Protective Life Corporation (NYSE:PL)
2013 Investor Conference
December 05, 2013 09:00 AM ET
Eva Robertson - IR
John Johns - Chairman
John Sawyer - SVP, Life and Annuity
Carl Thigpen - EVP and CIO
Mike Temple - EVP and CRO
Rich Bielen - VP and CFO
Joel Gross - ICMA Retirement Corporation
Seth Weiss - BofA Merrill Lynch
Sarah DeWitt - Barclays
Chris Giovanni - Goldman Sachs
John Fox - Fenimore Asset Management
Richard Wagner - Citadel
John Nadel - Sterne, Agee
Good morning. My name is Eva Robertson and I am the Investor Relations Officer. I would like to welcome you to the 2013 Protective Life Corporation Investor Conference. We have a group joining us of course via the webcast today I'd also like to thank them. This morning, we have a very full agenda and we've worked hard to try to make the timing you're going to spend with us meaningful and the information we're going to share with you very useful. So we hope that we've been successful with that.
As we start today Johnny John, our Chairman is going to open with an overview of the Company. He'll be joined in this session by John Sawyer, Senior Vice President Life and Annuity Executive, who will give you an update on the Life and Annuity business and provide you some details about what's happening in 2014. We'll take a break after that briefly. And then Carl Thigpen will update you about the investment portfolio. Mike Temple, one of the -- we like to tell people less his first day at Protective with this meeting last year so he is well seasoned by now and he will be giving you an update about the Enterprise Risk Management at Protective, followed by Rich Bielen who will talk to you about the financial models and plans for 2014 through '16.
Now, just to let you know what expect, we'll do a Q&A session after Johnny and John sessions. We'll do a short Q&A session after Carl Thigpen session but then we're going to run straight through Mike Temple, Rich Bielen's and then Johnny's closing comments before we do a Q&A session at the end. So if you get antsy and you're ready to ask your question just draw them down we'll get to them at the end and do that at once. Now, I would like to point out this is slide presentation that we're using today if you have noticed it behind my head. But for those of you on the web it's posted on the web it's posted on the website at protective.com in the Investor Relations Section and available for download at that spot.
Now, finally the forward-looking statements, the all-important forward-looking statements; they express expectations of future events and results and actual events and results may differ materially from these expectations. You can refer to our risks and uncertainties section of our 10-K as well as the subsequent 10-Qs for more information that affect our future results. Our discussion also includes non-GAAP financial information and reconciliation to GAAP measures can be found in the supplemental financial information on our website.
And with that I will turn the meeting over to John Johns, our Chairman, President and CEO.
Eva, thank you very much, and many thanks to each and every one of you for joining us today to get refreshed on the Protective story. And I think we have a quite a good story to tell you today. I look forward to going through it and also answering your questions as Eva indicated long away, and then at the end of the presentation. My part of this presentation here at the beginning is really broken up into two sections; one, I just want to quickly give you an update on where we see this year turning out and then want to step back and look at our Company through the eyes of management and give you a sense of what we're focused on, what we care about, what we think is really important, and so how we think about the business a little bit more generally.
So, get started with current status. No surprise I hope that we do expect to finish 2013 on a very strong note. We do expect to enjoy record level of operating earnings. We think that the operating earnings for the year will be ahead of the plan that we laid out this time last year and that we periodically updated during the year. We do expect that our net income will exceed our operating income and that's been true for three out of the four last years, and we think that's just in this year of the quality of our earnings so there is not a lot of noise or to blow the mind. We do expect to have an RBC ratio at the end of the year that is in excess of 400% and of course that is after we paid about $1.1 billion for [mutual] with New York here earlier this quarter.
With respect to that acquisition it's very much on track. We're very pleased with it. We like what we see when we sort of get under the hood now. We do expect that the return on our invested capital and our investment for the transaction will actually be a bit better than what we had priced for originally. Although we do expect to incur transition expenses this quarter and next year that are a bit higher than what we had in the model at the same time as we reliance the portfolio of the Company we're achieving better yields than we had expected to and the yields actually are going to over compensate for the higher expenses and over time not any short one quarter to a three quarters not in a senior role spike in earnings but over the life of this business it's going to turn out to be somewhat more profitable than we had expected.
Again our retail business lines are doing very well. We've spent so much time talking with you about acquisitions I sometimes think that we don't pay enough attention to how well we're doing in the retail businesses. Our Life sales for the year are scheduled on track to be above plan. Our variable annuity sales are projected to be within plan. You'll recall that we've been over-planned for a number of quarters but we've made a number of changes in our VA sales and marketing strategies and our product designs and so on earlier this year. And as a result, our sales have come way down as we expected them to and now we think we're on just the right trajectory to come in for a good safe landing about where we thought we'd be wanted to be at the beginning of the year.
Also our asset protection business is doing very well currently a strong young management team [Scott Karchunas] we see at the meeting that business is actually starting to pick up again. Scott's doing a great job of kind of streamlining it, redesigning products of kind of rationalizing the distribution footprint, rationalizing the back-office services abilities and we do expect that to be a source of growth of us in the future as you'll see a bit later on.
Stable value, again it continues to outperform our expectations, we expect to finish the year with steady account balance and we think the strong spread that we've enjoyed here over the several years will continue through the quarter and then sort of know as I think in the investment portfolio is performing very, very well Carl will walk you through that, I think you'll see that we have one of the best strongest investment portfolios in the industry if you look at it from a qualitative perspective.
I'll shift gears now and kind of step back and look at the company a little bit more broadly and try to give you a better sense of what we think is important, what we think the critical things all that we must do to continue to create and deliver shareholder value, first of all and I hope you know this about us, we allocate capital very carefully and we hope and expect very rationally. We trade our capital as something is very, very precious issued capital, investors capital, we understand that, we understand that for this year using your money, we want to make sure that we invest as best we can.
We basically have four things we can do with capital, we can put it back into our retail businesses to support the growth of the retail product lines like annuities asset protection, we can invest it in wholesale business which is our stable value line, we can go out and do more acquisitions and we can also return capital to shareholders share repurchase, dividends, dividend increases and actually those not returning at shareholders, we can actually deleverage debt reduction and at times we may hold a little extra capital here and there if we see [indiscernible] ahead, just as an additional risk buffer.
Again this is really how we look at the company, I'm not sure we've talked enough about this in the past, I think Protective has a very distinctive even oddly unique financial in business model in this industry, I think we're the only company that I'm aware of at least that actually has a segment called acquisitions, the things about acquisitions in the line of business just like life insurance annuities asset protection. And what was interesting is that acquisitions in retail businesses in our model are not competing for capital, they're not adverse, they're not [indiscernible] with the other, we view them as very complementary, we view that strengthening the other each one helps in strengthening the other.
We think if it is kind of merger cycle better we do in the retail side, the better we're going to do in the acquisition side, the more acquisitions, the stronger we're going to be on the retail side. And it's really kind of interesting how would that work, I wish I could say that 25 years ago, we settle down with piece of paper and say this is what we want look like 25 years from now actually we [indiscernible] evolve this way but I think it's actually turned out to be a very good stable solid model distinctive within the U.S. life insurance industry and one this capable of creating significant shareholder value over time.
Let me just kind of walk you through how this works. I think you know the retail business is outsource of organic growth is by definition and that's really good which we'll see when Rich presents the financial plan and models in a bit is though even if we don't have an acquisition over the next several years our retail businesses they are being continued drive EPS growth and some level of all improvement as well over that period of time. So, between the time and we do in acquisitions as retail businesses are continuing to move the bar open up enough in terms of earnings growth.
At the same time they actually do through lot of access capital as you'll see in the next line. So, we're able to take that access capital and go do acquisition we get immediate and generally very strong accretion in EPS, we take up kind of step level as we have on this money transaction. So with the steady-steady growth and then we get a big step up in gross steady-steady growth, step up in growth.
In the current environment we can't invest all of that access capital in our retail businesses and be satisfied with economic performance we'll experience, the world is too competitive out there, there is too much commoditization around a lot of the product categories basically to gain market share not much growth in life insurance. So, to gain market share you have compete on price and if you compete on price then you have lots of competitors out there over time margins you're going to [indiscernible]. So, we're trying to find the sweet spots where [indiscernible] and given our capabilities we can profitability grow the retail businesses but that still leaves us with lot of money to do something with and acquisitions fill that bill.
The retail side of the business does have a diverse product portfolio which you know, fixed annuities, variable annuities short duration UL, long duration UL, asset protection products. So, you get a nice kind of mix of risk out of that but to be able to go out to do an acquisitions, we're able to really take a look forward in terms of acquiring very season stable high quality life insurance liabilities and we think that just really the goal standard and particularly if you can buy policies that were issued 10, 15, 20 years ago when the world's a little less competitive than it is today and product designs were more friendly to carriers than they are today. Our fewer embedded derivatives guarantees and that's what thing in the old stop policies that we like to buy in our acquisitions line.
Sometimes we get the question how does this company of your size we're probably top 20 life companies in the country in this market but not top 10 for sure. How do you compete? I mean is an scale very important in your business and the truth is we think scale is over emphasized we're not sure is it bigger is necessarily better and give you a lot of good arguments now they're maybe some negative scale issues in our industry. But I think we have scale as I'll talk about more in a minute. Our costs are very much under control and very competitive with everybody we compete with we believe. And what's nice about acquisitions is it adds to scale. The retail side of the house run a very efficient infrastructure platform, service capabilities but we've got to do an acquisition we'll bring-in in the Liberty transaction we added almost 1 million new customers to protect it. So it's a way of really giving us more scale and keeping this very competitive. So again the two sides of the house really complement each other.
There is sort of the new talk you probably haven't focused much on because we haven't focused much on it. But in the life industry you spend a tremendous amount of money to bring a new customer on-board. If you look at that plan on the balance sheet called DAC that's a customer acquisition expense and it's a big number in this industry. But for 100 years once a customer has come on-board and we started relationship we really haven't paid much attention at what to do with that relationship, how to expand that relationship, how to make that relationship more valuable for us and for the customer. But now we are on and you'll hear more of this in John Sawyer in just a minute. We're spending a lot of time looking at our enforce customer group as a source of new business with new revenue. We think about it I mean they've made a commitment to us.
If someone's bought a universal life policy they've basically have said for the next 30 years, 40 years, I put my trust in Protective that you'll be there to protect my family when I'm not here anymore. But yes we evenly treated that as a valuable asset that DAC asset is really something that needs to be cultivated and nurtured and more will. It's a great way to bring in new customers and so we 600 although we're not these are still MONY [indiscernible] customers now 600,000 new people on-board through that transaction, 1 million in the Liberty transaction, couple 100,000 in the [indiscernible] investor transaction so on and so forth. So what's the re-valuable opportunity we think we have again complementary both sides of the house.
In terms of talent again we get the question a lot well gosh you've got this big acquisition franchise, how many people does that top every day and how do you feed them and support them between acquisitions the truth is we have a full time acquisitions team of between two and three people depending on what's going on that day. Hope you've met Nancy Kane, who's been with our company for a long time. Nancy is now providing the leadership for our acquisitions group and Nancy and a few people that work with her are just constantly looking at things shifting through teased letters from bankers and maybe signing a non-disclosure agreement and then getting -- and so there is a whole lot of screening that goes on. But meanwhile everybody else the company is working away working hard, supporting the retail businesses, continuing to keep the engine running. But when we get serious about an acquisition and we're ready to engage within a week we can have more than 100 people highly skilled, highly trained on exactly what to do what their role is on the acquisition fully engage from the retail side of the house.
And we call this the national guard model it's sort of like we don't have a million men, women standing on out there every day protecting the beaches and the borders we have we can warriors our guys are all working everyday on the retail side and then we moved over to the acquisition side but it gives us a tremendous advantage. I mean again as said earlier I think this is one of the unique model we get some very good competitors out there that kind of focus on acquisitions so almost modern line acquisition company as we have lots and lots of competitors that are very good on the retail side of the business and occasionally dabble with an acquisition. But none that really do both that I know of and do it effectively as we do or certainly have the capabilities that we do. So been able to house that talent on the retail side and then call it up like the National Guard when we have an acquisition so we think is huge advantage and explains I think to a degree why we've been so successful in this business.
This is interesting several interesting study is I think McKenzie got one out there right now is tries to answer the question. Why is it been such a divergence in performance from a shareholder value creation perspective within our industry? If you look at the top quintile compared to bottom quintile over the last 10 years in terms of capital generation or stock price performance [indiscernible] is a real spread and so companies have done pretty well and I like to thank we're one of them companies that are really blowing themselves up and had some real problems. And the answer that starting to kind of percolate out there is that historically in our business that the emphasis was on revenue it was on sales and so you get management coming into that lot of good ideas and experience on the revenue side of the house, but they weren't too savvy or too concerned about or focused on the liability side. They're interested in growing revenue but they weren't too careful or thoughtful about sort of the risk associated with growth. And the company sort of had a liability focus.
That they're really been focused not only just on getting bigger but also the quality of what they are putting on the balance sheet as they get bigger, larger. Those are the ones that have actually outperformed the rest. And that's been a hallmark of this company for a long time. Maybe because I am just not a good salesman or something, I don't know, but we've never been really revenue focused. You know we've never been market share focused. You can see that from our market share but we have really focused on risk management, on the quality of liabilities we put on the balance sheet.
So again in acquisitions, you know we think we have a real lack of quality. I have said this many times. Carolyn King, who was Nancy King's predecessor and did a brilliant job of managing our acquisitions business for the last decade or so. She occasionally come into my office and really kind of depressed, we do little pen-talk, and what's wrong Carolyn; she said you know this darn acquisitions business, you just got to kiss so many darn frogs to find the prince, you know just the way of work. And it's true. There is a lot of stuff out there, almost continuously for sale which you got to really know the wheat in the chaff. You got to know the quality from the things that are, maybe not so top quality. And we look at everything.
And I think over time we develop to ascertain, our real kind of consensus within the house in terms of what is quality and what do we want to add to our balance sheet. This is really simplistically stated, little more complicating is, but this is what we think is quality. You brought stable, seasoned policies. We think light policies are generally a little better than annuity. A lot of probabilities or other ancillary health products, long-term care whatever, lot of that out there. As I said earlier we liked, we loved that our policies were written 20 years ago. Because generally they are simpler, there are less optionality in them and we know how they perform. .
With me, you can look at what has happened over the last 20 years and you can get them. You know what the mortality is and what is likely to be in the future. And also this is kind of a new thing. I am not seeing a lot of friends out there that we worked with on securitization transactions and you're always working with everybody, you know creative financing. But we don't like to buy things where after we buy we have to go execute, had degree of difficulty dive to go do some new financing of some sort of, that had been done before. It's got a lot of twist and turns in it. We prefer to buy things where there is a profits are going to come out of normal statutory income flow in the future and not executing some complex financial engineering plan.
And if we seeing deals, that's all that was. That's all that was. Would you plan for a 100 cent on the dollar was full excess capital that you could somehow extract in the business through some more efficient financing, however, we done that [indiscernible] some other technique. We don't like that. We are not to do those kinds of deals. Again with respect to our retail products, same idea, and I think we have a pretty good idea of what's quality and what's not. You will hear my temple talk a lot of that. How we deal risk, products, and particularly our variable annuity products.
We try to stay right on the top of that. We endeavor to use very conservative, we think of assumptions; consumer behavior, we think that's a risk in every product that has optionality. We generally assume that if you give a consumer an option, and when it's been their favor and the candle exercise it. We are not assuming that vast numbers of people be asleep at a switch and not do what's in their best interest, economic interest. We also [indiscernible] on interest rates, historically particularly in last few years.
We cannot be an optimistic at interest rates, we're going to trend higher, and so what we essentially do is assume interest rates are going to be right where they are for the foreseeable future and we don't - in a product designs we don't - even in our acquisitions we don't have sort of reverse into the main and assume that just because the periods of time with the ten year treasury was 7% or 8% but it is likely revert back to bad anytime. So it is great news as you will see, Rich will show you some [indiscernible] of impacts of higher and lower interest rates. And that's our interest rates are actually being quite nice for us. Because we have an already embedded the assumption of our interest rates in our products, in our acquisitions.
You know, I want to do not too much on this. Mortality has been a wind at our back in the last few years, as suppose [indiscernible] company would know, we'd enjoyed better mortality than what we priced for consistently over time. And I think that's because we'd never tried to compete for sales on the basis of aggressiveness in underwriting. We just don't do table shaving programs. We don't make business concessions to brokers, because it's a big case. They've been good to us in the past. We say look last year just to lose our game and it's hard to control and hard to know where you are in the game.
So we're consistent and I think we're prudently are conservative in what we do. Again Rich will dive into this in a minute. But I can't over emphasize how important this is to us [indiscernible] we start the year, every year, as we will this year, and as we have the last five or six with a very detailed and carefully developed financial plan, and it's not just wishful thinking plan, it's not just aspirational; it's really based on a lot of sophisticated analysis at the policy level for in case of their life insurance policy as to the earnings that will be produced in the next year. We used assistant called policy assistant, we put millions and millions of dollar into and we really fine-tuned it. The projects and capabilities have actually developed quite a high degree of comfort around it, around it not exactly right, as you know. You will know results will always vary from what we plan for project because of some many moving parts. But still it's a very solid template for a plan to understand what happen, so there 150 million of sales with earning 125, 200, what would be, we can project that with a high degree of confidence.
And so that's very important to us and Rich will go through that in a minute and then we do for our sales but also for investors and capital provider, every quarter. We tell you why we above or below or right on the plan. We go through variances and try as best as we can. I think this is important too, to make the results understandable. We think, again something you had the misfortunate having to hear me why last night about valuation of our stock, the industry and so on and so forth, but the truth is I think the industry is always undervalued, I think relative to its earnings power and its ability to exceed cost to capital. I think part of it is because just complicated. I think those of you in the room who are sales side insurance people, you know that you go into a new account and try to explain to them how this works, right, it's complicated.
But we try to make our story and our results and our business model as simple and as transparent and as understandable as we can, not that we can do that perfectly but we try to do our best. And then I guarantee you, we try our best to hit the plan. I mean, we're constantly, constantly sweating and fading and working and sales too high sale to low, expenses too high, expenses to low, to make sure that we get as close as we can to that plan. We give it our best shot all the time. Again, this I know maybe this is too much answers but think it's very important is we're very efficient company. We're operationally effective. In my opinion, my unit cost which we compare ourselves to the most of our competitors every year. They were benchmarking study that one of the big accounting firms runs every year and consistently we're in the best quartile in each of the categories of expense whether it's corporate overhead or policyholder service.
This is all broken down by different functions within the company. And the companies that are vastly larger than us, we think consistently have higher unit cost and there is my point about, I am not actuary scalar, make my bill over SPO, overrated in this business, but here is more just an indication of our operational effectiveness and how we doing a scale. As you see from Rich's presentation in a moment we expect our EPS to be up almost 20% next year and our controllable general expense things that don't go up and down with sales volume for example we think only got 5% next year, that's a lot of operating leverage, and I think in part as because of the power of our acquisitions franchises, I mentioned just a big ago. Here is other interesting thing, this is kind of focused on productivity, roughly a decade ago we're generating about $120,000 of pretax operating earnings per employee and now we're over $200,000 per employee. I think back to around 2000 our net income in 2001 was roughly $100 million and we had about 3000 employees today we have about 2500 employees and our earnings were 2.3 times almost 4 times if you look at the plan for next.
So there is a lot of emphasis within our shop on trying to be operationally effective and trying to be very productivity focused as well. Again, maybe this is a bragging slide and some of lawyers challenged on this, how to substantiate whether or not we're industry leader in black acquisition, but I say I'll debate anybody on this. It is an opinion, it's a notion but I really believe it is true. We've got 47 successful transactions under our belt. We do have just unmated intuitionally experience knowhow and all the critical elements doing a deal, the due diligence, the valuation, the negotiation, the system consolidation, and I would make this notion too, is I don't think anyone will ever replicate what we've done.
That's a pretty bold notion but it has taken us three decades and more and whole a lot of hard work and sweat and effort investment to get to where we're, I don't think anyone can touch us in terms of developing those capabilities that we currently have. Also, I think we're very excited about the fact that acquisitions are really fun and creative exercise and we come up with some really interesting ways. Those of you been following us you will know for a while remember we bought all the life businesses from JP Morgan and Chase. I guess this has been almost a decade ago now and it was too big for us and so we're able to partner with Wilton Re a reinsurance company that's private equity fund also with Goldman Sachs, Goldman coinsured out the variable business, we didn't want the variable business in that trend. I think it was a good deal with all three parties. But I'm not sure that something like that ever been done I'm not aware of a deal like that ever been done.
Going forward to our Liberty transaction and that transaction we partnered with a [indiscernible] one of the new private equity focused funded firms that are very active in the business now. And actually why that deal was done is Athene purchased the stock of Liberty Life from Royal Bank of Canada and co-ensured out the life business and left them with the annuity business, the fixed annuity business. What was interesting was that Athene really didn't have retail capabilities and so the deal we made with them is that we would essentially create a full service life company for them. And then on a turnkey basis and then hand them the key at the end of about a year, so we did that. We took that company and we lease back put in the financial systems the accounts systems everything they needed trained up the people, hired some people and then at the end of about a year we gave them the keys and now they're off and running. So again I am sure that's ever been done before but we'd like that.
We like to be creative and come up with innovative ways to make a deal go forward. And lastly this is probably the most important thing and those of you who are investment bankers out there and you're in this space the M&A space I hope you would agree with me that we've now developed over many-many years a reputation on the street for being reliable, being a very reliable counter party. And if you're seller of a life property you're in a vulnerable position because you've announced the deal there are so many moving parts and there are so many contingencies and contract revisions that a buyer can actually take advantage if you can re-trade a deal and you're kind of stuck. So it's very important and we've always close deals when we say we will close deals on the terms we agreed to and that reputation I think really underpins our credibility when we go into a data rim now and jump into an transaction.
So we work really hard to make the backend of the deal as painless and efficient for the seller as we possibly can. I think we buy a block of business we're going to service the business we pro that block of business right in there with our own retail customers. We give our acquired policy holders the same sort of attention we give our retail policy holders and we make it easy as we can save it easy but we make it as painless as we can for the seller in the transitions period and that means a lot. And I think it's under appreciate it's not all just price I think an M&A transaction is a lot of other more intangible subtle things you go into it and then lastly I think we've enjoyed I mean I think we should enjoy pretty good reputation with regulators so we have to approve all these transactions because they know us they've seen us.
We've got a track record in 47 transactions and we are a traditional life insurance company I think there is a little bit of suspicion out there about new entrance into this business who have an M&A focus and I think regulator if you've seen have impose some higher capital requirements and reporting requirements in kind of slow to approve some transactions but we had very good reception when we gone into regulators to ask for their permission to close a deal. Again this is getting near the end of what I have to say in this part of the presentation. But we're very excited about retail growth.
As I said earlier we spend a lot of time talking about acquisitions I think our retail prowlers and capabilities are somewhat underappreciated but we've got some new we think exciting strategic plans which we'll talk about a little bit more that really go right at what's I think long with the life insurance business in this country right now. And basically what's wrong with it is that we start companies anyway have essentially lost our relationship with customers and we basically outsourced distribution to independent third parties. And the third parties do a pretty nice job with that but what they intern do is they basically enforce all the commoditization on the industry. There is so much spread sheeting every time a life insurance policy is sold through an independent channel out there it's usually got a high level of price drive aspect to it.
And so what you get? You get commoditization, you get spread sheeting you get just almost pure price competition you get smaller margins, lower returns, more risk, blah, blah, blah. And I think an another problem is, is it traditional life insurance agent is sort of an endangered species in this country. And part of the problem is that they can't make a living now sell into the middle market. Term rates are so low and it's hard to sell any life insurance spend so much time okay you sell a $500,000 term product to a healthy 40 year old and you get a $400,000 first year premium and an agent gets a $280 commission but he's spend a week doing it's very hard to make living. So what's happened is the focus is now on the [indiscernible] or even the super top 5% oversold probably have more life insurance than they really need and everybody else is kind of getting ignored and left out of the mix.
There is also become part of this commoditization phenomenon is people that are in the brokerage business tend to be carriers of this little commodity. I mean I don't' mean to overstate that we have good friendships and relationships and we think we're well respected and treated by our distributors but still they say well there is a protected there is a link and there is a met there is principle there is a general, blah, blah, blah, they all do good job. But there is not any real sense that we're in this together and I think that's bad for both it's really bad for us, it's bad for the distributor and it’s bad for the consumer as really through collaboration you get lot of efficiency, you can do a lot more value to the customer, you can make the distributable business model work better and of course at the end of the day hopefully ours too, that's a problem.
And then lastly, was hard to buy insurance, it's hard to figure out a variable annuity, it's hard to understand what you're buying. So, people just don't get it too much trouble, agent knows or broker knows more than I do. So, I'm permitted information disadvantage for all of this past, [indiscernible], our plan is to go out that, all of that. And here isn't really wrong. I'll conclude and turn it over to John Sawyer to taker dive in this.
But basically I want to do three things here. First is we're going to work harder with our existing independent distributors to improve the relationship between us and them in a way that as I said it will win-win-win for the two of us that means we can't go out and sell through every distribution system in America, there are lot of BGAs out there they have different ideas about what they want to do, what we're trying to do, somebody else do business with them, but there is lot of guys up there that really are open to work, we think it's the right way to proceed and those people we really want to pay a lot of attention to and really help them be better make their business models work better.
The second is we've been very successful over the last 20 or 30 years and working with large institutions that either mostly they are themselves distributors but life insurance is not their the primary product line, [indiscernible] would be a great example but in a system like that there is much more of focus on doing what's right for the customer over the long haul and also the supporting the field distributor that financial advisor who ever it is at the point of sale and we can get into a system like that and just and just [indiscernible] them with attention customize systems that work just right for them we develop a symbiotic relationship, it's almost like graphing two plants together where they grow together and you can't tell where one stops and the other starts. We've been very good at that over time and we're going to take that model and expand it.
And then lastly, we're so focused now on technology [indiscernible] relatively small shop which spending a lot of money and doing some great things in terms of developing capabilities to serve more customers direct coming to our website to get close by products maybe go back from us, maybe we just refer them out to an agent to come back to us. Also as I said earlier during the enforce policy holders we have and we've got millions and millions out of them is really customers and are really thinking about how we can add some value to that relationship by cross selling a product or when the product is ready to [indiscernible] extending the life of that product for a while.
And there is really, I said this before but in this industry for the last 100 years, we really thought of customers is sort of nonsense, I mean it's really the all the focus is been on sales, sales, sales, sales but after you sale it sort of then how can we get the unit cost in our call center down as much as we possibly we can and so have an acceptable tolerable level of service but we've never viewed that call center as a key part of the relationship with someone it could actually be a great customer in the future if you just treat them in the right way, have right technology to do that. So that's going to be -- John is going to talk more about that as well.
So, now I'm going to turn it over to John Sawyer and I think many of you have known John through the years, John's been with Protective for more than 20 years longer than I have, he spent most of that time in the annuity part of our business in fact John has been the leader and the architect of our annuity business over couple of decades now and as you'll see that's been a very successful part of our story, John is an engineer by training, he's very thoughtful, he's very good at working with distributors, he has great reputation among distributors because he so thoughtful and careful and productive and what he does, John is really doing a great job. So, I now like to ask John to come on to podium and do his part of the presentation and then when John concludes I will come back to the podium, join John and we'll respond to questions at this point. So thank you.
Thank you John and good morning everyone. I'm going to spend a couple of minutes today going over our 2013 results for the lighting annuity business, talk a little bit about some new initiatives for 2013 and beyond and then talk a little bit about financial plan for 2014 and the some of the model results for 2015 and 2016. What you'll see in the presentation is that strong Life sales throughout the year, we also work pretty diligently on improving our returns on the parts we are selling and we're working for provision this year and we'll continue on next year. we worked hard to manage our annuity sale and we're focused on a group of high quality distributors and lot of work in that area, we did a significant amount of enhancements operational platform and we really needed to do that when I talk about these new initiatives really just investing a lot of money in our infrastructure really get ready for us in new platforms of business and with that one of our key initiatives for 2013 was to really start to begin capabilities where we can have a much higher customer engagement model and those capabilities are online now and really gives us a list in these new initiative for 2014.
And then lastly as Jonny spoke, we spent a lot of time on our new retail strategy with two folks, this one is good quality organic growth, but do focus on profitability as we go forward. So for the 2013, Life business as you see here, we project sales coming in a $152 million and that is up as you can see quite a bit from 2012. But within that we think our core run rate for the year is really about a $135 million, so want to spend a second and explain that.
At the tail end of 2012 we got a big [indiscernible] of business and that was due to regulatory changes that will take effect in 2013. So what you see, you see a big ramp up in business in the last quarter of 2012 and that business paid off in the first and second quarter of 2013. So we see that more as kind of a onetime event. People just taking advantage from the different regulatory changes, but the core run rate is more about a $135 million going forward.
Business, we have a good bounce in our business, 65% independent agent, 35% institutional business, and we server both of those distributions very well. And as I spoke we worked a lot on growing the business organically but also selling products with higher returns. So that Rich talks more about the model result. We're selling products really that support those return on equity numbers that Rich will talk about.
For 2014, the focus is going to be on broadening our portfolio specifically we will be introducing an indexed UL product. We also will be going back and introducing a new variable Universal Life as well as working on a couple of those products around the platform, now we will really just need to update for the plan next year. We also see in a slide here, we've [indiscernible] where we are going to have a more focused and more disciplined plan for our retail distribution especially in the Life distribution, a lot of that took flight in 2013, so we will talk a little bit about what that will mean in 2014. But to do that for this new retail plan in 2014, we have to go in and really re-organize our entire Life platform and we did that in 2013. So quite an undertaking force but that is done and gives us a good platform to go forward in 2014.
On our Annuity business, sales are projected to be $2.5 billion at the end of the year. I think many of you now and are in Annuity segment it is almost entirely institutional business and for us that means banks and broker dealers. We worked hard throughout the year to manage both our variable sales and our fixed sales and we really did that through focusing on the product and on the distribution and we've been successful to comment on our plan here at the end of the year.
After 2014 we also have sales planned to be $2.5 billion, so we will keep at that rate, going forward here. We will have what we think is little bit better business mix in 2014. So we are projecting 50% variable sales, 50% fix sales for the next year. And we continue to be very disciplined in our product design by focusing on net institutional market place. We find we can just have the world rounded product little bit more consumer focus by standing in that institutional space. As we looked at the sales plan for 2014 and then beyond, we realized we really had to resize our Annuity infrastructure and again we did that here in the fourth quarter of 2013 and it give us little platform to go forward next year.
So our first retail initiative for next year as Jonny spoke is really to strengthen our existing distribution and the goal there is really to get good quality high profitable growth but really kind of mitigate some of the industry challenges we see you know primarily the commoditization. So it's going to take really two forms for us. Traditionally in our business what we have tried to do, we have always tried to match the customer segments that our distributors were pursing. And with that strategy what we've found from our retail business, we're pretty broad, because we were chasing a lot of different segments. But when we went back and analyzed that strategy, what we found out was, we probably were the most successful, we're really, we probably add the most value, is really kind of in the mid to mass of north market.
So that segment is really what we're going to start focusing on going forward. We've already begun that in 2013 and what you will see initially as when you look at our products, in that market, really core protection, core accumulation needs are the two of the biggest needs. Our products are really more than more to really focus on those two needs again; started some in 2013, more back on 2014. The other part of that strategy is, our investment that Jonny talked about quite a bit in our platform capabilities, naturally to improve the efficiencies of the business that we do bring on, that has come online in 2013, more next year.
So what you see is the efficiencies come through on the pricing but also it is a big pick up on the customer experience. For example, for many-many years, we never had any direct consumer feedback. It was very hard for us to get the consumer and get feedback from them. We have got new technologies today. We've got a number of ways to get direct customer feedback, helps us with our pricing, helps us with our service, helps us to be a lot more targeted in what we are doing and really what we are spending in our resources for the company.
Parts of that is the distributor part of the strategy, so you know we got to go, and first step for us is align ourselves with the distributors that are sourcing our core customer which is that mid to mass affluent, so we kind of focus on resources on those key distributors what we should see is a deeper more meaningful relationship with the distributors that we haven't common of serving that the mass affluent customer.
And I think the time is right for that, I just came back from the NABA convention. NABA is a large annual gathering of brokerage general agencies. And as John alluded and many years you would go to that meeting and you hear from the BGA. They want three things from me and they wanted lower prices perhaps the more compensation and loosen underwriting and that kind of [indiscernible] that's been go on. This year is very-very different. The discussions with the BGA had, you know, John now we feel the commoditization. The agents are starting to commoditize us. Our margins are getting compressed in this business. We need to find a different way to do business.
So this year many of those BGA said, [indiscernible] we like to narrow our focus, we like to have a core group of carriers and we rather work with you maybe share the value a little bit differently and help protect us and our franchise going forward. So we'll see if that plays our but I think it was a good indication that there is given some rationality in this brokerage business and they're looking quality partners. We have a very good brand and that distribution we're seeing as very consistent, rational, very good company new business with not too high not too low just the good partner to business with. So I think we're going benefit from the change and distribution.
Our second week of distribution really levering our institutional expertise, when we look historically where we had a lot success it's often with large institutional customer and I think the key there is, we like partners where kind of mutual focus is on serving the customer and that's important because when we work with those large institutional customer prices not the most it's not the number one priority. The experience that the advisor has, the institution has, the customer has that's their number one experience that they're looking for. So it's not price. So that's good obviously the question is. How do you go do that? So what we've learnt overtime, you really have to go into the carrier and kind of reconfigure your entire value chain to go meet what are often stringed needs by the institution.
But you find out if you meet those various stringed needs, you get a much better sharing of the value. The institution says John what we have a focus here on this customer, we want to serve a long term and we need you to be there as the carrier long term to serve that customer. So naturally the second part of the equation is very important that institution must care about the long term health economic health of carrier because they know it doesn't serve the customer well if we're not in the business if we're not serving them right, so with all that said if you can go deliver on that experience for the institution as John said have this symbiotic relationship with them, you can have a competitive advance in our business.
And what you find to do that successfully is all the component part of the company has to fit together. We use that word a lot. We do a lot of work with Michael Porter, his work strategy and he talks about all those component pieces sticking together and he calls it fit and we call fit also after his work and what you find out, it is very hard to achieve fit and it is because very hard to duplicate it. So we developed that over many-many years of work with these institutional customers and we're going to go forward. So, we'll take two forms for us in 2014, one form will be institutions that have financial advisors, they provide financial advice of some type to customer but insurance and annuities are not their primary offering and they need help delivering it and they have stringed needs to fit into their platforms and systems.
The second one is nonfinancial institution and we have been out there working in this area and it is very interesting, we have very different conversations with these groups where again prices not the first priority actually many times prices number three number four number five if this we have a common goal to serve the customer, many times call the member and their vernacular and they want to do things differently, they want to push and elope on innovation, they really want to focus on the experience, they drive us to different technology platform so what we see there they wanted to do experimentation, they want to pilot, they want to have innovation, and as very different than sometimes are tradition distribution. Our tradition distribution sometimes doesn't want the innovation. They don't want the new technology. They want to do business as usual because that's how their systems are set up.
And these people you start with them and we kind of have blank page and so while that stuff is underway today, I am not able to talk about any of those opportunities as we move forward today but that is a big part of plan in 2014. The other thing on both of those platforms what we see and certainly in the institutional business, we spine the quality of the business and the institutions to be very-very good couple of different reasons, one most of time the institutions are driving technology also they want to simpler experience for the customers, they want efficiencies in the operation and we see that the business if comes through a cleaner, if these are pressed the process, the unit cost lower in that business another good attribute of those businesses.
Our third retail initiate for next year is really our customer engagement model. We have worked really over the last 18 months quite a bit on this it's got a lot of bit investment on it. So, kind of three parts of this, first one is the online acquisition. So, as you can imagine an emerging buyer base people that are self-actuated, self-driven and want to self-serve and they want to use the technology because serve their life insurance base and that will start here 22% of people [indiscernible] research and purchase online. So, really we this year 2013, we build platforms, the technologies and the delivery team to go service that market and we have done [indiscernible] in 2013, we've received business through that channel, although its small we starting to do, we'll just see in 2014 though is we're now putting forward marketing efforts behind that channel.
The second part is the cross-sell, so as Jonny talked about, we've done 47 acquisitions very successfully and with that comes millions and millions of new policy holders, new customers and what we know is that just from looking at our current policy holders and research as most time we say either on under insured or family member needs new insurance. So, we're building in the platforms and in the capabilities really a key point to go and touch those memory because it's a large group of people.
[indiscernible] many times groups that come to us in acquisition role there is somewhat of an policy and then we have folks at the distribution spot for us we work with folks of those groups and we'll use these new technologies and what you'll find out we were talking at dinner last night more than 50% of the people buy because of the life that. So, how do you have the technology in the platform to recognize the life have been happened there is prudent propensity to buy at that point and how do you reach out to that person in an effective way. So, little bit of on that if they get through this kind of the breakdown in the traditional distribution model use technology to go out there find the right people at the right time and deliver the right solution to them.
And then the third part is as retention with that large block of business we've got we lose still about 15% of our customers every year and that has been traditionally the number but it laps maturities, expirations of policies they're coming at the end of the level term and again we've never really had the platform to reach out to these people prior to the event, help them with some more flexible retention options and so now we've got some of these technologies and platforms that really become the [indiscernible] of that strategy going forward in 2014.
So lastly here sales and earning plans for '14 and then models for '15 and '16, on the left hand side is the life insurance so we're forecasting sales of 138 in 2014 and then you see an increase sales and the model Rich will talk a little bit about it later and then with that associated is an increase in the earnings throughout those three years and [indiscernible] there on the earnings on that we'll sell a little bit less in 2014 because we want to have one time event we saw in 2013 and in that interaction there selling in that how the expenses are [indiscernible] seeing real different interplay with the earnings. But then we see really the earnings going up over time as the accounting treatment for the [indiscernible] items start to burn off over time.
On the annuity side you see moderately increasing annuity account balance as we continue to sell each year and with that really we've got pretty steady spreads in there and you got analyzing fees in VA business so you see some increasing earnings in the VA business.
We'll be pleased to entertain any questions now.
Jonny just a couple of questions one is can you comment on any momentum that you're seeing in terms of federal regulation versus state regulation?
I think anyone who reads newspapers know that there is lot of change going on in the regulatory world I think more focus and attention on the banking [indiscernible] and so on has really causing I think a real restructuring of commercial banking. But we see, this industry has historically had a pretty good relationship with its regulators and now we work awfully hard to insure that they understand what we're doing it and why we're doing it and that with some level of trust that most insurance company they think are trying to do the right thing but this has a little bit of sort [indiscernible] there is sort of notion that is real social issue in the United States sort of the mentality financial initiations are bad and not trust worthy and they don't serve people the way they should, they feel little bit of that kind of [indiscernible] over into the states system, I've noted, we've noted that regulatory community with fine group of people but historically as actually where they should they're very rational and very analytic and very objective seeing that before there is more motion in conversations around regulatory issues and we've seen in the past but I think that's just a general trend that we use in industry have to do with I do add new things to that, that there is a whole another wave of regulation. It's coming by virtue of the G20 initiative through the FSB in Switzerland to kind of bring sort of a global standard to all financial services regulation at least with respect to the prudential side of regulation - three major insurance companies, either or, or will be designated as cities global cities, you know systemically important.
There is real push from Europe to kind to get to the United States to think more about regulating the life insurance business on a group basis instead of at a statutory entity level. I think it will be a real push for a global capital standard and I think while for the next two years at least I don't think Protective is likely to get swapped up in the wave. But in our thinking and planning, that we're sort of anticipating down the road we need to have a balance sheet and a business model that will function well in a new order where we are subject to two kinds of regulation. One, prudential regulation with respect to capital, this may be coming global or through the federal government and then in the traditional state regulation. I don't feel like that's a big threat to us, to be honest right now. But it is certainly something we have to plan for down the road and we are.
Just a follow-up, the capital standards that you think are coming down the peak, in terms of solvency modernization and just overall regulatory oversight in terms of capital requirements for the industry. Where do you see that going?
Well we hope it's stable. Again there's things to be accountable, a continuous push from regulators, it's certainly true on the banking side of the world. I think some of that going on in the life insurance side just to continue to raise the bar; you know more capital - more capital - more capital. It's kind of broad. It's not just focused on any one particular area. But we hope that we're in a position now as an industry where we kind of resolve the major issues around that and now our focus is on PBR, you know principles base reserving, I think there is a real push both from the regulators and from - most regulators, not all but most regulators and most insurance companies. You try to get to a different standard of PBR standard which will really put us in line, in sync with the rest of the world. But again it's a constant kind of give and take and back and forth, and always seems like more and more, more as always being demanded of us. But I am hoping that we got all this kind of result for the time being anyways, and with next year as we will be focused on PBR.
Joel Gross - ICMA Retirement Corporation
Good morning. This is Joel Gross from ICMA Retirement Corporation, Jonny, another regulatory question, it is the captive reinsurance. How far along is the NAIC in looking at that issue, and is there any sort of schedule as though when they might perhaps put out some recommendations?
That's a great question. There has been a lot of conversation, as you know, about captives of state of New York has come out with a position paper that's quite negative with respect to captives. Again, we're active at the Asia, well I am chair of the, you know trying to [indiscernible] I don't speak for Asia[indiscernible], well I will just speak for Protective on this. The interesting thing is that the industry position on captive is not to defend the status quo, it is not to say, it's just finally [indiscernible], it's to say you regulatory, our regulators - you're concerned, some of you are concerned about transparency consistency from State to State and just adequacy of whatever supporting a reserve, it's being finance or captive, and we come forward as an industry through the Asia[indiscernible] would very detail and specific suggestions as to how they might think about improving the regulation in captives in each of those three categories. And the meaningful change, wouldn't just be wind addressing in every case, it would really open up the captive world a lot more transparency public scrutiny, regulatory scrutiny, some really interesting kind of back testing in ways to look at the adequacy of the collateral and so on. But I think the problem right now is that the regulatory community is not a land in terms of how they would like to proceed. I think you have people way over here, and you have regulators way over there, and I think we're kind of stuck right now. We are ready with decision to improvements to the system. But I don't think the NAIC for the moment is kind of come together on where they would like to go and obviously they are going to go where they want to go. All we can do is offer some, we think of helpful ideas about how to think about these issues. So we're just kind of stuck in the mud right now on that issue I think.
Joel Gross - ICMA Retirement Corporation
Okay, thank you. On another issue that of acquisitions. With a big acquisition that Apollo group have been made of the [indiscernible] USA operations; do you now see a private equity funds, hedge funds, as a competitor in the acquisition space. Or is there room for partnership with them?
Both, you know I think I can be a competitor, and there worthy competitor, some very smart people, you know involved in those firms that are focused on insurance. But as I mentioned in the [indiscernible] transaction and the Chase transaction we actually partnered quite nicely with firms that are funded about that sort of capital and it worked quite well. One thing, I tend to view it really as more of an opportunity than a threat to our acquisitions model because as I said earlier, we really like life insurance liability. If you gave us a choice between buying an Annuity block or buying a block of table 20 years life insurance policy. We bought the life insurance policies every time and that's not true of the private equity firm. Asset management is one of their core competencies and so like asset intensive plans of business particular they like fixed index annuities which we sell but we sell more for institutional channel different product. They tend to like the one that were sold through agent, have longer surrender charges, and so on and so forth. So actually we're not competing for exactly the same kind of business and I think there are opportunities for us to excuse what we do with liberty to come together. We take the life. They take the fixed annuity and we're both quite happy.
Joel Gross - ICMA Retirement Corporation
Thank you. Just one quick question for John, touching on fixed index annuities of the 2.5 billion plan annuity sales for next year, how much of that is allocated towards the index annuity product?
About a billion of it in different forms so we'll write about 350 million of it this year, but we're much on a higher trajectory and we just brought the product on about mid-year, so we've got a good trajectory and we're going to introduce couple of new products new year also.
Okay, great. Eva, I think it's now time to take a short break.
So if you will plan to be back in your seats at 10.20 then we'll try to make up sometime thank you.
Good morning everyone. As we started to plan this conversion I think I was [indiscernible] left off the schedule but I think that not to have my feeling hurt just give me minutes and few slides to work with. I think you will find that there was nothing really exciting or concerning about our investment portfolio. The message I would like to leave you with is we continue and on the same path we have in the last several areas we are continue to focus on very high quality purchase and maintaining a high quality portfolio overall with asset quality is A, A minus and we're continue to stay on that path. We're focused on the [indiscernible] we do not invest in alternative asset classes as I get called by many of the investment bankers always pushing the in hedge funds private equity, as you know we like to buy in capital to use for the next acquisition where we get double digit after tax returns so we bank our capital instead of putting in alternative investment. And always 6% of our bonds are less than investment grade and they continue work -- that continues to work down and we continue to see that improving over time. As far as our portfolio, we've shown you our 9/30 portfolio here. This does not include the acquisition of the MONY asset which I will talk a little bit more about later that happened on 10/1; as you can see that the majority of our portfolio was high quality, 81% of high quality fixed income assets with overall asset quality in A range.
Then we have some commercial mortgages, a little bit of cash, and our other there is [indiscernible] business, our investment in Federal Home Loan Bank Board; it's all of a very high quality other assets. There is nothing junk are hidden in that category. As we make our new investment the majority are still high quality corporates. As I will show you later our liability durations are long and the corporate board is the best place for us to put our money. As far as the MONY asset, when we do an acquisition then the seller puts a portfolio with the asset out there.
And Debbei Long and her team and Rich, when they're negotiating the acquisition, you know the seller puts a portfolio out there and we get to work with that a little bit. We don't get out total [indiscernible] we do get to work with them. And lot of times if I was a seller too, I would try to push assets out that I don't typically want. But we get overall a portfolio that looked a lot like our existing portfolio, of about $8.5 billion. However, they did push some very short duration asset toward us which has really worked in our favor because between the time we priced the deal and we closed the deal we had a pretty substantial movement in interest rates, a well over 100 basis points and when we take the assets all on a closing their mark-to-market, so it gave us a great ability to reposition about a billion and a half of short duration assets into longer-duration assets in pickup yield.
So we've been able to almost completely now reposition those assets in a much higher yield environment and pick up some substantial amount of yield which Jonny mentioned earlier. As far as our commercial mortgage portfolio, it is very similar to what you've seen in the past. A lot of small loans, very well diversified, heavily driven toward anchored retail basic goods and services, they've food stores, retailers of that specialized in drugs, wholesalers, long-term credit leases, [indiscernible] necessities of life, nothing fancy about the type of stores that are in our portfolio. The office building portfolio was typically medical office, and or government lease long-term leased and the warehouses are typically long term credit lease.
We don't do a lot of specialty type of assets there. And you know the portfolio, this is the numbers you see there are amortized cost, average loans house $2.5 million, 20 year amortization weighted LTV of about 48% and debt coverage ratio was about 1.5. We did pick up a portfolio with MONY. It didn't change the portfolio characteristics a lot. The portfolio went up about $800 million. The amount of retail dropped a little bit. Apartment percentages and office percentages picked up a little bit. The metrics around loan to value did not change much. And the yield components did not change very much. It did add a good bit of diversification as far as our property tied to our portfolio, we were very pleased what we were able to pick up there.
We still haven't been able to get through all the operating statements and dig into the debt coverage ratios but with the amortized loan to value where it is, we don't think that's going to be anything but positive for us. And my final slide here and I want to spend a little bit more time on this one, has to do with asset liability management and really digs into our profitability of our products. Over this period of eight years, you can say that this is our managed asset balances. This does not include the MONY or the Modco accounts. This is our asset reserve related to our liabilities for our life insurance products and our annuities. Over this period of time you can see that the portfolio balance has grown from about 22 billion to 30 billion.
The biggest change here is you can see with the red and green Christmas colored lines there is the durations of our assets and liabilities. They link them pretty substantially during this period. And that's due to three or four reasons. One is that our stable value portfolio which is a very short duration portfolio is a much smaller percentage of our liabilities than they were 10 years ago. We've also done the United Investors acquisition and the Liberty Life acquisition which brought in some very long tailed liabilities with very stable cash flows and then as interest rates fall, and during this environment, interest rates have fallen over 200 basis points and at times 300 basis points the liability durations tend to lengthen.
So what you can see there, our discipline is very -- Lance Black responsible for the asset liabilities from the liability side. Our discipline is to stay very tight in our asset liability matching. At the same time, the yields on our portfolio because the lengthening duration and being hopefully prudent in our shopping for assets, we’ve maintained a yield that is one of the best in the industry, going from 6.2% to 5.4% yield on our assets matched against these liabilities and this again is a period where interest rates have dropped over 200 basis points.
As Jonny mentioned, we do not use any kind of reversion to the mean or anything, any kind of [indiscernible] interest rate, you’re going to improve until that product pricing is based on the exiting interest rates and our liability team has been very prudent and bringing down our crediting rates and managing the liability side of business. So we’re very pleased with where this is and we think that when we bring in the mutual in New York on the MONY portfolio, it will continue lengthen these durations of the assets -- I mean of liabilities and assets, and continue to be a good move for us there.
With that I have covered my slides and I will be glad to take any questions. I’m sorry I couldn’t make it more exciting.
Joel Gross - ICMA Retirement Corporation
Joel Gross from ICMA Retirement Corp. On the slide that shows manage asset balance, how does that breakdown into buckets of assets from the acquisitions, the division from annuities, stable value?
Richard Lance may have to answer that but I think probably about half of our assets now are related to acquisitions. A third of non-thirty and they when you add in the MONY assets, it’s about a half. And as far as breaking on life and annuities, it would be overwhelming life at this point. I don’t have that number right in my head, I’m sorry. We can get it to you.
With that I will turn it over Mike Temple, who is our newest executive and best executive hire for the year. He is - you might recall we hired him right a year ago when he came from Provident Unum and he has just been absolutely fantastic addition to our team.
Thanks for those kind words Carl. I was telling someone at dinner last night, I went through orientation in the morning a year ago today, I got on a plane that afternoon, I was up here that night and then the very next day Carl and team came took me over to just start talking about the MONY acquisition. So we hit ground running and it’s been a great experience.
All right. Carl talked about the assets a little bit and I want to talk about the liabilities, and in particular through the kind of risk management lens. I want to start with Johnny mentioned earlier about -- he had a slide about risk selection and being prudent in risk selection. So I wanted to kind of say, so how did we do this year, when you talk about capital allocation and where we’re investing our capital. You can see in the pie chart there this is kind of the 2013 capital that we put out, either through retailer acquisition kind of sorted by product and business division. You can see a strong preference towards life. For those who were curious about what it’d look like, we’re at the MONY acquisition to be around 42% to 45%. So it’s a little prior because of the acquisition, but I told every three years the Company has done similar transactions so I think its representative of kind of a longer run.
We mentioned earlier we like life. Why we like life from a risk management perspective? Because changes are slow and gradual overtime. Think about mortality improvements, they’re easy to kind of track and price for and adjust, as opposed where we’re guaranteeing market returns and you guys know better than we do, interest rates and equities can bounce around on a regular basis. So we have biased towards life insurance and mortality risk.
On your right, there is a stacked bar chart there. We’ve kind of taken the life. We also try to get good diversification. You will see kind of the split by product. John mentioned some -- we got five development activities next year even within those categories to get a better diversification too, so some subcategories.
But I also want to mention Johnny mentioned season in low risk, when you look at the whole life remember and we talked about this with the MONY acquisition, these were participating contracts. So we got to pass back on the experience to the policyholder if emerges and the term, at the traditional term here because as he mentioned, it didn’t have redundant reserves without some of the financing in place. So we feel really good about kind of the quality of the risk that we took on this year.
Before moving on, I’ll mention the three pie slices really quick. These are important parts of our business. They give us diversification. We think they got good attractive returns. We get a lot of question about the annuity business, in particular this year because stable markets have resulted in kind of a growth of earnings contribution from annuity line.
So the next several slides I’m going to spend talking about are variable and fixed annuity businesses. This first slide is the next served [ph] about risk appetite statements and for those who are familiar with risk appetite, it’s something that produced that kind of sets boundaries or guardrails on the types and amounts or risk that we want to take and we’ve given you an excerpt here. For the enterprise you can see that we’re trying to manage our earnings volatility in an adverse market conditions to be no more than a 15% decline in GAAP EPS and then maintain an RBC 4 of 375 and these are under adverse market conditions.
We allocate a portion of that risk appetite out to products. This is the variable annuity allocation. You can see we’re trying to manage available annuity block in total and we’ll talk about how we’re doing that in a second. So the [indiscernible] more than a 7.5% decline in GAAP EPS. And you’ll notice my asterix there. We also -- we manage and we’ll talk about this is a second, we hedge capital market effects, interest rates, equity. So in that 7.5% we’re including the changes as a result of the net hedging activities, although we exclude credit spreads from that calculation because we’re not hedging that. So this is how we keep score internally about how we kind of managing the block.
And then just to give you an idea about so what’s the adverse condition we’re trying to manage this block to, it’s roughly equivalent to the 2008 financial crisis. And why I say that is no two recessions are alike. It’s been six years since the last recession. We don’t know what the next one is going to look like or when it’s going to come but we kind of took that kind of stability and pattern to try to do our modeling and stress testing and we’re going to talk a little bit about.
So how do we try to stay within those bounds? We say we try to manage our business within those bounds. So the starting point I think is really taking a look at our in force business and describe some statistics here. First of all, our account balance as you can see here, about $11.7 billion. If you look at it kind of sorted out by year most of its been written since the financial crisis. The next kind of block in the table, there is the portion that has withdrawal benefits. You can say about 75% of our account balances have withdrawal benefits. As of 09/30 the account value exceeded the benefit base by 9% and so this is an important point.
So I know several people that were writing VA business and in particular writers before the financial crisis and kind of crisis, pre-crisis speeches, well they have a large underwater block, legacy block that they’re carrying. We don’t. We’re fortunate enough. Protective made the right choice in not participating in and they entered the market after recession. So we’re benefiting from that today.
I also included several exhibits about economic projections. Most of them were about talking about what happens as interest rates or equity markets move to the people’s underwater legacy block, since we don’t have that. We didn’t go into all that detail today but what we did provide was is you guys know the net amount of risk, is it overstates your exposure. The benefit base can’t all be withdrawn at once. It’s withdrawn over several years. And so we tried to calculate a present value to say, what’s the present value of that? For our calculations you’ll see the term maximum withdrawals there and we assumed everyone pulled out the maximum amount of money when it was to their advantage. We assume no lapses, no surrenders and we discounted those cash flows at 3.75%.
So kind of the ratio with our current account value, we didn’t gross it up over time or collect more fees. We just said today our account value and how that compares to this present value stream of obligations. We’ve got 153% ratio and so that does tells us on an economic basis we feel very good about the cushion that we’ve got here. Another way to think about this, we’ve about is if we today said we wanted to out and buy a spear and offload all of this risk and we assumed every contract exercised all their options as Johnny mentioned earlier, how much would it cost us if the spear discount rate was 3.75 and here is kind of the cost.
Switch to what we’re doing today. That was the in force block. What about kind of the current offering? We really think about we’re trying to manage it three ways. The first is in having rational product design. What I’ve got is kind of a snapshot of our current withdrawal benefit. I’m not going to read through all these. I do want to mention a couple of them, issue age for the writer, our average issue age is 63. So we think, as Johnny mentioned earlier we think about longevity risk we try to issue to older people and then some of our peers and we have conservative assumptions in that some of the way we try to manage it.
With regard to our equity market exposure, if you look at the bottom two features you’ll see investment requirements and rebalancing. Here is how kind of we think about it. First we have a 65% maximum equity exposure. But in addition we have a sublimit, where only 30% can be in the higher volatility equity funds. So as a result today our balance is about 55% equity, about 45% fixed income. And then we have a rebalance feature, similar to some other competitors. The way ours works is if the fund has performance in a month that’s below the 12 month moving average, that money is swept out of the fund and into a money market fund. And so kind of we think about kind of what is our residual exposure here as we have and in essence 30 days exposure to about 55% of the balance and that’s kind of the starting point for how we think about volatility.
Last we would also want to mention, saw a number of competitors this summer produce charts on kind of projecting out the economics of fees and benefits. And we generally agree with the messages they had out there which is shortly, simply that on an economic basis this product makes sense. But I want to acknowledge that we also, and I’m sure we are too are aware that it’s in a period volatility. So it’s how do you manage through the cycles that becomes important, because even though over 30 year period, you’re going to get good economic returns with this product, you need to be able to weather the next downturn.
The second kind of leg of the stool in kind of managing the risk is the hedging program. Protective has a robust and effective hedging program and today we’re hedging interest rates, we’re hedging equity, we’re hedging evolve, we’re hedging currently effects. As I mentioned earlier, we were not hedging credit spreads. This is kind of the score keeping that we do. All of the senior executives give this report on a daily, weekly and monthly basis. We’re trying to kind of, as you can see manage the hedge impact and we have individual variability within some of Greeks [ph]. We allow in general about plus or minus 10% with some of the Greeks [ph]. But you can see we try to total stay very closely matched.
I also mentioned in addition the kind of this GAAP focused we do kind of tail stress testing where we look what happens if we have a 30%, 40%, 50% equity market shop and we try about kind of how the MONY options. So we overlay to give us additional protection for this kind of period-to-period volatility.
And then last on STAT basis, we’ll do stress testing in particularly on interest rates and sometimes by options to kind of give us protection about moves and interest rates from an RBC perspective. The last bullet point down there, so far this year for the markets we’ve had 25% favorable impact, although it was really not to have a positive or negative impact. Since inception we’ve had about 94% effectiveness of this program and it’s been gradually increasing, but we don’t do this as money maker. We’re truly trying to hedge through risk.
The third, and in my opinion most important risk management lever to managing our exposure here is managing the sales and my philosophy is that it’s better to not take to the risk to begin it than to take it in and then try to overlay all of these risk management controls around it. You can see that the company has executed very well this year. We’ve had approximately a 25% drop from 2.7. We think we’re going come in around 1.9 billion and then as John mentioned next year we’re trying to -- it’s actually 1.25 billion so another 35% decline in VA sales around 1.3 on my chart. And then it’s not just kind of we were managing the size of our exposure but it’s also kind of making sure we’ve good diversification across some of the different annuity products that we offer.
Consistent with -- Rich will go through and Jonny alluded to kind of our detailed financial modeling. The Company has invested a lot in that. So really stress testing are natural add on to our kind of projection capabilities that we’re very proud of and in fact, the year I’ve been here, my team spent a significant portion of our time doing stress testing of our major risk exposures.
You can see the second bullet, we utilize multiple views, we look at it on a gap for STAT on an economic basis. We also look at individual financial metrics. As Jonny mentioned in one of the questions we’ve looked at different capital regimes that may emerge and how would we look under those. And so this informs kind of our business mix and our exposure decision making.
I’ve provided you an example of one of those exercises. We were talking about VA earlier and then we’re trying to use this combination of our In Force block, managing the sales, product design features and then the hedging program we counted in total managing exposure -- well, how do we do in different equity market environments?
You’ll see this chart shows that VA impact of equity market stress is on Protective’s consolidated RBC ratio. Now of course part of this is, is that the VA is a only a portion of the total RBC but you can still see for instantaneous stresses of 20%, 40%, 50% we’re within the 25 basis point corridor that I laid out for your earlier. So, this gives us some confidence that we’ve got the protection on managing the business. In a sense we reverse engineer. We say what’s our tolerance, and then given the stress is how much business can we have on our books and feel comfortable we kind of stay with our appetites.
And we’ll switch gears a little bit and talk about fixed annuities. We have about $8.5 billion of fixed annuities. You can see that, and you guys know better than we that we’ve been in a long period of low interest rates, but the chart here, you can see our fixed annuity spreads have remained stable. In fact they’ve gradually risen over the last three years and even better news from my perspective, since May the 10 year treasury is up about a 100 basis points. So, that’s not reflected in here. So we feel like there is a bit of tailwind if you will from an interest rate perspective and at least I’m certainly excited about that.
What are the primary risks we focused on with fixed annuities? Well of course the first is the exposure to sustained the low rates, and then second is what about a spike in interest rates and how do you manage through that. So with regard to the first one, for those don’t know the pressure is you getting falling margins, as your portfolio yield comes down, you start bumping up into your minimum rate guaranty and you get spread compression.
We certainly still have some of that but I think [indiscernible] we’ve got a better rate environment and we also, you can see here in the chart, we also have some capacity to reduce rates further. The organic block is the business we’ve written through our retail channels. You can see that’s approximately 80% of our fixed annuity business. We’ve got about 60 basis points of room to move there if rates were to turn around and go back down to where they were in the 150 range. So, that gives us a little bit of protection.
The only thing I would point to is because we’ve got relatively young block today, we have significant surrender charge on protection. You can see over three quarters of our block that has surrender charges in place and then almost half as a surrender charge of greater than 3%, and so what this allows us to do which kind of pass on changes in our portfolio rate to maintain our spreads because we’ve got the protection of the surrender charge. In particular with kind of 1 to 200 basis points moves in rates, we feel pretty good about our ability to kind of keep a cushion there.
Now I will want to spend a little bit time on disintermediation risk. This is a little bit of a busy chart and I apologize. As Jonny mentioned, you will see in Rich’s slides rising rates are a good outcome for us. However we do have certain product lines where we will see pressure and so have kind of geography issues that we try to kind of stay on top of.
So we got through the summer when they first started to talk about the Fed tapering and we started doing some stress testing on our fixed annuity block. And interestingly after recently the Fed announced that next year banks are going to have to do a plus 300 stress test, and they are stress testing for next year, although theirs’ is over a four quarter period, where we just did ours immediately for the purposes of this exercise.
What you see here is the impact on GAAP earnings, shocks and interest rates for the SPDA, I am focusing on. It’s a little hard to read but basically the yellow line is the plus100 impact and then what we found was basically that a 1 to 200 basis point increase in interest rate has basically little or no impact on our profitability.
One to the purple line if you will is the plus300. Once you get a 300 it starts to be a modest impact. So that’s if rates today were go from 270 to 570, then we would start to see -- ten year treasuries, we would start to see some modest pressure. And then the last one is the 500 basis point shock. We looked at kind of the history of interest rates and the only time we could find that the tenure had gone up 500 basis points was during the 80 to 81 period, during the [indiscernible] regime. So we ran that test. You can see we temporarily breached our strategic risk appetite limit.
Now I will talk about it in a little bit, but as a reminder this is only the SPDA enforced block and it doesn’t include any management action. So for instance, we then came along and said what if we changed crediting strategies, we if we put a hedging strategy in place, but I just want to kind of show you the raw gross effect before any of the management actions and here is what it would be.
On STAT, I want to talk about that. Interestingly enough, we didn’t see hardly any impact on STAT. And the reason is what drove the GAAP earnings volatility was writing off tax and selling assets at a loss of about 300 to 500 basis point higher and with STAT we had mitigated, first of all there is not a [indiscernible] concept, they were we’re in about. And then we today have a pretty sizable IMR that helped offset a lot of the capital losses. So actually the STAT capital impact was less than 3 basis points on our RBC, you know this type of activity. So that was encouraging.
And the last I mentioned offsetting benefits at higher rates. After the MONY acquisition we will have about $30 billion of life reserves. You saw earlier I mentioned I think we have $8.5 billion on fixed indexed annuity. So the life side is a natural hedge and it benefits from rising rates. So it more than offsets any of the down pressure we see on SPDA. So you will see Rich show earlier in total rising rates are a good thing but the SPDA product line we see a little bit of pressure, and we want to share that.
Okay, in summary, 2013, we’re certainly excited that we had favorable equity markets and interest rates and certainly the annuity lines have benefited from that, Protective as well as others. We hope it continues, but we’re not losing our focus and disciple. As you saw on the first chart, we’re continuing to invest our capital and dollars towards life business. It’s got a longer term of gradual slow changes that we think that fits our expertise but the annuity business is an important heart of our business. We just think it is important to manage the growth and do this type of stress testing and analysis so that we can make sure they were managing it within our stated tolerances. One last thing the tolerance I mentioned 2014. We review this on an annual basis. One is the company changes and grows and our risk profile changes, but then also is our tolerance may evolve over time.
So that concludes my prepared remarks and at this point in time I am going to turn it over to Rich Bielen, who is our Vice Chairman and our Chief Financial Officer and he is going to walk you through the 2014 to 2016 financial plan. Rich?
Thanks Mike, and just to reiterate Carl’s come and Mike has been our real pleasure and a real joy and adding to our team here for the last year and as you can see he has done a lot of thoughtful work around our risk management and our sensitivities that really helps to our financial plan than what we are doing.
First I would just like to say thank you to a number of members of this audience. Over the last couple of years we’ve now done two different investor perception studies and I know many of you have participated in those. Those took about 30s or 45 minutes each. So we appreciate those comments and realize that senior volunteering team has read all of those. So we went line by line, we actually get a transcript of all those interviews and looked through them and take your feedback very seriously and that’s really where I want to start off, was the message that we got back a couple of years ago and was reiterated to us, was delivering on our plans is key. We really feel it’s important that you have the ability to have confidence in us, to know that what we’re doing and what we were presenting to you has been soundly built from the ground up level.
And so as a result we really focused on operating into what we call is well-developed financial plan. Jonny talked about the modeling. First to get to this stage, it’s really been a six or seven year effort. We got through a process on a quarterly basis where we take three-item [ph] data. So that means policy-by-policy data run it through poly-systems and then re-project everything. So when we get on the earnings call, we’ve actually spent the first 30 days of the quarter going back and reviewing our actual results to what we see in those projections and then we spend the 30 days after the call redoing all of those models and re-running them again, it takes us about 60 days from beginning to end and therefore we update it for sales, we update it for the actual business that’s there. We put in all the new pricing models and really do this as a ground up way of looking at our business.
And we do think that is unique as I talk to others CFOs in the industry. The ability to have done that and investment takes a lot of time and so I think it gives us something of a competitive advantage when we talk about our business and the confidence in terms of putting up a plan here. As result of that, we can monitor or manage our progress. We go through a process and we look at $1 million - $2 million items to see what is going on and what those variances are and as result, we’re able to give you quarterly updates about how we’re progressing against our plans. And this is a complicated industry. There is a lot of acronyms, there is a lot of complexity, there is a lot of actuarial science related to it and so we try and make our results as transparent and understandable for everybody as we can.
And so the first we actually started to produce a plan for you in the winter of 2009. That was kind of a year after the worse for the financial crisis. We had a conference up here at very beginning of December, at that period of time and what I’ve outlined for you on top there is what we’ve presented to you as our plan for each of the last four years. So you can see we started with 260 moved to 315 and then last year we presented at 380 number. What we actually reported is you can see is we’ve been able to exceed that plan assuming everything for the fourth quarter continues on track in each of the last four years and what we’ve showing you is the variance there by each year. And so in this period we’ve been able exceed the plan on average by about 10% during this period of time.
So we are pretty proud of that, of being able to measure it and then look back and see why we did that. The other thing that I want to note there at the bottom is there is a lot of issue sometimes about the geography of what’s above the line in operating and what’s below the line in net income and there is -- different people in different companies have different measures of what is an operating, what is in net. So I’ve also highlighted for you at the bottom our net income per share during each of these four years and if you add those lines across here for the first nine months of 2013, our operating is $2.82, compared to $3.39 of net income for the first nine months of this year that our net income over this four-year period has been 107% of our operating income.
And remember, that builds book value. That’s part of what we’re trying to accomplish and sometimes we get caught in the geography of whether it’s above the line or below the line, but it is important what the total net income is as much as what the operating income is.
Here what I’d like to do and we did this a bit on the third quarter call but just really level set everybody how we perform against what we told you a year ago? We wait back and you can see that middle column that’s the 2013 original plan that we presented last December and we’ll go division by division. So our life marketing division is actually going to come in, we think about $2 million above our plan. A lot of that has been a good work around our expense management.
We have been doing a lot of things where we have invested into our contact centers, that bringing efficiency. Jonny talked about the scale that we were able to create with these acquisitions. So that’s been helpful to us. The annuity business has really had a very good year. It’s $27 million ahead of plan. That’s a combination of the better spreads that Mike was pointing to in terms of what’s happened during the year and how we managed the business and also we’ve had very good capital markets. So we had better fee income and some positive unlocking that helped our annuity business during this year with a good market.
Acquisitions, the core acquisitions are down, although in the fourth quarter we’re expecting about $33 million and we tried on couple of other quarter calls to go through the deltas from where we were, but there is a couple of things here that everyone needs to realize is we release capital from this division in order to help facilitate our acquisition of money. So we entered into a reinsurance transaction back in the first quarter that released about $50 million of capital. We entered into a securitization transaction in the third quarter, there it released another $100 million of capital. We did have some unclaimed property on some old business that impacted us about $5 million during that period of time.
And we have a little bit of unfavorable unlocking, because in this line of business although we’re reasonably well matched, what happened is we hit minimum rate guarantees and so when we looked at an individual block, we saw that we didn’t have much more room and had some unlocking there.
So we’re on track with what we’ve described as terms of the correlate of about 33 million for the quarter but there was some delta there, which then brings you to the acquisition of MONY. We’re estimating the net impact to the acquisition line will be approximately $20 million. In that $20 million includes one-time transaction expenses and the elevated transition expenses of about $10 million during the fourth quarter. We’ll see how that ultimately turns out as we’re working through that. So prior to those one-time expenses and the transition we would be closer to $30 million for the quarter on MONY.
Asset protection, we’re looking at a nice increase of about $2 million versus plan. We’ve had good auto sales this year. As you’ve seen even this week we reported annual unit sales of about 16 million units. So that’s been a nice tailwind for us. We’ve also had very good expense management there. Scott as he took over working with the team has really focused on more efficiency in the unit and we’re seeing some benefit from that. Stable value, very good year and $77 million is our estimate, about $22 million above plan.
About half of that does represent participating income that was not in the planned and stable value. It was in our planning corporate and other. So we did have some better spreads, we did have some higher account balance than we planned for but then we had about $10 million of participating income that came in there.
And then our corporate and other lines, about $10 million less than what we’ve planned for but if you recall in our plan we assumed about $15 million of participating our excess type income and because we don’t know what division it’s going to occur in, we put in corporate and other. So you see the benefit and stable value goes away from there. Also obviously we wrote a large check to AXA for the MONY transaction, which then really, I think this is the most important line when you look at our operating income.
What you’ll see now is that our operating income estimate for this year is $484 million versus the original plan of $457 million. That’s up about 6% from the plan a year ago. And I think really that’s the big number to focus on. We are seeing a slightly higher tax rate than we estimated the year ago. So that reduced our after tax to about 5% above plan.
And then as you know, in light of the MONY transaction we suspended our share repurchase program. So as a result our shares outstanding are about 1 million shares higher than what we originally planned for a year ago. So that brings you to a reforecast of $3.95, versus the original plan of $3.80.
Which now let’s me move into 2014 to 2016. So beginning with Life marketing, we’re projecting sales for next year of $138 million. As John described we have a lot of initiatives in the Life marketing area that we think will attempt to take hold during the calendar year. So what you can see is for ’15 and ’16, we’re projecting double digit growth in our Life marketing operations as those take hold, where this year it will be a little better than flat.
On the annuity side, as Mike and John both talked about, we’ve reduced our sales in the variable annuity business. So as a result of that we’re replacing it with fixed annuities and we’ve assumed for the plan and the model that we’ll hold annuity sales flat at about $2.5 billion. But I want to make sure that everyone realizes that we will continue to have positive flows, even at this level of sales. So when John showed that our account balance continues to grow, we’re still seeing positive inflows, even at $2.5 billion, which is less than what our current sales are. And I think that’s different from some of the other carriers out there who are seeing more outflows than inflows at their level current level of sale.
And then asset protection, we’ve done some fine tuning of some of our products there. So sales will be up modestly during 2014 and then what we project is about 5% growth in ’15 and ’16. We expect the economy to continue to be reasonably strong. So we expect those sales to continue on in the market.
With respect to the stable value business, over the last year we’ve really seen the account value stabilize at about $2.5 billion. So for purposes of the planning and the model we’ve held it at that level of $2.5 billion. Our spreads recently have been at the 270 basis point level. That was as a result of we were a little long there and so we’re able to hold on to portfolio yields as we’ve re-priced the liabilities in the last few years. However, with the backup in rates now, as we right new contracts, those rates are higher than our current out which credited right. So we’re starting to see higher cost in terms of those contracts.
Also we’re continuing, our portfolio yield as still higher than the new money yield that we would be investing in to be matched there. So you’re seeing a slow level of compression over the next few years but that’s built into the model and we’ll continue to manage that over time.
Other plan and model assumptions is we don’t estimate any fair value or DAC changes in terms of the year. We continue to presume we’ll have $15 million of excess income, typically from participating mortgage loans that may come along but other sources at the same time. You will see a sensitivity around share repurchase. That sensitivity is being done and assuming that we’ve repurchased shares at a 125% of book value and that we would do that to the level where that combination of those share repurchases and dividends would be up to 50% of our GAAP earnings. So we think that’s a nice balance which we’re trying to continue to grow the company, build capitals for the next VL but yet return capital back to shareholders if we have excess capital.
Obviously the world continues to change and all of this has been calculated based on current capital resource standards. We assume that our Corporate and Other line only earns 4% which is less than our portfolio yield and the reason is that’s the line that houses all the liquidity for the company. So it’s where our cash is and some of those fallow assets that we have. Also, Jonny mentioned this, future interest rates are based on current levels. We’re not assuming a forward curve, we’re not assuming lean reversion. Everything was done in these models as of 9/30 interest rate levels and reinvesting at those points in time.
VA fund returns of 8% annually and then our GAAP effective tax rate is a 34%. One of the things we’ve realized in the MONY transaction is there is really are no permanent differences. So, you really have a statutory rate of 35% on there and then some state taxes. So, when we look back a year ago, when you would have seen as a tax rate of 33.4%, this tax rates are little higher just because of our mix of business and in life insurance you don’t really have permanent differences between your tax rate and statutory rate.
The other item that’s not on here that I just want to mention to everybody is mortality. These plans assume our current mortality experience and we realize we were creating some confusion about talking about mortality versus pricing because as each village of business comes on the books we were updating our mortality assumptions for pricing purposes and it moves through time.
So, what you’ll see here is our current expectation of mortality on a going forward basis and then any references about mortality variances on the calls we’ll talk about versus our current expectation, if you determine measure under the old method, which means what’s mortality relative to original pricing. Since we started retaining more business in 2005 and moved away from reinsuring mortality, we’re approximately 90% of our pricing. So, our mortality has held up very well during this entire period but for convenience we really moved to what do we currently expect and just talk about that variance rather than trying to refer back to old pricing models.
So now I’ve walked you through three different sensitivities of the model and the first one is what we’re going to call our base capital model. It does include any stock buybacks. So it’s our actual third quarters financials and the fourth quarter projections and moving forward. We do adjust for the estimated impact of money in this transaction, as we point out in those stock repurchase.
So, first thing I’ll do is I’ll focus on 2013 and then 2014 and go through some individual lines. So, 2013, we’re $3.95 we expect the ROE to be about 10.6%. Our RBC ratio we’re estimating to be approximately 400 at year end and then one question we get is what is your required capital. So at 100% RBC are required capital at year end as estimated to be approximately $740 million and for purposes of this model, as you move through time from 2013 to 2016, by 2016 that rises to about $775 million and it’s pretty ratable on an each year basis. So you can estimate how much do we have in effect in house and versus debt capacity as you go through those numbers.
Our debt-to-capital is estimated to be about 28% at year end and when we did the MONY acquisition and we presented to you our financing plan, we presumed a metric that would say we could maintain a 400% RBC with a 30% debt-to-capital and there is rounding in here but we estimate at year end we will be approximately $200 million in excess of that, whether its measured in the RBC or the debt capacity we would have to take us to a 30% debt-to-capital ratio.
Now, moving through time into 2014, we estimate with the only purchase we’re about $4.70. Our ROE is 11.5 and you can see it continues to grow into 2015 to 11.6. Our RBC ratio here continues to grow. It goes to 450% to 500% and up to 550% over the next three years. At the same time, we’re not taking any explicit actions but just the growth of the equity would have us de-lever from 28% to 26% over this period of time. And then the bottom line, I really want to make sure that everyone realizes, using those same metrics over 400% RBC level and a 30% debt-to-total capital, we have projected for you the amount of capital that would be available at any one point in time over the next three years.
So, this is your base line to look and obviously by the end of 2014 we would have the capacity to do a $0.5 billion acquisition. For not doing any capital management it grows by another $0.5 billion in each of the subsequent two years. So, tremendous capital flexibility for us to respond to anything in the market over this period of time.
I will now move to the second model and the second model just introduces stock repurchase at the same time. And so what you can see is with stock repurchase, we’re about $4.75 next year, a little higher. Our ROE we goes a little bit more, but the real focus is what happens in 2015. As a result of capital management, we can then show double digit EPS growth in 2015 going from 475 to 535 and achieve an ROE in excess of 12% during that 2015 year. So we think that’s important everybody to recognize, that we are focused on double digit earnings growth and improving ROE. And so we have literally 20% growth next year but you can see the continued improvement into 15.
You can see though at the same time, our RBC ratios are very healthy over this three year period. They grow to 500% while our debt-to-capital would be flat at about 28% based on this calculation. And then if you go to the bottom, the capital available for acquisitions would be approximately $300 million in each year and the way that number comes about, realize if we are buying back shares, we’re reducing our equity, which also reduces our debt capacity at the same time.
So as a result, if we bought back $140 million of stock in 2016, if you have 30% debt-to-capital, you also lose $60 million of debt capacity and so we’re trying to calculate the delta from the prior slide, you lose approximately $200 million in firepower during each of the years of your exercising capital management.
So then continuing on to the model, we added one more thing. What we wanted to do is to see what would it take for us in 2016 to continue to develop double digit earnings growth and ROE improvement? And what it would take is an acquisition of approximately $400 million, and we calculated being on 1/1/2016 and what that would then do is it would move our operating EPS in 2016 to a double digit level. It will continue to improve our ROE, growing from 12.2% to 12.4%.
Our RBC ratios would continue to be very healthy. Our debt-to-capital would be flat at that point. And then the bottom point, I just want to make sure everyone realizes this, 2015 under this model, we have $600 million capacity. We would develop $300 during 2016, but we spent $400 million. Realize that first year when you’re doing a deal, you release earnings back, you’re earnings base itself is higher. So you have more debt capacity and so in a way you self-demand that first year a little bit in terms of that.
So by the end of 2016 you still have $600 million. We’re not projecting what the size of the deal would be. We are telling you what we might have the capacity to do, and we use this as a benchmark to say how do we create double digit earnings growth during that period of time.
One point I want to add, and this is a great example we gave you on the third quarter call. United Investors was a transaction we closed at 12/31/2010 and the combination of the earnings, the release of RBC and then our ability to do a securitization because there were some redundant reserves in that book, allowed us by the end of the third quarter to return back to us 88% of our initial capital. So we did that in less than three years and we will have gotten back between earnings obviously in the securitization, a 100% of our capital invested in United Investors by the end of 2014.
So it’s really a model. We put out the capital but the steadiness of those earnings comes back to us very nicely in order to continue to move the engine. The other thing I wanted to do is break it down by segment-by-segment basis and I’m really going to focus on 2014 and I would encourage people to go back to what we showed you a year ago. I know last night at dinner there were lot of people who had notes, who were showing what do we say on the acquisition call, what do we say a year ago, what are we going to see tomorrow.
So I want to point out, we talked about the organic business. So Life marketing is projected to earn about a $125 million next year. That is higher than what we told you in the plan a year ago. Annuity is at a $184 million. That organic business is also higher than what we told you a year ago.
Our acquisitions will be $229 million. It’s the run off of the old core. It’s the release of some of the capital and the impact of what we did with MONY. Asset protection is literally within $1 million of what we showed you in our year ago plan for 2014 and 2015. And then stable value is coming in higher as we are seeing higher sustainable spreads than we saw a year ago. So I know we focus a lot on the acquisition. We love the model of combining our organic business and our acquisitions business to bring scale. But I also want to remind everybody, our organic business is actually growing better on an earnings basis than what we previously have talked about. So it talks about the higher returns we focused on. We are also benefitting from kind of working through the EITF 09-G accounting and so you can see the progression as you go through 2015 and 2016.
The other item I’d really like to focus there, towards the bottom is the pretax operating earnings at $584 million for next year and then $642 million for 2015. If you do go back and look at the model a year ago, those are both approximately a $100 million higher than what we showed you in the plan a year ago. A bulk of that is a result of the MONY acquisition but a lot of it is this organic growth at the same time. So we’re pretty proud of the fact that we’ve been able show pretax operating up about 20% from what we showed you in those outer year plans during this conference last year.
Our tax rate, as we said is a little bit higher, so after tax operating income. And then other things that’s changed a little bit is the fact of with our share price appreciation, which we all appreciate in this room, we’ve also seen a slightly higher dilution in terms of our share counts. So as the price went up, we saw some more shares outstanding. So as a result the operating earnings are coming in slightly around the same level as we showed you previously. And in fact I was looking back at our acquisition model that we presented to you in April and that 2014 pretax number is about $5 million than what we had built into the underlying numbers back on our April conference call.
One last slide. We get a lot of questions around interest sensitivity. As Carl pointed out and Mike worked through also, we are very well matched so the benefits of higher rates are something that will occur overtime but not something that will help us materially in the short term, because as a result of having the match, you don’t have those cash flows to reinvest, it’s really outer year as it starts to benefit you. So what we did is the same sensitivity that we did a year ago onto our base plan to show, if rates would have moved a 100 basis points from they were at 930 in an immediate shock, what would be the earnings pattern over this three period of time and what you could see is we really have a corridor that is plus or minus 5% and we believe investors really want that.
You want to see stability of rates. I know everybody would like you to have this benefit from everything but at the same time if rates turn down, we want to make sure that we are protected at that same size. The most interesting thing though that’s happened as a result of the rise in rates is that we would have some immediate dock unlocking and a year ago that was asymmetrical. We were more sensitive to a movement down than a movement up. So it’s roughly $0.66 if rates went down, $0.36 when rates went up. This year if you look at the footnote, the down market has this with dock unlocking of $0.46 but the up market has positive $0.44. So they’ve become very symmetrical because we’ve moved away from some of the minimum rate guarantees.
And as you can in the model, the base model assumes a new money rate of 475 on an average because of the reinvestment that we would see is in our Life business. So it would be a very long business to match off against those liabilities. The actual rates that we used depending on the market business ranges from anywhere from 2% and 3.25% to %.
So with that I am going to ask Jonny to come back up and just bring us to a close.
Thank you, Rich. I just have a couple of slides to kind of wrap the presentation up, and then we’ll pause and you can direct questions to me or the any member of management here today. But again this is just summarizing what we said earlier but if you look to the remainder of this year, we do expect next year, we do expect next year to be a very strong year for the company. As we say we expect double digit earning growth. We think the ROE will continue to improve. The capital engine is running very strongly, throwing off a lot of excess capital now. We are very excited about what’s going in our retail businesses. As Rich indicated that’s really going to drive us forward for the next two or three years until we’re ready to do our next acquisition. We do think we have great opportunity to have some profitable sales growth in the lifeline as well as in asset protection.
We are very focused on risk management, within the annuity space. So as you’re seeing we’re going to keep our annuity sales kind of steady, change the business mix to make more balance between fix and variable annuities, and we do think the stable value will continue to be a nice steady source of earnings for us.
And then what are we focused on? As always, we’re obsessively focused on our plan, meeting our plan, exceeding our plan for year. We’re going to continue to be extremely prudent and rational in how we allocate your capital. We do expect to see enhanced returns in our retail business line as we continue to focus on expense management and more kind of focused distribution strategies. And we’re also looking forward to restarting capital management.
At current start price levels, we think that’s still a very good use of capital. So we clear our yearend goal of being around 400% or better than 400% RBC ratio. At year end we fully expect to start repurchasing shares and we’ll take another look at our dividend as we always do. The board will in the second quarter make a determination about whether to raise the dividend as well. We’re very disciplined about asset liability management. As I said, we’re very agnostic about interest rates. We kind of like the trend we’re seeing of rates starting to gradually move up, but they could go back down, who knows. So we’ll be prepared no matter what happens.
Risk management, again I think Mike has done a great job, as my colleagues have said really taken it to a whole another level at Protective. And again we’re spending a fair amount of money too in our retail businesses to build out these new capabilities and infrastructure. We need to execute on the plans as John Sawyer told you about. And then we fully expect to be looking at acquisition opportunities toward the end of next year. As Rich indicated we should be back in the position to do a significant acquisition in 2015. So we’ll be combing through everything that’s out there and screening and kissing a lot of frogs I’m sure but hopefully we’ll find a prince sometime in late 2014 and early 2015. We do think that there is going to continue to be a lot of acquisition activity and we can identify a number of properties that we think should be sold. It would make a lot of sense for somebody to sell them. So we’ll be keeping a close eye on those but we’re very excited about the prospects for additional accretive acquisitions.
So with that again, we’ll stop our formal presentation and please fire away at us with your questions. Eva we have a question right here, the third.
Seth Weiss - BofA Merrill Lynch
Seth Weiss, Bank of America Merrill Lynch. Just question on the base case model. It looks like the operating EPS number just marginally down from what was provided at the April call post the MONY acquisition. You mentioned on the last quarter that the economics were slightly better than expected. So just directionally, is this the tax rate that’s bringing this down or is it transition cost maybe breeding into 2015?
Seth, it’s the tax rate bringing it down. We didn’t estimate the 34%. We had a lower at 33.4%, and then the other issue is the dilution. We didn’t expect, really from the time we announced the deal until today we’ve seen almost 50% stock price appreciation. So it costs some more dilution. So the actual operating EPS is actually a little higher than we thought back in April, but our share count is also a little higher and also the higher tax rate.
Seth Weiss - BofA Merrill Lynch
And aside the dilution I’m just a little confused about that because I -- there if any repurchase activity and this is a cash acquisition, right?
They were outstanding options from previous periods and as the price moved up, those got into the MONY.
Seth Weiss - BofA Merrill Lynch
And I’m sorry one more question just on acquisitions and thinking about debt capacity in the interim. If you find something attractive near the end of ’14 that’s maybe bigger than the $300 million to $500 million that could theoretically be available, is there any room on the targeted leverage ratio to reach that maybe a little bit in an interim period?
We’re pretty disciplined about that sort of thing Seth. I think if we found an attractive acquisition in say the third quarter, fourth quarter of next year, we wouldn’t expect to close a transaction until sometime into 2015. And because we have such rapid capital generation capacity, by the time we close the deal, we could close an even larger deal and then earn our way into it by the time we close it. So actually our capacity is a little greater than what was suggested in those charts, is because it takes six months from the time you sign to close -- but I don’t think we really want to push the envelope on financial leverage.
We have our friends already and he is here in the audience and I think we developed a credible track record of being able to come back and live within our writing category metrics. I guess we probably have a little flexibility for a short period of time maybe to get over that but it wouldn’t be our preference. Our preference would be to stay within the guidelines that we’ve established for ourselves and they seem to be consistent with our ratings category.
Sarah DeWitt - Barclays
Sarah DeWitt from Barclays. Just following up on the financial plan and the variance in the earnings versus when you announced the MONY deal, I understand the tax rate and the dilution are headwinds but I would have thought that the benefit of higher rates, which are up almost 100 bps since you announced the deal would have more than offset that. I think in your existing business you said that’s about $0.25. Can you just help us reconcile that?
Well, let’s deal with two pieces of that first so let’s deal the MONY transaction. We said that at the time announced the deal we assumed our longer term reinvestment rate would be about 4% on some of the MONY’s to rebalance. We have done better than that and we’ve been there at about 5% here as call as we’ve done a portion of the portfolio. Offsetting that was we are seeing higher transaction and transition expenses that won’t be originally projected. So when you look through the model, really 2014 those two have effectively washed during that period of time.
On the organic business at 9/30, we had negligible impact in terms of DAC remarking and a year ago we presumed that we would see long term rates where we could reinvest at 5%, and if you go back to that sensitivity model, we’ve not changed the upper end when we went through this year’s DAC unlocking we left at. So we’re not seeing any current benefit in our organic business per say. If there is a benefit, it will be out some years into the future because we’re pretty well matched as we pointed out in prior years over the next few years on a cash flow basis.
Chris Giovanni - Goldman Sachs
Chris Giovanni, Goldman Sachs. Maybe just follow-up question in terms of the planned assumptions. The 8% return for VA. Is that just the 55%, it’s the equity AUM based or is that all in?
That is all in, that’s all the fund returns on average.
Chris Giovanni - Goldman Sachs
Okay, and then you assumed interest rates flat. Is that just for the model or is that also from setting your reserve assumptions?
That is for both. We use -- we don’t as I will reiterate we’re not using forward curves or mean reversion to estimate what we’re doing with respect to either reserve or GAAP.
Chris Giovanni - Goldman Sachs
And then maybe one just for Jonny, I mean you mentioned in your opening comments a lot in terms of just the commoditization of the products, the competitiveness. And I appreciate how maybe conservative you guys are and disciplined in terms of sourcing new business, but obviously you have competitors that may not be as disciplined. Right, so that is certainly headwind for you and the industry and you make a really compelling argument in terms of your M&A strategy and how that really differentiates you. So I guess bigger picture, why not just dial back new business on the retail side, even more and use that incremental capital to be your driver of earnings growth with very predictable earnings stream from acquisitions?
Well, Chris actually we have done that. In the past you may recall that seven or eight years ago our Life sales approached $300 million during the heyday of kind of in the turn more and all of that and that’s precisely what we have done, is we’ve been very disciplined and where we didn’t see attractive margins and returns we just refused to write business. And so now we’re at 135 million run rate for Life sales, so that’s been part of our strategy and we’ve moved the capital over into acquisitions, and share repurchase, and dividend increases. We think that we’re to a point where with these new strategies we have in place we can achieve returns on retail business that will be consistent with the returns that we can earn on an acquisition.
So we’ve developed some degree of emblements about whether we put the capital one place or the other, they both are attractive to us. But we’re not willing to write business. So on a portfolio basis where we’d lose money or we have very low returns on some business and higher on other, we’re really trying to be very consistent in our pricing across product categories as well as even within sales within individual product lines and that’s hard to do. You get a lot of push back from the folks that’s out there trying to sell the products through distributors that wants you to be more competitive. But it served us well in the past and we think it will in the future and we think we can earn descent returns actually in the retail business if we manage it carefully and in a disciplined way.
John Fox - Fenimore Asset Management
Thank you. John Fox, Fenimore Asset Management. Two unrelated questions I think the first one is for Rich. If I look at the Life business, which the profits have been kind of flattish over the last few years and I know you’ve moved capital out of there and there has been some moving pieces. But with the forecast they’re up about 50% in the next three years, which is terrific growth. So could you talk about what the drivers are for that in the Life marketing?
The biggest driver of that John is the change. We’re burning through the EITF-9G effects, as we made the changes and had to adapt the new accounting, higher sales actually were costing us GAAP, yet earnings again earnings emergence wasn’t really occurring. So now we’re into the third year, fourth year, fifth year, during the model of having burned through that and the business we put on the books as Jonny mentioned we’ve been happy with the returns of the business in the last couple of years. We saw higher rates, we’re disciplined about pricing there has been some shrinkage of capacity in the industry, so the returns are actually coming through. And also I think we’ve now fully incorporated more talent, a better mortality that we’re seeing from the older business also into those models. So that’s the reason the earnings curve moved up.
Which at the risk of being a little bit redundant. Let me kind of re-state that in a less technical sort of way. But I mean lot of you know exactly what Rich said. I think I know exactly what Rich said. Some of you may not. But essentially the accounting rules changed a couple of years ago under this EITF-9G that Rich referred to and essentially the change is that you can’t capitalize nearly as much DAC as was industry practice prior to the change in the rules. And I think, correct me if I’m wrong Steve Walker but the core concept is that if you can’t relate and expense directly to a policy that’s being issued, you can’t capitalize that expense.
For example, historically placement rates, they’re running 70%. Well we would accrue a lot of expense through 30% that we weren’t placing for whatever reason and we could kind of lump all that together in DAC so long as the policies we sold would carry the DAC and its recoverable and we’ve put it up. But now you can’t do that. So what that’s meant is in the last few years, our earnings from Like have been retarded pretty significantly because we're not capitalizing as much expense, but that’s the bad news.
The good news is you burn through that and now we're enjoying the other side of that. We don’t have as much DAC amortized against the business. We have, particularly in the universal lifestyle of the business where there is more expense associated in the long duration, big policy, you spend a lot of money on that and if you don’t write the policy, it just brings life to the bottom line. So now that’s reversing in pretty dramatic way and that's which is really the story; that plus normal growth, little better mortality, better expense management on our side, you put all that together and those numbers are quite plausible. I will tell you that we also have 10 percentage kind of sales growth projected, which we think is plausible, realistic, sound. But if we should sell less than that, then earnings will be higher, because of the way that what we have modeled or planned for, because we won't be bringing as much of that non-capitalized expense to the bottom line. And we'd pay for that later. We'd have more capital for lower sales. We’d have to find something to do with it and it would cause some flattening but in the short run earnings would actually go up pretty nicely if we had lower Life sales.
John Fox - Fenimore Asset Management
That was a great translation, thank you. Second question is -- obviously when the stock was 70% of book value, buying it back was a no brainer. But now it's at of premium in the slide show, 125%. So if you could just talk about how you're thinking about minor book value dilution versus the increased ROE and thinking about the buyback decision with the stock above book.
I'll give Rich a huge amount of credit for the kind of discipline that he has developed financially around that thought process of buyback or not. But essentially what we're able to do because we have these sort of sophisticated advanced projection capabilities is we do our own embedded value calculation with respect to the stock and then we can imply kind of an ROI when we purchase by doing that. And so long as the result is comparable to other uses of capital, we'll continue to repurchase the stock and I can’t tell you exactly what the numbers are, where we buy, where we don’t buy, whatever. But I will tell you that if the stock goes up and whole lot, we'll be less enthusiastic about repurchase, perhaps more enthusiastic about dividend, acquisitions to do business.
On the other hand if we saw weakness in the stock, then we get more excited about repurchase. You should see us coming in to the extent, we have a capacity under we'd see us very aggressively buying our stock in a downdraft sort of market. So the point I want to make though, it is a rational analytical process that's got a lot of thought put into it. It's not just we've just said compel on our water we're going to go buy $200 million of stock this year. But it's a high quality problem to have, I think as the shareholder you would agree maybe.
John Fox - Fenimore Asset Management
I'm very happy with the profits, thank you.
Richard Wagner - Citadel
Richard Wagner, Citadel. Just following up with John's question. When you think about the Life marketing earnings trajectory, those earnings are up about 10% in 2014 and 2015 versus the plan you laid out last year. What’s changed in that business that gives you increased optimism on the earnings?
I think the returns are first. The business we've been putting on the bucks, I think for a long time we get a lot of questions about exactly where Life returns are, whether they're high single digits or double digits, we're clearly in the low double digits now very consistently. I think we've also done a lot of good work on our expense footprint. We continue to look at that. So we've made some investments that probably held down some of the earnings over the last couple of years, but you noticed, even when I talked about this year’s variance I have a long laundry list of items that went plus or minus, but the thing that kind of a net hat stood out was our expense management is better than it was even a year or two years ago.
And so the combination of that and as I mentioned, you've seen shrinkage of capacity in this industry. You know Hosford was fierce competitor of ours for many years, now is part of Crew. Aviva, I think they're focused under ownership beyond the annuity side, not on the Life side. We've seen the Canadians pull out of the U.S. market. So as we compete in that market, we're not looking necessarily for maximum amount of market share, we're looking for returns and I think that’s what you're really seeing coming through those earnings more.
Richard Wagner - Citadel
From the presentation that Life sales this year are way ahead of what we planned for this year, so this year's earnings are actually being retarded by the higher sales. But then as the EIFT 9G effect burns off, then we get the benefit of that in the future. So it's sort of the combination of higher sales with reducing earnings this year, but then kicking in a nice little way out in the future. And honestly as I say, the earnings over the next couple of years are not that sales dependent. So long as we're selling somewhere around our plan you know, it's really more of just mechanics of the accounting that aren’t really much at risk. I mean that’s just the way the accounting works.
John Nadel - Sterne, Agee
John Nadel from, Sterne, Agee. I was wondering if you could just give us maybe a ballpark estimate. If you thought about -- because it sounds like the non-DAC expenses, it’s pretty interesting how that’s transitioning and I suppose that’s not going to something that’s unique to Protective. It’s probably going to be something that we see industry wide and seems like a shift here, as we’ve gotten a few years beyond. For Protective Life, about how much is that in dollars? The expenses that you can no longer defer that you have been able to defer prior to the accounting change?
I’ve got Steve Walker in the back I don’t that he knows that but I can tell you that when we went through the initial sensitivities, moving from the old model to the new model we saw a reduction in earnings of about $0.30 in terms of the impact. So for us that’d be $30 million to $40 million in terms of pretax. What we’re seeing when we look at what we call the new business that is in put on that is currently showing a loss as a result of having to bare those expenses. Next year is the first year that since the 9G comes into effect that we’re actually seeing on the cumulative sales team profits and that’s why you see this acceleration coming out.
John Nadel - Sterne, Agee
That’s helpful. And then Jonny, just a bigger picture question on [indiscernible] maybe competitive environment for acquisitions. I think I’m dealing with what Rich is dealing with. There is clearly a very competitive environment for M&A, specifically in the fixed and maybe just broadly the retail annuity space domestically. It seems to me there has been much less competition around what your bread and butter is, really pure retail life insurance types of blocks. I was wondering if you feel like now that valuations have improved, that rating agencies clearly are more favorable about longer tail predictable liability streams like life insurance relative to annuities. I was wondering if you’re expecting over the next couple of years that competition for those types of blocks that are of most interest to you is going to also expand?
Could be. I mean it would be rational for other companies to try to emulate what we’ve done because it has been accretive to shareholder value and it’s been well received by many important stakeholders, rating agencies, regulators, capital providers for debt capital and of course really good for the shareholder too. So it’s been a good strategy and I think it would make sense for companies, other companies to try to step up and play. But what I said earlier though is it’s taken us about 30 years to get where we are, to know how to do that successfully and be sure that we get good execution. It’s just not that easy to tell you the truth and somebody can always whip out a checkbook and offer to pay more than we think is rational and I guess at some price they’ll win. But I would caution those who are thinking about piling into this space, be careful, because not every deal works out the way you want it to and it’s taking us a long time to build the capabilities we have.
I think that’s is a bit of a barrier to competition. That plus the fact that I think rational sellers, particularly big institutional sellers and that kind of property we have a lot of known reputation on the hook in terms of what happens to their policyholders after a deal closes and would look favorably upon us as a counterparty as compared to someone as a novice at the game or as a non-traditional player. I’d think long and hard if I were a big European company thinking about selling a big block of policies to put it in the hands of the company that hadn’t been around for very long and has no track record, no reputation versus a company like ours that’s been in business for 178 [ph] years now and weathered a lot of storms in what we so. So sure, competition is always going to -- it always has been there. We’ve fought for every deal we’ve ever gotten but we do think we have certain competitive advantages that are real and meaningful and very, very hard to replicate.
No questions. Well, I guess we’ve either satisfied your curiosity about Protective or just bored you to death, one of the other or some combination of the two. But hopefully this has been helpful and useful to you. I want to reiterate again how much we appreciate your interest in Protective. I want to thank Eva and the team for putting things together. And it’s a good job of Investor Relations and I thank my colleagues for excellent presentations as well. And again we’re always available to talk and answer questions offline. So again thank you very much.
Lunch has been served in Gabby’s Restaurant. So if you’ll go down the circular staircase past the front desk and to the right down the stairs, we’ve got the entire restaurant reserved and a buffet for that. So please join us.
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