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Horace Man Educators Corp. HMN

Q1 2008 Earnings Call

May 1, 2008 10:00 am ET

Executives

Louis G. Lower- President and Chief Executive Officer

Peter H. Heckman- Executive Vice President and Chief Financial Officer

Douglas W. Reynolds- Executive Vice President, Property and Casualty

Frank D'Ambra- Senior Vice President of Life and Annuity

Paul D. Andrews- Senior Vice President of Corporate Services

Rick Schulenburg- Vice President of Sales

Analysts

Alain Karaoglan- Bank of America

Dan Farrell- Fox-Pitt Kelton

Robert Glasspiegel- Langen McAlenney

Dean Evans- Keefe, Bruyette & Woods

Dwayne Hallman

Yesterday, after the market closed, we released our Earnings Report, including the financial statements, as well as supplemental business segment information. If you need a copy of the release, it is available on our website under Investor Relations. Today we will cover the results of our first quarter in our prepared remarks. The following management members will make presentations today, and as usual will be available for questions later in the conference call. Lou Lower, President and Chief Executive Officer; Pete Heckman, Executive Vice President and Chief Financial Officer; Doug Reynolds, Executive Vice President, Insurance Operations; Frank D’Ambra, Senior Vice President of Life and Annuity; and Rick Schulenburg, Vice President of Sales.

The following discussion may contain forward-looking statements regarding Horace Mann and its operations. Our actual results may differ materially from the forward-looking statements. These forward-looking statements are made based on management’s current expectations and beliefs as of the date and time of this call. For discussions of risk and uncertainties that could affect actual results, please refer to the company’s public filings with the SEC and in the earnings press release issued yesterday. We undertake no obligation to publicly update or revise such forward-looking statements to reflect actual results, changes, assumptions, or other factors that could effect these statements. As a reminder, this call is being recorded and is available live on our website. An internet reply will be available on our website until June 2nd, 2008. Now I will turn the call over to Lou Lower for his comments.

Louis Lower

As we reported after the market closed yesterday, Horace Mann reported net income before realizing net capital losses of $.38 per share, about $.05 less than consensus expectations and $.09 less than prior year.

This was a tough quarter for us with the number of the insurance risks that we assumed collectively impacting us adversely during the same reporting period. As you will hear in some detail over the course of this call, compared to last years first quarter, weather in the form of Cats, hurt us by $.04 per share. The performance of the stock market through [inaudible] and GMDB reserving impacted us by $.03, and unfavorable life mortality cost us an additional $.03.

We also, but as expected, had less in the way of favorable prior year PMT reserve development, accounting for about$.04 per share. Positive variances in the quarter of roughly $.05, came from our share repurchase activity and reduced re-insurance expense. Despite the unexpected adverse factors, we are positive about prospects for the balance of the year. Underlying property casualty results, excluding Cats and prior year development are performing slightly better than last years first quarter.

Annuity pre-tax operating income, excluding the impact of [inaudible], is ahead of last year at this time. All in all, we would have liked to get off to a better start to the year, but we are encouraged at the underlying fundamentals relative to our expectations to the full year.

In property casualty, voluntary auto, and property written premium increased 1.7%. Sales declined from last years strong first quarter due to a couple of factors; the first being the economy with auto and light truck sales being down 8%, and home sales down 19%. In addition to the economy, our risk exposure reduction actions in Florida accounted for 25% and 60% of our country-wide declines in auto and property unit sales respectively.

On the positive side, we are holding onto more of our in-force business, with retention in auto and property increasing by .05% and 1.3% points respectively. At the same time, average written premium per auto, which has declined for some time now, appears to be bottoming out. Our expectation is that average written premium per auto should begin to increase year-over-year going forward, as our rate filings and our price increases begin to take hold.

In the annuity line, our core flexible premium flow business increased 3% for new flexi-sales, but the IRS 403B transition rules are producing their expected impact on new single premium rollover business, which was down 22%. On the other hand, those same rules are curtailing outbound rollovers from us to other carriers with positive impact on net flows.

Negative returns in the equity markets have taken their toll on variable annuity account values, down about 13% since their high-water mark last September, obviously reducing fee income. Fixed annuity account values are up modestly, and spreads on that business have improved 15 basis points as compared to a year ago, thanks to the benefit of the new business we are writing.

As you will hear, our key long-term growth initiative, the agency business model, continues to make good progress. We are using agent feedback from the schools and their field experience to modify and strengthen the models process fees, and how we imbed them in the operations. Agents transitioning to the model are out-performing their peers.

From a balance sheet perspective, property casualty reserves remain strong and stable. As reported in the past we have relatively small investment exposure to sub-prime or Alt-A issues. The capital losses taken in the quarter are reflective of the uncertainty and volatility of the financial market. Having said that, our commitment to a conservative and well diversified investment portfolio with disciplined risk control is serving us very well in a difficult environment for the broad credit markets. At the same time, our key capital ratios continue to be strong, providing a strong financial base for future growth.

So with that as an overview, let me now turn the call over to Pete Heckman.

Peter Heckman

As Lou just elaborated, Horace Mann’s first quarter operating earnings, while below prior year on a reported basis, were comparable to 2007 in terms of underlying results across each of our operating segments. Given that, along with having three quarters of the year still ahead of us, we continue to be comfortable with our full year 2008 earnings guidance of $1.70- $1.90 per share of net income before realized investment gains and losses. With the somewhat wider than normal range that we acknowledged three months ago, still appropriate in light of the relatively difficult and volatile external environment that we and others in our industry are facing.

One of the more obvious and pervasive environmental forces at work is the persistent volatility, some would even say dysfunctionality, of the financial markets, definitely carried over into the first quarter. While the impact on Horace Mann continued to be relatively modest, as expected, we did realize net investment losses of $2.4 million pre-tax for the first quarter, which were comprised of $2.7 Million of impairment write-downs, and $3.9 Million of realized impairment losses on securities that were disposed of during the quarter, partially offset by $4.2 million of realized gains.

As you know, spreads widened considerably in the first quarter, with significant movement in the commercial mortgage backed, asset backed, CD low and high yield asset classes. An unusually high level of volatility in the municipal bond market resulted in duration extension and valuation pressures in that asset class as well.

While Horace Mann’s diversified and high-quality investment portfolio continues to serve us well in this unsettled market, the spread market widening I just mentioned obviously did have an adverse effect on the fair value of our investments over the last three months. Net unrealized investment losses at the end of the first quarter totaled approximately $58 million pre-tax, up from about $5 million from December 1st. The increase of $53 million in the quarter was spread across virtually all asset classes, but from a percentage standpoint our CMBS and CDO portfolios were most effective.

We had approximately $255 million of book value in CMBS securities as of March 31st which represented about 6.5% of our total invested assets. The unrealized loss on this portfolio increased during the first quarter to approximately $31 million as a result of spreads widening more than 175 basis points since the beginning of the year.

Nonetheless we continue to feel very good about the overall quality and performance of our CMBS portfolio based on the following based on the following:

The portfolio is 100% investment grade with an overall credit quality of double A. It contains only one commercial real estate CDO security, with a book value of $5 million. In terms of collateral, less than 10% of the portfolio is represented by borrower loans, while 75% are so-called conduit-fusion securities with diversified collateral, and the remaining 16% are government-sponsored loans.

With regard to vintage, approximately 75% of the CMBS portfolio is represented by securities issued in the more preferred 2005 and prior time periods. And lastly, all securities in our CMBS portfolio are currently performing in-line with contractual terms and did not experience any material increase in delinquencies or foreclosures during the quarter. In addition to the one CMBS security I just mentioned, our CDO holdings are minimal, comprised of six securities of a total book value of $15 million, less than 4/10 of one percent of our total invested assets and an unrealized loss at the end of the first quarter of about $4 million. Certainly very manageable for us, and likewise consistent with my report during last quarters call, our exposure to sub-prime and Alt A, or RMBS, remains at about .25% of our total investment portfolio. With an unrealized loss as of March 31st of only $.5 million, not really much of an issue for Horace Mann.

So all-in-all, despite the unprecedented dislocations in the financial markets, we are very pleased with the quality and overall performance of our investments portfolio, and believe that our conservative investment philosophy will continue to serve us well in the current environment. And with that, let me turn it over to Doug Reynolds for more detail on our P & C results.

Douglas Reynolds

The total property and casualty total ratio for the quarter was 93/5%, up 4 points over last year. Catastrophes in the quarter totaled $5.4 million, an increased of 116%, and representing 4.1 % of earned premium, up 2.3 points over 2007 first quarter. Because of the first quarter storm activity, Catastrophe losses were the highest first quarter since 1994, over 70% higher than our expected amount. We had favorable prior year reservary estimates of $2.7 million, or 2% of earned premium, which is 2.2 points less than prior year. Underlying accident year combined ratio excluding both catastrophes and the effect of prior year reservary estimates, was 91.4% in the quarter, 5/10 better than our underlying combined ratio for the first quarter of 2007. Our underlying combined ratio for auto in the first quarter of 96.5% is a slight improvement of 2/10 % better than prior year, while property posted an underlying combined ratio of 79.8%, a modest increase of 9/10 of a point over the first quarter of last year. The property line results were especially impacted in the New England regions, which posted a non-Cat loss ratio increase of 17 points due to winter weather.

For both lines, excluding catastrophes, we experienced increases in frequency which was impacted by first quarter weather conditions across the county. Continued favorable severity results drive pure premium trends consistent with our expectations. In both lines we are projecting continued price increases consistent with others in the industry to match increasing loss costs.

We continue to experience gains in new business quality. For auto, our percent educated was up slightly to 82%. The percent of auto new business written through payroll deduct program was 11%, up 2 points, with the actual number of true new units written on auto payroll up 12% compared to last year. And finally, the percent of auto customers in force with 3 or more lines of business with us continues to increase, now representing almost 20% of our book.

Our quality improvements have favorable impact on policy holder retention results. This quarter, auto is up a half point, and property is up over one point compared to a year ago. Our total property and casualty policies in force are down slightly compared to prior year, with auto holding steady, and property down about 1,000. Our property policy count is influenced by continued coastal exposure reduction actions, especially in Florida, where we continue to decrease policies. Educator policies in force continue to grow, for combined P & C lines we are up 3.2% to a year ago, and 2200 policies over year end 2007. This represents three full years of consecutive sequential quarterly growth in educator policies. Total voluntary property and casualty written premium is up 1.7% for the quarter, with auto up 2/10 of a point, and property up 5.8%.

On a direct basis, before reinsurance costs, voluntary P & C is up 3/10 of a percent over prior year. In summary, catastrophe losses have had a large impact on our results, as well as the rest of the industry. We also experienced increased non-Cat weather related losses in the northeast region, where we have policy penetration levels higher than other regions. Our unit count and written premium trends are essentially flat in a very competitive market as evidenced by the continued high levels of advertising spent in our industry. Our .4% increase in educator PIF and twelve consecutive quarters of sequential growth are the result of focusing on programs differentiating ourselves from the competition and the target market, the educator community. Now I would like to turn it over to Frank D’Ambra to cover Life and Annuity results.

Frank D’Ambra

As Lou remarked, the first quarter was a challenging one for the annuity and life lines of business. The sustained decline in the financial markets impacted our annuity results through its effect on [inaudible] and asset – based fees, while a spike in mortality adversely effected our Life results. Total annuity sales decreased by 16%, in line with our expectations. Our recurring deposit business increased 3% for the quarter, while our single deposit, or rollover business, including partner sales, decreased by 22%.

As discussed in our past two earnings calls, many school districts have placed a moratorium on participant 403 (b) transfers industry wide. This restriction on transfers accounts for 13% of the decline in single deposit sales. The remaining 9% decrease in single deposit sales is the result of our re-focusing our independent agent annuity production on 403 (b) and qualified business, and away from non-qualified sales.

We expect the moratorium on 403 (b) transfers will continue to impact single deposit and rollover sales through the third quarter of this year, at which point we anticipate many school districts will have their new 403 (b) programs in place. Meanwhile, total policy accounts continue to grow, with total policy retention in the 91%-92% range. Total annuity assets under management decreased 1.3%, with fixed annuity assets increasing 4%, and variable annuity assets, due to market performance, decreasing 8%.

First quarter pre-tax income for the annuity segment was $3.6 million, compared to $4.9 million for the prior year. Earnings for the quarter benefited from increased interest margins, but were more than offset by decreased charges and fees, and an unfavorable change in DAK Unlocking, driven mainly by market performance. Excluding the DAK impact, first quarter results increased slightly compared to last year.

Turning to the life segment, total first quarter sales were down 19%, driven by a decline in partner product sales of 28%, with Horace Mann’s proprietary products down 8%. First quarter life premiums and contract deposits, which consist of Horace Mann products only, were up 2% compared with last year. Looking at the bottom line, first quarter pre-tax income was down $1.1 million when compared with the prior year. Increased investment income was more than offset by higher than expected mortality in the quarter; and just an update on the 403 (b) environment, school districts are continuing their process of analysis and review which will lead to the adoption of their new 403 (b) programs. As a reminder, the mandatory compliance date is January 1st, 2009, though as I mentioned earlier, we expect many districts to have their plans in place for back-to-school 2008. We believe Horace Mann is well-positioned for our district relationships, enhanced and expanded service offerings, which include group annuity products, 403 (b) mutual funds, land level registration, on-line enrollment, and other web-based services to increase our 403 (b) market penetration. And now to discuss the status of the Agency Business Model and sales results, is Rick Schulenburg.

Rick Schulenburg

Today I will focus on our continued momentum with the Agency Business Model, or ABM, distribution, and sales results. The Agency Business Model initiative continues to take hold among agents as we begin phasing in the model. As a reminder, ABM agents have gone through our four day agency business school, and have adopted, or are in the process of adopting, documented repeatable processes in the inner operations that include conducting business in an outside office, with licenses producers, and other support staff. This model, coupled with other key corporate initiatives, is designed to support ABM and will sustain our agent’s profitable growth of educator multi-line business.

Our agents now engage 284 licensed producers, representing an increase of 12% in the last three months. In addition, we continue to grow the number of agents in outside offices with licensed producers, now totaling over 200, while decreasing the number of agents working out of their homes.

We are focusing on our previous Agency Business School graduates to provide one-on-one counseling, coaching sessions, and a second business school assuring that the repeatable business practices and processes are imbedded in their operations. As we concentrate more of our resources on strengthening our operations of our current graduates, we are slowing the number of new agents coming through our Agency Business School.

As far as the total agents force is concerned, we ended the first quarter with 758 agents, which is down 4% from December, and down 8% from twelve months ago. The primary reason for the decline was the significant change in our hiring practices. We installed hiring and selection criteria that better meets the characteristics of an agent that can perform and succeed in the new business model. This has impacted the number of qualified candidates we see who meet these more stringent guidelines. This change requires field managers to not only increase the number of candidates, but to look for a candidate with the required skills to be successful in the agency business model.

The number of agents terminating in the quarter was relatively flat compared to the first three months of 2007. Typical agents that terminate are: predominantly working out of their home; significantly lower in productivity than our average agent; and not at a level that would support their transition to ABM. Now let’s look at our sales results.

Total auto sales, that is new and add-car units, were down 12% in the quarter as compared with the first quarter of 2007, which is one of our best-performing first quarters. Our true new-auto sales, that is sales to customers who did not have Horace Mann, were down 16.5% compared to a year ago. Similarly, property sales saw a decline of 13.5% for the quarter. Interestingly, our ABM agents saw more moderate decline in sales, only down 6% for both true new-auto and property from the first quarter of 2007. These declines can be attributed largely to a slow-down in the economy and less shopping for insurance products. These circumstances require agents increase marketing programs in the schools to build customer interest, and we are still seeing the impact of our coastal management programs and sales. If you look at sales results for ABM agents, excluding Florida, the decline in the first quarter was only off by 1.5% in true new-auto, and actually up 7.5% in property sales.

Life sales were down 19% compared to the first quarter of 2007, with Horace Mann products down 11%. Annuity sales showed positive trends in our flexible sales, for total annuity sales, including single-deposits, were down 16% for the quarter. As I mentioned, the bright spot was our flexibly annuity sales, predominantly our new 403 (b) deposits, which were up 3%. And as with other lines, our ABM agents out-performed all other agent groups. They were up 30.5%. In conclusion, we continue to see lift from our ABM strategy, and believe recruiting from this model, and recurrent agents who have made the transition to outside offices with licenses producers, and supporting agents who are capable of making the transition, will have long-term payoff. We will continue to make the necessary investments in training, mentoring, and coaching ABM agents to help them as well as their licensed producers take full advantage of the opportunities in the marketplace. With that, I will turn it back to Dwayne.

Dwayne Hallman

That concludes our prepared remarks. Please move to the question and answer session.

Question-and-Answer Session

Operator

Our first question comes from Bob Glasspiegel of Langen McAlenney

Robert Glasspiegel- Langen McAlenney

Do you have level three assets available?

Dwayne Hallman

We are in the process of finalizing our 10Q and right now, on a base of about $4 billion in total investments, about a million or so is level three.

Robert Glasspiegel- Langen McAlenney

A million out of $4 billion?

Dwayne Hallman

Correct.

Robert Glasspiegel- Langen McAlenney

That’s a good number. California and Florida are your two biggest states. There’s some sort of dynamics in pricing in both of them going on. Remind me if California has been put to bed? I know Allstate has just declared a loss on their battle with the state.

Douglas Reynolds

In California we have continued to work with them, and there are some changes in their rating laws that have to be finalized by the middle of this year. Although we are not fully implemented with that, we have reached all the agreements and it is just a matter of finalizing programs and final implementation of those changes.

Robert Glasspiegel- Langen McAlenney

Are there rate cuts as part of the ultimate resolution?

Douglas Reynolds

It was relatively minor, a percent or two and that was it.

Robert Glasspiegel- Langen McAlenney

So that won’t change your top-line trends materially? What about Florida and home owners?

Douglas Reynolds

I think on the Florida side we continue to work with them on a number of issues in trying to recoup the reinsurance cost is the biggest challenge there. We have had some success with that but we really are gearing that more towards the non-renewal program and just reducing the exposure, and giving our agents the right to write through partner companies, of which we now have three, and pretty much have representation around the state. Obviously still some challenges there, but we feel that we are moving along fine with the state.

Robert Glasspiegel- Langen McAlenney

So no discontinuous rate-cuts from Florida homeowners to come/

Doug Reynolds

No, not anything that different from what we did last year with the changes to the FHCF.

Robert Glasspiegel- Langen McAlenney

A cynic might be a little nervous seeing that you are showing year-over-year underlying ex-Cats, ex-reserve improvements. I think your response might be that last years first quarter actually developed favorably over the year. Do you have a developed first quarter 2007 combined ratio as opposed to actual?

Dwayne Hallman

We try to be relatively conservative in first quarters of accident years. We were in the first quarter of 2007, and we were in the first quarter of 2008 in terms of the relative comparisons on conservatisms, that would be a tough thing to make a call on.

Robert Glasspiegel- Langen McAlenney

But you might know how first quarter 2007 actually developed. That there was an entry year reserve releases as the year progressed.

Dwayne Hallman

I think it is fair to say that the first quarter did develop favorably through the year.

Operator

The next question comes from Dan Farrell of FPK

Dan Farrell- Fox-Pitt Kelton

Can you talk a little bit more about the decrease that we are seeing in agents both experienced and the [inaudible]? You gave a lot of numbers in regards to the shifts of the agents to the new business model. Can you talk about how much that is impacting the overall numbers, and maybe give a little more color on that?

Rick Schulenburg

We continue to manage around agents that meet the qualifications of our Agency Business Model, and that requires more than just sales skills. It’s also the ability to manage staff, to have outside offices. It requires a higher level and caliber than what we have had before. We have many agents in the field that more than meet those characteristics. We have identified those agents and are working with those agents and will continue to work with them. With that said, there are some agents that we have had, and may still have, in our agency ranks that may not meet those qualifications. On our new hires we are not going to sacrifice the quality of new hires around lowering standards so that we don’t have agents who can meet those requirements moving forward. We are committed to ABM, and we are committed to working with our agents and our future agents who can meet those requirements.

Dan Farrell- Fox-Pitt Kelton

Can you give us the fixed annuity spreads for this quarter versus fourth quarter?

Douglas Reynolds

They have continued to improve, and as Lou mentioned we are probably up around 10 to 12 basis points quarter-over-quarter.

Dan Farrell- Fox-Pitt Kelton

Sequentially over year-over year?

Louis Lower

Its 14 basis points- we’ll get you the quarter number, Dan.

Douglas Reynolds

I think that spread is 151 basis points.

Operator

Your next question comes from [inaudible] of Bank of America.

Analyst

Following up on Bob’s question. What in your view are the factors that are driving the year-over-year improvement in the underlying auto combined ratio? Is it business shift, or different state? Maybe you could give some kind of a breakout?

Douglas Reynolds

I think there are a couple of things. It has stayed fairly consistent to the quarter year-over-year. One of them is continued improvement in the quality of the business. A higher percentage of educator, a better tiered business, utilization of the discounts. Two is retention continues to go up, which typically drives a little bit better loss result. And three, a lower percentage of new business to our total. True New has a little bit higher loss ratio than your average sell. You get a little benefit on the loss side from the True New shortfall that we have seen. Those are the three things. And continuing to apply the underwriting discipline. The other component that is there is our continued work on claims with our ACE initiative that we have covered a number of times. We continue to drive very consistent, strong results on the severity side on both auto and property. We’re seeing some better results in the property than what we have seen in recent years, at least as severity changes year-over-year. We continue to track well compared to the industry on the severity side.

Analyst

What kid of price increases are you putting through on the auto side, and how does that compare with where you are seeing your loss costs increase?

Douglas Reynolds

On the auto side in the first quarter, we saw a 1%-2% change, but only in a few states. And as we have indicated at end of year last year we are expecting the auto rate change in 2008 to fall in the 3%-4% range. Actually, the same thing with the property, although in the first quarter we were up in the 3%-4$ range, right in our target.

Analyst

How are loss costs trending, on average?

Douglas Reynolds

The loss cost standpoint from a pure premium side, is really about up from flat quarter-over-quarter. Obviously we have seen it trend up a little bit over the last couple of years. We feel that those rate changes will continue to keep our loss costs in line with what we have been seeing.

Analyst

And on the agency side, you said you were reducing the pace of agents going through the Agency Business Model. Is there something that maybe did not meet your expectations, or is there any reason for that change in policy?

Rick Schulenburg

What we have tried to do is really make sure that the agents that have been through the school were given the full attention and resources to help them fully leverage the skills that they are learning in their base of operations. And that’s really requiring a lot of focus on our part. We are continuing to have agents come through, but we want to make sure we are getting a lift in the quality of those agents, not just trying to meet a number, but get the quality and get the results and the sales lift.

Analyst

And the agents that have gone through the AMB School are they meeting your productivity targets? Has anything changed on that side?

Rick Schulenburg

We feel we still have more opportunity for lift of those agents who have been through, but they continue to exceed in all of our core lines the sales results of other agents. So we see very positive trends on those agents who have been through and are very committed to this strategy. With that said, any time you start changing your business practices it takes awhile for that to really take hold in any business. We recognize that as those agents go through those changes they need more time to really develop and build their [inaudible],

Operator

Your next question comes from David Dusenberry of Dalton Greiner.

David Dusenberry- DGHM

This is a question for Frank. Can you just review for me the changes in the 403 (b) tax code? My understanding is that coming out the other side of this process the school districts would be putting out a more formalized process of narrowing down their providers and your product set would fit pretty well, given what they are looking for. When do you expect to see that kind of increase in activity? Is that what you are referring to in the third quarter, or are you actually referring to flow-through business coming through third quarter going forward?

Frank D’Ambra

I will address the latter question first. The school are going through this process now of looking at how they want to proceed with these programs. What we expect is that by the end of the third quarter, many schools will have finalized those decisions, and they will have identified who the providers are that they are then going to be able to service their programs at that point in time. We would expect to see a more normalized market return for those that are selected. That should positively impact business moving past the third quarter of this year. The absolute drop-dead date is 01/01/2008, and that’s when everyone has to have their plans in place with just a few minor exceptions; for example, if a plan is subject to collective bargaining.

What we see happening right now, is in this process of analysis there isn’t just one course of action that schools are taking, but a number of ways that schools can approach this. Some of them are going to a formal RFP process using consultants, or driving it on their own. They are asking for all sorts of information about the program we are going to offer, how we are going to support it, the product pricing, etc. As they go through this process they are narrowing it down to a finals group, and then a number of selected providers. Other schools are using a less formalized approach. Many schools at this point are focused on putting their plan in place, so that they meet that deadline, but without really going through any formal approach for the providers. In those cases we see they are putting their plan in place, and they may be retaining most if not all of the providers that they originally had in that school.

At this point it is still early in the process, and we don’t see a one-size-fits-all approach to how this is going to unfold. We see many variations at how schools are approaching it. At the end of the day, all schools have to have plans and named providers, and we will see how it works out in terms of how many have reduced those numbers and how many will stay with the groups they already have.

David Dusenberry- DGHM

Is this playing out differently than you would have expected?

Frank D'Ambra

No, I think that what we are seeing is exactly the kid of environment that we expected and that we prepared for.

David Dusenberry- DGHM

Of the districts going through a formal process, what is your win rate?

Frank D’Ambra

It is early so say. We have done an awful lot of RFPs, but we have very few responses back. Where we have the responses back our hit rate has been pretty good. We are faring fairly well, but it is early in the process. I hesitate to give out specific numbers because I am not sure they are indicative of what the end result will be.

David Dusenberry- DGHM

If you could, give me some kind of sense for the improvement in productivity that you are seeing from these re-trained agents? Give me some metric, if you can.

Dwayne Hallman

From each quarter-to-quarter it continues to increase. We have seen a lift on each line of business, or where we saw a decline, we saw much less of a decline in those agents who have been through our training process. It’s still early. We continue to expect even higher returns on what those agents lift will be as we are moving forward.

Operator

At this time I would like to turn the call back over to the manager for any closing remarks.

Dwayne Hallman

Thank you all for participating in the call this morning. We appreciate your questions and look forward to speaking with you next quarter.

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