean, this country is headed for retiring rate. We have retirement savings crisis that’s coming vast majority of people who are baby boomers, light baby boomers like me who are just totally unprepared for retirement. The numbers are just staggering and yet at the same time, if you look at our industry, the performance as you know, your investors and that your analyst can cover it, it’s not been stellar.

Most Life Insurance companies, publicly traded companies that are trading at or below book value which is a sure indication I think that investors are skeptical about our ability to earn the cost of capital and accrete shareholder value. And so you got to ask the question, why? I mean, why do you have so much talent in capital and really with intention in our industry on one hand, you have so much of a need back in service on the other and yet the training is not meeting if you will.

We think this because we’ve allowed our industry to become commoditized that most companies now are copying each other, competing on price, making things too complicated for consumers to really understand, not focusing enough on enhancing the efficiency and the quality of distribution. Everybody is just chasing, seems to be chasing market share with the focus on price.

And as you know in commodity businesses, margins tend to erode and overtime they’re forcing the consolidation and notices of natural kind of lifecycle to businesses that allow themselves to become commoditize. Our strategic objective and we’re not going to talk too much about that. Carolyn Johnson will touch on it because this is not really a strategy session. This is not what we’re here to talk about long-term strategy. This is more of financial presentation for you.

But our strategic objective is to differentiate Protective in a way where people will buy our products based on a complete value proposition and not just where they on a spreadsheet, where the cheap is by two pennies for that particular product.

So we’re spending a lot of time, we’re spending a fair amount of money and we’re very focused and committed to this but more to come on that. I don't think that’s something that you really need to be too focused on as we focus on our earnings plans for next year and so on.

But again the good news is that we’ve had -- we've seen downward trend in Life Insurance sales over the last year or so, mostly because we haven't chased market share. We recognized that 18 months ago that we’re in a new interest rate environment. We stepped up and repriced our products to take into account the current reality of the Feds quantitatively using operation to risk those sorts of things that intentional effort by the Fed to low interest rates and flat in the yield curve.

We say that’s the world we live in. So let’s don’t go sell Life Insurance products that have a 40-year life and take a single premium upfront and make an integrated assumption that’s totally out of sync with the world around us. So we’ve given it up but we’ve also saying now the competition become more other way. Other companies I think have come to the same awakening we came to a year and half ago and you’re seeing some repricing of products as you will see in Carolyn’s presentation, we now actually see a trend of increasing Life sales, which is a good thing.

We’re actually over short a bit on our variable Annuity business. We have in mind company that has more balanced portfolio of liabilities and businesses, and we think it’s important to have some exposure to the equity markets, some upside overtime as equity markets go up in fee income and variable products go up but we’re over short, quite honestly our targets for this year, not because we wanted to. But because as we changed our product designs and features and pricing for our riders, the competition did the same and they did it little more aggressively than we did.

So we are seeing that reversed to. You’re starting to see and Carolyn will touch on this. We’re seeing a trend for VA sales to come back down in a trajectory that we’ll take in back in line with where we want them to be. Again, Carolyn will go into that.

Asset Production division, again their sales, their products are primarily sell through auto dealers. Their products are extended service contracts and the gap product that covers a car owner if their car is stolen or destroyed in an accident. Their sales are still quite sensitive to the level of auto sales. And again if you saw the news this week, auto sales in U.S. were at a five-year high and seem to be trending upward. So there is a good trend. There is a good fundamental macroeconomic trend behind APD as well.

Stable Value has always been the strength of our company. Judy Wilson has done a magnificent job I think of managing that in a very rationale sort of way. We’ve enjoyed very robust spreads in Stable Value. We see those spreads continuing to be very robust and actually seeing a little sales activity now. And so we’re seeing some stabilization in the balances and the spreads.

Rich will go through our financial plan for next year. He will also show you what our models tell us about what we might expect over the next two years after that 2014 and ‘15. Our story is, is that we expect to see continued strong growth in our operating earnings per share and our return on equity as we look into the future. And most importantly that is without an acquisition. Without an acquisition, we think our company will continue to perform quite well over the next few years.

And the same time, we are fighting the headwinds of low interest rates. Again, Rich will do but I think is probably the most granular and in-depth the team that I’ve seen of a company try to explain investors with the low interest rate environment really means to us. I will tell you it is a challenge you know that and is something that we are having to grapple and deal with.

But I think again was not well understood. I can say this with confidence about our company. I suspect it’s true of other companies as well. If you really going to think about interest rates in a contexts of two different sets of businesses one is the enforce business. The business has owned the book right now. That business is matched up with a portfolio of assets it has a fairly long duration in the asset portfolio. The interest rate risk is basically the risk that they incremental cash flows that we have to reinvest overtime will be invested at lower rates and we have plan for initially.

But you will see as we will show you, Rich will show you a chart that we are nicely match. There is not much of that. It’s rather small compared to the size of the enforce lock. Now, with respect to new business, this is what you have to keep in mind, its all priced on current interest rate assumptions. And this is important I think for investor too and you’ll get a bit of a sense of this when Rich has look at right sensitivity which is, we are not counting on interest rates to go up a lot in the future in order to achieve our targeted returns. Say that again.

We are betting on the come on a reversion to much higher level of interest rates to achieve the cost of capital or better return we think on our new sales. We are assuming right are going to stay essentially where they are for the indefinite future. So, that means it means right go up that upside and we will show you if interest rates go down Rich will show you a down media drop of 100 basis points in new money raise, it has some impact on us but it is not nearly is greater than that most of you would assume it to be. I mean you make your own judgments about it, but we are going to show you that scenario today too.

So, keep that in mind. I will also say again we have not in our plans but we will show you sensitivity, the impact of an acquisition and just -- we just pick a $500 million acquisition because again based on our modeling we think that’s well within our capability without crossing any red lines with respect to our own concerns about our balance sheeting or rating agency issues as you will see even during the $500 million acquisition, our models we indicate we still have an RBC ratio way up in the $400. So we are not really at that level. We are not really pressing a balance sheet to do when you can see is impact of that will be quite nice.

I think you’d be very pleased if we can control that off. I will also say that I think we are just beautifully positioned now to do an acquisition. We’ve got most of the heavy lifting, since all of it done on our prior acquisitions in terms of consolidation systems and all we can actually have some upside by doing a bit more of that on liberty deal which use to do so. But we really real well-positioned in terms of our capabilities as well as our balance sheet to go out and do that.

I think most of you probably follow the company for years you know that we have the preeminent M&A, franchise we think in the Life business in the space and which we operate. We’ve done more than 40 acquisitions. We’ve invested billions of dollars successfully in acquisitions over the year, I think is really is our A game. And we’re really excited abut our potential and future.

I will also say that those of you who real students of the industry know that we had new players come in to the M&A space in the industry. We’ve had a number of asset management/private equity/hedge funds who stepped up and fully aggressive betters I think most who say I mean I guess that’s in a annual holder for properties, primarily fixed Annuity properties.

I will say that we’ll be this is kind of an opportunity for us. Again the last acquisition, we completed and it’s been a very good one was the Liberty Life acquisition. We actually partnered with the Apollo same group, I think reinsurance company they bought Liberty Life, they basically took the fixed Annuity business PLICO insured out the Life business network very nicely for us and we think rather than being a threat to our acquisition model.

The opportunity to best partner with non-traditional investors could actually be in a nice opportunity. Something, we know how to do to something that we worked on and we think we have some real expertise and doing that. Again, I know there are lot of concerns in the industry around a lot of external or exogenous factors in the regulatory world. There is concern. There’s been lot of news press even last few weeks about the use of captives as a as a way to manage redundant reserves. Their issues is around unclaimed property. Their issues around AG38, the new principle space reserving.

And I can tell I would be happy to going any of that is much as you want to but I will tell you that Protective is on point on all of those issues. We are very engaged in National Trade Associations particularly at the American Council of Life Insurers, which is the principle trade association. Our team I personally in most members of our team are very active in the committees there and we are on the absolute front row of watching the game evolve the next Adam playing through actually participating in it.

So to the extent one can be effectively managing these issues that will be Protective, because we really focused on it, we really know what’s going on out there and we have people that are really very into it. And so I think we will do well as anybody. I think we will do fine across the Board on all those issues. There is another big -- several other big issues out there. There is this whole question of Dodd-Frank and the prospect of insurance companies becoming non-traditional systemically important financial institution.

Life companies that own risk are going to following in Dodd-Frank as well because the holding companies will become risk holding companies, our assessment for the moment at least is Protective is not likely to be in the city. I don’t think we will last that level, its one time when you don’t want to be important that’s one area well was good the insignificant I guess.

Systemically insignificant. Well I think interesting concept but I will take that label today. We also don’t know to drift. So we’re not in the bulls eye at least of that. I am actually optimistic. Again we are very close to that, watching it, trying to participate the best we can in it. I’m very optimistic though I think the fair we’ll come to understand overtime that as we will assoc the panel of state regulators that ultimately, we’ll have jurisdiction over financially important significant institutions.

I think they will come to see how different of the insurance business model is from the banking model. I think that they will -- standard will involve, so that they will be more appreciation how effective the state based RBC Capital regime has been. I just are actually did pretty well honestly compared to other kinds of financial institution during the financial crisis.

I think the fair is warming up to that view. I know [senator callings] I thought very helpful later couple weeks ago. We enforcing that point we kind of optimistic and that’s going to play out in a way that, the industry will be able to do with.

The other issue is tax reform. It’s huge issue for our industry again we are very trade associations are geared up ready to five to preserve the benefits most of which don’t in nearer to benefit of Life companies, they really benefit consumers. So that’s important distinction maker individual tax benefit not corporate but we are involve in that the good news is that a lot of the focus there is on taxation of insight build up within permanent insurance policies. So the fact that you when you die, you don't pay income tax on, accretion value within an insurance policies as well.

And again, everything we're hearing is very unlikely that the insight build up will just be taken out across the Board and just no more insight build up. More likely, I think that the Romney proposal which would create a [cath] on an individual's ability to take advantage of whole host of credits and deductions would -- is probably a more palatable scenario, something that probably comes closer to meeting the objectives of Democrats and Republicans, and same time wouldn't face as much direct opposition from the interest groups like the mortgage deduction, you get the real interest, charitable deduction you get, everybody talk. So, it’s more probably a more balanced.

And again, our company is never been in the real high network market on a consistent basis. We certainly have some wealthy policyholders and we are grateful for their business. But it has never been our focus and so we’re much less likely I think that that really grab right at the middle of our business model if that happens and I think you might see maybe with other company. So we’ll see and might even change the market in a way that might even be somewhat beneficial.

So, interest rates, again, we’re all over that. We think about it every minute. I think we got a good plan. You’ll see some of that in Rich’s work as well.

This is really my last chart. But, again, I think this is helpful, we’ve shown this before, but I don’t think we can talk about too much. How we think about the business? And what this, this is kind of a waterfall and what it really reflects, is how we think about allocating capital.

Again, we have bottoms up approach and by that I don’t mean the bottom of this chart, but I mean, we look at every product and we priced the product to achieve a targeted return on capital.

We go back and look at those assumptions overtime. We have an assumptions committee that Rich is constantly reevaluating our assumptions on interest rates, mortality, persistency, expenses and so on. And so we are really, really have a laser like granular focus in everything we do, our acquisitions are priced very meticulously, to achieve a return on capital.

And then what we do, is we sit back and say, okay, we’ve got four basic buckets here, we can put capital into our retail businesses, we can put excess capital into our Stable Value line, we can go do an acquisition or we can buy something that or increase our dividend, or pay our dividend. So we look at all of that.

And truthfully, in a perfect world, if we had our brothers, as I say, in the top, we would start at the top of this waterfall, our first preference would be to grow our retail businesses, create organic growth. We think that is really very high quality if you can do that right.

Stable Value, I think, an acquisitions are both attractive, actually might flip acquisitions, because you put capital to work for a longer period of time to get more predictable earnings from an acquisition, way out in the future, steady cash flows. Stable Value though has worked great for us and you see the numbers are just really stellar.

And then last share repurchase, is something we’ll do and we are happy to do it and we will do it, and we are doing it, when it make sense. Unfortunately, we’re not in the perfect world. So when we do the calculation of where to put our capital to work, we are sort of starting more at the bottom of the waterfall and working up, because that’s where we think the best returns are for shareholders.

Again, we were -- we now have a program, where we are -- we’re taking about 50% of our after-tax earnings and we are returning those to shareholders either through dividend or through share repurchase. We are doing about $100 million year right now share repurchase. I think that can grow as our earnings grow.

We think that’s a prudent way to think about share repurchase. In other words, we are not taking accumulated earnings or surplus and really putting that in the share repurchase. We are just paying it out as we earn it.

Acquisitions, we are very excited about, as I mentioned, Stable Value. We are starting to see some new sales and we are really working on Life and Annuities and Asset protection to be sure that we are getting good returns there. We like to do more and that’s why we have this new strategy to really energize our retail businesses out in the future and make them perform as well overtime.

And I suspect that share repurchase will not be so attractive as our share price starts to reflect the optimism that you’ll see in our plan here. Share repurchases makes a heck of a lot of sense, 75% of GAAP book value. It probably makes less sense if it 1.5 times GAAP book value. You can have better ways to deploy your capital out in the future. And that’s what we are trying to do, is to create better ways to deploy capital out in the future.

So, with that, I’m going to Paul’s, I’ll come back as Eva indicated at the end and I kind of open it up for questions really for the entire management team. But I’ll now turn it over to our Chief Investment Officer, Carl Thigpen. Thank you.

Carl Thigpen

Good morning, everyone. I have quite a few slides and I think for the first time since I have been doing this for 10 years or so. I have more slides than any other presenters, but lot of my slides are would just be reminders and I’ll show you with less slides, Rich will talk much longer than I will.

The investment highlights. We continue to be focused on highly-rated securities. Our focus has been to primarily buy highly-rated corporates, the low-rated corporates. The RMBS market has not been open to us for the non-agency market. So we continue to focus on improving the quality of our portfolio.

The unrealized gain in our portfolio is as highest ever, little over $3 billion at the end of third quarter, that’s a function of tightening spreads, spreads as everyone knows, spreads are tight substantially over the last year and interest rates are lower.

I’ve got a slide here that I’ll show you later about cash flows and our duration and our asset liability along with what Rich will show you.

Our commercial mortgage portfolio continues to perform well and our impairments continues to be at modest levels, most of those are still revolve -- are around our RMBS non-agency portfolio, but as you will see that portfolio is declining very rapidly.

As far as overall investment portfolio, we are a big fixed income shop. 81% of our portfolio is fixed income and we have 14% in commercial mortgages, 2% in policy loans and 2% in other.

And as a reminder, our other is not private equity, is not venture capital, its our, totally its our investment in the federal home loan bank board, stock, its our some preferred stocks that are classified differently, but it’s a high quality portfolio of 2%, other that there is no bonds in there that’s going to come back out of it.

As far as the fixed income, we are 73% corporate bonds, as long time followers of Protective you go back 10, 15 years ago, our portfolio was 40%, non-agency mortgage-backed about 40%, corporates about 20%, commercial mortgages.

Well, the world has changed on us, there is really only thing that make sense for us over the last few years is about a high-rated corporates and that has been a good trade for us, because its really tide in well with our asset liability matching.

Our Munis here are Build America Bonds. They were primarily the AA, A revenue bonds, not general obligation bonds. And we have added a few asset-backed and CMBS where we can, but that as everyone knows here the asset-backed market is not very robust either at this time.

As far as below investment grade, we are down to about 5% according to NAIC rating and that’s one of the lowest in the industry, industry average according to Moody’s is about 7%.

We have done this several ways. We had a conscious effort of buy high quality, given the opportunity where we could reduce our below investment grades without taking losses we have done that and also the RMBS portfolio, which everyone knows that was once AAA that we’ve got downgraded has been running off at a fairly rapid pace.

So, we will continue to see continue paydowns on the RMBS and as everyone knows the corporate sector is very strong and stable at this point, and they are not very many downgrades, actually with -- in the first time in several years, we are starting to see some upgrades in the corporate world.

This is just of a chart that shows the changes in our unrealized gain or loss, going back to '08, primarily here financial spread widen out so much that create a losses, unrealized losses and then this has just been a steady progression of how well the market is improved. Primarily through spread tightening, but also as you know through lower interest rates.

Our non-agency portfolio at one-time was little over $4 billion. Back in '08, '09 every time was 97% what we bought was AAA, it all get downgraded to below investment grade.

The anticipation was -- we had one analyst tell us we will have $1 billion worth of loss within that portfolio. I’ll have to say that our actual loss in that portfolio has been less than 1%. They continue to runoff very rapidly when the top of the credit stack, most of ours were senior or super senior first pay. And as you can tell that the market value is very close to the amortized cost at this point.

Here is a chart of the paydown and how rapidly these securities have been paying down overtime. Now, I want to pay a little more attention to this slide, in '08 we had a little over $4 million of the non-agency RMBS and we had another $1 billion of agency RMBS that we sold in the first quarter '09, the raise of liquidity. We need that will be paying all fast.

So during this period, we’ve had a lot of cash coming in. There has been two things for us, one is greatly reduced our below investment grade securities, at the same time, we get a lot of capital back as we get these paid off as the capital charges on the below investment grade securities is much higher and also it let us reinvest.

We are Stable Value portfolio with which we’ll sure was paying down and our asset accumulation business we were short duration. So we were able to redeploy all this cash flow at a time when corporate spreads were lot wider and interest rates were lot higher.

So it was a very good trade for us, have this cash coming back when it did. The projections as you see that for the reminder of this RMBS is a pretty quick payoff with that capital coming back to us really quickly over the next few years.

We are under allocated in some of the sectors that have been hardest hit. We are over allocated and regulated utilities by substantial much versus the Barclays Credit Index. We think it’s very good being underexposed somewhere, you got to be overexposed somewhere else. And so we’ve taken the position that the regulator utility is a good place to be, if you are going to be overexposed.

While unexposed is down toward the bottom. The foreign agencies, the foreign governors, the supernationals, we have stayed out of those categories and that has been a good trade, not been in those categories.

We were several years ago little more exposed to the financial sector. We’ve brought that down more in line with the index. But we are overexposed to the regulated utilities and we are constantly watching that, make sure that where we want to be, but we have stayed out some of the less desirable sector there. The local foreign local government is how the Build America Bonds are classified those are domestic, all domestic.

While Europe is not the headlines everyday the fiscal cliff is, Europe is still a concern. We -- there is issue with Greece and Germany last week, and we are worried about the additional bonds going into Greece.

But we are pretty well-positioned. We have stayed out of all of the trouble countries. Most of our exposure is in the non-euro zone countries. Our exposure to France $50 million of that $68 million is covered bonds AAA, Spain is the U.S. subsidiaries of some of the Spanish banks, so they are really domestic credits and Ireland is a reinsurance company.

So, we feel pretty well-positioned about our European exposure at this time. And as you can tell that the market value is cliff lot from a year ago, or two years ago where we found to and now we are in a positive there.

The top 10 exposures, again, except for the Royal Bank of Scotland everybody there is A rated or AA rated, all the rating agencies Moody’s and S&P have legal stable outlook now. They are not making any outlook. They are pretty well stabilized. We are not adding to these positions by any means. But we’re very comfortable being in these names and again, most them are not in the trouble countries there.

As far as the commercial mortgage portfolio, we’ve got little over 2,000 loans. Our average loan size is $2.5 million. Coupon is over 6%. We like short amortizations and the weighted average loan-to-value and the debt coverage ratio is based on original underwriting, we don’t get updated appraisals every year, but the fast amortization really brings down the principle balance.

One of the areas that I’ll probably have missed down a last few years is that we cut back on our commercial mortgage origination in '08, '09. I guess, I’ve got little concerned, everybody said commercial mortgages are going to get hurt, we are doing well over billion dollar in production, $1 billion, $2 billion and we cut it down to $400 million to $500 million, as I will show you briefly that we haven’t had issues.

But our portfolio is about 68% retail. I think that one other things that cause people a lot of concern, but our retail is basic vision services provide people, we’d like food, drug, discounters. We are not lending on the gaps and limited victoriously reaching the Starbucks, the high-end kind of discretionary spending. Our largest tenants are grocery stores, Wal-Mart that kind of tenant.

Our office buildings a lot of them are GSA listed. Our medical office buildings next to hospital, warehouses are typically have some kind of long-term credit lease component and our apartments so you basic bread and butter apartment complex is where people who living there, who are apartment dweller, they are not just -- there are the six months while they buy house, these are mortgage typical long-term apartment dweller.

If you look at our problem loan trend little explanation here, the red line back in 2010 there was an accounting change. We’ve done about a $1 billion securitization and we’ve sold off about $800 million of it.

With the accounting change, the GAAP change, we had to consolidate that securitization even though 80% of that was not owned by us and so when we had to consolidate that back on our books, we had to start tracking the problem loans there again.

As you can see going back to 2010 to today, we’ve down to 50 basis points in problem loans, we have six problem loans out of little over 2,000 and half of those came from the Liberty acquisition that we did several years ago. So and the actual losses that will be attributed to those six loans will be very small.

So we continue to have good performance there. As far as last state, we have Sunbelt primarily. We typically are up in the Northeast which is capital exporters. We don’t go in the market, we really don't understand.

We’ve primarily Sunbelt and most of our California exposure came through an acquisition years ago. So the standard block that we are -- we watched this very closely to avoid any kind of regional concentrations or regional issues that may come up.

As far as top 10 tenants, Delhaize food, Walgreen drugs, Wal-Mart, Tractor Supply. People are asking me about Tractor Supply. We sort of got Tractor Supply by default. If -- The retail analysts of the Tractor Supply company have been borrowing, if you owned Tractor Supply, they have been sort of the tag along the Wal-Mart.

In middle markets, Wal-Mart has grown. They would go into a market with 40,000 square-foot store. The sales got this approved. They have abandoned that store, go to 80,000. Well, Tractor Supply came right behind them and taken those abandoned boxes and they are a hard goods with a little country work where hardware store feed & seed. It’s pretty basic stuff.

So the majority of our exposures that we got through Tractor Supply is through backfilling Wal-Mart spaces and lot of cases you still have Wal-Mart on the lease. But we continue to focus on the basic business services and like the food and drug, even though the expansion in that area has not been very robust over the last few years.

This is the best slide and I want to leave it with you because I think it tells a great story. If you go back to 2008, our portfolio was 5.8%. Today, it’s 5.6%. You say okay, spreads are down 150 basis points, rates down 150 basis points, highly genetics there. Well, it goes back when I was telling you earlier, we had a lot of cash that we raised in early ‘09 and we had a lot of cash that came back to us that we’ve redeployed shorter assets into high-rated corporate bonds at a time when interest rates were higher and spreads were better.

We have been fully investing for about the last 18 months except for just routine cash flow coming in. So we have not had the pressure in the environment over the last year or so to put a lot of money to work other than just our routine cash flows which allows us to be very selective and not have to buy the market with pick and choose what we wanted to buy as it came along.

And we’re currently fully invested and probably would have borrowed a little bit at year end. So this is crucial to what’s been our success is the timing of when we had our cash flows, when we took much agency mortgage back off the table for liquidity knowing that they would prepay and then reinvest them into something with positive convexity and that’s dealt with their asset liability.

In summary, that’s sort of repeating ourselves, we will continue to be focused on the same thing as we’ve been doing, higher rated corporates. We will continue to see our low investment grade run off and our expectable sales continue to see capital come back to us as the low investment grade RMBS pay off. And we don’t really see any signs in the commercial mortgage portfolio that things are deteriorating.

Actually, we’re seeing as far as sales activity and transaction activity and that pickups are. So with that I’ll take a question or two if anybody has one. Yeah John.

Question-and-Answer Session

John Fox - Fenimore Asset Management

Sure. John Fox, Fenimore Asset Management. Carl, on your slide 25, what’s the difference between principal and exposure?

Carl Thigpen

The exposure is, okay, if you have a -- the principal balance would be if you have a loan that’s multi-tenant. For example, you may have Wal-Mart or Tractor Supply and Food Lion in there, the exposure would be the percentage of the income that comes from that, that total mortgage loan.

John Fox - Fenimore Asset Management

Got it. And then with the problem of low trend, what’s the loss content on these. I mean, this is kind of like a delinquency chart. This is not actually what you mean?

Carl Thigpen

Yeah. I can say we’ve been very aggressive this year and trying to keep down the problems and we have taken about $14 million worth of actual losses of moving and disposing off properties and moving things out. And that $14 million maybe something that we foreclosed on last year too. So that’s sort of the whole loss and we think that that level will be declining going forward based on the level of activity we see at this point.

John Fox - Fenimore Asset Management

Okay. Thank you.

Tom Gallagher - Credit Suisse

Hi. Tom Gallagher, Credit Suisse.

Carl Thigpen

Hi Tom.

Tom Gallagher - Credit Suisse

Question on slide 26, the 5.6% portfolio yield and your ability to maintain that seems to largely be driven by going along that curve, if you just look at how asset duration has changed. Now, what’s the feeling about the tradeoff and the risk associated with that. I presume going along the curve means if rates spike that’s where you’re going to get hurt but anyway can you talk a bit about that.

Carl Thigpen

Yeah. Our Stable Value portfolio going back to ‘07, ‘08 was $6 billion. So it’s come down. So it was very short duration. So you look at the overall company, you take that short duration assets away, the balance of the company in where our asset accumulation plus the acquisitions we did were much longer in duration. So even though we have gone longer, we have matched within just a few months of asset liability duration.

So we have matched this. But we do have the risk if rates go up and market values are going to go down but as far as the cash flow matching, we are matched up and that’s where we need to be as far as duration.

Tom Gallagher - Credit Suisse

So your aggregate liability duration has changed 2.5 years in the last three to four years?

Carl Thigpen

Yeah. If you look at, we had $4 billion of Stable Value run off which was 2.5 duration or less and that we’ve done acquisitions of these acquired blocks that run off ever and ever. So yes. Our liability duration has extended.

Tom Gallagher - Credit Suisse

Got it. And how do you, where you’re putting out new money on average compared to the 5.6?

Carl Thigpen

We’re in the mid force of that range. Commercial mortgage yields are little higher. Commercial corporate bonds depending on the name and the rates are little lower. Eric?

Eric Berg - RBC Capital Markets

Thank you, Carl. Eric Berg from RBC Capital Markets. Just one very quick question regarding the unrealized gains. Obviously, better to be in a gain position than in a loss position but as I think about it, I wonder does it really matter in the sense that presumably all these gain is being matched, given what you just said about duration. You probably know where I’m going with my question. Why like increase in the value of your liabilities, in other words, whose gain is this, the shareholders or the customers?

Carl Thigpen

It really -- to your point, it really didn’t -- doesn't matter but when it was at $3 billion negative, it mattered to everybody in this room.

Eric Berg - RBC Capital Markets

You’re right.

Steven Schwartz - Raymond James

Steven Schwartz, Raymond James. Just a couple of follow-up on the duration question. Carl, I was just wondering, if we were looking before the crisis, before interest rates came down, before the non-agency paper was probably or agency papers probably like that you called but we have seen that number back in the five, sixes and sevens?

Carl Thigpen

Yeah. Rich can tell you more but yeah, we were much short duration at that time.

Steven Schwartz - Raymond James

Longer duration prior to the decline is what I’m asking you in 2007, I guess, with….

Carl Thigpen

Our overall liabilities back in 2007 would have been shorter duration than the current what it is now.

Steven Schwartz - Raymond James

Okay. And then one more from me, the non-agency, RMBS is not as important to you anymore as it was but any updates or thoughts on the re-rate, any re-rate is that going along, does that matter to you at all?

Carl Thigpen

We have looked at it and the actual model is not available to us. Individual [Lynette Curzon] that runs that -- in our actuarial group has looked at it. And we don’t think it’s going to make that bit of a difference to us. I think they might have -- we estimate about five or at least three points. So it affects both the CMBS and RMBS, all of our CMBS are AAA and trading way above par. And they are looking at potential value, liquidation value and with those being so much above par and where the liquidation value is, we don’t see what impacted on.

Eva Robertson

All right. With that if you would jot down your questions. If we miss them, we will open questions again at the end. And let’s take -- we’re little ahead of schedule but we’re going to take a 15 minute break. So that everybody come back five minutes after 10 and we will finish it out.

[Break]

Presentation

Eva Robertson

Well, hopefully, that was a good start for you this morning, some great questions to as part of Carl session. Our next presenter, of course, is Carolyn Johnson. Many of you, hopefully all of you had the opportunity to get to know Carolyn. She is our Executive Vice President and Chief Operating Officer, and she is going to give you an update about what’s going on with Life Marketing and Annuities.

So, with that, I’d like to introduce Carolyn Johnson.

Carolyn Johnson

Thanks Eva. I also have more slides than Rich and I also won’t be as long as him, but I’m going to be a little longer than Carl. The key focus for our Life and Annuity business is really been to improve the returns on the business. We do in a way that we have product that our customers find very appealing.

And so you will see as I go through my presentation this morning. We’ve seen a nice momentum in our Life Insurance business, as Johnny mentioned in his opening remarks. We have experienced a real downside in the Life sales throughout 2011 and early 2012, but we’ve turned that around and seen a pick up to bring us back to a level that was more typical for us in the 2010 era. But we’re doing now with products that have better returns and less interest sensitive a nature to them.

We are also seeing some constraining on our VA sales. It’s been a very fluid market. I’ll get into that in a bit and talk in more depths about that. If we look at improving returns, we can do that a couple of different ways. We can raise prices or we can reduce costs and we’ve done some of both. And it’s very important for us to maintain a very competitive cost structure. So we’ve focused quite a bit on that and we’ll show you some of our latest benchmarking data that’s pretty fresh off the -- for docket.

And then finally, managing crediting rates, now Rich is really going to spend more time on that then I’m. I’m going to just point out some of the product attributes that allows to do that, but Rich is going to show you some of the result of modeling there.

So let’s take a look at the Life sales. As I mentioned, we saw downturn until the first quarter that really hit the top or the lowest point for us, and then we’ve seen nice improvement since then.

As you may recall we raised prices very early on in the industry back in late 2010 and 2011, and the industry basically didn’t follow, so we were there alone with our higher prices, that’s not necessarily a way to drive sales, there was a way to drive better returns on the business and that’s why we made that move.

We’ve grown sales by a number of different techniques. We’ve improved our business mix and I’ll talk about why we did that and how we did that. We’ve also changed the focus of our distribution, not going into new distribution, but changing what we are focusing on and seeing some nice growth in the result of what were we focused.

We’ve also, as I mentioned, maintain operational efficiency. So as we look into fourth quarter and what we are seeing through the first little over two months of the fourth quarter, we are seeing that continuation of that trend of upward sales and are projecting about $40 million sales quarter to close this year.

In preparation for this presentation, back through all the different investor conferences I did and I pulled out that March 2008 presentation, one other things I told all of you back then was we were going to focus on institutional distributions, that’s a sales of Life Insurance through stock brokers and banks.

And we indeed have done that, back in 2007 that represented just 15% of our Life sales, but we’ve grown that, at the end of last year we were at about third of our sales coming from institutions and as of the quarter we’ve just closed at 40%.

So how we done that, in large part it’s been through more controlled wholesaling. We really migrated the wholesaling group that supports that effort to an employee group. So we have a lot more control over them. We have seen some shifts and our competitors in this space and we’ve also been able to grow in the institutions we sell in.

Why do we like it? Why is the focus there? Well, after an initial set up within institutions, it is much cleaner business. It comes to us primarily electronically. It’s easy to process. It just simply lower cost. It’s very high quality business. It’s highly supervised. We very get very little fraud in that source of business and there is very little anti-selection. So we see better mortality in the business, which is part of the mortality study or results that we’ve seen has come from us continuing to increase our sales to these institutions.

And then finally, it’s not a price sensitive. Institutions are very suspect about who they will bring in to their systems. So a lot of irrational players are not really able to get into this system and we simply see fewer competitors in that.

So we’ll continue to focus on the institutional part of our business and grow that. We think that’s a real sweet spot for us. We’ve been in it for 20 years. So we have a lot experience and our sales group is all very experience in that particular channel, so real focus for us.

How else have we really changed the trajectory on our Life business? The business mix has changed. As we went into this year, we knew well in advance of it that we were going to be facing some new accounting rules. And those accounting rules were going to out a pressure on our ability to differ costs on the acquisition of new Life Insurance business.

We simply won’t to be able to differ much of that costs associated with acquiring new Life business and its really preferred for us to do preferred business as more high quality cleaner cases were preferred because they simply place better. We have less waste in the business, if you think about underwriting someone with a lot of impairment, it’s not very certain where the price will be until they will get through the underwriting process and so sometimes there is thicker shock when you get through the underwriting process and the client simply doesn’t go ahead and make the sale.

So we have focus quite a bit on shifting from a standard and slightly substandard platform in our Life sales to slight majority of preferred cases, cleaner cases. Again, we see better placement and we are seeing better placement as a result of that. So we shifted from 23% of our business preferred at the beginning of last year to little over half of that through last month.

We are also seeing much less cost rate to underwrite. So the most expensive part of the underwriting process is all those doctor reports we have to get to underwrite the case. And they take a long time to get. They are expensive to get. They are expensive to underwrite.

With this shift, we are now seeing a third last of these doctor reports that we have to get on that business, because this simply a lot cleaner. There is most folks don’t see as many doctors in that cleaner case. So, nice progression as well to the preferred business.

The final step we have taken on the Life side to really improve our overall results is really our focus more to a transactional business and we are seeing very fast growth in our short-guarantee UL business, that business is less interest sensitive, it’s really capitalizes on our solid mortality experience.

So in the first quarter we saw that 8,500 applications come in and as of third quarter, we saw over 15,000 and as you look at the sales results that’s growing faster. So we are seeing that trajectory on that, that application count move much more quickly and we’ll see that continue to drive our Life sales to again more transactional, more mortality focus.

And we like that because we think we do a good job on mortality. And looking back to 2007, this is a chart, the bar charts are simply looking at our annual variance in millions of dollars on term mortality and that ranges from low of $8.6 million in 2009 to the best annual results was last year at $25.5 million, this year through third quarter we were at $35 million.

So, again very good results in terms of our actual to expected results posting those percentages there as well, they range from 83% to 95%. So, again, think we’ve positioned the Life portfolio in a way that we’ll see continued solid performance.

And then, finally, on the Life side, the other way to improve returns is make sure you are being very efficient in your operations. And so this chart looks at benchmarking we do with Deloitte and we compare it here to the median of the large players in that study. The large players include Prudential, Max New York Life, AXA, Lincoln Financial, MassMutual and many others. So they really are the really big players.

On the left side of the chart we are comparing expenses to our overall premium, overall Life premium, because those are expenses that are involved in supporting the overall block of business. At the top you look at customer service, at 1.9% of that premium versus the median at 2.6%.

If we were spending at the median rate we would be spending $15.4 million more a year to support that business. So, again, we see very nice efficiency there also in corporate overhead.

On the right side of the chart we are looking at new business expenses. And again these are 2011 data because it takes about a year for us to really find cleaner results with all the difference players that are in the study, in marketing, product and distribution expense is significantly at 18% of that first year premium compared to 28% for the median.

We are higher in our new business expense, that’s a function of a declining sales we saw in 2011 and that focus we had on that standard or slightly substandard business, which is more expensive to underwrite. Again back to the doctor reports that I mentioned. So we should see that shifting as we’ve shifted the focus for the Life Insurance business.

Right on the Annuity business, we have made a lot of changes in our Annuity business. Since we were with you last December, we have made series of changes to our VA business that has been a fluid business to be sure.

We have seen growth in the first three quarters. We are seeing a decline in sales in the fourth quarter. Our last series of changes was in late August but we are also making an additional change right now, this week and next week on the VA side. So we are getting to those place where we feel comfortable and we’ll talk about our plan here in a bit. But those changes have also resulted producing a product that has less risks and higher returns on the business.

So a lot of questions always on the variable Annuity side, so I thought, again, I would take a look back on where we were in 2008. And the reason I picked that is 2007 was when we first introduced a guaranteed minimum withdrawal benefit.

We came out in mid 2007 with the product. We sold less than $0.5 million -- $0.5 billion, less than $500,000 in 2007. It didn’t take off. In 2008 we sold even less. We’ve sold $500 million or $452 million. We were the 29th largest variable Annuity player.

So, all that to say, is we were not a very larger player in 2008, our first four-year with that kind of benefit. We’ve grown overtime but we’ve made a series of changes to reduce the risks and improve the returns on that product, and we’ve also made some changes to the old blocks, because we have the right to raise some of the fees. So we raise the fees on some of the old blocks.

So, this chart just looks at the product features. Our roll-up rates are at lease 17% reduced from where they were in 2008, withdrawal fee a 29% reduction, the rider and the M&A fees are both up from 43% at least on the rider charge and 24% on the M&E&A fees.

And then we added an asset transfer features that allows to take the customer out of their sub-accounts and a downturn in the market and avoid added risk for both the customer and ourselves. So, again, lots of different changes in the product, we’re pleased with the returns on that business. And I think we've made the changes that will get us to the right plan in 2013.

On the Annuity side as well back in 2008, when we were real small player in VA’s, we were criticizes not having much scale. We are the 15th largest player now. So we are still not a huge player and we have maintained that same position since last year. There has been no increase or decrease and it just a same position as a 16th largest.

But we also take a look at our competitive positioning here on the Annuity space compared to the medium players. We are compared to the mid-size players in the study. And if you look at the sales expense is significantly less at 5.9%, compared to 9.1%.

Our Annuity business has been always focused on the institutional sales space and again much like the characteristic on our Life side, which haven’t been focused on institutional but are growing in that space.

It’s a very clean business. It’s produced electronically. It is -- comes in clean and allows us to produce that at very effective -- in a very effective way. And we tend to pay lower commissions in this business as well and if we were chasing after the independent agent based. So we do focus our efforts on that institutional space for the Annuity business and these are the kinds of results we see on that.

Customer service expenses are right at median and we’re better than the median by a long shot on the corporate overhead. So, again very good results on the benchmarking side.

Johnny mentioned in his presentation the focused on the customer and we’ve done a lot of work over the last several years trying to find ways to produce benchmarking results like what I'm showing here and what I saw -- what you saw in Life side at the house through consolidation, system streamlining and alike.

So as we turn our attention to where I saw the benefit we can continue to deliver from a cost perspective. Our focus now is really looking at service improvement. How can we really improve the customer’s experience that also improves result at the same time.

So, in the benchmarking work we did, Deloitte started telling us a few years ago that we had a much higher good average result in self service transactions. We were doing a number of new things and allowing our customers to perform their own service 24x7, so if there is Saturday afternoon paying their bills and they want to change an address on a Life policy, they can go in and do that.

And so we started incrementally adding the self service capabilities for our customers, starting at 14% in 2009 of our transactions done that way, increasing 2% in 2010, increasing again in 2011. But really solve a big movement this last year as we went from 18% of our transactions done on a self service spaces to 28% of our transaction.

So, definitely one of the leaders in the space, but we are trying to do in a way that really improves the customers experience. So, for example, we do 5,000 beneficiary changes among. We now have that capability online for our customers makes up any changes if they want online.

We just introduce that in April. We are already seen 20% of those changes done online and it gives the customer specific information, any cautionary information about making minor beneficiaries and that sort of things. So it really improves their experience and it makes a lot more efficient for us. So really good result on the self service side.

We’re also doing that on the Annuity transactions and one example that I wanted to point out there is, we just introduce this year the ability for advisors to make their own trades on the sub account within VA’s for their customers.

And that’s tricky, because in our VA product, if there is a guaranteed minimum withdraw benefit, we only allow them to have 55% of those sub-accounts and equities. So, we needed to have the technique of limiting that if they're changing those sub-accounts and so we got all that technology in and are now as advisors can do that and really like that ability to do that transaction. So nice service improvement.

One other thing we saw on the Life side in 2000 -- in this period where we really increased the self service from 18% to 28%. We have brought in-house the former Chase business that we had acquired and that business increased our transactions by 33%. But yet we were able to lower cost by 1% during that period of time and a lot of that is really this ability to push out a lot of self service transactions to our customers.

Service improvements that improve results on couple different areas, retention there are some questions around retention and persistency. We’ve always seen pretty good persistency, but we do have a phenomenon at Protective where we have an awful lot of business that we rose, that has a level period premium and then it has a big increase in premium asset that level period is over, and that produces a lot of customers -- result in lot of customers are moving away from us during that period of time. So we've had a serious of efforts to really retain those customers in a greater degree.

Over the next few years, we have 120,000 customers that will be reaching that end of that level period. So, we worked with one of our reinsurers to optimize the increase in the premium with the mortality result. We’re testing that.

We've gone in and put in a in-house license call centers that help our customers make a good choice after the level period and has done a lot more sharing information with those customers.

And then we’ve designed our new product in such a way that the customers able to retain the product after the post level period with a level premium and the decreasing that benefit. So they are able to avoid that real shock of that much higher premium. So all those things are really directed at us improving and retaining more of our customers overtime.

And then the final improvement that I wanted to mention is our own contact center transformation. About 20% of our employees are involved in the contact centers, there is a big meaningful spend for Protective.

And we have overtime done a lot of work consolidating systems but we had not consolidated our contact centers, we have 19 contact centers, which is awful lot for a company of our size. So we have been working from of the year on the contact center transformations of really moving the results in our contact center lowering cost that also improving the result for our customer and allows the customer to get their answers much more quickly, lot higher first call resolution, which is the single largest indicator of customer happiness and also provide us the better insights and a better experience.

On 2013 plans, my last slide here on the Life sales. We expect to see about a 9% increase to $232 million, continue to see growth in that institutional channel. I mentioned we have produced the series of new products that have been approved that are compliant with the new regulatory changes.

The Annuity sales, we do expect to be down from all in this year about $3.2 billion. We expect to be down a bit to $2.8 billion but that’s again in line with where we want to manage our VA business and we expect the VA portion to be about $2 billion of that. Continue to focus on these service improvements that improve the customer experience while also improving results so that will continue to be a focused for us as well.

And with that, I’d like to open the floor to any questions you might have.

Question-and-Answer Session

John Nadel - Sterne, Agee

Thank you. John Nadel from Sterne, Agee. Carolyn, just a quick question and I’m not still familiar with the -- what is short guarantee universal life?

Carolyn Johnson

It’s a universal life a plan that offers the ability to pay just a level premium over period of anywhere from to 10 to as long as 30 years, but tends to be sold primarily in a 10 to 20-year period.

John Nadel - Sterne, Agee

And then slide 38, where you showed 2008 versus 2012, some of the changes in the Variable Annuity product, can you put some actual numbers…

Carolyn Johnson

Yeah.

John Nadel - Sterne, Agee

… on where the 2012 product stand, what’s the roll-up rate, what’s the withdrawal rates, those kinds of things?

Carolyn Johnson

Yeah. So if we look at 2008 the roll-up rate we had at that time was 7.2% across the Board. The majority of our products are sold now with 5% roll-up rate and the most we have is the 6% roll-up rate.

On the max withdrawal we had as a high max withdrawal of 7% that with age banded, so would be higher at higher ages, the max now is 5%. The rider charge was 70 basis points when we introduce it, it’s now 120. And then the M&E&A fees we’re at 105 and they are now at 130.

Mark Finkelstein - Evercore

Mark Finkelstein, Evercore. Actually just thinking about the slide 39 a little bit, where you kind of benchmark yourselves against some other in the Annuity business and I guess I understand your point on…

Carolyn Johnson

Just a 39…

Mark Finkelstein - Evercore

… your on the institutional component of sales, but that’s where a lot of sales are actually done in the VA business? And I guess I am just curious, it’s little counter intuitive, so your expenses would be that much lower than the peer group knowing that you are at 16 market share player versus kind of 29 a couple years ago like, are there other reasons or is there any differences in the data that would kind of explain this meaningfully more low cost bonds?

Carolyn Johnson

It is primarily driven by our focus on institutional business and primarily focused on. Again, we are pretty late entrance about the time we’ve got in we really worked on putting the systems in place to get very clean business. We have the lowest what they called NIGO or not in good order that is application that are not complete and need to returns. We have the lowest in the study.

So we yet very clean business. We work with institutions to do that and we haven’t drifted out into this independent agents and other are tend to be pay for at. They tend to want higher commissions. They tend to have a lot left in good order business and so that is a huge driver for that the cost structure.

The institutional business as well tends to have lower commissions, so on the sales expense as an explanation for that. Again, if you focused on moving into the independent agents based the underpaying a higher commission.

So number of those factors are in play and we’re first quartile performer in every major except for the customer service where we’re in a more middle of the road on the service expense. So, that I appreciate those seem maybe a little not intuitive, but it’s a result of lot of focus on the institutional space primarily.

Mark Finkelstein - Evercore

Okay. And then just secondly going back to your actual to expected chart on page 35 on term locality, and I mean I assume you priced to 100% that’s kind of definition. So, if you’ve been averaging and I think your pricing for next year kind of 92% actual to expected, you given us the dollar amount of the favorability and how it impacts earnings?

But how impactful is that on product IRR’s. I mean if you historically been somewhere between 90% and 95%, you priced obviously 100% and new prices to just over number 11%, 12% IRR product, like if you go -- if you are actually at 95%, what is that due to the IRR’s in the product?

Carolyn Johnson

Well, I think what Rich’s model does, is just bake in that assumption at that 92%. So, we’ve taken all the pluses and minus overall in the product and I'm not sure, I have a number I can extract, Rich if you want to comment on that.

Rich Bielen

Yeah. I don’t have that off hand Mark, so.

Carolyn Johnson

Yeah. Great question.

Tom Gallagher - Credit Suisse

Thanks. Tom Gallagher, Credit Suisse. If I understood you correctly there is more of a desired move to mortality based, few mortality based product profile away from interest rate sensitive products on the Life side, yet that would sort to suggest, you should be selling more term and looks like your terms sales are about zero or close to it?

So can you comment on, I guess, just competition what’s going on, and is this short guaranteed you well, your way of moving in that direction anyway maybe you can comment on that?

Carolyn Johnson

It is a great question. So if you look at chart 31. You will see that short guarantee which is a -- which is not, doesn’t show massive growth that’s why I showed on slide 34 that short guarantee submissions, how they are growing, have they almost double from first quarter to third quarter. So that really is where we are seeing sales of products that are much less interest sensitive, much more mortality focus and that’s why I showed that, because we continue to see that trend on that growing and I would expect.

I didn't break out the projected fourth quarter in terms of the components of that, but I would expect that, so the vibrant blue line of that short guarantee UL to be a bigger proportion of that fourth quarter than it has been in the last four quarters and so we will continue to grow there.

Tom Gallagher - Credit Suisse

What's going on in the term market that you are not really participating?

Carolyn Johnson

We are just -- as we focused on really improving overall returns and looking at our business that just wasn’t a place where we wanted continue to play with that product. We feel the solution is a good solution for us to short guarantee UL. So that’s okay. All right. Thank you.

Presentation

Rich Bielen

Clear everybody must be worried because they’ve given me already an extra five minutes. But I playing on hitting this on schedule really depends on the Q&A here. So, we are just going to get started.

The outline here we are going to really keep this very simple, it’s really we seeing a lot of ways, what we did a year ago, we’re going to go through our 2012 performance and reforecast for the balance of the year. We are going to go through our plans for 2013 through 2015 and give you that same granular detail we’ve given you before where you can see EPS, RBC.

You can see our divisional earnings plan and then we’re going to spend a number of minutes at the end about interest rate sensitivity and a couple of questions the call had that I’ll try and pick up in a couple of the slides on interest rates.

So to really start out is our reforecast now for 2012 given what our plan is for the fourth quarter would result in $3.68 of operating earnings for calendar 2012. I believe that’s very consistent with street estimates. What I’d like to do is go through each division and just spend a minute or two on each one and note some particular items.

In Life Marketing, we’re now forecasting a $180 million versus $126 million on our plan a year ago. What you see there is we had very good mortality as Carolyn pointed out which then mitigated the interest rate impact. But the real reason for the change is that in the beginning of October, we closed the securitization transaction with Golden Gate V where we will lease approximately $250 million of reserves from this line of business.

Traditionally, what we’ve done is we’ve credited to the line of the interest on those reserves even though they were redundant in that line during the period of time. So here in the fourth quarter, with closing that at the beginning of the quarter, we’re seeing a $6 million to $7 million reduction in investment income and so when we look at Life Marketing, we very much came in on plans of the year with the good mortality mitigating the interest rate environment but that deals really reflects the securitization.

In Annuities, we’re seeing a $108 million versus an original plan of $106 million. There we saw good market performance in VA. We saw good spreads offset by some DAC and marketing that we took in third quarter.

On acquisitions, with $170 million, really right on our $168 million plans for the year, the new acquisitions from Liberty and United Investors have performed very well. Our mortality has been good, and everything has been running according to plan.

Asset protection, we’re reforecasting for the year now, $20 million versus $30 million we presented to you a year ago. Subsequent to the meeting a year ago, we did see some changes in the business. We were investing in some infrastructure. We also then reprojected some yields in the line which brought it down. As you may recall, we had a lawsuit that impacted the line of business in the first quarter of this year.

And then we did see some higher claims where we’ve now responded with higher pricings. So our 2012 forecast now is for $20 million and we’ll show you what we expect in the future and then Stable Value with $57 million versus the plan of $43 million. This was the one line of business which actually benefited from the lower rate environment. We were little long in duration in this portfolio.

We’ve been able to bring our cost down as we repriced new business. And as a result, we saw much stronger spread. So that was a nice pick up for us, mitigating some of the other headwinds and the interest rates.

And then corporate and other, we’re now projecting a loss of $90 million for the year versus the original plan of $57 million. Two big things there, one is to recall we bought back some notes in the first quarter that resulted in a $35 million gain. We also saw some pickup in extraordinary investment income in the third quarter. Those two were the big changes that allowed us to outperform on Corporate & Other.

So for the year, we’re going to wind up in about $454 million. We did see a slightly lower tax rates. Our Asset Tax operating is estimated to be about $305 million and the share count is really right on at $83 million.

Okay. Now, moving forward, for 2013 to 2015, starting with Life Marketing sales, as Carolyn mentioned, we’re starting at $130 million and then what you can see in the next two years as we’re projecting about an 8% increase in each of those years going forward. Annuities, we do expect to be down from our 2012 numbers and that’s a result of moving down and making changes in our VA portfolio. And so we’re projecting $2.8 billion and then growth of about $200 million in subsequent years.

Asset protection, we have seen relative strong auto sales. This year, we’re going to see about $460 million in this division. We’re projecting for next year $475 million and steady growth after that. If you recall in the market right now, the average age of a car in the U.S. market is 11 years. So we expect there will be some replacement demand continuing over the next couple of years helping this division.

In Stable Value, we are now expecting a balance over this period of time to be $2.4 billion that is consistent with where we are currently but I will point you to the spreads. We expect spreads to be higher in 2013 than they have been in 2012 at 230 basis points, trending down slowly over the next couple of years to 215 and 200 during this period of time.

And then the Life Marketing, we’re assuming that our actual to expected mortality is 92%. This has been a great year at about 83% through the first three quarters. If you look back at the prior five years, it averaged 92%. So we maintained that 92% ratio.

Some other general assumptions, we don’t presume any fair value with DAC unlocking changes when we look at some of our model. We do presume that we will generate $15 million of excess income from some source whether it’s participating mortgages, make [calls], no repurchases. We do plan on continuing our buyback to $100 million per year and we’ve estimated for the model at 85% of book value.

We maintained a stable debt-to-capital ratio in the projection so that you could see how our RBC improves during this period. We’re assuming incurring capital spend as there is no changes as we look at the business.

We did reduce our earned rate on excess capital and RBC a year ago. We estimated that would be about 4.25%. We’ve now reduced that down to 4% in light of the lower rate environment. One point Johnny made is and I’ll repeat it again later is that future interest rates that are projected in the model are based on current levels. We do not have a projection of either using the forward curve or a reversion for the mean methodology.

So this reflects actual new money that calls on investor day and that we put into our business plans over this period of time going forward. For VA, we assume equity market returns of 8% but I will remind you that there is a limit in those accounts as Carolyn mentioned of 65%. We don’t allow people to be 100% in equities. And so no account holder can ever be more than 65% equities in that portfolio.

And that our GAAP effective tax rate versus the year ago is down a little bit. It’s 33.4%. So with that, here is our new three-year plan. The 2012 with $3.68 with a 10.8% ROE due to the Golden Gate transaction, we are projecting that our RBC will end the year at approximately 490% which is much stronger than we would have shown you a year ago during this process.

And we have paid down some debt this year. So we’re at 29% debt-to-capital. As we look out on earnings for the next three years, we are at $3.80 for 2013, $4.20 for ‘14, and then $4.80 in 2015 and this is not including acquisition. And our ROE at that point would be over 11%.

On our RBC ratio, you can see that our RBC ratio continues to grow from 490% to 510% and by 2015, it is at 530% under this plan. Under our plan, we’ve only run one sensitivity for you this year, and that is an acquisition and this year we’ve kept this simple where we’ve planned the acquisition for 114. I want to give you the opportunity to be able to do to ratio things to evaluate things for yourself in this process.

So what we did here was, we assume that we could execute the transaction on January 1, 2014 for $500 million. We assume the earnings pattern and the returns that we generated on our last two acquisitions in 2010 and 2011, and we basically modeled those into our plan model.

We also continue to do our stock repurchase at $100 million a year. And what you can then see is our 2014 earnings grow from $4.20 to $4.60 and then our 2015 earnings grow from $4.80 to $5.40. The reason for the bigger growth in the second year is that our first year of acquisition, we always have a lot of conversion expenses, the simulation in there. So the second year is usually the peak year awardings that occur out of an acquisition.

If we’re able to execute an execution of this type with these returns, what you can see is by 2015, our ROE is now at 12.3%. So the impact of $500 million acquisition improves our ROE by over 100 basis points, one that’s fully in place.

When you look at the RBC ratio, this is one thing that I really believe is new information for everybody, we’ve really focused on our returns on our capital management so which you can now see in 2014 even after spending that capital at the end of the year and maintaining the repurchase, we would still have an RBC ratio at the end of the 2014 of 445% and then quickly starting to rebuild that so that by the end of ‘15, we’re at 475%.

And in fact, we didn’t change the amount of debt with the bigger earnings and with the biggest denominator on our stockholders equity, our debt-to-cap actually starts to deleverage slowly there just because you got the bigger equity base at the same time.

Going back, one thing is we’re about as much transparency as we can provide to answering your question. So if we go back and look at our conference of the year ago, we plan for $3.28, $3.80 and $4.35 as our three-year role. What we’re telling you now is 2012 -- 2013 has not changed.

We’re still expecting $3.80 in 2013. We did see the headwinds from the lower rate. So we do expect 2014 to be a little lower at $4.20 and then our models shows that we’re moving up to $4.80. And I will remind everybody that we’ve really focused on laying out these plans, what we’re able to do and we’ve been able to successfully exceed those results and those plans for the last three years in a row as we come out of those conference.

Now, I’ll go through the earnings on a segment-by-segment basis and I will start with Life Marketing. As a result of our Golden Gate V transaction, our Life Marketing earnings in 2013 are now at $105 million versus last year’s plan. If you notice there’s a footnote at the bottom that shows as a result of doing the reserve financing, we projected our earnings versus our prior plans would be reduced by $28 million in 2013, $33 million in 2014, $38 million in 2015 as we released those reserves.

Previously, we just assumed the redundancies continue to build in the line. Annuities with the strong sales we’ve had in the past, a strong market performance, we’re now projecting that our Annuity earnings for 2013 has moved up to $150 million and you can see continued growth in earnings that by 2015, earnings would be $201 million based on the plan we’ve outlined.

We don’t have a lot of role loss in the business. So as we’ve been selling, it’s really been dropping to the bottom line for earnings improvement. Acquisitions at $162 million is exactly what we’ve projected a year ago and then you see a decline over the next two years to $148 million and $144 million. And I want to make one point about our 2014 year for both Life Marketing and in acquisitions.

As we have been modeling out the portfolio, we have identified an anomaly in one block of business. And it is 15-year level term business that was written in 1999. And if you recall, 1999 was the last year prior to XXX. So the industry had a lot of sales at that point.

We heavily reinsured that business that have both our Life Marketing operations and in chase, they also did a similar thing and the thing is as it comes to the very end of that level-term period with the reinsurance behind it, we’re seeing some anomalies in the model. And so when you look at the earnings pattern of the divisions, I would really look from 2013 to 2015 in both Life Marketing and in acquisitions as to more consistent earnings run rate for 2014 as being impacted by that anomaly.

And so we’ve spent a lot of time looking at it and we could identify when the 20-year level term also comes due in 2019 and we’re able to figure out what was causing that.

On Asset Protection, we expect a pickup in earnings this year to $25 million and some nice growth over the next two years. Stable value, we’ll have another strong year with 230 basis point spreads and $55 million of earnings with compound. And then Corporate & Other is our -- basically our unallocated overhead at this point.

You can see that will be a loss of roughly $40 million decline in couple of years. So next year, we’re projecting pre-tax operating of about $457 million, after tax operating at $304 million, which will result in operating EPS of $3.80.

I’m going to now move to interest sensitivity and I think there is a couple of things. One thing that some of the questions from Carl and Carl’s chart is you saw us extending our asset duration. That was a conscious decision but I think there was a question about whether we will matched in 2008 and the answer is we were matched at that period of time also.

But one of the things that we’ve really had to disappoint of doing is going back in and looking at the portfolios and re-estimating durations. And so what happened as time has gone through, if you would ask me in 2008, what the duration of the Annuity might have been that was not in the money on its guarantee, I would have probably told you or five.

As the lower rate environment has occurred and those policy holders now having in money guarantee on their interest rates, we have requested those lower losses and extended the duration. So we had a combination of things that caused us that we do a couple of acquisitions.

We’ve done more Life business versus Deposit business but we also re-estimated all of our liability durations as we recognized in the moneyness. So during this whole period of time, we always had a rule of thumb that we would maintain a match within roughly a half a year during that period and we will always match within that period.

But the key was we didn’t just leave durations alone, we recognize the changing environment, recognize the changing guarantees to our policyholders and made those adjustments and that’s why we were very comfortable extending out the duration. That’s work we do on a monthly basis, the quarterly basis, whatever is necessary in order to update those.

And so now on interest rates, new business, we are pricing using current interest rate levels. So in Stable Value that is live, Judy Wilson looks at the Bloomberg screen, those where the treasury is, know where her model portfolio is and bid those out at any point in time.

In the Annuity business that’s a weekly process. You are going retail, so it’s a little bit slower, we may not change rate every week, but we monitor them every Friday morning to make sure that we are managing appropriately.

And then in Life product pricing traditionally those products are relatively slow moving, it takes a lot, it go through the review process and the approval process. So we would normally approve price, review interest rates every six to 12 months.

In light of all the changes here and the review of all of our products and the changes in the marketplace, we are current on all of our Life products in the market at this point. As we go into 2013 everything that we have that will sold is being priced at current interest rates. So there is no lag at this point and I’ll show you some model as we go through here.

On the In Force business, we go through a very rigorous ALM process and that’s why we identify the changing durations of our liability and make sure that we were reflecting that and so our current overall portfolio duration is 7.45 years, that would be an average life of roughly nine years if you are thinking about it that way.

And therefore the reinvestment risk is minimized and we know that this presentation will be repeated and look at again, and I want to make sure that you realized that projected future impact of these low rates is already reflected in the financial plan at this point.

And so here is a chart of our interest sensitivity on our In Force business and this is a chart I introduced a year ago, we’ve now updated it. And I’ll walk you through what the chart means.

If you start in the upper left hand corner at $25.3 billion that represents all of our interest sensitive business. So it represents our Life Insurance business, our Stable Value business and our Annuity business.

It excludes our corporate and other portfolio. It excludes the ModCo’s. It excludes some captive financing that we have. These are the businesses where you would do your DAC unlocking and are really looking at what your earnings versus what your crediting.

Over the next five years we are projecting that the In Force liability declined from $25.3 billion to $19.1 billion during this period of time. We also point out at the bottom our Life reserves as we’ve said are at 413.9 billion. They grow modestly over this five year period at $14.8 billion.

We have in order to mitigate some of the interest risks, we managed our deposits portfolios a little bit longer, which is why you see such strong spreads in the Stable Value portfolio, but it is difficult to manage all the reinvestment risks in the Life portfolio, but when you blend those together, I’ll now walk you through the bottom.

At the end of the third quarter, the asset balance according this business was $25.6 billion. We were actually a little over invested and if you look at our third quarter balance sheet, we had repo outstanding of about $300 million. Reason was we saw cash flows coming in and so we have pre-invested those cash flows during the period of time.

As you now walk down the chart on the left hand side and it matches the red line across the top, our asset balance declines at the end of 2013 to about $23.8 billion and then asset value, you can see our asset declined by a little over $1 billion each year.

The middle column then represents the mismatch that we have on our assets to these In Force liability and which you can see is the mismatch drops to $183 million, actually by the end of 2015 we are over invested on the In Force by about $400 million and then you can see in 2017 we actually start to have some reinvestment risks, meaning, we have had more maturities come in and yet the reserve is still on above and that’s all been reflected in our earnings model as we go out over time in our DAC unlocking.

If you look the other important things to note is as we’ve been expanding this curve point out, we’ve been able to buy a lot of high yielding assets, so this portfolio is dedicated to this, remains pretty constant at 5.9% yields during this entire five year period of time. Carl’s chart shows 5.6%, difference being the corporate and other and financings which have lower interest rates.

So when we talk about being well cash flow match, I think this is a great example of we do this work all the time, we identify it and we’re already starting to see, we see the mismatch in 2017, and we’ll slowly try and extend the asset out of there to try and bring that mismatch down. But when you look at the magnitude of all those numbers, they are literally within about 2% of the liability balances, so the interest sensitivity here over this period of time is relatively low.

I then did, this is a new slide, and there is a lot of questions in the industry and when I talk the people about, what your interest sensitivity they are earnings. So what we attempted to do here is to give you sensitivity that you could see what happens to our earnings. So I’ll start with the base case is the black line where you see the $3.80, the $4.20 and the $4.80 over the next three years.

What we did was we looked at our 9/30 DAC unlocking process and shock or reinvestment assumptions including what happens to the liability by a 100 basis points up and 100 basis points down. And so our base assumption and our base model is the new money is at 4% and very consistent with what cause been able to reinvest in during calendar year 2012.

The individual investment ranges though, range from two and three quarters percent depending on the line of business to as high as 5% and as Carl indicated, we can view commercial mortgages in the 5%, there are BBB bonds in the 5%, so you have a blended new money of about 4%, but as we went through each individual line we assign specific interest rates. We do not assume the treasuries are going up during this period of time. Those reinvestment rates were held flat for the entire life of the business.

That’s how we do DAC unlocking during the third quarter and so we didn’t talk about any contributions in new business. This is I pointed out. We repriced new business constantly, whether it’s the Annuity, Stable Value, Life business. So assume that our returns are what we are going sell at that wouldn’t really affect us, what you really worried on is the In Force and what you can see on a run rate earnings, we are really within a plus or minus 5% then over the next three years with those shock.

The one point I’ll note and it’s in the footnote here is that as we assumes 100 basis point lower interest rate on reinvestment on our In Force it would have result in a $0.66 DAC unlocking charge during the third quarter. So that is less than 2% of our current book value ex-AOCI.

If we saw up rate we would had a positive DAC unlocking of about $0.34 or about 1% of our book value. The reason that they are not symmetrical on the unlocking is on the downside, you hit minimum rate guarantees with your policies, while on the upside we’ll assuming that we manage toward spread. So that won’t keep all the upside. We are going to manage the business to our policyholders.

So I think this is our attempt of putting out some interest, some information around interest rates and sensitivity, so that you can judge, so there has been a lot of questions in the industry, there has been lot of question that I receive overtime where people want to know what happens, and so I thought this was an easy way of shocking it, but now giving you some parameters over the next couple year.

And with that, I will take questions.

Question-and-Answer Session

Sean Dargan - Macquarie

Sean Dargan from Macquarie. Rich, principles base reserving has been in the news last couple of days. I was wondering if you could maybe let us know, how you are thinking about it, what it could mean to product pricing, the need to use captives, over the next, three, five years?

Rich Bielen

You want to take it Johnny? Again, now that Johnny using in my time, I’m all that…

John Johns

Okay, Rich. It’s great question, Sean. There was an article I guess in the Wall Street Journal this week that projected or forecasted that the consequence of the NAIC taking the first step toward -- moving toward a PBR system, a Principle Base Reserving system that we might expect improve profitability I think for the industry. We saw the thesis of the article.

And I think what’s need to understand about PBR and again, in my opening, I said, we are very engaged on that as we are most topics, Wayne Stuenkel our Chief Actuary is very much in the middle of the -- has been middle of fray is that, PBR is really not going to occur for long time I think.

The first step was to get about 42 states to approve it at the NAIC Meeting but then it doesn’t really go into effect until you 40 some odd states, state legislatures that would also represent 75% of Life premium in the U.S. to approve it.

Lot of legislatures only meet every other year. This is going to be new. There’s going to be a lot of conversation. So I think PBR is the good thing. I think, ultimately, I personally don’t think that the impact of it will be improve profitability, returns margins for insurance companies I think it will and ultimately probably nearer to the benefit of consumer by keeping the pricing of products, more reasonable.

I think it overtime will reduce the need for captive I hope and it will reduce the complexity of our business models, which I think is one of the problems that the industry has with investors. But I think PBR is still kind of out there somewhere and I think that we are really focused on it.

Sean Dargan - Macquarie

Parts (inaudible)

John Johns

Yeah. And of course, it only, it doesn’t apply to In Force business, only to as Wayne Stuenkel points out, is really prospective in applications. So whatever is on the book is on the books.

And so we’ll gear up and we’ll be ready to deal with PBR. There is a lot of investment in systems, in technology, which you need, it’s a more complicated way of calculating reserves and formulas, but we’ll be ready, but it’s out there somewhere in the future.

Rich Bielen

Mark.

Mark Finkelstein - Evercore

Mark Finkelstein. Actually one follow-up on that and I know, Rich, I talked about last night, so maybe the question Johnny. How do you see the captive to be playing out?

Rich Bielen

How do you see the captive to be playing out?

John Johns

All right. Again. Yeah. Again, I think this has been covered largely in the news papers, in the financial press, but our some members of the in the single leadership in the NAIC have raised concerns that there is not adequate supervision or regulation of captive transactions.

The e-committee of the NAIC has created a task group to study captives. They have white paper that’s been circulated for comment. We understand the revised white paper will be out 21st of the year.

The -- I think one other issues with respect to captive is there is not a lot of understand on the part of regulators broadly and I think even on the part of some us who use captives in terms of everything that’s going on out there in the captive world.

And we the -- I see a lot of the industry are quite concern that regulators were about to make some snap judgments about captive, without really understanding all the fact pattern, they probably heard us something, that maybe edgy in terms of the way captive have been structured. I don’t know. We haven’t done one of those, but you that kind of story out there.

So what the AC law has asked of the NAIC is that they established a senior level a kind of task group and that the very much like what was used on AG38 process, you get some of the best thinkers in the NAIC and get their staff to have a dialogue with industry, go through a process of discovery and expiration, and find out what’s going on, I actually be curious myself to know more what’s going on out there.

So I’m hopeful that seems to be well received by the leadership that they are now coming to review that maybe we don’t need to just put the curtain down captives, there maybe some good uses of captives, or maybe some abuses of captives. But we need to understand the difference.

So I think we are about to get into a process as we did on AG38, where we have change information with regulators and try to move toward some kind of middle ground position. My personal view and this is just me and so take for what is worth is that our captives will not go away. There will be a need for captives in the -- even in the post-PBR world, because there are still be some redundancy in actual PBR.

And so but maybe some of the, there will be more focus on transparency, consistency and just a quality of collateral behind securitized reserves, those will be the three things that will get the attention, there maybe some changes there.

Mark Finkelstein - Evercore

And then, I guess, just one follow-up, I mean, you obviously have a lot of capital currently with the recent Golden Gate transaction. And I guess, I’m just curious, how long do you let that capital sit on the balance sheet before you have start thinking about a plan B if you can’t executive a large transaction and knowing that there are some limitations on buybacks, what would that plan B look like?

Rich Bielen

Well, I think, one, is that we are optimistic that there are acquisition opportunities out there. We don’t think there is just one, we think there is multiple over the next few years. We think that’s a secular trend.

I sensitize the RBC and the debt-to-cap. We would probably paydown a little debt and reduce the RBC and reduce some of our financial leverage there. I think as our earnings grow, we would reconsider what we are trying to do back to shareholders overtime. But I wouldn’t want comment to a timeframe. John?

John Fox - Fenimore Asset Management

Okay. Thank you. John Fox from Fenimore. Rich, you didn’t mentioned the dividend in your capital and you kind of bit increasing it, what should we assume going forward?

Rich Bielen

The model for simplicity assumes just the stable dividend rate at this point. Our Board usually reviews the dividend very May and we’ll make that decision when we do that.

John Fox - Fenimore Asset Management

These figures assume flat at the current rate?

Rich Bielen

These -- those figures assume flat at the current rate.

John Fox - Fenimore Asset Management

And then if I do next year to this year I mean Annuities grow 40%. And I understand this year includes the low third quarter but lot of growth. Could you just comment on that has come from your account balance growing or is there anything else going on there?

Rich Bielen

Well, it really is the account balance growing. I think what you can see is that our run rate is probably in the low 30s already at this point. So if you annualize current run rate, you’re already close to $130 million at current levels. And as I mentioned, we don’t see a lot of run off in the block. And so the new sales we’re adding to it and so it’s really coming from account balance growth there over this period of time.

John Fox - Fenimore Asset Management

Okay. Thank you.

Rich Bielen

John.

John Hall - Wells Fargo

Thanks, Rich. John Hall with Wells Fargo. And the topic is the M&A reference. In the sensitivity presentation, could you just mention what the effect of interest rates might be on the volume or opportunities in M&A whether it changes there for you. And then sort of it is a follow-on, Johnny mentioned some, I guess, new competitors within the M&A space and I was just wondering if you could characterize what effect they are having on the market place that are broader, more competition or whether its bringing more properties to the front or just could you talk about that a little bit?

Rich Bielen

Let’s deal with your interest rate question first. The interest rate question, I don’t believe it would impact. The way we would price the business would be for current interest rate. So we’ve the opportunity and the seller is willing, we would be prepared and so the returns in the model shouldn’t be impacted by rates themselves.

I would say that if these lower rates, one of the difficulties is there is probably more of a bid/ask spread between our reinvestment assumptions and what sellers may want. But we saw slightly higher rates. I think that would probably help move some properties and close the bid/ask spread between ourselves and may be some potential sellers out there.

Then the second piece of your question is around the new players in the market and of all of these established companies, we probably know the new players better than anyone in the market because going back to 2006, we did a transaction with Wilton, we did a transaction with GS Re when we did chase.

Here, nobody Life, we worked with a team and I do think they’re focused traditionally, especially the more recent players who is on the Annuity business. Our focus is more on the Life business to the extent that they’re able to approach companies and find opportunities that’s probably going to create more activity out there as they do the things that they like to do to add to their book and they probably will give us some opportunities because maybe there is some blocks of business that they are not interested in on the mortality side that we can then benefit from. So I do think their activity is increasing the conversations around doing deals.

John Hall - Wells Fargo

Thank you.

Presentation

Eva Robertson

At this time, our speakers will join us on the stage and will open the Q&A for everyone. We will keep -- we've got your questions, we’ll keep going.

Question-and-Answer Session

John Johns

Again, I’ll be just more of a moderator of your questions now. I’ll answer the ones that are easy and I will refer the hard ones to my colleagues. So go ahead.

Joanne Smith - Scotia Capital

Rich, Joanne Smith from Scotia Capital. Just on the sensitivity analysis, I’m assuming that the shocking is immediate increase and decrease in interest rate?

Rich Bielen

That was done as of September 30. So you could see exactly what the change was versus what we reported in our unlocking at that point.

Joanne Smith - Scotia Capital

And then, are there any management actions incorporated into this sensitivity analysis that you could take to mitigate some of the impacts of…

Rich Bielen

They were not. There were no management actions. That’s a pure sensitivity.

Joanne Smith - Scotia Capital

Is there any assumption on the up 100 basis point scenario of any kind of a shock lapse associated with that?

Rich Bielen

And up a 100, we would not see any real shock lapse at this point given the low level of rates. We didn’t go into the more dramatic scenario. We thought this was the appropriate one but you don’t see a real increase in lapse at that point.

Joanne Smith - Scotia Capital

Okay. Thank you.

Steven Schwartz - Raymond James

Raymond James. Just following up on the interest sensitivity of those two charts to begin with, you’ve got the rates going up and down 100, it goes from 480 to 453. Previous chart shows the reserve, the asset liabilities are all very well matched. So what is going on here. Just basically, this decrease is just basically not changing prices of new business. I think that’s very much a follow-up on Joanne. What drives that, if the matching is good?

Rich Bielen

Let me -- because new business, we did not sensitize new business in here because the assumption is we’re repricing all of the tide. And so we’re going to assume that we’re going to price for our returns and those returns will come through the model. So the sensitivity you are seeing here really relates to reinvestment risk and not each portfolio, what you’re seeing is a netting. Not each portfolio moves exactly the same way.

So the down scenario where we see the impact, it comes in Life Marketing and it comes in our Corporate & Other portfolio because we have to reinvest at lower rates. But there is some mitigation, our Stable Value spreads will go even further up in that scenario. Our Annuities hold in very well. So there is some mitigating things going back and forth within the division because of the complementary risk.

Steven Schwartz - Raymond James

Okay. Thank you. And then one more if I may, with regards to the sector, the cyclic guidance in Golden Gate, Life Marketing down obviously because of the reserves you are taking up. Did those reserves, that capital go into Corporate & Other? Is that the offset there, that’s why that…?

Rich Bielen

Yeah.

Steven Schwartz - Raymond James

Okay. All right. Thank you very much.

John Nadel - Sterne, Agee

Thank you. John Nadel from Sterne, Agee. Couple of quick ones, one on the $500 million acquisition scenario, is that the equivalent of 65 points on the risk-based capital ratio. Is it assumed that it’s entirely cash?

Rich Bielen

It assumes it’s entirely cash. The number you see on RBC, we do returns on capital within the first year. Right now, we’re 100 RBC points for the company as approximately $650 million. So you can equate everything.

John Nadel - Sterne, Agee

Okay. Then just following up on the Annuities forecast, if I look at 2013 and ‘14 versus last year’s look at 2013 and ‘14, the earnings expected from the Annuities segment is up about 15%. All the other segments, I think are really very stable when you adjust for the reinsurance exceeding rate, the reserve piece at Golden Gate V. What’s the driver there? Is that primarily just compounding of the market and growth or is there something else going on in Annuity?

Rich Bielen

No. It’s just the -- our sales have been higher that what we would have projected a year ago. So that’s contributing. Good equity markets are contributing to future federal fees on the VA business. That’s also coming through in that.

John Nadel - Sterne, Agee

And then how do we sensitize Annuity earnings to the market. So you have assumed an 8% market return. I assume that’s the total return?

Rich Bielen

Yeah.

John Nadel - Sterne, Agee

How do we think about if the markets were flat versus that 8% or 7% versus somewhere to think about that?

Rich Bielen

We ran a numbers of their different markets. It was at 5% and the equity market always recall not the entire account balance. It might impact earnings next year by $10 million. So just give you some sensitivity on that. It’s not on a pre-tax basis.

John Nadel - Sterne, Agee

And then last, can you just remind us what Life Marketing mortality at 92% is assumed. What’s the 1% change equate to?

Rich Bielen

On an annual basis, it’s about $2.5 million.

John Nadel - Sterne, Agee

Thank you.

Dan Bergman - UBS

Hi. Dan Bergman with UBS. I know you mentioned that interest rate headwinds are reason why your 2014 EPS estimates that’s going to come down versus last year. I was hoping you can give a little bit of color on kind of how much your interest rate and kind of new money yields assumptions have changed kind of now versus what you guys have been assuming a year ago?

Rich Bielen

The numbers what we see is that when I compare the model today to a year ago, the place we saw the decline in earnings is one in Universal Life and Life Marketing because we are coming down closer to the minimum rate guarantees. And what we’ve projected a year ago, the 30-year treasury was almost a 100 basis points higher. And so we weren’t yet hitting those minimum rate guarantees.

The second place that we saw some impact was really on the Corporate & Other portfolio because this capital is coming back, we’re now assuming a lower rate as we go through it. And those were the two big deltas that accounted for the $0.15.

Dan Bergman - UBS

And just on kind of new product pricing, just a clarification, now you’ve talked about kind of pricing using current interest rate assumptions. What do you assume kind of the life of some of these long duration products?

Rich Bielen

12%.

Dan Bergman - UBS

For keeping it flat.

Rich Bielen

Yeah.

Dan Bergman - UBS

Thank you. Is that $10 million on the equity market, is that pre-tax or after tax?

Rich Bielen

Pre-tax.

Dan Bergman - UBS

Thank you.

Tom Gallagher - Credit Suisse

Thanks. Just a question about your plan, I guess, Johnny, probably best for you. If I look out relative to now to 2015, you guys now have the Annuity segment generating nearly 40% of your earnings by 2015 and today, they are call it 25%. Are you comfortable with that larger proportion of your business being at VA considering, realize not all VA but largely the growth is VA considering how the public markets that we’re. How would VA type of companies are being valued today?

John Johns

Yeah. Tom, it’s a great question. I think maybe one or two of your published recently on sort of the fact that investors seem not to have a great appetite for putting a multiple loan variable Annuity earnings. And I could say, our view is we think that variable Annuity product that we are selling today is quite a good product and we think it’s well managed from a risk perspective.

We think we’re able to hedge it effectively. We are going to hedge budgets. Carolyn went through all the mini steps we’ve taken to both enhance profitability and reduce risk in the product. But at the same time, we think that it’s important for us to maintain a healthy balance between mortality and equity market and interest rate sensitive and equity market sensitive products. So that’s when we do have a plan to moderate VA sales down and of course with an acquisition with a focus on mortality reserves as we have, we kind of get that back in balances we’re doing another acquisition.

But generally speaking we’re comfortable with where we are. Honestly, we also think that the VA product, chase is going to continue to revolve to require less hedging in less kind of embedded derivative content in the product and we want to be there. We want to be there with distribution as that product gets better and better from a manufacturing perspective.

Tom Gallagher - Credit Suisse

I guess, it’s a follow-up on that too, especially if we’re entering into a round where this is the largest single business that you’re going to be in. What is the main risk that you guys see? Is it with regulatory reform and what’s going on in derivatives market, make it tougher to hedge? There is more uncertainty there. Can you talk a bit about the risk of that business as you think about it?

John Johns

Again, I think, I think it’s interesting that a lot of the risk of the VA product really optical risk. If you think about what you’re reacting to, on the GAAP accounting rules, we’re constantly calculating a hypothetical future value in over 30 or 40 year liability. So I think the risk is really just optical volatility and the product we have not had a difficult time hedging that liability and making sure that we don’t have unacceptable volatility on a statutory basis as well through a very volatile cycle.

We really got into the hedging mode in an important way of reaching 2008. About that time, Europe was starting to implore spreads widened. The Feds announced quantitative easing and yet our hedging is tracked with a very little breakage as you know from following as we do with that very little breakage in our hedging over the last couple of years.

We don’t hedge as -- I hope you all know we don’t hedge the spread component, the CDS component of that calculation. It’s not economic. Its very hypothetical. It’s below the line and we think that’s just fine because to hedge it, we have to take on real credit risk. The trade you would have to put on to do that would entail taking credit risk. I don’t know that there is -- I don’t know see any real. I guess, there is always the risk of regulatory change. I don’t really foresee that in a short-term anyway with respect to that product in terms of our capital charges.

I would hope that actually we might engage regulators with the discussion around some of the imperfections in [C3 phase II]. We have some anomalies in it and actually create so. In down scenarios, it creates some anomalies that I think probably are warranted under good regulatory policy. I think we’ve pretty well got that product kind of scoped out, zeroed in and managed pretty well.

Rich Bielen

I just want to remind you one of the things as you look at that is when you combine Life Marketing and acquisitions, those two together are $285 million of earnings. That continues to be the core and a stabilizer. And that’s why we’ve talked about managing at certain level of the compound that we’ve got that stability in there and can have some. But I don’t think we intend on just growing the balance.

John Johns

We don’t intend to become an Annuity company.

Rich Bielen

Right.

John Johns

Maybe another way of putting it.

Eric Berg - RBC Capital Markets

Thanks very much. Eric Berg with RBC. Just one question, I’m still very interested as I have been in the past about the favorable Life Insurance mortality and my question is this. If you have your expectation for what you think the death rates will be and you price accordingly. And then you do better than, that’s favorable to your earnings but isn’t that really lock rather than skill. In other words, I’d say it again, if the pricing reflects, do you really think that debt rates are going to be and then for fewer people are dying than you expect it, you’re getting a positive surprise which means to me that it was just lock?

John Johns

About conservatism.

Rich Bielen

Yeah. Right.

Carolyn Johnson

Yeah. I would say there is also some other things we’ve done on this and I did put that private industry, Eric. This is not the only investor conference, if I didn’t get the mortality question from Eric but we have done things over the years where we have added in underwriting groups that talks directly to the customers, ask them questions about the mortality and we have gone in with a very conservative approach on how much that would improve mortality because Rich hardly lets them get away with any sort of aggressive news.

So it was very conservative about mortality improvement we would see. And we saw much better improvement. So mark, well it’s actually something the company has introduced that achieve better mortality. Another thing, one of the reasons, I brought into the discussion around the change of focus into the institutional distributions is that distribution as well tends to have much lower anti-selection and we have much better mortality. And so we have much better mortality. And so as we have grown that distributions, we have seen better mortality coming out of that. So is that lock or is that a company action, well maybe a combination of both in both those cases.

Eric Berg - RBC Capital Markets

I also have one question about your slide 32. I was very surprised by dealing with the shift institutional distribution. So, as I remember Protective grew up as a PPGA company what are the personal producing general agent, agents who ride heavily but not exclusively for you.

I would have thought that the result of going to having stock brokers and independent agent would be exactly the opposite result which you expect which organic mainly more anti selection, more competition, more price competition, more spread sheeting as you move away from your own people selling your product I would have got, you would have got exactly the opposite result if you get?

Carolyn Johnson

Yeah. Couple comments on that I mean I can see where that might be in initial perception but PPGA distribution system for our company and other has really emerged to be not a very exclusive plug. And so those folks as we made the decision they really sort of move away from focusing on that channel, we found them to be very much broker. They were shopping every case and they will work with their customers on the questions on the underwriting process in a different way than the stockbroker does. And if stockbroker just as one of many products that brokers sells and they are not particularly focused on making a breaking there living, selling Life Insurance and so there are not inclined to put a sum on the scale when they are trying to have their question answer around mortality.

So we have been in the business 20 years and have sufficient business on the book just to look at mortality studies on it. And we simply are just seeing that our mortality result and then as well sort of a hidden cost of the business is fraud and this is heavily supervised business on the stock broker side your plan with fire. If you do any sort of fraud because you don’t just potentially lose the sale or lose the customer, you lose your job and you lose your carrier, if you do at the wrong way.

So, big, big risk for them to do that and so we’ve also seen few much -- much lower cost in any sort of litigation or settlement activity in that business as well. So, that’s really why wanted to pointed out today because I didn’t think it would be that obvious why we would have made that change but combination of market factors and just as enjoying and realizing some of the benefits we’ve seen as 20 years of experience we’ve had on our stock broker side.

John Nadel - Sterne, Agee

Thanks. John Nadel again from Sterne, Agee. A couple of questions just to follow-up on the variable Annuity business so that rider fees today about 120 basis points I think. Is that covering hedge costs or are you making a margin on the riders?

John Johns

We are.

John Nadel - Sterne, Agee

And then is there way to perhaps somewhat simplistically help us understand with capital charges for VA, fully hedged with the GMWV rider selected, as a percentage account value as a percentage of something. I mean how much capital is really going behind the incremental VA sale?

John Johns

John I know that question coming from presentation week ago. So, I really I would tell you as…

John Nadel - Sterne, Agee

I know I asked that presentation.

Rich Bielen

As we’ve done our pricing what you actually see is capital if you are really going, the economic capital could be different by each sale, each age gender in that process. If you look at the current product that we’re offering, on average we would suggest that the right amount of capital would be approximately 4% of the account balance with our product with all riders.

So I’m very careful with our roll-ups because every product is different but that capital is not constant and it can -- sales mix can make a difference as to what your actual capital is.

John Johns

Recently, John, we actually think that Annuity has a fairly rational view of VA capital. I mean we think from an economic perspective their model is pretty good one, so got any ways not exactly what we would do but its pretty good one we -- the regulatory we are obviously are going to totally comply with regulatory capital requirements.

The problem is in good times they are way too low. I mean we put up firstly no capital in some of our products and then in bad times you put up way too much. So, we are compliant with all that but we really trying to think through it. So what really make sense from an economic perspective that’s how we think about the returns on the product.

Rich Bielen

And that 4% if I didn’t say is based on 98cc analysis.

John Nadel - Sterne, Agee

Okay. Thank you. And then I think Carolyn you mentioned that on some of the older VA blocks not that old at Protective Life, that you have some ability to go back and raise fees. How much have you done, how much more could you do if you fell like you needed to go to the extreme and what impact do you think that would have on lost rates if any?

Carolyn Johnson

We have raised the fees on some of them so I mentioned 70 be charged and so we gone to 90 on some of the old business. We’ve seen really no impact, no measurable impact on loses as a result of that. Generally, the vintages change a bit, but generally our ability is constrained by about 200 basis points increase from where we started. So there is quite a bit more room in rider charges if we wanted to go there. But we try to be careful on not trying to disrupt the business too much on that but we have more room if we need to.

John Nadel - Sterne, Agee

Just to be clear 70 could potentially go to 270?

Carolyn Johnson

That’s right.

John Nadel - Sterne, Agee

Understood. Thank you.

Sarah Dewitt - Barclays

Sarah Dewitt from Barclays. Good morning. Just a follow-up on the principle-based reserving, is there any concern that reserve requirement for Universal Life with secondary guarantees could increase?

John Johns

I don’t think so. I think that’s I mean I think during an interim period here before PBR actually kicks in under the new AG38 standard they’ve actually tightened up requirements around some secondary guarantee products. But I think that whole goal of PBR is to bring the required reserve on that product and any product with the guarantee of term product with the guarantee make them consistent and bring them down to reflect economic reality and not just formulated goal reserve.

Sarah Dewitt - Barclays

Okay. And then just a follow-up on a variable Annuity product given in the low interest rate environment hedging cost have increased so much. How are you managing and still achieving your required returns?

John Johns

We have been changing our product features. So to reflect the lower rate environment and using current risk mutual rates as we’ve been redoing a lot pricing. So, Carolyn mentioned we’ve done multiple innovation and reduced features on it and that’s how we’ve continue to maintain return at these levels that we expect. And that’s why our hedge cost are not, they’ve increased our fees, but we are able to manage by reducing some features within that hedge budget.

Mark Finkelstein - Evercore

Mark Finkelstein, Evercore again follow-up on Life Marketing, I understand in the earnings model, Rich. I understand you kind of reset that 2013 expectation for Golden Gate V but if I look at 2015 over 2013 you talking about 34% growth on the '13 number in earnings that’s obviously against the low rate environment and increasing impact of Golden Gate V. The sales levels that are still kind of not back to what they were five, six years ago. I am just curious and I know there is some new answers in the earnings model but what is really driving that pretty high growth.

Rich Bielen

New business. I mean really is new business and when you look at the existing enforce, it stays relatively flat. We are pretty consistent from all the old blocks that we have. We are not really running off from an earnings pattern. This is back to number and number of years because the earning are emerging. So the enforce is not coming down and as we add new business on we are seeing the profit patterns be much better than we saw in the old models.

Mark Finkelstein - Evercore

Okay. Just actually in the interest rate discussion, you kind of gave the GAAP impact of DAC in kind of shock down scenario. Are there any statutory impact that we should be thinking about and over what timeframe would they emerge?

John Johns

I don’t. I looked away in just in case, I don’t believe we have a lot of redundancies in all reserves. So, we don’t really see much reserve impact. When we went through the AG38 that didn’t impact us at year end. Could there be some out in the future maybe, but I don’t think it’s a material amount but I didn’t shock that this purpose.

Rich Bielen

We are helped on the Universal Life business by the fact that we historically at some point in time, we put up the full A triple-X reserve and securitized it. So now that creates a bit of buffer as we get tested under lower interest rate scenarios.

Mark Finkelstein - Evercore

Thank you.

Steven Schwartz - Raymond James

Steve Schwartz, Raymond James hopefully a high-quality producer, Carolyn. A couple, Rich, we talk to change in 2014 interest rates but it looks maybe just from looking my thumb sticking in the win that probably half of that change might have to do with the term Life business coming off. Is that accurate or was that already include in your numbers?

Rich Bielen

That’s already including in the numbers.

Steven Schwartz - Raymond James

Okay. And then to model that that’s mostly going to be a DAC effect or how would we think about modeling that in those earnings being off in 2014 for coming back in 2015?

Rich Bielen

You telling about the term the 15-year level term?

Steven Schwartz - Raymond James

Right. Right.

Rich Bielen

There is a lot of policies that its -- by that in fact mature on December 31, 2014. We also have to provide all policyholders 60 day grace period. And so they actually still have insurance enforce and then we have reinsurance on top of that until when we model now with that grace period we see these are anomalies at the end of that year. And so when you ask the question I really almost ignore that reinsurance effect and I will just look at 2015 that trend between the two years.

Steven Schwartz - Raymond James

Okay. And given Golden Gate should we still expect the same Life Marketing kind of quarterly pattern low first quarter, middle kind of range for next two quarters higher in the fourth quarter?

Rich Bielen

Yeah.

Steven Schwartz - Raymond James

So that continues. All right. Thank you.

John Johns

Steve, one thing remember to is we do have some seasonality as you model the company out in the first quarter historically low.

Tom Gallagher - Credit Suisse

Rich, just a follow-up to Mark’s question about Life Marketing if I look at ‘15 versus ‘14 your model -- your forecasting 22% segment growth year-over-year and just kind of crudely I would have assumed even with sales moving higher, your total enforce isn’t going to be growing double digits, margins probably won’t go up very much because of interest rates but obviously that’s not the case. So, is there anything nuance that we should be thinking about in terms of the building blocks here?

Rich Bielen

Well, I won’t go back to the point of that 14-year and both Life Marketing and in acquisition because of this reinsurance anomaly is a little bit low. And I really think you need to look at the pattern of ‘13 to ‘15 which moves it out. But there is nothing nuance in there. But we’ve look through and run all the new products in. We are just seeing a better earnings pattern now than we used to see.

And so that’s really all earnings coming from recently issued business where we get these profit patterns. But what we don’t see is much of the drop off on the older business at this point. So the enforce kind of staying flat in new business is having earnings.

Tom Gallagher - Credit Suisse

Is there way to bracket this by how much is coming from revenue growth versus how much is coming from margin expansion and the reason I ask because I know if any other company in individual life that is forecasting substantial growth in earnings with the next few years, so that seen a bit unusual.

John Johns

Tom, we spoke something and Carolyn mentioned that and we said couple of times that we see there is a lot of market share over the last few years in the interest of profitability in our block and sales are down and look the pricing is up and margins are improved and last few years and in addition again this Rich touched on this that the GAAP profit of emergence pattern of our product today are better than they were a few years ago. We see profit sooner rather than later and then we pay the price for some of that in the past are now have starting to turn around a little bit for us as well.

Rich Bielen

If you recall the old model we wouldn’t see profit emerged for four to five years where you think about all the business we rode in the mid to 80,000 that’s what now coming through as profits. So that’s what you are seeing a higher level of growth in earnings than you mean otherwise expect given the level of sales I think.

John Johns

Take maybe one question.

Jonathan Haynes - Sun Life Insurance Company

In line with the -- [Jonathan Haynes] from Sun Life Insurance Company in line with 50% of GAAP earnings coming back to shareholders overtime and $100 million share repurchase assumption that you build into the model. Should we expect accelerating dividend growth or is that $100 million just the simplifying?

John Johns

It’s a simplifying assumption. Our historic policy with respect to dividend which our Board, as Rich indicates revisits in a spring of every year is to payout between about 20% to 25% more recently about 20% of earnings in the form of dividend. I have no reason to believe that our Board will change that policy but it will be up to them so we -- a $100 million is just a simplifying assumption. It’s that not that material over the three year period and different modeling here anyway.

Jonathan Haynes - Sun Life Insurance Company

So the sharecount could actually be a little lower than…

John Johns

Could be. Possible, yeah. Our goal is 50% back where its dividend or repurchase. Okay. well, listen thank you all. I’m going to close we have just a one more closing chart here and then we do have lunch served across the way there. I think it should be obvious. I hope it is obvious that this is what we are focused on going into 2013. We really focused on that financial plan that Rich presented to you, doing everything we can to deliver on it.

Again we have confidence in our ability to move the company materially forward. We start as I showed you in my waterfall chart with this whole process of allocating capital. I assure you we’ll do everything we can to prudently allocate shareholder money into whatever we think is the best most productive use of that company.

We work very hard to get the returns on our new business up to acceptable levels where there is some creation of shareholder value going on there. With extremely Carolyn King and our acquisitions team just all over every acquisition opportunity just out there in the market. We are optimistic that we’re well-positioned to do one. Again, we are committed to 50% earnings back to shareholder.

Carl, I think told that story very well about what we are doing in our investment portfolio with focus on quality and predictability. Our asset liability management which has historically been a strong suite for us. I think you serving us very well is really a foundation around which we’re maneuvering through this new interest rate environment that we faced today.

Delighted to have Mike Temple on Board, our new Chief Risk Officer. I know Mike is going to take enterprise risk management to an even higher level at Protective. But at the same time, Carolyn I think may clear real invest in money and growing and improving our basic retail business models integrating even our acquired block and our retail blocks and way they make sense for our customers and hopefully overtime we differentiate Protective in this industry as a better company to do business with the better company to put your confidence and trust in over time.

So, again, thank you all very much. We’ll be available at lunch if there are any other questions.

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