Universal American Corporation Q4 2008 Earnings Call Transcript

Universal American Corporation (UHCO)

Q4 2008 Earnings Call

February 18, 2009 9:00 am ET

Executives

Richard Barasch - Chairman and Chief Executive Officer

Robert A. Waegelein - Executive Vice President & Chief Financial Officer

Martina Elazagui - Director of Investor Relations

Analysts

Joshua Raskin - Barclays Capital

Thomas Carroll - Stifel Nicolaus

Scott Fidel - Deutsche Bank

Jukka Lipponen - KBW

Daryn Miller - Goldman Sachs

Michael Baker - Raymond James & Associates

Carl McDonald - Oppenheimer

Presentation

Operator

Good day everyone and welcome to the Universal American Corporation fourth quarter 2008 conference call. At this time, I would like to inform you that this conference is being recorded and that all participants are currently in a listen-only mode. I will now turn the conference over to Mr. Richard Barasch, Chairman and CEO. Please go ahead sir.

Richard Barasch

Thank you and good morning everyone. Welcome to the Universal American fourth quarter 2008 conference call. I am here with Bob Waegelein, our CFO, and Martina Elazegui our Director of Investor Relations.

Before we begin I would like to ask Martina to read the Safe Harbor Language.

Martina Elazegui

I would like to remind you that some of the information discussed during this conference call will constitute forward-looking statements within the meaning of the Federal securities laws. These forward-looking statements may include statements regarding likelihood or effective any legislative or regulatory changes our expectations of the performance of our Medicare Advantage, Part D Med supp and other lines of business. Estimation of loss ratios and lapsation, adequacy of reserves, our ability to institute future rate increases, expectations regarding our Part D and Medicare Advantage program, including our estimates of membership, costs, revenue and future operating results and the risk inherent in this business, the identification of acquisition candidates, the completion, integration or accretion of any acquisition transaction and the viability of any acquisition n proposal.

Although we believe that the expectations reflected in these statements are based upon reasonable assumptions and estimates, we cannot give assurance that we will achieve the expected results.

We also suggest that you review the most recent risk factors that we periodically file with the SEC. Richard?

Richard Barasch

Thank you, Martina. This morning I am going to spend some time talking about the highlights of the quarter and the year. I am also going to discuss our prospects for 2009 and beyond including our thoughts around the changing political and regulatory environment.

The year 2008 was a very tough year for everyone and Universal American has had its share of challenges. However, as we look back at how we dealt with these challenges and then look forward to 2009 and beyond, we believe that we have taken the appropriate steps to resolve our issues and to lay the foundation for the future in light of the difficult economic conditions and the prospect of further legislative and regulatory changes that will affect our products.

First our results, we reported operating earnings of $0.84 per share for the fourth quarter and $1.57 per share for the year excluding the goodwill impairment in our traditional segment and realized investment losses. We continue to generate excellent results from our Medicare Advantage HMOs. HMO membership grew more than 18% year over year to approximately 54,300 as of the end of the year and our profitability remains strong.

The growth of our Medicare Advantage HMO business was in terms of membership and profitability including in our expansion markets demonstrates the continued success for healthy collaboration model in which we work closely with physicians and members to promote better health outcomes and control medical cost. These results give us confidence that the model that has worked so well in Southeast Texas is both attractive and achievable in other markets.

Despite a nonrecurring false claims issue, which I will discuss in a moment, we are pleased with the results in our private fee-for-service business. Our overall benefit ratio for the year excluding the effect of prior period positive reserve development and the false claims was 85.7%. Most importantly, we are comfortable that the basis upon which we bid our 2009 products is sound.

The private fee-for-service claims issue arose in the fourth quarter when we determined that we paid approximately $18 million to $19 million for false claims. Some submitted by fictitious providers and others submitted by so-called real providers seeking reimbursement for services that were not provided. Since we are working with CMS and the appropriate law-enforcement authorities, we will go into the specific details of the scheme.

We were pretty clear that this activity was part of the pattern and has targeted traditional Medicare as well as many other Medicare Advantage private fee-for-service plans. While it does not make us feel any less upset about losing money to this scheme, the fact that this scheme hit several other companies gives us some comfort hold I admit that this is not a Universal American specific issue. We estimate that this issue which we believe we have contained is a nonrecurring item that reduced our fourth quarter profits by approximately $0.14 a share.

We are in the process of enhancing and supplementing our existing measures to prevent future occurrences of these and other similar activities. Among the measures we have taken is that we are installing additional anti-fraud features on our software to reduce the possibility of this scheme or any other scheme affecting us down the line.

After a rush start, our Part D business also performed quite well in 2008. During the year we upgraded and integrated the operation of our two plans, harvesting meaningful savings in 2008 with more to come in 2009. We have also taken the steps required to reduce our benefit cost structure particularly as to the cost of drugs so that we can continue to offer the competitive product and remain profitable.

We ended 2008 with approximately 1.8 million members and currently have just over 1.7 million Part D members enrolled in our plan. This actually represents an increase in our membership of approximately 164,000 members since we transferred approximately 236,000 members to CVS/Caremark as a result of the termination of our strategic alliance at the end of 2008.

We continue to believe strongly in the future of our market broadly defined as providing valuable heath insurance coverage to seniors and other Medicare beneficiaries. The specifics will change but the need for these coverages will grow and we have demonstrated our ability to adapt quickly as the market and the environment changes. In 2003, we are a leading Medigap carrier and we quickly evolved into one of the leaders in Part D and Medicare Advantage. We believe we have the skill sets and the flexibility to succeed in any regulatory or funding scenario.

Let us start with Medical Advantage. In addition to the MIPPA legislation which passed last year, I think is a pretty god assumption that they will see some reduction to Medicare reimbursements over the next few years. Here is what we are doing to prepare Universal American for these changes. First and most important, we believe that successful Medicare Advantage plans will have to influence the cost and outcomes of health care in a meaningful way, in our HMOs and our PPOs as we develop them. We continue to demonstrate success in our healthy collaboration model. It is built on strong and granular partnerships with providers, primary care physicians whose mission is to provide the best health outcome which not coincidentally meets the lower costs.

Strong performance in our expansion markets proves that we can export the successful Southeast Texas model to new markets. To us, the critical success factor in our PPO build-out is not just to build or acquire large number of networks; rather, it is our goal to work in collaboration with providers to create better and more costs effective clinical, financial and patient satisfaction outcomes for our members.

Next, we will have to be a low cost, high quality, and highly compliant operator. The rapid growth of privacy for service required us to build an infrastructure that will also benefit our network base plans. We have continued to invest in people, technology and processes that will allow us to achieve our goals.

We have also developed the critical risk management skills in a necessary to price our products and appropriately report the results in the Medicare population. As we have stated before, it is important to maintain discipline in the pricing of our products, balancing market imperatives and the need to achieve adequate margins.

Finally, we must distribute our products in a cost sufficient manner. Historically, Universal American relied on a combination of independent and career sales organizations, using commissions as our primary marketing tool. We are now in the process of shifting our model to rely more in career organizations in the core markets that we have selected for our network base products and we have invested extensively in this channel. It is interesting to note that over 85% of our 2009 Medicare Advantage sales have occurred and what we have defined as our core market.

When we look at markets in which to develop our Medicare Advantage networks, critical factor is how large our Part D membership is in those areas, especially under the new marketing rules. Our ability to discuss additional healthcare options with our members should be a distinct advantage.

In 2009, we launched a PPO product in 15 new markets as the first stage of a multiyear effort in which our goal is to cover up to 70% of non-rural privacy per service membership. We anticipate filing PPOs in approximately 25 to 30 additional markets for 2010 and a balance in 2011. To that end, we are increasing our developmental investment in 2009 with a focus on network building, market planning, and sales execution.

I would point out that we estimate that at a least 20% of our existing privacy for service membership resides in rural counties were deeming as still permitted through at least 2011 and we have began to execute a rural strategy to maintain and hopefully increase this membership.

Part D also plays an important part in our overall strategic plan in the same principles applied. We now have in our two programs. The third largest Part D business in the country servicing more than 1.7 million Medicare beneficiaries, our increasingly efficient operations in our expertise and product development in pricing which we have proven over several years, should allow us to maintain our leadership position. A critical part of the healthy collaboration model is the active involvement of community pharmacists and reducing healthcare costs and promoting better outcomes for our members.

Through our unique relationship with the National Community Pharmacists Association, we have established several pilot programs that we believe we will provide meaningful results. One project of particular promise involves the close monitoring by pharmacists of post hospitalization, description medication usage to reduce the rate of readmission to hospitals. This is a type of program in which the private sector in collaboration with all key participants can change the methodologies and costs of healthcare delivery in this country.

Now, I would like to move on to our financial structure. Simply stated our capital, liquidity, and debt position remained strong. Our insurance subsidiaries in HMOs are well capitalized, as a result of the core earnings in our subsidiaries. We ended 2008 with over $610 million in statutory capital. This will give us risk based capital of around 425% in the aggregate, which is more than ample to support our existing businesses and expected growth and to absorb any further asset impairments that we might incur in our statutory entities when the new accounting roles come into place this year.

To further augment our capital position and to sharpen our focus on our core business, we announced last November that we agree to reinsure substantially all of our enforce life insurance and annuity business with a subsidiary of Goldman Sachs. We are working with state regulators for approval and expect the transaction to close in the second quarter of 2009.

We have approximately $165 million of unregulated cash at the holding company and we have a fully unused $150 million line of credit. This gives us a lot of financial flexibility, including the ability to buyback our stock in its current attractive levels.

As noted last quarter, we have posted the details of our portfolio on our website. Here is the summary. So, we took some more OTTI impairments in the fourth quarter or unrealized losses remained pretty constant comparing the third quarter to the fourth quarter, approximately 33% of our portfolio is in cash and cash equivalents largely in government money for us. Currently, around 60% of our total portfolio is in securities backed by the US government or its agencies

The balance of the portfolio is largely invested in corporate bonds, strong credit ratings with the duration of 3.4 years largely to support the life and annuity blocks on our books. Like others, we have experienced a reduction in the market value of these bonds as a result of the credit dislocations, though as I mentioned, not so much recently and this has affected our GAAP equity account, but we feel very comfortable with these holdings in the aggregate. Our book value, including the unrealized losses of our bonds, was $15.58 per share and around $9.14 per share when goodwill is excluded.

Turning to 2009, we are reiterating our 2009 guidance of between $1.47 and $1.57 per diluted share, excluding realized gains and losses and the impact of the life and annuity reinsurance transaction. We have solid member gains in our Part D business and although our membership gains in our network based Medicare Advantage plans, it will be offset to a degree by excess lapsation in our private fee-for-service business, we remain comfortable with our overall Medicare Advantage membership estimate.

We also continue to feel comfortable with the structure and profitability of Medicare Advantage in Part D products. The favorable development of private fee-for-service reserves proves that we have priced our products appropriately which bodes well for 2009. While we will no longer provide quarterly guidance, we would expect the pattern of quarterly earnings in 2008 to be repeated in 2009 including a loss in the first quarter due to the seasonality in the earnings of our Part D business.

Thanks for your time this morning. Bob and I will be happy to answer any other questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Joshua Raskin from Barclays Capital.

Joshua Raskin - Barclays Capital

First question just on the PPO transition, you guys opened up 15 markets with the PMS stated looks like you got a little over a thousand live on the first month on February. How did that compare versus expectations and how does that ramp up and what is the reasonable number by the end of the year?

Richard Barasch

I think the ramp up is going to, first of all we have this PPOs largely in places as we already have HMOs and to the right to the degree of private fee-for-service so our market continues to still want private fee-for-service to a large degree. We are looking for up to 4,000 or 5,000 sales which we will consider be a success in the first year.

Joshua Raskin - Barclays Capital

This will be in 2000 and the 2009? That’s helpful. Could you help us just with the cost structure of the PPOs as you think about your ability to network a contract versus the very tightly managed HMO network? How do you think your cost structures compare on those two products?

Richard Barasch

I tried to highlights this Josh, what we are trying to do is not just to get paper on these places. We are trying to bring a model that works so well for us in the HMOs to do the degree we can towards many of the markets as possible. We are having a pretty good success in contracting close to Medicare rates in some cases a little bit higher but not terribly higher but our model was built around changing utilization patterns much more so than it is in on the way with our contract.

Joshua Raskin - Barclays Capital

If you are contracting as close to Medicare as possible and you are thinking about your transition and the private fee-for-service membership and this PPO plan. I have to assume that the margins are going to be so insignificantly lower than what you are getting on the HMO when I made indeed on the lower margin what you are getting on the private fee service currently. My big concern is not necessarily I think there are some concern around the ability to transition but more over what is the margin profile that member looked like once they are transitioned.

Richard Barasch

I think what our goal is to make the PPO’s look as much like our HMO’s as possible. It will not happen all at once. It takes some time for that to develop but I think that we all have to recognize that we are heading into a world where all lost ratios are going to be in a band and I think both competition and the regulatory and reimbursement require that, which is why we have to work with our products in total to get the rest of our cost structure down as well.

Joshua Raskin - Barclays Capital

I just want to think the one last question about just on the light of the annuity sale sounds like second quarter, could you help us understand what the financial ramification are there? Are there freeing up of the capital?

Richard Barasch

It frees up something around $60 million of statutory capital

Joshua Raskin - Barclays Capital

Is it dilutive to earnings?

Richard Barasch

It could be slightly dilutive but a lot of it depends on how the assets look after the transfer.

Joshua Raskin - Barclays Capital

I am not sure I exactly understand.

Richard Barasch

If we transfer cash as an example as part of the asset transfer to support the reserves, it will be as dilutive as if we were to transfer bonds.

Operator

Your next question comes from the line of Thomas Carroll - Stifel Nicolaus.

Thomas Carroll - Stifel Nicolaus

Two questions, first, on the fictitious claims that you have highlighted. Thanks for the color there, is there a comparable number maybe from fourth quarter 2007 that you have back tested against as you have overlaid whatever the methodology was to identify the $18 million to $19 million in the quarter?

Richard Barasch

This was a specific scheme. So, we do not think to any point other than the fourth quarter of 2008.

Thomas Carroll - Stifel Nicolaus

So, you think you have never seen it before?

Richard Barasch

I mean never, it is too stronger. There is no evidence.

Thomas Carroll - Stifel Nicolaus

Okay. That is good. Secondly, in 2009, you opened 15 new markets for your PPO product. Those markets overlapped about 10% of your private fee business right now. As we look to 2010 you mentioned the 25 to 30 new markets, what percent of your current private fee book is overlapped by those new markets?

Richard Barasch

If you back out the rural membership, the goal for us is to get around 70% of our membership covered by PPOs. We are looking this coming year in 2010, to get to about half of the balance. So, if you start with approximately 188,000, eliminate the rurals, this gets us to about 10%, what we are doing this year gets us 10%, what we are doing next year we will get to us another 40% or 45%.

Thomas Carroll - Stifel Nicolaus

Okay. So that an incremental 30 to get to the 40%?

Richard Barasch

Yes.

Operator

Your next question comes from the line of Scott Fidel - Deutsche Bank.

Scott Fidel - Deutsche Bank

Just on the Medicare fictitious claims. Can you talk about geographically where you have seen those or has that primarily been in South Florida or have you seen that in other markets? And then, does that relate primarily to dual eligible members in terms of how the scheme has been played out or you are seeing that with other types of enrollees as well?

Richard Barasch

Yes. I mean I think it is fair to say that a lot of this is coming from the Southeast. I think it is fair to say that a good portion of it has come from dual eligibles.

Scott Fidel - Deutsche Bank

Okay. Then just on Part D, give a breakout in terms of how you expect the enrolment to breakout between the auto assigns and then the retail members and then what type of EBITDA margins are you thinking about for Part D in 2009 relative to 2008 just with the elimination of the CBSJ?

Richard Barasch

Yes. I mean I think that in gross, the membership gains that we will get and we have some gains in one plan of losses and the other but in gross, it looks like most of our membership gain has come from additional tools with some coming from choosers as well.

We have not publicized specific margins on our Part D business but I think it is fair to say that we are looking for in aggregate some improvement in the results.

Scott Fidel - Deutsche Bank

Then just on the HMO products, look like the MLR was actually really strong in the network-based products in MA in the fourth quarter calculated around 74%. So, maybe just an update on cost trends assuming those were pretty under control in the fourth quarter and then, what do you guys thinking about MLR for the network-based HMO products in 2009, just given that 2008 was a very strong year for MLRs in the network based products in 2008?

Robert Waegelein

Scott, when we think about MLR in the HMO, we got to recall a year ago or so, we went into some new markets, and as Richard indicated with sort of the rollout of PPO and you come out with the product that has a higher MLR in the beginning and has folks that provide us get comfortable with out collaboration model. We drive to get better utilization and results.

So, the year-over-year improvement in the HMO, we saw in Oklahoma, we saw in Wisconsin as our model gets more into play there. I think you should think about a consistent MLR, maybe slightly increasing again rates are under pressure with the government, we are pricing our products competitively and I think you should look at the results of 2008 MLR and use that as a base with the modest uptick in 2009.

Scott Fidel - Deutsche Bank

Okay. And then just one last one, just how you think about investment income for 2009, do you have a projected average yield on invested assets for 2009 or just directionally and how should we think about that just given the low interest rate environment…

Richard Barasch

I think you are exactly thinking about the right way which is that we are in very low interest rate environment and we have indicated that we are holding on to a lot of cash and cash equivalent in government issued paper. It is based into our guidance but it is going to drive our investment yields growth. We dipped our code just slightly into the water to buy some paper in the kind of one- to two-year and three-year range, but we have been pretty cautious.

We, guys, as you know we have the subprime issues and from there we went to cash and cash equivalents pretty heavily for the balance of 2008 and remain there right now.

Operator

Your next question comes from the line of Jukka Lipponen - KBW.

Jukka Lipponen - KBW

On the false claims, can you give us a little more color in terms of how was this caught? Did you caught it on your own or does the CMS come to you and any additional color to how you track against this kind of activity?

Richard Barasch

It is a good Jukka. We saw some patterns in our claims that were disturbing and looked at them. We also were contacted by law enforcement in various jurisdictions that have been dealing with this type of claim and kind of flagged to some of the issues that were occurring.

The important issue I think you are raising too is what we were doing about this to, I cannot never say the word “prevent” but to mitigate the possibility of this happening again. Kind of this falls into two buckets, one is we are adding some intelligence to our software, added that will flag these types of aberrational claims more timely. Since a lot of what we saw in this scheme came from online enrollments, we are looking at on online enrollments much more carefully than we had in the past. So, we are taking that steps and we are in the process of looking at more sophisticated antifraud software that is going to help us with that and other features that should mitigate the possibility of this happening again.

The other thing we are doing too is that we hate to be the company that is upfront in this, but this is not Universal issue. This is an industry-wide issue and it has been dealt with an industry-wide basis and several workgroups have been established to share information in a more timely way to give all the companies the benefit of information as it occurs.

Jukka Lipponen - KBW

One question on guidance, since your guidance is unchanged, previously the guidance did not include any buyback. You have continued to buyback shares, so, have your own expectations fundamentally changed at all for 2009?

Richard Barasch

No. I think we are still doing in the middle of the range, Jukka.

Jukka Lipponen - KBW

Okay. And last question, what is your capital generation versus your capital needs in 2009?

Richard Barasch

You as a life guy should appreciate this and we do too as formal life guys, in life insurance business, GAAP profits are largely helped by our noncash items like increase in DAC. Our business is now our cash business and in fact, our cash generation should do too at least some degree exceed our profitability because of backing out amortization. So, I think an approximate proxy for our cash or in capital generation is up to our DAC's profit.

Robert Waegelein

And it is important to note that the core business now is one of the short durations like Rich had said cash flow in business. So, the capital requirements I think are less historically required in a more longer duration life and annuity business as well.

Operator

Your next question comes from the line of Daryn Miller - Goldman Sachs.

Daryn Miller - Goldman Sachs

Richard, I was wondering if you could talk a little bit about what you anticipate to spend in PPO network development in 2009 and maybe if you can talk on 2010?

Richard Barasch

Yes. I mean 2010 is a little faraway at this point but embedded in our numbers is fundamentally an investment somewhere in the neighborhood of $20 million in our PPO business and this is in the categories of network development, product development, marketing, sales activity. As I mentioned in my prepared remarks, we are to a great degree focused on building more career distribution and doing that from ground and create some investment.

We think we are making the appropriate investments to be in position to make the transition as it occurs.

Daryn Miller - Goldman Sachs

Great, and then, as we look at towards 2011, when do the actual networks have to be in placed or established?

Richard Barasch

For example, for 2010, there is a filing that is occurring later this month that sort of our placeholders, by June we have to file the products with rates. During this period of time, we have to demonstrate to CMS the adequacy of these networks.

We have a pretty good idea of the number of networks we are going to file. There has always a process at CMS about the adequacy of networks. So, we now there will be a little bit of a fall out and then we will move to the balance to next year where the cycle begins again. We have to create the networks, filed them first time in February, file the products in beginning of June and be prepared for the following year.

Daryn Miller - Goldman Sachs

Great, and when we think about the 20% of your market that would be exempt to the provision. Looking at those markets, is there any reason that you would not expect to see more network development by other providers in those markets so the 20% exempt shrinks?

Richard Barasch

It is a fair point. I think it is a fair point. We think there is going to be some network development in those places. For 2009 actually it was pretty modest and by the way there is three-year grace period. So, for 2011, it is the markets that were filed in 2009. So, 2012 will be determined by the markets filed in 2010. So, there is always a rural spot that we have got now last at least until 2011, which I think is pretty important. It is three full years of business and then beyond that, you are probably correct. There will probably be more networks but there will always be a rural component to this.

Daryn Miller - Goldman Sachs

Great, and then can you talk a little bit just what you have done in terms of lowering your drug costs and how much margin improvement you think that can drive on you PDP business in 2009 versus 2008?

Richard Barasch

Yes. First of all, the cost of drugs has two elements to it. One is how we deal with pharmaceutical companies, just how we deal with our networks. We feel as though we are in good shape on both places. Issue is not margin expansion, as you know, Universal American has had fairly robust margins in the past in some degree driven by the special relationship we have with CBS and our PDMS business and PDMS earnings. That is going to go away in 2009.

So, the improvements that we have made across the Board, cost of drugs and in a cost of our operations have all gone to put us in a position that we think will be in a reasonable range from we were last year. That is really improvement that we have largely been made to offset the elimination of the PDMS business.

Daryn Miller - Goldman Sachs

I am sorry if I miss this. Did you spiked out the lower product fee-for-service and what you have seen what is driving that?

Richard Barasch

We actually are doing okay on our sales, but unfortunately we have seen some lapsation in excess of what we had expected. I think our products largely have premium. We have lost some business to some zero premium products with benefit structures. They are not quite robust as ours. Our belief is that overtime, most people will in fact have some premium and we think that the premium paying people that we have got could be able longer lasting group of folks.

Daryn Miller - Goldman Sachs

It looks like about 20,000 lives lost so far this year in product fee-for-service in specific market.

Richard Barasch

I think we have to be careful about that because there is a lag. The data that came out this morning was early January and there is a pretty significant lag on the accretion of new business. I mean it is a good indicator and again we are not signaling that we are going to gain in product fee-for-service, but we think we will be able to close the gap on the losses.

Daryn Miller - Goldman Sachs

That is understandable and just to clarity, was there any specific market or was that…?

Richard Barasch

A lot of it had to do with markets in which our competitors had zero premiums and we did.

Operator

(Operators Instruction) Your next question comes from the line of Michael Baker - Raymond James & Associates.

Michael Baker - Raymond James & Associates

I was wondering if you could give us a sense for the rate increases you are looking for 2009 for the network based MA products and then gives us a sense for how much of the CMS recalibration of the codes underlying member rescores could impact that.

Richard Barasch

Let me see if understand your question. On the network based product, I assume you are talking about our HMOs. We were largely able to hold the line on our pricing from 2008 to 2009. Those programs have actually performed increasingly well on medical managements. So, we feel pretty comfortable with that. Your question about what is going to happen with rescores, can you repeat the questions so I understand the question before I answer a question that I am not sure I am being asked?

Michael Baker - Raymond James & Associates

Sure. One of your competitors pointed out that they expected an impact to the rates given the fact that CMS every other year recalibrates the codes underlying member rescores. So, I was just wondering what you are anticipated impact for that was on rates.

Richard Barasch

I now understand your question. We looked at that and we think we are in pretty good shape.

Operator

Your next question comes from the line of Carl McDonald - Oppenheimer.

Carl McDonald - Oppenheimer

First question was could just walk through your parent company cash position as you can get turn out over the course of 2009, could we start with $165 million in cash, should we think about the $60 million in cash that you free up from the sale of the annuity business making its way up to the parent plus the normal amounts that you are able to dividend from the subsidiaries offset by under control?

Robert Waegelein

Yes. I mean we have obviously cash needs in the holding company impart buying back stock, impart funding our taxes, etc and you are asking a great question as how much capitals can be available from the subs to replenish in the holding company and I think it is obviously going to help once we close life and annuity deals, but as you know Carl there is a delay in the ability to get income, get cash up from the subsidiaries. There are earnings and then you have to go through to the next cycle to get…It is hard to get current earnings up the line. You have to wait until the end of the year; based on the earnings from 2008 the greatest probability is most of the capital is going to stay down in the subs. However, as we are generating more statutory earnings in 2009 augmented by the sale of life and annuity business, that probably has more of the 2010 effect.

Carl McDonald - Oppenheimer

And then anything new or different that you are expecting on Friday with the 2010 great announcement.

Richard Barasch

Again, it is possible to know. We do not have any advance knowledge, Carl.

Operator

There are no further questions. I will now turn the conference back to management.

Richard Barasch

Okay. Thanks everyone for your time this morning. As always, if you have specific questions about the numbers, please call Bob or Martina. Good morning everyone.

Operator

Ladies and gentlemen this concludes our conference for today. Thank you all for participating and have a nice day. All parties, you may now disconnect.

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