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Universal American Corp. (NYSE:UAM)

Q2 2009 Earnings Call

July 30, 2009; 10:00 am ET

Executives

Richard Barasch - Chairman & Chief Executive Officer

Robert Waegelein - Executive Vice President & Chief Financial Officer

Martina Alisuag - Director of Investor Relations

Analysts

Joshua Raskin - Barclays Capital

David Shove - BMO Capital Markets

Scott Fidel - Deutsche Bank

Sushil Garg - Dowling & Partners

Matthew Borsch - Goldman Sachs

Carl McDonald - Oppenheimer

Steven Schwartz - Raymond James & Associates

Thomas Carroll - Stifel Nicolaus

Operator

Good day everyone and welcome to the Universal American Corporation second quarter 2009 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

Good morning everyone thanks for joining us on our second quarter 2009 conference call. I’m here with Bob Waegelein our CFO and Martina Alisuag, our Director of Investor Relations.

Before we begin, I would like to ask Martina to read our Safe-Harbor language.

Martina Alisuag

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 the likelihood or effect of any legislative or regulatory changes, our expectations of the performance of our Medicare Advantage, Part D, Med Supp and other lines of business, the estimation of loss ratios and lapsation, the adequacy of reserves, our ability to institute future rate increases, expectations regarding our Part D and Medicare Advantage programs, including our estimates of membership costs, revenues, future operating results and the risks inherent to these businesses, the identification of acquisition candidates, the completion, integration or accretion of any acquisition transactions and the viability of any acquisition 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 filed with the SEC. Richard.

Richard Barasch

Thanks Martina. This morning I’m going to spend some time talking about the highlights of the second quarter, and then move on to a discussion about what Universal American is doing to prepare itself to succeed in the changing political and regulatory environment for our Medicare products. Finally, I’ll talk about our prospects for the balance of 2009 including the raising of our full year guidance by $0.05 to a range of 152 to 162.

We are very pleased with our financial and operating results of the second quarter. The financial results demonstrate continued improvement in the fundamental performance and execution in each of our core businesses. Our company has consistently shown its ability to bid our products, so that they provide good value to our members, are competitive in the marketplace and achieve fair returns for our shareholders.

Our value proposition of improved health outcomes for Medicare beneficiaries combined with internal cost reduction initiatives give us confidence that we are well positioned in this increasingly difficult regulatory and political environment. We will be happy to answer any detailed questions that you have about the numbers, either after my remarks or off-line.

First I would like to point out some of the highlights of the quarter. Our operating profit after the special items were excluded was $0.27 per share driven by solid operating metrics in our core Medicare Advantage on Part D businesses. In both our MA and Part D segments, our year-over-year revenues were up, the benefit ratios for the first six months of the year were towards the low end of our forecasted ranges and our expense ratios showed notable improvement as well.

In addition, we took several steps this quarter to put the company on standard, financial and operating footing to meet the challenges ahead. First, we completed the sale of the Life and Annuity business to bolster our capital and sharpen our focus.

Second, we took steps to reduce risk in our investment portfolio to bring it more in line with our ongoing business, and perhaps most imperative we’ve been taking aggressive steps to improve our operations and reduce our G&A to prepare our company to the changed environment that we have entered.

Each one of these steps required additional expenditures in the second quarter as we outlined in the press release. We feel that these investments were prudent to set us up properly for the future. The metrics in our Medicare Advantage segment were excellent for the quarter and for the first six months of the year.

Our revenue was up due to higher membership revenue, our benefit ratios and administrative ratios also improved. The medical benefit ratio for the first six months of the year was 84% compared to 85.3% in 2008 calculated on the same basis.

We continue to grow membership, net probability in our network based Medicare Advantage products further demonstrated in the success for healthy collaboration model in which we work closely with physicians and members to promote better health outcomes and control medical costs.

We are truly aware of the challenges ahead and we know we have our work head out for us to sustain our momentum. First we have to manage through the rate cuts in 2010, followed by an expectation of further rate pressure in 2011 and beyond.

Simultaneously, we have the challenge of building out networks to provide attractive alternatives to as many of our private fee-for-service members as possible. In preparation for 2011 when non-rural teaming expires, to accomplish these objectives we’ve identified a series of critical success factors.

First, and probably most critical, it is absolutely clear that in order to be successful under the new reimbursement structures that we’re likely to see. Medicare Advantage plans will have to materially influence the cost and outcomes of healthcare.

In our HMOs we continue to demonstrate success in our healthy collaboration model that’s built on strong and granular partnerships with primary care physicians. The mission of it is to provide the best health comes for our members, which not coincidently often leads for lower overall cost. Improving performance in our new HMO markets proves that what has worked so well in Texas can be exported to new markets and gives us optimism that over time we can do the same in the PPOs in our core markets.

When [Inaudible] in 2008 we immediately launched the multi-year effort to cover up to 60% to 70% of non-rural private fee-for-service membership with network based offerings. In 2009 we have network-based products in 15 markets covering approximately 31% of our total Medicare Advantage membership.

For 2010 I’m very pleased to report that we’ve received approval from CMS for PPOs in 28 additional markets which means we will have network based products in 43 total markets for the 2010 selling season. These markets, plus the rural counties where we can continue to offer privacy fee-for-service will cover nearly half of our total MA memberships.

We have a lot more work to do over the next several months, and to that end we’ve increased our developmental expense in 2009 with a focus on network building, market planning and sales execution in our core PPO markets.

The critical success factor as we build out our PPOs is define and align ourselves with provide groups or prepare to work with our own model to create better and more cost effective clinical, financial and patient satisfaction outcomes for our members. It’s also absolutely critical to be a low cost, high quality and highly confident operator.

When CMS released the 45-day notice detailing the 2010 rate reductions, we immediately began a company-wide effort to reduce our operating expenses resulting in the charges that we took in the second quarter. This effort allowed us to take a big bite out of the 2010 rate decrease while maintaining what we believe will be an attractive and competitive product line in our core markets.

After several years of investment people, technology and processes, we are beginning to see meaningful reductions in expense ratios that should enable us to maintain a competitive position as rates are pressured in the future.

We’ve also developed and refined critical risk management skills that are necessary to price our products appropriately and to respond quickly to the ongoing developments in our business. It’s crucial to maintain discipline in the pricing of our products balancing market imperatives with the need to achieve the adequate margins.

For 2010, we bid in all of our current MA markets including all of our privacy for service counties and we believe that the favorable trends in our benefit ratios and in improving G&A structure, we affirm the soundness of the assumptions that we use in our 2010 bids.

Finally, we must continue to improve the way we distribute our products to perspective members. Historically, Universal American has relied on a combination of independent and career sales organizations and we are committed to both channels. We will continue, however, to invest in our carrier channel especially in the markets where we have or plan to have network based Medicare Advantage products.

As part of our effort to be more efficient and focused, we are now implementing plans to close or restructure certain offices that have under performed our expectations are no longer strategic resulting in the charge in our corporate segment $6.3 million in the second quarter.

Turning to Part D, our second quarter results again provide confirmation and improvements in revenue, benefit ration and expenses will offset the lost income from the strategic joint venture with CVS/Caremark that was terminated at the end of last year. We’ve taken the steps required to reduce our benefit cost structure particularly as to the cost of drugs and have upgraded and integrated the operations of our two plans harvesting meaningful savings with more to come through the course of this year and next.

We are now in the fourth year of Part D. In each year we become more comfortable with the pattern of results that emerges through the year. The second quarter metrics are positive indicators of a good result for the full year 2009. Through six months our revenues are higher and our benefit and expense rations are also lower than last year.

Part D plays an important part in our overall strategic plans and the same principles of healthy collaboration apply. We now have in our two programs the third largest Part D business in the country serving around 1.7 million Medicare beneficiaries.

Result of our traditional segment continued to be a bit disappointing and we are in the process of taking appropriate actions to improve these results. With the sale of the life and annuity business we have begun to rationalize our cost structure and further reduction in expenses must occur in order to get the full benefits of the transactions and we are working towards that end.

Now, let me turn to our capital position. Our insurance subsidiaries and HMOs have been well capitalized, but to further augment our capital positions and to sharpen our focus on our core business we closed the life and annuity reinsurance transactions effective as of April 1 of this year.

The transaction generated approximately $70 million in excess statutory capital consisting of $60 million in increased statutory capital and a reduction in required capital of approximately $10 million. We have over $80 million in regulated cash with the holding company in a fully unused $150 million line of credit.

Our strong liquidity position, the excess capital generated from the life and annuity transaction, projected earnings for 2009 and a reasonable debt structure give us a great deal of financial flexibility including the ability to buy back stock at its current levels. To that end our board has increased our authorized stock buyback by $25 million since we have now completed the original $100 million authorization.

In the aggregate our book value, including the unrealized losses in our bonds was over $16 a share and around $9.58 when goodwill is excluded. In connection with the reinsurance transactions and the transfer of over $415 million of assets to the reinsurer, we actively pursued a strategy to reposition our investment portfolio to reflect the change in nature of our liabilities and to reduce various credit exposures.

We took advantage of the credit market value this spring to reduce single issuer exposure and sell some of the financial names. In addition we virtually eliminated our holdings in CMBS also taking advantage of the recent rally in those prices. All in we sold over 220 million of securities and incurred 3.5 million of pretax losses. In addition the company reported OTTI impairments of $4.5 million pretax related to various mortgage backed securities.

Turning to the balance of 2009, our favorable operating results to-date and our forecast for the second half of the year has given us the confidence to increase our guidance to a range of 152 to 162 per share, excluding realized gains and losses and the one time expenses in charges that we incurred in the second quarter.

We continue to believe strongly in the future of our markets broadly defined as providing valuable health insurance coverage to seniors and other Medicare beneficiaries. The specifics are going to change but the need for these coverages will grow, and we have demonstrated our ability to adopt quickly as the markets and the environment changes. We believe that we have the skills sets and the flexibility to succeed in any regulatory or funding scenarios.

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

Question-And-Answer-Session

Operator

(Operator Instructions)

Your first question comes from Joshua Raskin - Barclays Capital

Joshua Raskin - Barclays Capital

Question really relates around 2010, and I know it feels like it’s a long way away and there is a lot of moving parts. But you guys have submited your bids. So, I guess I’m just curious from a strategic standpoint, you are rebidding in all your counties including private fee-for-service. You are facing some significant rate pressure, was the strategy to sort of maintain membership or was it to maintain margin, and that’s on the MA side?

Then on the PDP side, you guys talked about letting your margins come in a little bit over a period of time. So, as we think about the PDP business, should we think about a little bit of margin compression and hopefully grow back I guess in 2010.

Richard Barasch

Yes. Let me take the second one first. Yes, we’ve been pretty, vocal and open about the fact that our Part D margins will shrink over time. This year, interestingly, it doesn’t look like they are going to, but each year we feel it’s a more competitive environment. So, I think that’s a reasonable assumption that Part D margins will decrease over a period of time.

As to MA it’s a lot more complicated. There are many-many more moving parts. We’ve been in the insurance business for a very long time. Margin is always something that we care a lot about, we’ve never been sort of market share players, we always bid to make a profit. Having said that, we have several submarkets within our business. We’ve got our core HMO, we’ve got our new PPOs, in addition we’ve got the core markets, in which we will have PPOs either in 2010 or 2011.

Each one of them has a market dynamic that’s a bit different. I think the withdrawal of several of our competitors this year actually makes 2010 quite an interesting year. The question is will people who have been just enrolled from these folks who are withdrawing is going to move to another MA product or are they going to be frustrated and move back to original Medicare or go to Med Supp.

Our view is that a good part of them will go to other Medicare Advantage Products, and we think we are in a good position to benefit from it.

Joshua Raskin - Barclays Capital

So it sounds like your membership outlook next year despite the rate pressure, like the comment you have been market share players in the past, it sounds like if there is ever a time, 2010 is presenting that opportunity.

Richard Barasch

It’s such a hard thing to discuss until we see everybody off this pitch, we just don’t know, the very interesting part about bidding in both MA and Part D is we all sort of sit in our own conference room with a lot of assumptions, a lot of sort of guesses about competitor, competitive behavior, and kind of take all the information and do the best we can, and I said in my prepared remarks, sort of balancing the need to have a good margin with market imperatives.

Frankly Josh, until we really see what’s going on with our competitors, it’s going to be very hard to be predictive of that. Having said that though we feel we’re putting a very good product portfolio on the table.

Joshua Raskin - Barclays Capital

The last question about it. You guys sort of made your bids for 2009. Your MA margins are going to come in somewhere in the mid fives, so is that consistent with your long-term margin goal and…

Richard Barasch

No. I think that is consistent. I think that that’s exactly where we should be. I mean first of all, the regulatory environment is not going to let us do much better than that. I think both the legislative and I think these are just all the external factors, and then from a competitive factor I think that’s kind of where the market is going to end up.

Joshua Raskin - Barclays Capital

So, next year, its similar sort of idea.

Richard Barasch

Yes, I think that would be reasonable. Although, again, I know you want it to your models, but it’s very hard for us to be predictive about this before we see what delayed the way on this.

Operator

Your next question comes from the line of [Greg Tinova] - Duetsche Bank.

Greg Tinova - Duetsche Bank

Can you talk some more about the MA MLR in the quarter? Sequentially it was about 130 bids ex-PPRD, yet you took the overall guidance down by 50 basis points. So, can you talk about what’s causing that and also maybe parse it out between HMO or PSMS?

Richard Barasch

We are giving an average. So, we won’t do the parsing, again kind of the way we look at this is these products are really full-year products, and, yes, the quarters are important and very instructive, either positive or negative, but we tend to look at things rather in backwards rather than quarter-to-quarter over the trailing, over the year, which is now six months, in the third quarter we will at it on a nine-month basis.

Again, I’m not minimizing the quarter, but these are bids for a full year, and there are some seasonality patterns within the year that we are just starting to understand, it’s only kind of three years that this business has really been emphasized. So, I think the year-on-year is more instructive than the quarter-on-quarter.

Greg Tinova - Duetsche Bank

Okay. How about also, and you talked about it a little bit. But for Part D next year with the several key players so far not being possibly able to mark it given CMS sections, are you changing any update on your strategy there, do you think you could pick up some incremental enrollment given that some players might not be able to…?

Richard Barasch

Look, people did it voluntarily on the MA side and perhaps not as voluntarily on the Part D side, fewer players and fewer aggressive should clearly be good news for us.

Greg Tinova - Duetsche Bank

Last one just in the traditional segment. Do you think now given the charges, as far as overall earnings from that segment, that’s going to continue to be volatile or do you think it kind of flattens out where it is?

Richard Barasch

I would say I would be looking to 2010 for sort of a more regularization of our earnings in that segment. And a good part of it candidly has to do with kind of what happens in the market place. I mentioned some of the alternatives to several withdrawals from the private fee-for-service market. If many of those members find their way back to Med Supp that should have a positive impact on our Med Supp business for 2010.

So, we are looking at the balance of ‘09 in that segment to really spend the time, clean it up, do what we have to do to get it on sound footing and really emerge in ‘010 with a sounder business plan.

Robert Waegelein

Just to add to that the segment now has more heavy influence from our longer duration health products, long term care DI, and we have continually said it’s charted quarter to quarter based on how claims are reported. So, look for volatility a little bit in the NBR. But to Rich’s point about savings in a more stable Med Supp adds up to that as well.

Operator

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

Thomas Carroll - Stifel Nicolaus

Good morning. I want to better understand as you put it the lay of the land and understand its tough looking out there right now. But try to understand kind of your core markets and how your network development is playing out over those markets.

Richard Barasch

That’s a good question. Let me see if I can begin to answer that, and then if you have some follow up I’ll do it.

Thomas Carroll - Stifel Nicolaus

Okay.

Richard Barasch

MIPA in the past, actually even before MIPA, that when I said that in my prepared remarks I realized I did actually started this well before MIPA. We bought heritage, heritage health is in 2004.

The reason we bought heritage in 2004 because they had even at that time a pretty advanced medical management model that we thought was going to have a lot of validity as time went on, because even then after the end, rates went up. We sort of kind of everybody knew that at some point reimbursement rates would change.

So, the right answer even then was to start preparing for that. So, we even in ‘05 and ‘06 started some HMOs in some new markets, we had a couple that didn’t work and actually. several of that did, and we started to process upbringing our model, which we now have branded as the healthy collaboration model to Oklahoma, Milwaukee, North Dallas, North Texas, etc.

It’s taken a couple of years, but we really are starting to see some very encouraging results emerge from the new markets from a both financial perspective where we are seeing better MBRs, but also from the perspective of engaging physicians.

So, we are feeling that we are making a lot of progress. Then, 2007 comes, and we get this enormous influx of private fee-for-service members. If you recall we went 17,000 to nearly 200,000 literally overnight, and it was kind of never our plan to be a big private fee-for-service company, but the business came and it’s turned out to be extremely beneficial from a financial perspective. It’s been profitable since the first day, equally important though what it has allowed us to is spend the money we needed to spend and build our infrastructure, systems, people, etc.

With the coming of MIPA, we then had to sort of step back and say this has been wonderful, having all this great private-fee-for-service that kind of now, what’s next in the face of the end of most deeming at the end of 2010. So, we actually accelerated our efforts even before MIPA but accelerated it through MIPA to start building both HMOs and PPOs in other places.

Not coincidentally we looked at our book and noticed that we had some pretty interesting concentrations of members, and again, not coincidentally where we had good distribution. Upstate New York, Pennsylvania, Indiana, Texas, Arkansas, Georgia, Carolinas, Virginia, and sort of saw what we originally called sort of clumps of members and now we are fine to what we have defined as core margins.

At the very beginning of this, we isolated about 80 markets that we saw we had a legitimate shot of getting PPO done it. We’ve refined that number down, we have been successful in getting 43 to this point, and I am going to give ourselves a little bit of a corporate pat on the back.

I think some of you have seen or written about the difficulties in getting new expansion through CMS in the new environment and everything that we finally filed did get approved which we are pretty happy about. We got initial of 29 approved this year up to about 43, and probably there is another 10 or 15 to go between now and next year plus building counties around the markets that we’ve already established PPOs.

Our criteria for doing this is sort of several. One is, do we think that with the, first of all, can we build a network adequate enough to get through CMS. Second question, which is probably even more important is, do we think that there is a chance that the people we sign up will in fact work with us in a healthy collaboration model, and it’s hard to test and there is a lot of good conversation about it, but this is something we’ll see over time.

Then third, do we think we can continue to distribute in those markets as well. So, we look at each market from those perspectives and kind of decided, which we are going to be, what we’ve defined as our core markets. So, let’s just say we’ve got 43, now that number probably increases to the mid 50s. At the top end probably some markets get called away from that as we see that may be it’s not possible to do what we are trying to accomplish.

So, this is the task ahead of us at Universal America. I think we’ve got the core building blocks in place. We’ve got a terrific medical management model that’s working in our original HMO markets, which we do believe can travel and we’ve been I think pretty successful in getting PPOs built in the places that we care about.

That was probably a longer answer than you were looking for, but I think hopefully that cover the waterfront.

Thomas Carroll - Stifel Nicolaus

No, it was good, and I think that question is out there with others as well.

Richard Barasch

I think that’s a great question.

Thomas Carroll - Stifel Nicolaus

The states you mentioned are all kind of as I scan down your kind of top 10, top 15 markets by enrolment or kind of all within that top 15 footprints. So, the states you mentioned, it’s fair to say those are kind of your four markets that you are looking at, which would make sense because that’s what [Inaudible].

Richard Barasch

It’s not a government secret. I mean all you have to do is look at the CMO mess rolls where we’ve got membership and you can pretty well extrapolate. As a company, we’ve done extremely well in Upstate New York, Universal America and America Progressive has been leading companies in Upstate New York now for 20 years. We’ve got great distribution, we’ve got nearly 30,005 fee-for-service members in six markets. That’s a great market price.

Thomas Carroll - Stifel Nicolaus

As we get closer to 2010, I just want to confirm that, try to get a better handle at what you guys continually define as your core markets. So the 43 markets you talk about, will those markets fit into kind of the top ten states on your list right now?

Richard Barasch

Yes. There may be an exception or two but I would say 95% yes.

Thomas Carroll - Stifel Nicolaus

95% that’s very helpful.

Richard Barasch

That’s again we are mindful so what we are trying to do isn’t simple we get that. So I think what we have tried to do is be very thoughtful about figuring out where we saw we had the greatest chance of success.

Thomas Carroll - Stifel Nicolaus

Right. So, last question on this topic. You mentioned kind of by the end of the year you’ll have network based coverage covering about 50% of your total membership I think you said.

Richard Barasch

No, I said just on your half, approaching 50.

Thomas Carroll - Stifel Nicolaus

So if we changed the math a little bit and I say by the end of the year you’ll have network coverage across what percentage of your core markets? Is it 70% right now by the end of the year?

Richard Barasch

I would say no it’s less than that because we are not done yet.

Thomas Carroll - Stifel Nicolaus

Yes.

Richard Barasch

I can’t give you a number off the top of my head.

Thomas Carroll - Stifel Nicolaus

But it sounds like it’s more than half though.

Richard Barasch

I would say we are just approaching half.

Thomas Carroll - Stifel Nicolaus

But even on just your core markets, not your total membership.

Richard Barasch

On the core markets.

Thomas Carroll - Stifel Nicolaus

Yes, I am changing the denominator on you a little bit, making you a little higher.

Richard Barasch

You are actually giving me a lay-up here and I am not taking it. It is higher than 50%, we can figure out the number.

Operator

Your next question comes from Carl Mcdonald - Oppenheimer.

Carl McDonald - Oppenheimer

I was wondering if you could give us some insight into what you are going to be doing from an operational perspective to try to target the Coventry in WellCare membership that’s up for grabs next year. I mean is there things you can do from a distribution perspective may be.

Richard Barasch

Yes, both WellCare and Coventry built largely with Independence North American have been had a wonderful relationship with the independent community for 20 years. Very large part of our business was built that way. So we think we are in a reasonable position to convince the folks who fill up the Coventry as well as for WellCare to work with us. I think we are an absolute contender to make some good progress there.

Thomas Carroll - Stifel Nicolaus

The second question is if you could just walk through the cash of the parent and how you expect that to trend into a year under next year. So, is the anticipation that some of the proceeds from the insurance transaction will make their way to the parent company and over what timeframe?

Richard Barasch

Keep in mind that with statutory accounting there is always a little bit of a delay. I would say the likelihood is that there won’t be a loot of extra - actually coming for the sub this year about reasonable chance a significant amount will come next year, not just the life and annuity sale, we are in the midst of what we think is going to be a very strong operating year in our statutory subsidiaries. So, we had I would be looking to ‘10 for more coming up.

Operator

(Operator Instructions) Your next question comes form Daryn Miller - Goldman Sachs.

Daryn Miller - Goldman Sachs

Richard last time we had spoke you sounded pretty comfortable that you don’t think competitive bidding would be an option in Medicare Advantage or what happened to Medicare Advantage, any updates on your thought there?

Richard Barasch

I think I may have been premature in being so subscribing on that point. At that moment that’s sort of the buzz it. What I have learned in my more recent endeavors in Washington is that, what you think on Tuesday very often changes, not by Wednesday but by Tuesday afternoon.

What we have got now is really interesting. It’s very hard to comment on this. There is a lot of moving parts, sort of the one thing though I would say is that we are finally seeing seniors and Medicare beneficiaries sort of rear there 40 odd million strong group to make sure that they don’t pay for healthcare reform.

Your question is about competitive bidding; we just don’t know at this point, because there is two senator bills, we are kind of, we are not watching waiting we are very active on this but what emerges I think is it’s going to be interesting to see but the key point for us now is that there appears to be sort of more traction in the senior and Medicare community on these points.

Daryn Miller - Goldman Sachs

Can you provide a little color just on how you think competitive bidding would impact you gays or how you would think about competitive bidding?

Richard Barasch

We don’t have enough time on this call to go through this. It’s really complex, and it doesn’t, and what works in one market is not necessarily good in another market, it’s a quelled patch work, mosaic, whatever analogy you want to use, and it’s hard to make a blanket statement about it.

Daryn Miller - Goldman Sachs

Fair enough. Can you remind me how many of your PDP lives are auto-assigned, and do you have any regional concentrations with those?

Richard Barasch

We are pretty regionally spread out, except for the west. We don’t have much in California, California has never been a state where we have made much headway. We will have to come back to you on a number of duals. It’s in the, I don’t want to guess, Bob will get back to you.

Robert Waegelein

It’s in the 400 or so thousand range.

Richard Barasch

Yes. I think that’s about right.

Daryn Miller - Goldman Sachs

Okay, and one last question. Is it possible to get an update on what your regulated capital was at the second quarter, and what your required capital at the subs was just to get a sense of?

Robert Waegelein

It’s really not give on a quarterly basis, you can look at our annual statements that are on file. We probably can distribute, we can help you with that calculation, Marina will get you some information, we are not done with our second quarter statutory financial statements they do August 15.

We can give you an update after that, but I would like to remind you though that the Part D business is very seasonal against the Pennsylvania life’s capital decreases and then increases year over the year as opposed to through the quarters, at any quarter time, it’s not a good indicator. So, we are going to look to prior year-end and projected year ends when we talk about capital.

Operator

(Operator Instructions) There are no further questions. I will now turn the conference back to management.

Richard Barasch

Thanks everyone for spending time with us this morning. As I said please feel free to call Bob and Martina for any follow-up questions. Thanks a lot everyone.

Operator

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

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