Prudential Financial, Inc. (NYSE:PRU)
Citigroup US Financial Services Conference
March 06, 2013 9:50 am ET
Unidentified Company Representative
Good morning. Thank you for your interest this morning, and we're also looking forward to the small meeting and one-on-one opportunities that we're going to have later on. I'm going to go through our prepared presentation, and I'm not going to read every word on every page, I'm going to hit the headlines around what's up at Prudential, and then we'll have time at the end for Q&A. We have a total of about 40 minutes.
We could spend the 40 minutes, if we wanted to, reading the fine print from the lawyers, so why don't we skip through that and get to the investor value proposition. And I want to talk about sort of how we think about things these days. We have a portfolio of businesses that we have intentionally constructed over the past 15 years or so. There've been a lot of changes in Prudential, divestitures and acquisitions, that have fairly dramatically changed the profile of capital deployment within Prudential. And one of the consistent themes is quality. We don't want to be a flavor-of-the-month club. We want to be a company that offers sustained value-added products in places where we find good, attractive market opportunities.
We balance the portfolio of risks that we take and we view the risk management challenge as starting with the first decision of our capital deployment into a business model. And with that business model will come intrinsic risks and will come operating risks and will come strategic business risks. And I -- this is an important point for us, because we do all the after-the-fact analytics and allocations and attributions and value-at-risk work, but the fact is in a company like Prudential, the risk profile reflects the businesses in which capital has been deployed and the intrinsic risks in those businesses, equity risk, currency risk, mortality risk, longevity risk, the core drivers of the things that underlie our ability to package and deliver products, and ultimately, rationalize the deployment of capital and the profitability of what we're doing.
We have serious growth engines in international and in U.S. retirement and you'll see a little bit more about that in little while. We've done extremely well, with respect to the sales side of international, again, with quality business model, selling good products. And with respect to U.S. retirement, we've been an innovative leader and have made substantial progress not just because of the sales management capabilities that we have but more around our product skills and the ability to bring solutions to important and large complex customer challenges.
We're a market leader in most of what we do. And one of the areas in which our leadership has emerged, over the past 10 years, is in distribution. You might have thought of Prudential historically as more of a product company. And in a lot of ways, by the way 10 or 15 years ago, maybe it's more of a traditional life company. But you'll see from some of the exhibits, particularly in international, we've become what I describe as a distribution powerhouse across multiple channels, again selling attractive products.
Next bullet is really important. And it's the emphasis that we place on balancing the deployment of capital between investments in businesses and distribution to shareholders. We are acutely aware of the importance of paying dividends, and where we can, buying back stock. And you've seen, I think, a pretty good record since we went public of striking the right balance between acquisitions and organic growth on the one hand and the distribution of capital to shareholders on the other. And I'm emphasizing this a little bit differently today, because our view is that in the market, given particularly some of the challenges around valuation metrics and the way stocks trade and quote these days, the distribution of capital is a very, very important consideration. And the message I want to put behind this bullet is that we recognize how important that is. You've seen the dividend actions that we've taken, and you've seen our share repurchase plans. And I'm going to talk about capital deployment in a minute, but the headline over doing deals even relates to capital discipline and the ability of business investments to return cash.
We have a proven acquisition and integration track record. We've been spectacularly successful in Japan with very large deals going back to the original Kyoei transaction, more recently, the Star and the Edison deals that we did with AIG. We're in the midst now of integrating the Life Insurance business that we bought from Hartford. And we're careful about diligence. We're conservative on valuation, and I think we're pretty effective on execution and realizing the expense saves that we target.
And finally, we have a senior management team -- a seasoned management team. We've been active for a while together. We work very well together. We complement each other nicely and continuity and consistency of the messages that you see on this page and the things that we say and do in the market reflects at least, in part, the continuity and consistency of the leadership of the company.
This slide portrays the deployment of capital. This is one of those after-the-fact attributions that I mentioned. And it shows you where our money is invested in terms of the businesses. You see 40% of our capital invested in International Insurance, the big green slice of the pie on the northeast part of the circle. And then you see the U.S. Life businesses on the bottom, Group Insurance and Individual Life. This is as of last year end, 12/31/2012, so it does not reflect the capital that's been invested in Hartford Life. You'll see that updated when we publish first quarter results, but you ought to think that the 3% in Individual Life there has been tilted up a bit as a result of the investment in Hartford. Then you see the Retirement slice of the pie, the Asset Management slice of the pie and the Individual Annuities slice of the pie. And this is kind of the quantitative underpinning behind those statements about the mix of our businesses, combination of stable, combination of more market sensitive or less market sensitive and a variety of risks portrayed as you go around the circle, equity and fixed-income market sensitivities and individual annuities, longevity risks and retirement, and then, primarily, mortality risk on the entire right-hand half of the circle.
These are statements that we've made for a long time around the capital management discipline in Prudential. We get to talk a lot about the deals that we do. I just mentioned a few of them, but we don't get to talk very much about the deals that we don't do. But I'll tell you that internally, we generally are as pleased with the things that we pass up and the reasons that we passed them up, and particularly, sometimes when we ultimately see the prices that are paid, the decisions that we make not to do deals are also very important decisions for us.
And I just want to emphasize, again, on this page, that when we're considering transactions and when we're looking at business initiatives, we pay a lot of attention to what we've called when we've talked to you guys the capital-friendly nature of the deal. And we pay a lot of attention to the cash that can be generated and we pay a lot of attention to the ability then within Prudential of that cash to find its way to the parent company and line up either as part of paying a dividend or as part of a share repurchase or as part of another deployment into an attractive deal.
So when we're doing deals and investing in businesses and deploying capital, we're thinking that the trade-off really has to revolve around whether or not the transaction or the investment or the initiative will ultimately let us distribute more capital to our shareholders rather than less. And again, some of this is under this kind of cloud around the challenges of valuation in the market. You can't just bet on the accounting entries that print earnings turning into shareholder value. And so we try to put these things behind that, that really are driven by the substantive generation of cash and then the opportunities that we have to ultimately deploy that cash into more cash-generative opportunities or through the distribution to shareholders in dividends and share repurchases.
This next slide is my favorite picture. It portrays almost everything you want to know about the company in one slide. And it has 4 pieces of information in it. Let me tell you what they are. These are the businesses plotted with growth prospects increasing along the horizontal axis to the right -- I'm sorry, ROE prospects increasing along the horizontal axis to the right, growth prospects increasing along the vertical axis. The size of the balloon shows the amount of capital that we have deployed in the business. And the color of the balloon is a rough index of volatility. And you can think of green as being lower-than-market volatility, blue as being kind of consistent with market volatility and red being consistent with levered or amplified market volatility.
Now in a perfect world, that would be great to have just one big huge green balloon in the top right corner, but that's not feasible. We try to make that balloon grow and we try to keep it where it is, meaning, we try not to compromise the ROE prospects or the growth prospects as the balloon gets bigger. But in real life, we pay attention to trade-offs as we move around that grid, trade-offs between growth and return, trade-offs with respect to the underlying risk drivers, and I've mentioned a few minutes ago, market-type risks and mortality- and longevity-type risks. And so at the end of the day, it's really not quite probably optimal to have one huge green balloon in the top right corner. But the decisions that we make about how we think about the world are kind of driven by this kind of a picture. These are the dimensions of strategic capital deployment that are most important to us. And I think, it's a pretty good picture. I think it looks like, in a lot of respects, you might like the place to look. It's a nice mix and it's a healthy deployment in the big green balloon on the top right.
I thought I had missed one. I want to make a couple of comments on recent fairly important transactions for us and these are the pension risk transfer deals that we announced and closed last year and then the Hartford Life acquisition that we announced last year and closed after the beginning of this year. And the pension risk transfer deal, the 2 big ones that we announced, General Motors and Verizon, are extremely important for us, but also, with respect to the way investors, hopefully, think about the world, very, very attractive transaction. They've got attractive risk profiles. They utilize the core skill sets that Prudential has. They produce attractive returns, and they complement the risk profile of the company. And just to hit the headline bullets here, there's a lot in this market. There's $2.2 trillion of defined benefit pension assets out there. We have, so far, transacted in the U.S. around somewhere less than $35 billion of that.
Let me preempt the question about capacity by telling you that in that context of the potential and the size, we think about governing this as a discrete transaction-by-transaction process, meaning, we haven't set back and thought, let's open this spigot and do $50 billion or let's open this spigot and do $100 billion. These are like M&A deals. And we can look at what's in front of us when we have to decide whether or not we want to do it. Meaning, our comfort level with our ability to underwrite the liabilities, and in that case, it means the ability to understand the longevity risk profile, we can look at the assets. Typically, these deals have been, and will be, for the most part, paid for in-kind, meaning, we won't get a cash premium to take on these liabilities. We'll receive an investment portfolio. So we'll get a chance to look at what that portfolio's made up of, how complicated, how difficult, how well it fits what we would like to do with respect to managing assets against these liabilities. And we can look at the pricing and the returns and any operational complexity that's involved, and we could decide whether or not we want to do it.
So when we're asked about capacity, and as I said, the $2.2 trillion kind of jumps off the page, the answer right now is, it's case-by-case. We've done 2 very good deals. We're very pleased with what we were able to do with longevity risk and investment risk and pricing and return and operational complexity. But if that's not true, we just won't keep doing it. So think about this as one that's like an M&A transaction in terms of how our appetite might look and how we might think about how much. Also keep in mind, these are fairly large and fairly lumpy. We don't have to wrestle with one of these every week or every day. This is something that takes a while to do, and so we'll work through on an orderly basis. I will tell you right now that if there are more opportunities for us in this arena, we will pursue those opportunities. We'd like to do more deals. But I don't want you to feel like there's no sense of how we're thinking about whether or not we do the next deal.
Just a couple of comments again. Long-term risks are actuarially driven. These are longevity risks. In the deals that we've done, these are employees that are already retired. It's an established pool of retired white-collar employees. And so we know how big the payments are and we have a lot of history and a lot of detail around the experience of that block. We have a long, successful track record. We've been underwriting group annuities for 80 years. So while the size is kind of -- lot of cachet and glamour around it and the form of these now is a little bit different than some of the things we've done in the past. The core skills that it takes to underwrite this longevity risk are skills that Prudential has had in place for a long time, and as I said, we have an 80-year record of underwriting group annuities successfully. And by the way, we get a lot of information about these liabilities. So there's a pretty high comfort level with our ability to understand the longevity risks.
And I mentioned the 2 deals that we've done. In terms of Hartford Life, this was an opportunistic transaction for us, a chance to deploy more capital at attractive returns in the U.S., a chance to leverage scale in our own back office and a chance to benefit from the franchise that Hartford had built, particularly around third-party distribution in the broker channel and around product management. So there are a lot of things about that deal that provide a good fit, not as big, it's less than $1 billion the ceding commission that we paid for the reinsurance form of the transaction, was just over $600 million. But the headlines are, as I went through, the scale opportunities, the product opportunities and the distribution opportunities.
I want to talk now about some of the headlines over International. The story in International now is one of evolution. We started off as an extraordinarily high-quality operation in Japan selling protection life insurance to the affluent or mass affluent segment. And we did it in ways that were different in the market, full-time professional, college-educated life planners who analyze needs and met the clients' demand for protection life products. And when I talk about evolution now, there are some things that haven't evolved, the emphasis on quality, the emphasis on meeting client needs, the emphasis on having the best sales force that we can have, all remain in place. But the business has migrated to a broader theme around multiple channel distribution, and it's evolved into a business that's meeting needs now that go beyond protection life. Particularly important to us now is the retirement market. So what you see on this page is the description of having changed from kind of almost a boutique. Although, it got really big, it had a lot of boutique-like qualities, almost a boutique selling protection life to wealthier individuals to something that is much broader in terms of its distribution footprint and much more dynamic in terms of its ability to meet different needs in the market, particularly around retirement.
Japan is extremely important to us. You know that we've recently deployed more than $4 billion of capital there in our acquisitions of Star and Edison from AIG, and we've had spectacular organic growth. So it's worth a couple of comments on what we're thinking about Japan because at 40,000 feet, it may not be obvious that this is the best place to be trying to do what it is we're trying to do. But the market is huge. It's the second largest life insurance market. By the way, the largest is the U.S. So we've got big footprints in the 2 largest life insurance markets in the world.
The third bullet is kind of the nuance around the real attraction of Japan. And that is that households have almost $11 trillion of liquid assets that need to be deployed to support the transition to retirement. Japan has all of the challenges around aging and demographics and social security stress. But what Japan has that not many other countries have is this pool of wealth. Japan is a very, very wealthy country, and because of the aversion to investing in stocks, a lot of that money is sitting in a pool of under-the-mattress-type investments. And the way to think about what we're trying to do in Japan in retirement is to think that we want to get in between that pool of money and the retirement opportunity for clients with products that are attractive to us but also improve the clients' outcome. So we can add value to the way in which that money is used to support retirement, but we can add value to the client at the same time we're adding value to our shareholders. And at the end of the day, that's kind of what's going on here. Now the protection life machine keeps right on going and that's a magnificent business model that performs extremely well. But when you're thinking about putting more new capital into Japan and wondering why, the third bullet is why. There are products that we can sell that will make this outcome better for everybody and particularly attractive for the shareholders of Prudential.
I mentioned the distribution powerhouse theme. This is a graphic portrayal of that. These are distribution channels in International Insurance. Life Planners, which would be the original Prudential of Japan, affluent to mass affluent sales force are shown in blue. Green is the life consultant channel. This is a "closer to traditional but several notches better" distribution channel that grew up in Gibraltar for us and also now the agents that have come with Star and Edison are classified as life consultant. The bank channel in yellow, and then the independent agency broker channel in purple. The big jump in purple, by the way, in 2011 reflects the acquisition of Star and Edison. They brought with them a third-party distribution capability that we did not have. You see a very thin slice in 2010 for us as we were starting to build that channel but we've got a real shot in the arm from the Star and Edison deal.
One comment on here. You see that the bank channel has grown rapidly and it's also fairly new. This is a channel in which we're still learning. The sale of the kind of products that we're selling either some of the protection life products or some of the retirement-oriented products, it is for us, right now, the opportunity to find out how this thing is going to behave over time. You think of it maybe as kind of strategic opportunism. We need to figure out how sensitive it's going to be to pricing, how sensitive it's going to be to what the bank relationships want to do, how sensitive it's going to be to other products, how hard it's going to be to innovate. And we've had great success. Bank channel sales for us have been nothing short of spectacular.
Right now, in fact, we're in a mode of kind of trying to throttle it back a bit because some of the dynamics in the market have changed and some of the pricing behaviors in the market have changed. So we're throttling some of that back right now, and this is new for us. We're learning how to manage the channel, how to understand the volatility, and as I said, how to deal with the way in which all these moving parts in that third-party channel are going to react to changes. So great success, lot of value-added, but think of it as strategically opportunistic, not necessarily core to the story, but an opportunity for us where we can take advantage of it to move sales a lot in a short period of time, either up, by the way, or back down.
The U.S. businesses reflect the portfolio that was primarily on the left-hand side of the chart when I showed capital deployment, going backwards around the chart, that includes the Annuity business, the Retirement business, the Asset Management business, and then the 2 U.S. Individual Life businesses. And I want to hit a couple of headlines over some of these. With respect to variable annuities -- and we fully acknowledge the challenges around complexity and volatility and transparency that are part of this Individual Annuities story for us, particularly as it comes out in reported GAAP financials. But I want to hit 2 key points about that business that are shown on this slide. One is that embedded in our products, we have an asset allocation algorithm that runs account-by-account every day and rebalances accounts between equity and fixed income. This is done in the context of moves in the market but also in the context of the age of the client and the age of the product, meaning, how close the client is getting to having the opportunity to take advantage of withdrawal features in particular. So these things go into the machine and we rebalance, and that's a very important part of defeasing the risk and the guarantees that we have provided that will ensure the clients of secure retirement income.
So you see in the blue section here, the growth of the share of the portfolio, and if you read the footnote, account values with living benefits that have auto rebalancing. And you see that that's become the dominant feature with respect to the in-force book in annuity. You can think of this as significantly helping to defease the kind of normal risk in this portfolio as it relates to the guarantees but also as essentially removing the tail risk, because there will be a point at which all of the assets would be in fairly short-term bond funds. And so we'd stop having the erosion of account values as the markets continue to go down. So it's helpful in terms of the broader challenges of managing risk, and it's specifically helpful with respect to tail risk.
The second point I want to make about this slide is that you see growth in account value in most of what you guys do, you'd call that assets under management. And you see that it's over $120 billion by the time to get out here to the fourth quarter of 2012. And one of the things that you shouldn't lose sight of when you think about the annuity business is that we're building very, very high value assets under management. In your businesses, you probably would dance in the street over 40 or 50 or 60 basis points of fees coming in. We're getting more than 2 percentage points of fees from the assets that are part of our Annuity business. So when I say we're building a pool of very productive assets under management, that's kind of the core of what's going on here. Now around that, you've got music, and sometimes you've got loud music, because you've got volatility and DAC, and you've got volatility in valuing the living benefit and you may have volatility in reserves for death benefits, for example. So you're going to have all that stuff happening. But look through that for 1 minute and just think about how productive these assets under management are and the fees that they generate. And by the way, as the portfolio ages, those other issues kind of erode. They become smaller challenges. The market risk gets to be more focused on fixed income and less focused on equity market sensitivity and we get closer to looking at things that are kind of like regular annuity.
So there's a lot going on here, and I don't want to diminish the importance of understanding and explaining the whole picture. But on this slide, I want to point out that these are really, really good assets to have in-house.
We've done really well in the Retirement business. Account values have grown from $150 billion in '08 to $290 billion in 2012. The big drivers of this have been primarily in the Institutional Investment Products. You see the big jump in the green bar there as we've come through the last couple of years. That reflects 2 product initiatives: one is investment only stable value; and the other is the pension risk transfer business that I talked about earlier.
This just breaks it down between Full Service on the top and Institutional Investment Products on the bottom. And again, the message here is very, very attractive flows. And the returns on these assets at the margin for us, the returns to our shareholders as it impacts ROE, are extremely attractive.
We're a big player in Asset Management. The headline here is that last year, we passed the $1 trillion in total assets that we touch in one way or another, either on our balance sheet or in our Asset Management products. And you see the way in which the assets are invested. We're a huge fixed income investor, 61%, and then you see equity, real estate, international, and then the light blue slice would be assets that may be subadvised or managed by other investment managers in sleeves in our separate accounts, for example. So big picture of a big company with a lot of assets. The box on the lower right here refers to the assets that are part of what we define as our Asset Management business and that's now about $827 billion.
We've talked for a while about how well diversified our sources of assets are and the right-hand circle here shows where the assets come from that are part of that big picture. Institutional clients, 38%; retail, 17%; and the general account of the insurance company, about 45%. And on the left, you see again the way in which these assets are invested.
And as in retirement, we've also had spectacular flows in Asset Management. 2010, we had right around $30 billion of institutional flows. And if you look at the record of 2010, '11 and '12, these flows on the institutional side are driven by mandates that are coming in from all over the world. I think, last year, we had Asset Management mandates from 19 different countries, and these are sovereign wealth funds, in pension plans, in central banks and exactly the kind of clients that you would like to see showing up in the mix in institutional Asset Management. In the blue bar, we're doing better in retail. We've launched a couple of close-end funds recently that have done extremely well, and we're also seeing better sales results through the wirehouse channel. So we're seeing signs of life in retail that we had not seen for a long time. Even the strategic horizon here includes the days when this was part of Prudential Securities.
Couple of headlines on Domestic Protection businesses. In Individual Life, maybe the headline is that we're not chasing the league tables here. We recognize the realities of competing with mutual insurance companies, and we recognize the realities of sometimes competing with irrational publicly listed companies. So we focus on returns and capital and efficiency in capital, efficiency in the back office, the business model that matches products and channels and clients, and all that's working pretty well. We have a very good record of success here. Our sales have fluctuated and our market share has fluctuated, but that reflects us not always going the same way the market's going with respect to either raising prices or lowering prices. And we're willing to tolerate those swings in the league table in the market share position because we don't think that it's rational to compete with, as I said, some of the others in the market who may not be reflecting the same kind of discipline that we reflect here.
In Group Insurance, we've had some potholes in the road, mostly on the disability side where we do have a chronic challenge, meaning, it's lasted for a while, around resolving claims and around addressing the need to reprice to reflect our experience. And we're in the midst of doing that. We are seeing improvement in the operating performance. The benefit ratio has come down meaningfully, not to the point where it should ultimately settle, but we are seeing improvement as we reprice and as we more aggressively manage claims. The Group Life, a year ago this quarter, we had a bad drop from the sarcastic [ph] distribution of mortality and that kind of left everybody wondering whether or not there were going to be some problems there that might last. They didn't. Those benefit ratios returned to, more or less, normal levels as we went through the rest of last year. So we kind of feel like Group Life is -- it's challenging. It's a tough business, but it's okay for us.
The opportunity there, by the way, is in many respects through the voluntary side where clients of our employer clients -- I mean, employees of our employer clients buy additional insurance through the work site. It's a good, inexpensive way to serve the mass market, which we can't serve any longer through face-to-face. So the approach there is get it fixed, price it carefully and make sure we're earning the returns that are fair in terms of the earnings power of the business and the risk of the business.
And just to get to the bottom line, this is adjusted operating income and earnings per share are shown on the bottom. And it's a nice growth story. In spite of all the music and all the noise and all the everything, apples-to-apples, you see a pretty good progression in adjusted operating income per share. And as you know, from the publicly stated objectives that we have, we're focused on achieving continued growth in earnings but also sustainable differentiated ROE relative to the companies that we think of as our peers and the companies that you guys look at when you're thinking about the insurance business.
And I will not repeat the summary points because I've made them all as we've gone through this presentation. And we've got a few minutes left over now for questions if you have any. Yes?
The 2% number you mentioned on fees in variable annuities, is that a sustainable number in a lower interest rate environment? That's my first question. The second question is, can you just comment on how, internally, the company's thinking about non-bank SIFI and how that affects your capital?
Yes, in terms of the annuity pricing question, I would have to say that the answer is yes. I think that pricing of annuities has withstood the test of time. We've been in a low-rate environment for a while. Now there have been a lot of changes in some of the living benefits features and so rather than pricing differently, what's happened is prices have been held constant but features have been made less rich. So there has been a material change with respect to the overall value proposition to clients, but it's come more from changing benefits than from reducing pricing. So I would say that the quantitative evidence is that, that pricing is sustainable in the market. People want to pay for the features that these products provide and they're willing to pay those kinds of prices. So I would have to say, looking out the window, the basic answer is, yes, but keep in mind that features have been changed. On non-bank SIFI, we're in Phase 3, Stage 3, I've forgotten which exactly it's called, exchanging information and having dialogue with the staff of FSOC. And I'm not sure exactly how this will go in terms of the ultimate timing of a decision on the part FSOC. There are some moving parts around international and around other institutions that may be part of this process, and still an ongoing process with us around responding to questions and maintaining the dialogue that we're having. The way we're thinking about it is that it's more important that we get this right than that we argue over the label. And when I say get it right, I mean think about capital standards right, think about stress test right and understand the business models and the dynamics of insurance companies relative to the bank model. Good regulation's important to us and can be helpful. We're in the business of selling 30-, 40-, 50-year products and so an effective credible and transparent regulatory regime actually is helpful to us in sitting across the table from clients who are taking a 50-year promise from us. But we're focused more on trying to make progress around how to think about capital standards and how to think about insurance business models and then how to translate that into the right view of solvency and risk and regulation oversight. So the way we're thinking about it is we want to be a constructive part of the process. We're working hard on the information and development related to solvency and capital standards. And in the meantime, the SIFI process continues, and as I said, I'm not quite sure when that's going to end timing-wise. There is GSIFI designation process as well, by the way, which is also churning away.
Could you talk a little bit more about the competitive environment in Japan, and how you're thinking about the growth outlook there in the different segments?
Yes, we have in Japan grown by gaining market share. The market actually has been declining for a long time and the competitive environment for us was historically defined by our differentiated distribution. We had the best agents. They were the best trained. They sold on a needs basis and they were multiples more productive than the part-time housewives that made up the sales forces of most of the domestic competitor. That's kind of still true in captive distribution. We are differentiated and we benefit from that. And we see that opportunity for us continuing because it's very hard for a traditional Japanese company to change that distribution image in the marketplace and that distribution reality of the kind of agents that they hire. Where we see a very different competitive landscape is in the bank channels where banks have more than one partner supplying insurance products and then we have pricing dynamics. We have jockeying for position. We have the flavor of the month, as I mentioned earlier. And for us, that will have an impact on our ability to grow in the bank channel. We're not going to push it. We're not looking to lead the channel. We're looking to make money in that channel. So I think, with respect to your question directly, our ability to grow in the bank channel will be impeded or maybe just more generally affected by a different competitive environment there. Something new for us in Japan. We have not had that kind of real head-to-head competition because we've been competing on a different basis. Our differentiated approach to distribution not product is really what got us where we are. So we'll see it in the bank channel, and it'll be a reality for us around what we can aspire to. But then remember in the core captive agent businesses, Life Planner and Life Consultant, we're still doing extremely well, and we don't see the same kind of competitive issues there. Are you giving me the -- one more question [indiscernible].
[indiscernible] about Q4 expenses, they were up a bit. Are those non-recurring? And how should we think about it for 2013?
Short answer is a lot of that stuff in the fourth quarter was nonrecurring. You saw references to -- taken some expenses related to discontinuing some initiatives. We took some expenses related to planned expense cuts that are coming up this year. So we quantified it on the call and in some of the conversations with investor relations. If you want more information, Eric Durant can give you more, but the basic answer is, there were blips in a bunch of different categories in the fourth quarter. And now we're out of time. Okay. Thank you, all.
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