Protective Life's CEO Discusses Q3 2013 Results - Earnings Call Transcript

Oct.31.13 | About: Protective Life (PL)

Protective Life Corp. (NYSE:PL)

Q3 2013 Earnings Conference Call

October 31, 2013 9:00 AM ET

Executives

Eva T. Robertson – Vice President of Investor Relations

John D Johns – President and Chief Executive Officer

Richard Joseph Bielen – Vice Chairman and Chief Financial Officer

Steven G. Walker – Senior Vice President, Controller and Chief Accounting Officer

Analysts

Sarah DeWitt – Barclays Capital

Mark Finkelstein – Evercore Partners

Steven Schwartz – Raymond James & Associates

John Nadel – Sterne, Agee

Sean Dargan – Macquarie Capital

Christopher Giovanni – Goldman Sachs

Dan Bergman – UBS

Operator

Good day ladies and gentlemen and welcome to the Third Quarter 2013 Protective Life Corporation’s Earnings Conference Call. My name is Tahisha, and I’ll be operator for today.

At this time all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Ms. Eva Robertson, Vice President of Investor Relations. Please proceed.

Eva T. Robertson

Thank you, operator, and good morning everyone. Welcome to Protective Life Corporation’s 2013 third quarter earnings call. Our call today is hosted by John Johns, Protective’s Chairman, President and CEO; and Rich Bielen, our Vice Chairman and CFO.

Also here with us we have Carl Thigpen, our Chief Investment Officer; Mike Temple, our Chief Risk Officer and Steve Walker, our Chief Accounting Officer.

Yesterday, we released our earnings press release and the supplemental information, and both are posted on our website at protective.com. In addition to the information we released yesterday, we’re using a Slide presentation with our discussion this morning and that deck you can find on our website in the Investor Relations section.

Finally today’s discussion does include forward-looking statements which express expectations of future events and results. Actual events and results may differ materially from these expectations. You can refer to our press release and the risks and uncertainties as well as Risk Factor section of the company’s most recent report on Form 10-K and subsequent 10-Q for more information about factors that can affect future results. Our discussion also includes non-GAAP financial information and reconciliation to the GAAP measures can be found in the supplemental financial information on our website.

At this time, I’d like to turn the call over to John Johns.

John D. Johns

Thank you, Eva and thanks everyone for joining our call this morning. We appreciate your interest in Protective. We’re very pleased to report a solid quarter in the third quarter. Net income in the quarter was $93 million, or $1.15 per share that is a 50/50 increase in net income per share over the third quarter of last year.

Operating earnings were $80 million in the quarter, or $0.98 per share, which is a 29% increase in operating earnings over the same quarter last year. We’re also very pleased with our annuity earnings. We’re very strong in fact at a record level.

We also very pleased that we have successfully closed the Mutual of New York acquisition transaction. The integration process is going very well, well under way and we feel very good about the way that transaction is playing out.

I’m now going to turn the call over to our Chief Financial Officer, Rich Bielen for more detail on the quarter.

Richard Joseph Bielen

Thank you Johnny. Good morning everyone. If you would turn to Slide 4, as you can see operating income for the quarter was $0.98 with net income at $1.15. Year-to-date our operating income is $2.82 a little bit ahead of our original plan that we presented to you a year ago, and our net income for the first nine months of this year is $3.39.

If you move to Slide 5, it’s a summary of our net realized investment gains and losses for the quarter, as you can see in the third quarter we had net realized gains on securities of approximately $0.08 and that just relates to normal portfolio rebalancing. For Modco which relates to the all Chase Insurance Group transaction of 2006 added $0.02 per share during the quarter. We did have $0.07 of impairments during this quarter. The largest piece of that is we owned a bank loan in Texas Utilities.

And as you can see in the press recently that they’ve been undergoing some restructuring conversations and we mark that to market at the end of the quarter. That resulted in $0.04 out of the $0.07 during the quarter. The other items were just small items related to some small positions.

Our derivatives related to VA contracts with a positive $0.17 during the quarter and our mortgage real estate losses for the quarter were $0.03 and that’s on a $5 billion portfolio. And I just point out to everybody that our current delinquency rate on commercial mortgages is three-tenths of 1%. So that resulted for the quarter a net realized gains of $0.17 and on a year-to-date basis, we have $0.57 of realized gains.

Moving to Slide 6, our book value per share including AOCI is $46.31 excluding Accumulated Other Comprehensive Income, we ended the quarter at $39.62 up from $36.84 at the end of the calendar year 2012.

A review of our unrealized gain and loss position, as you know interest rates rose which really benefits our company and the industry in terms of the ability to reinvest at higher rates but you can see at the end of the quarter, our net unrealized gain before tax and GAAP was $1.3 billion down from the $3.1 billion at the end of the year, but still a very healthy mark-to-market at the end of the quarter.

Moving now to Slide 7, our Life Marketing division we report $29 million of earnings during the quarter. During the quarter, we did have favorable perspective unlocking of $2.4 million. And our third quarter mortality was $1.6 million favorable to plan. I’ll just make one note.

Over prior quarters, we talked about an actual to expected approach on mortality, but with the third quarter unlocking, we’ve reviewed all of the mortality. And when we speak about variances on future calls, what we will do is just give you the variance to our plan and not reference those old original pricing assumptions. On the sales front sales were $33 million in the range that we expected in the third quarter.

As you can see earlier in the year, we did have some backlog related to changes in the marketplace in the fourth quarter of last year. We would expect some further decline in sales in the fourth quarter, and anticipate in early next year we’ll be introducing some new products and that should we reintroduce some sales momentum going forward.

Moving on the annuities line, we had record annuities of $50.9 million during the quarter. We continue to see very strong VA fee income resulting in $4.9 million of favorable unlocking. The bulk of that unlocking is just attributable to the third quarter of the retrospective unlocking as a result of the better than expected markets in the third quarter. As you can see our account balance is up 17% from a year-ago to $19.6 billion from $16.8 billion. On the sales front, you could see our sales declined to $538 million consistent with our plan. VA sales are down to $358 million. And we should see another sequential decrease in those sales in the fourth quarter.

The combination of that will bring our VA sales for calendar year 2013 to our $2 billion budget that we established at the beginning of the year. You do see that there was an impact in – an increase in our fixed sales during the third quarter. We grow from a $152 million a year ago to $180 million.

As you may recall, we introduced into our bank channel, a fixed indexed annuity in the second quarter. We’re seeing some nice momentum there and having excess of $100 million of sales in the third quarter and expect that momentum to continue.

Moving on to the Acquisition segment on Slide 9; earnings for the quarter were $29.4 million. We did have some unfavorable perspective of marking of $4.2 million that was attributable to the Inter-State acquisition that we closed in 2001 and reviewing those policies.

We also in this quarter had lower net investment income. As you may recall, related to our MONY transaction, we had expected to do an additional securitization. We’ve released approximately $100 million of reserves from our United Investors transaction.

With that – as a result of that, we reduced the investment income in this line of business, but one thing to know with that reserve release, we have now released through a combination of earnings, reduced RBC and the securitization, 88% of our additional – of our initial purchase price and we’d expect that earnings next year from that business will be approximately $20 million.

United Investors and Liberty Inception to Date pricing results continue to be ahead of what we originally planned for on United Investors, we’ve seen a cumulative positive about $6.5 million and on Liberty a cumulative positive about $2.5 million.

Moving on to Slide 10 and Stable Value Products, we report $19.2 million of earnings, $13.1 million a year ago. We continue to see very strong spreads including the $2.4 million of participating income on spreads with 307 basis points, adjusted for that participating income, that’s 269 basis points.

We would expect spreads in the fourth quarter to be similar to the third quarter. We did see sales in the third quarter of $80 million. You can also see here that our balance is really stabilized under approximately $2.5 billion and we’d expect that to continue going forward.

Moving now to Asset Protection, strong sales up 11% versus the third quarter of 2012. As you may know, our U.S. auto sales in this country are annualizing approximately 15 million units on an annual basis. So you can see our sales were $130 million versus a $117 million. What we’re also seeing as a result of our strong sales is very good earnings with also the benefit of some lower expenses. So you can see in the last three quarters very much on our plans with $6.8 million this quarter, $7.4 million in the second and over $6 million in the first. So continues – things there continue to perform very well.

Two other comments that I’ll make is in – we also saw in Corporate & Other, a reduction in our net investment income. Now it’s primarily in anticipation of the closing of the money transaction. We had started to accumulate cash. Unfortunately in this environment, cash earnings are very little, while our portfolio is earning approximately 5%. So that held down our third quarter investment income by a couple of million dollars in our Corporate & Other segment.

Also on the MONY front, as Johnny began to mention, the integration goes – is going well. We’ve had somebody on the ground in Syracuse since April. We’ve been going through process with AXA to really work to start a parallel process here in October 1 to accomplish the conversion.

We expect that conversion to take approximately 15 months starting with this October 1 date through 2014, our initial observations from the transaction are that we will wind up with a slightly better economics than we first planned for, we are seeing the benefit of having higher interest rates that we’ll be able to invest in a higher rate, than we originally planned for offsetting that a little bit of that we see the initial transition expenses being a little higher than we originally expected is a lot of ancillary systems and we'll have to convert and we'll also probably after running parallel with AXA a little more than we originally expected in order to accomplish those conversions.

So for the third quarter – for the fourth quarter what we expect is that it will, the transaction will add about $0.10 per share to earnings but I would just caution everybody here in the beginning there is a lot of lumpy expenses related to legal fees, tankers we’re moving in port from one location to another.

So as a result the lumpiness of the expenses maybe a little different, so it’s possible that the actual earnings impact may range from $0.05 to $0.15 depending on that on the timing of those expenses. But overall, we see that the overall economics will look like they will turn out over time to be better than what we originally expected in the transaction.

With that, I’ll turn it back over to Johnny for some closing comments.

John D. Johns

Yes, thanks Rich, I’ll close it out here. Just to say that one other bit of information, but I think investors may find of interest is that we did finish the quarter with very, very strong capital position, we estimated RBC ratio at that point that is to be north of 550% which is well ahead of what we had expected.

As a consequence you may recall that we had projected last spring that we would need to access our revolving line of credit of about $100 million to kind of round out the purchase price of MoneyBlock, but as it turns out, if we can stay on this. RBC track through the end of the year, we think that will be unnecessary, so we will incur any additional leverage to finance the transaction, if the this trend continues.

But overall the company seems to be performing very well. Our goal is to execute solidly and predictably on our business plans and thus far this year we are doing that and our expectation is that will continue in the fourth quarter.

So with that, we’ll stop and be pleased to answer any questions that you may have.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from the line of Sarah DeWitt from Barclays Capital. Please proceed.

Sarah DeWitt – Barclays Capital

Hi, good morning.

Richard Joseph Bielen

Hi.

Sarah DeWitt – Barclays Capital

On the MONY acquisition, given your comments that earnings could be a little higher, rise in interest rates. Can you give us a sense of how we should think about the sensitivity there?

Richard J. Bielen

Yeah, Sarah, this is Rich. I would say it will be a longer-term impact in 2014. If we’re able to invest at a rate of 100 basis points higher than what we originally priced that would probably benefit us in the range of about $0.10 per year.

John D. Johns

But again that’s over a long period of time. And of course as the investment come down that would come down a little bit too. But yeah, the bottom line as we do think the economics turning out more favorably than we’d originally predicted in our pricing model. And we’re satisfied obviously with those economics. So we’re very pleased that we’ve gotten a little boost here, a virtue of the interest rate environment.

Sarah DeWitt – Barclays Capital

Okay, great. So you could start to see that benefit of higher rates as early as 2014?

Richard Joseph Bielen

I would say Sarah given my comments, we think we’ll have a little bit higher transition expenses in 2014 it will mitigate that. I really think it would start to impact us, or benefit us in 2015.

John D. Johns

Yeah, in the next five quarters is a period in which we will be expanding MONY on the transition expenses, which did indicate those expenses are a bit higher. So probably be some offset there. But after that is when we think the equation will be a little stronger than anticipated.

Sarah DeWitt – Barclays Capital

Okay, great. And then based on your comments of the transaction could add about $0.10 in the fourth quarter and when you released earnings you said you’re on track to meet your financial plan. Should we be thinking of that as the $3.95 of EPS that you laid out when you did the deal portfolio 2013 earnings?

Richard Joseph Bielen

That’s the right ballpark.

John D. Johns

That’s the right ballpark and that includes the $0.10.

Sarah DeWitt – Barclays Capital

Great, thanks for the answers.

John D. Johns

Thank you.

Operator

Your next question comes from the line of Mark Finkelstein from Evercore. Please proceed.

Mark Finkelstein – Evercore Partners

Good morning.

John D. Johns

Good morning.

Mark Finkelstein – Evercore Partners

I guess my first question is on Acquisition segment, the earnings there has been a little bit lighter, I think than your original plan certainly than what we’ve modeled. Some of it feels like it's maybe the core earnings drivers of the business and you did take a negative perspective unlocking there is the only segment that you did that.

On the other hand, you also seem to have maybe put more capital out which is affecting that investment income. So you kind of have two different dynamics at least in this quarter. How should we be thinking about the core economics of the Acquisition segment relative to your original exceptions and what do you see is the weakness?

Richard J. Bielen

Okay. So Mark this is Rich, we’ll back up a little bit here. So while we now – as we’ve outlined we’ve done a lot of things this year that have impacted the Acquisition segment. We had done some reinsurance earlier in the year. We have that IMR effect from the Chase transaction.

We’ve now done the United Investors securitization that’s impacted it. We will give you an update at the investor conference with respect to what we think that 2014 run rate is, but just as an initial take, it’s probably in the low $30 million range as a result of all those things. But as you pointed out, we extracted a lot of capital here that now puts us – put us in the position to do MONY in the way we have. So the MONY earnings will start adding to that as we go forward.

Mark Finkelstein – Evercore Partners

Okay. This – maybe just a follow-up on that question is – if you kind of extracted the – all the items that you highlighted that are structural in nature in that Acquisition segment. I mean is it your view that the earnings are a tad bit less on a core basis than what you originally assumed or was it more the other dynamics that are driving the shortfall?

John D. Johns

They have tad less than we assumed originally. We saw some pickup in lapses and some little things as we did our normal true-ups in the process, some reinsurance items that affected us. But the big bulk of it is the – the things that we have outlined to you.

Mark Finkelstein – Evercore Partners

Okay, great. I wanted to – maybe a question for Johnny. In your comment, in the press release, you use the words when you’re kind of framing out the headwinds, unsettled regulatory environment and there is funds going on whether it’s the captive debate, you are reserving flex data in particular. But can you just maybe elaborate on what you meant by that comment and whether you’re actually seeing any real impact today in your earnings drivers or whether it’s more kind of uncertainty going forward, is that the basis to the comment?

John D. Johns

Yeah, Mark, comment was really directed towards just kind of future uncertainty with respect to things like captives, I’m sure you’re aware that State of New York is taking the position with respect to guaranteed UL reserving. It’s not the same as the NAIC position on that and there are other issues.

But really from our perspective, we feel like we're navigating through those issues just fine. I think you know we really don’t have exposure in New York to guaranteed UL products either our core business or through the MONY acquisition.

So we really just kind of we’re looking over the horizon a little bit, just trying to charge the course forward. I do think the interest rate environment is an industry challenge. Our expectation and our planning, we’re not assuming much of any improvement in the current interest rate environment, and I think that’s one of the reasons they just see our live sales a little bit slower than they had been. Is that we’re very sober about where we think the FED is heading we’re not, we like to see some change in higher interest rate and higher interest rate environment, but we’re not really expecting, we are one planning for one.

So that is a bit of headwind and that kind of cuts across many different segments of the business. So this investment income is a driver of earnings in a lot of different product lines.

Mark Finkelstein – Evercore Partners

Okay, all right. Thank you.

John D. Johns

Thank you.

Operator

Your next question comes from the line of Steven Schwartz from Raymond James & Associates. Please proceed.

Steven Schwartz – Raymond James & Associates

Hey good morning everybody, just a real quick, I’m just wondering it wasn’t mentioned, so maybe there's none there, but was there any thoughts on mortality with regards to the Acquisitions segment. The loss ratio looked high, but that could have been screwed up by the unlocking, so it wasn’t clear to me.

John D. Johns

We had a little bit higher on the benefit line due to the unlocking plus there was a little higher claims versus a year ago, but nothing significant.

Steven Schwartz – Raymond James & Associates

Okay. That’s really all I have thanks.

John D. Johns

Thank you.

Operator

Your next question comes from the line of John Nadel from Sterne, Agee. Please proceed.

John Nadel – Sterne, Agee

Hi, good morning everybody. A couple of questions, on the indexed annuity side, you’re obviously seeing some good success here early, but that’s going to be a pretty competitive market especially given some of the non-traditional private equity backed competitors there.

I’m just wondering if you can just give us an update on your expectations for that particular product line and what your early assessment is here in the first couple of quarters being in that specific marketplace of how the competitive dynamics are shaping up.

John D. Johns

Yeah, John thanks yeah. We are pretty excited about our opportunity with respect to that, that product. Our sales are mostly in the financial institution distribution channel, which is I’m sure you know is one in which that sort of at the new entrance into the industry really not very active in that channel. Their sales because of their ratings profile I guess primarily their sales are more targeted to the individual agent channel, which is sort of a higher commission, higher surrender charge kind of segment of the business.

But we’re pretty pleased. We think we’ve priced its product appropriately. The returns on capital are attractive to us and we’re getting traction as the products very well received in that channel. And also as we’ve turn back our expectations and our plans with respect to VA sales we’ve been able to switch some of our wholesale and resources little more in that direction to be more supportive of our other product lines. So all-in-all, we’re pretty bullish on that product.

John Nadel – Sterne, Agee

All right, okay. And then on the variable annuity side, so obviously you guys said, what you’re going to do, you delivered on what you said you were going to do in terms of getting those sales down. I’m just curious as to what you would attribute that decline in sales to. Is that mostly your actions on the pricing side, commission side or otherwise or would you say there is an element of some enhanced competition out there from some – either some of the old guard players who have been there or maybe some of the newer players who are – who have been coming in here in the last couple of quarters – excuse me and taking share?

John D. Johns

Yeah, Mark it’s clearly the former and not much the latter. It’s mostly the former and maybe a bit, but not much. The latter of your alternatives, we’ve take action, fairly dramatic actions with respect, we put limits on size of contracts, we put limits on 1035 exchanges, I mean we changed our pricing, we just done a whole host of things to get those sales in line with where we wanted them to be.

John Nadel – Sterne, Agee

Okay, understood.

John D. Johns

If anything and at least in the broker-dealer channel, I think there is this more demand and there is supply right now...

John Nadel – Sterne, Agee

Okay. And then the last question I have for you is just in Life Marketing maybe more for Rich, it's more of a technical question around the income statement. I just noticed that your reinsurance ceded dropped an awful lot this quarter. I just like to understand whether that was a one-time sort of event or if you’re just retaining more of the business at this point and we should think about that going forward?

Steven G. Walker

This is Steve Walker, that was a block of policy that came out of their level term period, and they canceled during the quarter and that had a significant impact on both the direct and the ceded line, but more on or on the ceded line because those are annual premiums. There is an offset in the benefit lines, so it really did impact our earnings.

John Nadel – Sterne, Agee

Right, right.

Steven G. Walker

Some of that lumpiness in the future that will affect the premium benefit lines, but it shouldn’t impact earnings.

John Nadel – Sterne, Agee

Okay, thanks very much.

Steven G. Walker

Right John. Thank you.

Operator

Your next question comes from the line of Sean Dargan from Macquarie. Please proceed.

Sean Dargan – Macquarie Capital

Thank you. I’m just in regards to how you’re thinking about the VA sales going forward. Given competitors announcement that they – we’re able to get reinsurance or coinsurance on new business. Is that something you would entertain and if so would you be comfortable selling a little more of the product?

John D. Johns

Sean, we’re just now putting together all of our plans, our expectations with respect to annuity sales in general next year. And I think we’re – we’ll – we’ve announce that formally at our Investor Conference was you would be very much in the annuity business next year, but we believe that we need to ramp – continue to hold down VA sales.

We don’t really understand the implications of the reinsurance transactions that are occurring out there, but one thing we do know is that the product still essentially stays on your balance sheet even if you reinsure some of the risk way and it adds asset leverage had somewhat lower return on asset than we consider optimal at least in this current configuration. So at least for the moment we want to stay in the VA business and be a valuable player there, but we do not have an expectation of ramping ourselves up a good bit by virtue of reinsurance support.

Sean Dargan – Macquarie Capital

Got it, thank you and you are out of the market this year, for share repurchase for loan MONY integrates, but at some point I assume you will be in an excess capital position, you are trading above book value excluding ACLI. Do you view yourself as having more currency to do deals after MONY gets integrated?

John D. Johns

Yeah, absolutely, our projections and models, again which we’ll share with you in more detail at the investors conference. So that our capital position we’ll start to rebuild very rapidly next year and that is even if you make the assumption on that we will reinstate our share repurchase program next year. We’ll still continue to be in a very robust capital positions based on our models and projections.

So yeah, we are going to continue to sort of refine and retool our internal infrastructure for acquisitions during this brief hiatus when we’re out of the market, continue to look at transactions to see what’s out there and we really expect to be actively back in the business this time next year actually, I think we will be in a position to start seriously looking at deals.

Sean Dargan – Macquarie Capital

Great thank you

John D. Johns

Thank you.

Operator

(Operator Instructions) Your next question comes from the line of Chris Giovanni from Goldman Sachs. Please proceed.

Christopher Giovanni – Goldman Sachs

Thanks so much good morning. One question in terms of the United Investors and Liberty Life acquisitions, you certainly had some benefits from additional excess reserve financing transactions and wondering now you have MONY kind of onboard if this is something that’s a potential catalyst down the road?

John D. Johns

Chris there are some redundant reserves in the MONY transaction, it’s not really feasible for us to do anything with that and immediately as we’re going through a conversion process, but that maybe a source a year or two down the road for some additional capital or some capital release from the transaction and that’s not factored in any of the discussion.

Steven G. Walker

Yes we are well aware of that at the time of price the transaction but we didn’t include that in our deal economics. So it would just be sort of gravy if you will if we’re a year or two from now we’re able to release a little bit more capital through some kind of financing transaction.

Christopher Giovanni – Goldman Sachs

Okay. And then the fixed indexed annuities, Rich, you mentioned you’re kind of up over a $100 here, you’ve seen, I think as John had mentioned earlier, big pick up from some of your competitors, I know you’re still on kind of the planning phases here for 2014. But could you give a point here in 2014 where the magnitude of sales here could eclipse your VA sales?

John D. Johns

This is John. I think we’re thinking more in terms of a balance of VA and fixed. And that would imply that we did hold down manage the VA sales as we are now and if we saw – we see a ramp up in the fixed indexed product and possibly even the traditional fixed annuity. But that doesn't seem as likely given the interest rate environment we’re in right now. So yeah, I think that's sort of what we’re pointing right now and our thinking is to absorb a nice balance between the two product lines.

Christopher Giovanni – Goldman Sachs

Okay. And then one last question just obviously with the VA book being certainty bigger than where you have been in the past, we are now facing new derivative collateral requirements and I guess there has been some increased challenge that maybe the industry might not be as prepared from a liquidity standpoint in terms of having cash from margin postings and all. Can you talk a little bit about how you’re thinking about positions you have and kind of these new requirements moving forward?

Richard J. Bielen

Yeah, Chris, this is Rich. I mean that has not really been much of an issue for us. I don’t think the size of our book in the overall usage of revenues is as significant as some of the largest fliers. You use it for a lot of other reasons. So the liquidity requirements that we see and we project and we’ve been stressed, don’t appear to have any real impact on our ability to transact business going forward.

John D. Johns

And is certainly something that is part of our normal enterprise risk management protocols that we keep a careful eye on, but given the size of our positions relative to the size of our investment portfolio and our balance sheet is relatively a material risk for us right now.

Christopher Giovanni – Goldman Sachs

Okay. So even a short rise in rates doesn’t really present much of a risk?

John D. Johns

It should not.

Christopher Giovanni – Goldman Sachs

Okay. Thank you very much.

John D. Johns

Thank you.

Operator

Your next question comes from the line Dan Bergman from UBS. Please proceed.

Dan Bergman – UBS

Hi, good morning. You mentioned your RBC was over 550% at quarter end, I may have missed it, but just any sense you can give on what that would have been pro forma for the MONY acquisition?

John D. Johns

We would have been probably you’re talking about if we have closed MONY on September 30?

Dan Bergman – UBS

Exactly.

Richard Joseph Bielen

Yeah, we would probably just – I’m going to be careful in answering this question. We would have – if we done the transaction on September 30, we would have infused the debt in and we would have hit our 400% RBC target. Without that we are modestly below but probably in the 390% range.

Dan Bergman – UBS

Got it, great.

Richard Joseph Bielen

And normal developments…

Dan Bergman – UBS

Yeah.

Richard Joseph Bielen

We feel reasonably constant that will get us over the 400% level without the infusion in traditional capital to borrowing.

Dan Bergman – UBS

Okay, understood. And then just switching tax a little bit. I was just hoping you give a little more color on what drove the unlocking adjustments in the period and how much is related to changes in industry and equity market or other assumptions?

Richard Joseph Bielen

Well, the big when you look at the unlocking that we had in the period and I'll take them one at a time. In acquisitions, it was the block related industry which is a lot of [indiscernible] policies and it was a combination of some true-ups around reinsurance estimate that we will be paying in the future on mortality and interest rates and credited rates there, there are some high rate guarantees in those products.

So as we forecast going forward, we saw some spread items. Annuities, as I mentioned actually the perspective unlocking, was almost zero, all of the unlocking occurred because of the better market performance in the third quarter, that was $4.5 million of the $4.9 million and then with respect to life marketing it was a combination of things, we had some better lapses in our bully business, we’ve seen lapses have been coming down that benefited us, while we saw I believe a slight amount of spread compression in our traditional retail UL business that offset that netting that down to roughly a $2 million number.

Dan Bergman – UBS

Great, thank you.

Operator

All right and you have a follow-up question from the line of John Nadel from Sterne Agee. Please proceed.

John Nadel – Sterne, Agee

Two quick follow-ups if I could, one Rich I may have missed that you typically give us some sense for expectations around the spread going forward and stable value and I just wonder if you did or if I missed it?

Richard J. Bielen

John, I did and I indicated it would be about the same range as the third quarter, so we were 269 and we should be in that 270 range in the fourth quarter.

John Nadel – Sterne, Agee

Okay, thanks. And then Johnny just a question for you, maybe bigger picture, I noticed and congratulations by the way on you are going run I guess head up the ACLI next year. I think it was ACLI, correct? And I know you don’t get to necessarily set specifically all the priorities, but I’m just wondering what you think are the top two or three issues for the industries, for the ACLI to address in the coming year or so?

John D. Johns

Yeah, thanks. John, I appreciate your kind words and I’m really flattered and honored to be able to serve ACLI next year as Chair. The organization is actually in the process now of updating its top priorities which it does on an annual basis based on a survey of membership, but in the last few years the focus has largely been on tax policy, the effort there to insure that, our industry’s voice is heard when – if and when Congress addresses tax reform either as it would affect our products and the tax attributes and benefits were embedded in the products or on the corporate income tax side.

I think the sense is that given all the turmoil in Washington right now that it's not that likely that a consensus can develop between the House and the Senate on tax reform, just too many messy issues to be addressed.

So I think the concern about that is actually diminished a bit just given the political environment, but the ACLI is really prepared to vigorously defend our positions if called on to do so.

And I think the other kind of two major categories of issues are the sort of the – at the State level, it’s settling out, advancing PBR principles-based reserving kind of preserving of consensus around how to treat a – you know the AG 38 issues around kind of looking backwards if you will reserving captives unclaimed property, those kind of issues are both around. But the new thing there which is I think going to become a very important issue has to do with the federal government’s new role in insurance regulation through…

John Nadel – Sterne, Agee

Yeah.

Richard Joseph Bielen

Designation of SIFIs FSOC. What was the role of FIO going forward? And even the bigger picture issue is how does the United States insurance regulation fit into the global system, FST and Switzerland [ph] that G20 process. It’s all kind of coming back this way and creating a lot of interesting questions have to be address between the States and federal government FED, the FED and treasury. So I think those are the three kind of major categories of issues and a lot to be done, a lot to watch there.

John Nadel – Sterne, Agee

Yeah, and no question. Thanks for that. I appreciate it in real tight.

Richard Joseph Bielen

Real tight?

John Nadel – Sterne, Agee

Is that comment made on the whole call?

Operator

All right ladies and gentlemen that concludes the Q&A portion of the conference. I would now like to turn the conference back over to Eva Robertson for closing remarks.

John D. Johns

Yeah, this is Johnny. I’ll close it out. I just want to remind everyone that our Investor Conference is in New York on December the 5th this year. We promise to bring you a very interesting and hopefully enlightening sort of presentation on what were our company is headed next year. We’re very excited about where we sit now and what opportunities are in the future. So please, if you follow our company, you’re an investor in our company, make plans to join us on December the 5th. And that concludes all of our comments. Thank you again very much for joining the call.

Operator

Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.

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