Symetra Financial's (SYA) CEO Tom Marra on Q2 2014 Results - Earnings Call Transcript

Jul.25.14 | About: Symetra Financial (SYA)

Symetra Financial Corporation (NYSE:SYA)

Q2 2014 Earnings Conference Call

July 25, 2014 11:00 a.m. ET

Executives

Tom Marra - President and CEO

Margaret Meister - EVP and CFO

Dan Guilbert - EVP, Retirement Division

Michael Fry - EVP, Benefits Division

Jim Pirak – SVP, Investor Relations s

Analysts

Jimmy Bhullar – JP Morgan

Humphrey Lee – UBS

Steven Schwartz - Raymond James Associates

Ryan Krueger – Keefe, Bruyette & Woods

Chris Giovanni – Goldman Sachs

Seth Weiss – Banc of America Merrill Lynch

Operator

Good day, ladies and gentlemen and welcome to the Quarter Two 2014 Symetra Financial Corporation Earnings Conference Call. My name is Lucy and I'll be your operator for today. (Operator Instructions)

I’d now like to turn the call over to Jim Pirak, Senior Vice President for Investor Relations and Marketing. Please proceed.

Jim Pirak

Thank you. Good morning and welcome to Symetra Financial Corporation’s review of second quarter 2014 results. Before we begin, I’d like to call your attention to the Safe Harbor statement on Slide 2 of the presentation materials, which are posted on Symetra’s website. Some of the information discussed on the call is based upon information as of today and contains forward-looking statements that involve risk and uncertainty. To the extent that any comments on the call are forward-looking statements, they are qualified by the Risk Factors in Symetra’s public filings, including the press release issued yesterday and Symetra’s most recent annual report on Form 10-K and quarterly report on Form 10-Q. Symetra assumes no obligation to update these forward-looking statements. During this call, we will discuss GAAP and non-GAAP financial measures. Reconciliations between the two are available in yesterday’s earnings press release and financial supplement, which are posted on Symetra’s website.

On the call today, you will hear from President and CEO, Tom Marra; and Executive Vice President and CFO, Margaret Meister. Michael Fry from the Benefits Division and Dan Guilbert from the Retirement Division will join the Q&A discussion.

Now we’ll turn it over to Tom.

Tom Marra

Thank you, Jim and good morning everyone. On the call this morning I’ll review our results for the second quarter and talk about current priorities, then Margaret will provide a financial update and walk you through the business segment highlights and then of course we’ll take your questions.

So let’s start on Slide 3 where we have the summary of our earnings drivers for the second quarter and the current areas of focus. We’re pleased to report another quarter of solid results with continued sales momentum across the company.

Reviewing key drivers for the quarter; first, our benefits division reported another favourable loss ratio. We experienced a lower frequency of stop-loss claims than expected during the first half of 2014, particularly associated with the business we wrote in January 2013. As you know, medical stop-loss is a very short trail business. At this point in time, we believe we've seen the vast majority of the claims that will be submitted on the January 2013 business.

Second, we continue to make solid interest spreads on our deferred annuity balances which remain in line with our 12% target -- return target. It’s important to note relative to a few years ago we’ve lowered target interest spreads due to lower commissions and an increase in sales of products without a guaranteed return of premium.

Third, as expected, we saw a meaningful earnings contribution from last year’s growth in fixed indexed annuities and universal life. These contributions to margin were offset by higher operating expenses, that Margaret will say more on this in a moment. But it is gratifying to see the positive impact from our strong sales of 2013.

Fourth, I am very pleased to report another strong quarter of sales results across the company but especially in deferred annuities in Individual Life and I will cover sales on the very next slide.

Finally, our bottom line benefits from a low effective tax rate due to our successful tax credit investment strategy.

Turning now to our priorities for the second half of the year. First, we’re closely managing the profitability of our medical stop-loss book and we feel very good about the business we’ve written. Benefits loss ratio is expected to come within the target range of 64% to 66% for the second half of the year.

Second, we expect to continue to drive solid sales of fixed to fixed indexed annuities flow through our bank of brokered dealer distribution.

Third, we look for continued growth in individual life sales. Specifically I expect third quarter to post another strong sales result and fourth quarter sales to be much higher than third, reflecting the seasonal nature of the UL production sold through BGAs.

Fourth, we continue to focus on accelerating premium growth in group life and disability income. While up from prior year, this area still needs to grow significantly from here to reach scale. We are working to achieve meaningful and permanent sales.

And finally, we remain committed to driving ROE improvement over time through profitable growth supplemented with some capital actions.

So moving to Slide 4, we have sales by division for the second quarter and trailing 12 months. I'm very pleased with this current sales momentum which reflects both the improved interest rate environment during the first half of 2013 and the work we've done to expand distribution.

We had strong sales in retirement division, including traditional fixed, fixed indexed and single premium and immediate annuities. In the third quarter, we expect the sales will be about the same level as the second quarter but we do have some product and distribution expansion plans in the works for fourth quarter and beyond that we expect to drive future growth. The headwind of course being the low interest rate environment.

As expected, we had another strong results for individual life. We continue to advance Symetra as an increasingly important carrier in the BGA channel. Late in the second quarter we launched our Survivorship UL product and I expect that will give sales a boost in the second half of the year.

In benefits, medical stoploss, limited benefit medical and group life and DI each posted year-over-year sales growth. The market for medical stoploss remains highly competitive but generally rationale. We are focused primarily on maintaining our required underwriting results but we also aim to win our share of premium growth in this core business line.

On Slide 5 we have our consolidated financial results for the quarter. Net income was 72 million, up from 45 million in the second quarter 2013, driven by higher unrealized gains. Adjusted operating income was 55 million, up from 53 million in the second quarter of 2013 and operating return on average equity for 12 months ended June 30 was 9.4% compared with 8% for the same period a year ago.

So now I will turn it over to Margaret for more on the business results and then will come back and take your questions. Margaret?

Margaret Meister

Thank you, Tom and good morning. We reported solid earnings results in benefits, deferred annuities and individual life. The year-over-year growth for each segment was masked by a few -- higher than normal fluctuations that I will discuss today.

Starting on Slide 6, we had mortality gains in income annuities of 800,000 which is down 3.7 million from a year ago but closer to our expectations. Our mortality experience for individual life was in line with our expectations and our results in the second quarter of 2013.

Prepayment income, net of related amortization expense, contributed 4.3 million of pretax operating income second quarter, down slightly from 5.8 million in the second quarter of 2013. As we receive bond prepayment fee income, where allowed, we continue to unlock the related DAC and DSI balances which mitigates the impact of margin compression that results from the prepayment activity.

Gains from private equity investments, which are included in our other segment, were down 3.9 million from a year ago when we had an unusually high gains. Operating expenses in the second quarter included a $4.3 million charge to catch up on a few years worth of state sales and use tax on outsourced IT services. This affected all of our operating segments in the current quarter. Going forward the normal run rate for this expense is about 1 million per year. Additionally our operating expenses are higher than a year ago because we’re supporting higher growth across the company.

The effective income tax rate in the second quarter was 14.1%, which was lower than the 18.2% of a year due to increase benefits from additional tax credit investments. This investment strategy has worked well for us and we’re pleased with the returns on these investments. We expect to continue to maximize the strategy over the next few years. We currently estimate that our effective tax rate for the remainder of 2014 will be in the range of 14% to 15%.

Turning to the topic of capital management. We ended the second quarter with an estimated risk-based capital ratio of 458% which is down 11 points from the first quarter as a result of a quarterly dividend paid to the holding company as well as strong sales of universal life and annuities in the second quarter.

By the end of the year we plan to have a financing solution in place for the redundant reserves associated with our growing book of secondary guarantee universal life. This will free up a significant amount capital and therefore increase our year-end RBC ratio.

During the second quarter, we deployed 14.7 million of capital to repurchase 749,000 shares bringing the year-to-date activity to 2.1 million shares repurchased to $41.2 million. As always, our first priority for capital use is to support growth in the business.

Yesterday we filed a shelf registration statement which gives us the flexibility to issue debt securities. We expect that subject to market conditions we will issue debt in the amount of less than 300 million in the near term. As you know conditions in the bond market are favorable for issuers and Symetra has a very low financial leverage ratio. We would use any proceeds for general corporate purposes which could include stock repurchases and dividends.

Now let's move to the business segment results. Starting with benefits on Slide 7. Pretax operating income was 19.9 million, up from 16.3 million in the year ago period, driven by the improved loss ratio of 62.7% versus 66.2%. We're pleased with the solid performance of our medical stoploss business written over the past year. As we said we expect the loss ratio for the second half of the year to be within our target range.

Moving to deferred annuities on Slide 8. Pretax operating income of 27.4 million was unchanged from the same period in 2013. Growth in fixed indexed annuity account values contributed an additional 5.8 million in interest margin. However this positive impact was offset by lower prepayment income. We expect the strong FIA growth of 2013 to continue to be a meaningful driver of full-year 2014 results.

The base interest spreads for our fixed indexed annuities of 1.24% is below our target for this book, because we have not achieved our desired asset portfolio allocation. In particular we've had more cash and treasuries in this portfolio as we source appropriate commercial mortgage loans and corporate loans. We expect the FIA interest spreads to expand gradually over the next several quarters. The target spread to achieve our 12% ROE objective is lower than for our traditional fixed annuities because the FIA product is less capital intensive.

Turning to income annuities on Slide 9. Operating income of 3.5 million was down from 10 million a year ago due to lower mortality gains and lower interest margin. We continue our efforts to manage the pressure on interest spreads but we have experienced margin compression. We are helped by our investment in commercial mortgage loan origination. Overall we are originating commercial mortgage loans at around 240 basis points above treasury and the performance in this portfolio remains very good.

Also the majority of our 600 million equities portfolio supports the loan duration, liabilities in the income annuities segment. This means we are giving up investment income operating earnings in exchange for non-operating net realized gains and losses and better asset liability management.

Finishing with the individual life segment on Slide 10. Operating income was $13.6 million compared to $14.5 million in the second quarter of 2013. Similar to our experience in deferred annuities, we are also seeing earnings contribution from the growth in our classic Universal Life Reserves. We are very pleased with this business and look for continued strong sales and growth in account values through 2014, driven by expanded distribution and new products such as our newly launched Survivorship Universal Life. With that I’ll turn the call back to Tom.

Tom Marra

Okay, thanks, Margaret. Turning to Slide 11, I’ll close by reiterating that we’re pleased with our sales and core operating results for this quarter. As we move through the second half of the year we expect to maintain the strength of our balance sheet and our pricing and underwriting discipline. We’ll continue our work to build the company through sales of products that are priced to meet the long-term profitability targets which I believe is the best way that will drive improvement in our operating ROE over time.

So I’m pleased with the progress to the point -- at this point of the year and we remain optimistic about the prospects for the rest of 2014 and beyond.

Okay, thank you, and with that Lucy, let’s open it up for questions please.

Question-and-Answer-Session

Operator

(Operator Instructions) Your first question comes from the line of Jimmy Bhullar of JP Morgan. Please proceed.

Jimmy Bhullar – JP Morgan

Good morning, just had a couple of questions. First if you could comment on or give a few more details on competitive trends in the stop loss market, whether you’re seeing competition more from the traditional competitors or is it just, is it more of the major medical companies moving in? And also related to that, how do you see this business affected by healthcare reform? Are you seeing a big uptick in demand from small businesses that are choosing to self insure and buy medical stop-loss? And then secondly on your EPS guidance, you had a pretty strong results for the first half of the year and just wondering why you chose not to raise your guidance, especially the bottom half or the bottom end of the range on your $1.80 to $2.00 EPS guidance?

Tom Marra

Why don’t we have Margaret and then Michael, Margaret on the EPS?

Margaret Meister

Sure, well Jimmy, thanks for the question. When we looked at the full year’s results, you know we’re looking at what we think the second half of the last year loss ratio is going to be and we think that’s going to inside a range which is clearly a bit higher than what we were in the first half. So don’t expect that level. In addition we’ve also, when we set our guidance and look at what we think might be prepayment related activity, we use a somewhat less, a lower assumption than what we’ve experienced so far in the first half and then also finally with regards to my comments on the debt I would expect that there would be somewhat cost associated with that come through.

Jimmy Bhullar – JP Morgan

Okay.

Michael Fry

Hello Jimmy, this is Michael. So with regard to your question about the competitive environment for stop-loss. Really not much of a change from the last time that we talked about a quarter ago. It’s still -- as Tom mentioned in his introductory comments, it still remains to be very competitive environment but pricing is not irrational. Pretty much the same core competitors out there, we are -- continue to see the first dollar health insurance companies focussing more of their attention on stop-loss. But that’s been going on for a while. I think I reported a quarter ago to you or maybe two quarters ago that we had seen some, a couple new entrants into the marketplace that we’ve been watching pretty closely. But so far they’ve been at the lower end of the market and focussing on smaller cases, which is typically where we don’t play. But it’s been pretty stable.

With regard to the impact of ACA, we continue to see positive trends with regard to that. I think as I’ve commented before, the impact of health care reform on stop-loss is less onerous and so that’s driving more attention to that product by both carriers and employers and it’s still a cost effective way for employers to provide benefits to their employees. I would call your attention, there was a special report that was issued a couple weeks ago with AM Best or from AM Best and they specifically commented on the stop-loss market, inside of the continuing interest in the product again by carriers and employers. They also said they expected to see a continued migration of business going from fully insured employee benefit plans to self-funded plans with a stop-loss component. So if you get a chance to take a look at that article that might be helpful as well.

Operator

Thank you. Your next question comes from the line of Humphrey Lee from UBS. Please proceed.

Humphrey Lee – UBS

Good morning. Just a question on the effective tax rate. So the updated guidance of 14% to 15%, is it based on the current level of affordable housing investment that you have already on the books or does it reflect your expectation for the further purchase of these investment for the balance of the year?

Margaret Meister

Humphrey, it’s mostly based on what we currently – we’re obviously very active in this marketplace and I would expect us to add some, but kind of the timing of when those things start contributing is not necessarily instantaneous with the acquisition. So the activity that we do later, the latter half of the year will probably be more beneficial for 2015 and beyond.

Humphrey Lee – UBS

Okay, so in terms of downward pressure -- in terms of the tax base, not much there for the second half of the year, but more so for 2015 and onwards.

Margaret Meister

Right, now you know like I said we’re always active, but we’ve given you our best insights at this point.

Humphrey Lee – UBS

Okay, and then I think in your prepared remarks you talked about getting reserve financing solution by the end of the year. Any sense of how much you are planning to do or what would be your target and also what would be the proceeds for the capital we will need from those transactions?

Margaret Meister

Well we’re not going to go into the details of the exact structure and the asset mix because we’re heavy in the work right now. But we’ve over the last couple of years built up a nice amount of assets, between $50 million $100 million of it. So that would be good to have and recapture the support future growth of those lines.

Tom Marra

In establishing these lines and in part our move to Iowa was just consummated, facilitates this activity and we’ve been warehousing and waiting for UL success now that we’re heading, it’s going to be a nice way to get an ongoing support for the financing of the redundant reserve. So, and the reaction of financing sources has been very positive. So there’s a good story all the way around.

Humphrey Lee – UBS

In terms of the proceeds would you be using it for buy-backs or for other purposes? How should we think about the capital return story as a result of that?

Margaret Meister

With regard to that, its - - you know I look at it as that you’re bringing it back to support the next wave of organic growth.

Humphrey Lee – UBS

Okay, I appreciate the remarks.

Operator

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

Steven Schwartz - Raymond James Associates

Hi, good morning everybody. Humphrey just asked a question I wanted to ask about the financing, but I did want to ask Michael, maybe can you go around on the seasonality of the losses. I guess I’m kind of interested, the January 2013 written business is still affecting the first half of this year. Does this January 2014 really only begin to affect the loss ratios in the second half of this year and the first half of next year?

Michael Fry

No, basically the business can start impacting our losses immediately and in general the policies complete, as Tom said it’s a relatively short tailed business and so largely policies complete in about an 18-month period. So after you run basically for five quarters, you’re going to see the business largely completed by then.

Steven Schwartz - Raymond James Associates

Okay. What would be the difference I think between the two years you saw - - you saw very good results on the January 2013 business year. You’re expecting more typical results more obviously on the January 2014 business. What would - - was there any difference between those two businesses that lead you to that?

Michael Fry

You know nothing’s fundamentally, Steven, the one thing that we just saw though with the January ’13 business is that it did complete faster than what we've seen historically. So the January ‘13 and January ‘14 business are completing or performing pretty consistently but the claims did come in on the January ‘13 business faster than what we expected.

Steven Schwartz - Raymond James Associates

And then one more. It's all over the news, the Gilead Hep-C drug and the expense associated with that, could that affect your results this year and into next year?

Michael Fry

No, not that I expect, I mean typically the employers that we work with, they work with pharmacy benefit managers that help put in cost containment programs to help to try to control the drug costs. Obviously we get experience when we price business and that drug history would be in there and then we take into effect anything that we’re seeing prospectively in terms of our pricing. So I really don't think that’s going to sway our results significantly.

Steven Schwartz - Raymond James Associates

Okay. But that's not going to hit you by surprise this year?

Michael Fry

No, I don't think so, Steven.

Operator

Your next question comes from the line of Ryan Krueger of KBW.

Ryan Krueger – Keefe, Bruyette & Woods

On the debt issuance, certain makes sense given your low leverage, I guess I'm curious how long are you willing to sit on I guess the capital that comes from the debt issuance? In other words, is this something that you would expect to deploy over one or two years or are you willing to sit on it for a while?

Margaret Meister

Certainly we would be sitting on it beyond one or two years..

Ryan Krueger – Keefe, Bruyette & Woods

And is the view -- you mentioned the UL financing you want to use to deploy into organic growth, is the view on debt issuance that would be more used to share buybacks and dividends in terms of deployment?

Margaret Meister

As I said in my comments that the debt proceeds will be used for general corporate purposes which include things share buybacks and dividends.

Ryan Krueger – Keefe, Bruyette & Woods

On the stop loss business, the premium growth – premiums have been declining for a few quarters. I guess given your outlook for market growth and taking into consideration the competitive conditions, do you think you can start to grow that business again next year from [indiscernible] standpoint?

Michael Fry

Yes, Ryan, we're definitely focused on growing our block of business and we have been really laser focused on our strategies to do that. I would just call your attention, Ryan, that our loss ratio was a little bit elevated last year and so we had some work to do that to kind of reprice some of our business which I think we've done really well and I feel great about the business, of the quality of the business that we’ve been able to retain. But now we’ve got that behind us and we are definitely focused on growing.

Tom Marra

Ryan, from my perspective, this is our highest return business, it’s probably the one that we're -- the most seasoned and obviously we have other businesses that are very strong too. And while your first priority has to be -- making sure you get your underwriting results, it’s -- we think it will be a growing market, and if we had about a 10% share and maybe slightly over up [ph] and if we can hold that share and the market grows I think it will be a good story for us. We won’t chase it but Michael and I talk about this a lot that, it’s a skill set we uniquely possess and as a result, we want to make sure we maximize the opportunity and you know it’s a very careful game because if you chase it, you will lose what's great about it. So – but we feel like we’re on it and I expect over time not only this but it’s other two businesses in it, the limited benefit medical and the life of disability, those should be premium growers as well. So we like to march -- toward a $1 billion of premium overall over the series of new few years.

Ryan Krueger – Keefe, Bruyette & Woods

And then last one and I suppose this is more of an unsolicited opinion on my part but taxing the – I guess practice of taxing the realized gains of 35% have started to introduce a fair amount of volatility in the tax rate applied to operating income on a quarterly basis. So I might just throw out a suggestion that to consider just taxing the operating income at the same rate as the overall corporate tax rate.

Margaret Meister

Well, the reason we don’t do that is that the way our favorable tax rate is generated, it’s primarily through these tax credit investments .And there is a negative component that’s associated with those that run through the operating investment income line. So to share the benefit that we get in the tax line with the realized gains and losses would overly penalize the operating results.

Operator

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

Chris Giovanni – Goldman Sachs

Good morning. Wanted to see -- obviously a big driver of the growth has been expansion in the distribution channels that you guys have, so wondering where you think we are in terms of your ability to win more distribution and or expand distribution channels.

Tom Marra

Great, let me talk to life – individual life and then I will let Dan and Michael take their pieces. So with individual life, we really were in very small pockets, kind of one offs independent producers. And make or change, we bought four in the last couple of years just to go with the national brokered general agencies. And we’ve got most of them, not all of them so that probably the biggest story on life will be further penetration from the ones that we newly brought on board and that should fuel growth. I see us really just at the beginning of the growth of the individual life business. So we will look to add but I think penetration on this side will probably be the greatest driver of growth, Dan how about on retirement and Michael –

Dan Guilbert

Good morning Chris. This is Dan. In terms of growth on the annuity side, we still see a lot of opportunity with excellent bank partners and as you know we have a large strength there. So I think we can get some annuity growth there. We also continue to talk to new banks, there is a lot of banks we can add new relationships and open up new product lines. So I still see a room in the bank channel for us to grow. And then in the brokered dealer space, I really think this is an untapped market for fixed, particularly indexed annuities. And so we are in discussions with several large brokered dealers, we plan on expanding that in the next several quarters, supported by some new product work as well, particularly in the fourth quarter and early 2015. So we actually see a fair amount of room in our current channel and then expansion in the brokered dealers side as well for annuities.

Michael Fry

And Chris, this is Michael. With regard to the benefits business, little bit different set up for me but as I think you know we’ve got some pretty solid relationships with the large benefit brokers and consultants across the company really anchored with our stoploss business. So what we've been really trying to do with those relationships is expand them and bringing our life and disability products and services to the table and they are also very interested in our limited benefit medical. So really trying to solidify those long-term relationships through a multi-line relationship with the company and that's going very well.

Chris Giovanni – Goldman Sachs

Michael just on the -- I believe you’re out to bid or just about to go out to bid on your January 1 renewals for stop loss and just from a pricing standpoint should we expect any meaningful changes in pricing beyond just medical inflation?

Michael Fry

Not really, you know, you understand the business and it's really important that we get leverage medical trend on those renewals and that’s what we will be focused on getting, then I think that will position the block to perform along our expectations and within our targets.

Chris Giovanni – Goldman Sachs

And then for Tom or Margaret, you’re writing a lot of business presumably at returns. I think you communicated kind of 12% or better, you've been much more active around capital management with clearly a lot of indications. You’re going to do even more so over the next few years. So just wondering how quickly you think returns can expand as we look out either on an annual basis or look out over the next few years?

Michael Fry

Chris, we are in a low rate environment that has muted what I thought when I first came here four years ago. I thought we would march up pretty steadily and almost immediately, as you all have been with us a while, we had some initiatives that set us back, they were good things to attempt, I think corrected into a positive direction. With speed, we didn't want to linger. And now we really have our act together and where we have each all three divisions operating from a point of strength and moving forward. That said, it’s still a low rate environment and there is still a competitive environment and we’re trying to stay with the growth without – and still managing expenses so that we can get expansion. So I'm actually answering [ph] around your question is just to say it’s a little slower than I would have thought but it is -- it will be steady over the next few years. I feel very confident in that.

Margaret Meister

I would add – I mean you’re seeing it in our results this year where the growth we’ve had with the new initiatives is contributing but the largest gain so far is with indexed annuities but we even had -- where we can see contributions coming in from our new universal life product this quarter and so as we continue to grow on an organic basis we would expect those earnings contributions, we do have to managed in force margin. And we are working all the different aspects, we’ve got this tax credit strategy and we like the value contribution it has from an investment return as well as to the bottom line of the company and working on the capital management as well. So all of those should add up to, as gradually working our way up.

Operator

Thank you. Your next question comes from the line of Seth Weiss of Banc of America.

Seth Weiss – Banc of America Merrill Lynch

Tom, I believe you mentioned aspirations to grow benefits premiums to billion dollars over the next several years, that’s almost doubled where we’re at today. What does that contemplate for M&A?

Tom Marra

Well, you know I am known to throw out numbers because I am very competitive. Actually it wouldn’t necessarily given time life and disability is just at embryonic stages and there is more of a buzz on the limited benefit medical with some of the - with how that can fit in with some of the healthcare reform, and then I would say steady growth on the medical stoploss. It's been pretty flat over a period of time, but I think we can get there with a combination, M&A would obviously help it but the number I do which I often do across our company is set these aspirational goals and if we do it right, these are definitely attainable amounts. But it would be – it would probably see outsized growth from the other two businesses and a good, good solid growth within the underwriting discipline we have on stoploss.

Seth Weiss – Banc of America Merrill Lynch

So over time a 50:50 split, maybe in the long-term is not – is that a fair way to think about it? Obviously it’s much more weighted to medical stoploss now but if you think about your aspirations do you think about this as a 50:50 split?

Tom Marra

Stoploss, would have to be more in half if we got the ability. But it would be more than half but it would not be a 50:50 split. But the other two would be the main drivers of that growth.

Operator

Thank you. Next question comes from the line of Steven Schwartz of Raymond James & Associates.

Steven Schwartz – Raymond James & Associates

Hey again. Just a quick follow up on that last answer. Limited Benefit Medical, is that still a viable product given CMS' views on hospital indemnity and other indemnity projects?

Michael Fry

Steven, this is Michael. It is under the ACA, it is still considered an accepted coverage under the health care reform legislation unlike many med plans which you've probably heard that are more expense based. We are still seeing a lot of demand to sell the product as supplemental coverage like a high deductible health plans, that are becoming more prevalent due to ACA and also the minimum essential coverage plans as well, plus we still sell a fair amount of this product to part-time temporary and seasonal employees as well. So we've actually seen a pretty high-volume of inquiry and quotes for January business and this line of business.

Steven Schwartz – Raymond James & Associates

Okay, the key here being that this is sold in conjunction with policies that -- two people who have policies that meet minimum essential benefits.

Michael Fry

Yeah, but also -- don't forget about the part-time temporary and seasonal which is the kind of the roots of where this business started.

Steven Schwartz – Raymond James & Associates

And that market is still okay under CMS?

Michael Fry

So far.

Operator

Thank you. I’d now like to turn the call over to Tom Marra for closing remarks.

Tom Marra

Okay, thank you, Lucy and thank you everyone for joining us. Appreciate your tuning in, we obviously had a good quarter, lot of do, with half of the year left, and we’re definitely optimistic about moving into the next year and beyond. So I know you are busy this time of the year and we appreciate you, you turning in. Thank you.

Operator

Thank you for joining today’s conference. This concludes the presentation. You may now disconnect. Good day.

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