Mike Majors - IR Gary Coleman - Co-CEO Larry Hutchison - Co-CEO Frank Svoboda - CFO Brian Mitchell - General Counsel.

Erik Bass - Citigroup Seth Weiss - Bank of America Merrill Lynch Randy Binner - FBR Capital Markets Yaron Kinar - Deutsche Bank John Nadel - Piper Jaffrey Steven Schwartz - Raymond James & Associates Eric Brook - RBC Capital Markets Mark Hughes - SunTrust.

Good day, and welcome to the Torchmark Corporation First Quarter 2015 Earnings Release Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mike Majors, Vice President of Investor Relations. Please go ahead, sir..

Thank you. Good morning, everyone. Joining the call today are Gary Coleman and Larry Hutchison, our Co-Chief Executive Officers; Frank Svoboda, our Chief Financial Officer; and Brian Mitchell, our General Counsel.

Some of our comments or answers to your questions may contain forward-looking statements that are provided for general guidance purposes only. Accordingly, please refer to our 2014 10-K and any subsequent Forms 10-Q on file with the SEC. I will now turn the call over to Gary Coleman..

Thank you, Mike and good morning everyone. Net operating income for the first quarter was $134 million or $1.04 per share, a per share increase of 30% from a year ago. Net income for the quarter was $122 million or $0.95 per share, a 3% decrease on a per share basis.

With fixed maturities and amortized cost, our return on the equity as of March 31, was 14.7% and our book value per share was $28.44, a 7% increase over year ago. On a GAAP reported basis with fixed maturities and market value, book value per share increased 22% to $38.17.

In our life insurance operations, premium revenue grew 5% to $513 million, while life underwriting margins were $141 million, up 1% from a year ago. Growth in underwriting margin lagged premium growth due to higher claims primarily in direct response. For the full year we expect life underwriting margin to increase 3% to 5% over 2014.

Also in the quarter net life sales increase 17% to $104 million. On the health side premium revenue grew 4% to $229 million and health underwriting margin grew 4% to $52. For the full year we expect health underwriting margin to increase 2% to 4%. Health sales increased 2% to $32 million excluding groups business, individual health sales increased 22%.

Administrative expenses were $47 million for the quarter, up 7% from a year ago and in line with our expectations. The primary increase reason for the increase is administrative expenses are higher pension and IT cost. As a percentage of premiums, administrative expenses were 5.7% compared to 5.6% a year ago.

For the full year we anticipate that administrative expenses will be up around 6% to 7% and around 5.8% of premium. I will now turn the call over to Larry Hutchison for his comments on the marketing operations..

Thank you, Gary. We are very pleased about sales activity at Torchmark. We have had year-over-year increases in net life sales in each of our major life distribution channels for five quarters in a row. Now I will go over the results for each company. At American income life premiums were up 9% to $202 million.

Life underwriting margin was up 4% to $62 million. Net life sales were $47 million, up 24% due primarily to increase agent accounts. The average agent counts for the first quarter was 6,317 up 19% over a year ago, but a price for the same as the fourth quarter. Our producing agent count at the end of the first quarter were 6,541.

We expect life sales growth for the full year 2015 to be within a range of 9% to 13%. Our Direct Response Operations at Globe Life, life premiums were up 5% to $187 million. But life underwriting margin declined to 5% to $43 million net life sales were up 11% to $45 million. We expect 4% to 7% life sales growth for the full year 2015.

At Liberty National life premiums were $68 million, down 1% from a year ago. Our life underwriting margin was $17 million same as the year ago quarter. Net life sales grew 16% to $9 million, while net health sales increased 8% to $4 million.

The average producing agent count for the first quarter was 1,464 up 5% from a year ago but down 7% from the fourth quarter. The producing agent count at Liberty National ended the quarter at 1,544. Life net sales growth is expected to within a range of 6% to 9% for the full year 2015.

Health net sales growth is expected within a range of 4% to 7% for the full year 2015. At Family Heritage our premiums increased to 8% to $54 million our health underwriting margin increased 6% to $11 million, health net sales were up 18% to $12 million.

The average producing agent account for the first quarter was 784 up 19% from a year ago but approximately same as the fourth quarter. The producing agent count at the end of the quarter was 881. We expect health sales growth to be in a range from 7% to 10% for the full year 2015.

At United American General Agency count premiums increased 6% to $83 million. Net health sales declined from $14 million to $12 million. Excluding our group business net health sales grew at 30%. For the full year 2015 we expect growth on individual sales be around 15% to 20%.

As we discussed last quarter we expect lower group sales in 2015, due to unusual number of large group cases we acquired in 2014. Premium revenue from Medicare part D declined 4% to $79 million, while the underwriting margin declined from $10 million to $5 million.

Decline in underwriting margin was in line with our expectations, was due to the increase in part D drug cost discussed on our previous call. We expect Part D premium of 310 million to 320 million for the full year 2015. Expect margin as a percentage of premium to be approximately 6% to 8%. I will now turn the call back to Gary..

I will spend a few minutes discussing our investment operations. First, excess investment income, excess investment income, which we define as net investment income, less required interest on policy liabilities and debt was $55 million, a decline of 3% from the first quarter 2014.

On a per share basis reflecting the impact of our share repurchase program, excess investment income increased 2%. We have discussed on previous call the effect of Part D on excess investment income. Excess investment income is negatively impacted by Part D to the excess of $2 million in the first quarter of 2015.

Excluding the negative impact of Part D excess investment income would have been flat with the year ago quarter, but up about 5% on per share basis. For the full year 2015 we expect excess investment income to decrease by about 1% to 3% however on a per share basis we should see an increase of about 2% to 3%.

At the midpoint of our 2015 guidance we're expecting to drag on excess investment income from Part D of approximately $7 million. Regarding the investment portfolio, invested assets were $13.5 billion, including $13 billion of fixed maturities at amortized cost.

Out of the fixed maturities, $12.4 billion our investment grade with an average rating of A- and below investment grade bonds are $604 million compared to $552 million a year ago. The percentage of below investment grade bonds to fixed maturities is 4.7% compare to 4.4% a year ago.

With the portfolio leverage of 3.6 times, the percentage of below investment grade bonds to equity, excluding net unrealized gains from fixed maturities, is 17%. Overall, the total portfolio is rated A-, the same as the year ago.

In addition, we have net unrealized gains in a fixed maturity portfolio of $1.9 billion, approximately $256 million higher than at the end of the fourth quarter. To complete the investment portfolio discussion, I would like to address our investments in the energy sector.

We believe the risk of realizing any losses in the foreseeable future is minimal for the following reasons. Over 96% of our energy holdings are investment grade. At the end of first quarter, our energy portfolio had a net unrealized gain of $173 million. That’s an 8% of our energy holdings are in the oilfield service and drilling sector.

And we have reviewed our energy holdings and have concluded that while we may see some downgrades, we believe that the companies we have invested in can withstand lower oil prices for an extended duration. Regarding the investment yield in the first quarter we invested $292 million in investment grade fixed maturities primarily in industrial sectors.

We invested an average of yield of 4.5% and average rating of triple BBB+ and an average life of 29 years. For the entire portfolio, the first quarter yield was 5.87%, down 5 basis point from the 592 yield in the first quarter of 2014. At March 31, 2015, the portfolio yield was approximately 5.86%.

The midpoint of our guidance for 2015 assumes new money yield of 4.5% for the second quarter and 4.75% for the last two quarters of the year. One last thing on past analyst call as we have discussed in detail the impact of the lower for longer interest rate environment.

As a reminder an extended lower interest rate environment impacts our income statement the not the balance sheet. This we primarily sale non-interest system protecting power accounted for under [file] ’16, we don't see a reasonable scenario that would require us to write off DAC or put up additional GAAP reserves due to interest rate fluctuations.

In addition, we did not foresee a negative impact on our balance sheet. While we were definitely benefitted from higher interest rates Torchmark will continue to earn unsubstantial excess investment net income and the expanded loan interest environment. Now, I will turn the call over to Frank to discuss share repurchases and capital..

Thanks, Gary. First I would like to briefly discuss a few items impacting our 2015 earnings guidance. As Gary mentioned growth in the life underwriting income lagged behind the growth and premium in the first quarter primarily due to higher policy obligations in our direct response operations.

In the first quarter of this year policy obligations that had direct response were 49.1% of premiums versus 46.9% in the first quarter of 2014 looking back the first quarter of last year was low as the policy obligations for the full year 2014 ended up at 48.1%.

As we discussed on our last call this percentage was trending higher than prior years primarily due to actual claims coming in higher than our expectations on policy just issued in the early 2000. We also noted that we expected the policy obligation percentage for 2015 to be around 48%.

Based on the additional claims experience we found the first quarter and further review of the emerging claims trends we now believe the direct response policy obligations for the full year 2015 would be in the range of 48.5% to 49% of premiums.

This increase in the expected policy obligation of direct response is the primary driver of the $0.2 reduction in the midpoint of our guidance. In addition, we revised our expectations for the Canadian foreign exchange rate which have cause the earnings from American income life to be somewhat lower than previously anticipated.

On a positive note we do anticipate our premium income will be higher than previously estimated primarily at American Income due to the strong first quarter sales. The net effect of these three items results in the reduction in the midpoint of our guidance from $4.30 and to $4.28. Now regarding our share repurchases and capital position.

In the first quarter we spent 90 million to buy1.7 million towards Torchmark shares and an average price of $53.20. So far in April we have used $18 million to purchase 328,000 shares. For the full year through to date we have spent 108 million of parent company cash to acquire 2 million shares at an average price of $53.57.

The parent start of the year with liquid assets to $57 million. In addition, to these liquid assets the parent will generate additional free cash flow during the remainder of 2015.

Free cash flow results primarily from the difference receive by the parent from the subsidiaries unless the interest paid on debt and the dividends paid to Torchmark shareholders.

We expect free cash flow in 2015 to be around 360 million that's included in the 57 million available from assets on hand we currently expect to have around $417 million of cash and liquid assets available to the parent during the year. As previously noted to date we have used $108 million of this cash to buy 2 million Torchmark shares.

Leaving around $309 million of cash and other liquids assets available for the remainder of the year. As noted before we will use our cash as efficiently as possible if market conditions are favorable we expect that share repurchases will continue to be a primary use of those of funds.

We also expect to retain approximately $50 million to $60 million of liquid assets at the parent company. Now regarding RBC at our insurance subsidiaries. We plan to maintain our capital to level necessary to retain our current ratings in the last two years that level has been around an IAIC RBC ratio of 325% on a consolidated basis.

This ratio is lower than some peer companies but it's efficient for our companies in light of our consistent statutory earnings, the relatively lower risk of our policy liabilities and our ratings. As of December 31, 2014 our consolidated RBC was 327% we do not anticipate any significant changes to our targeted RBC levels in 2015.

Those are my comments. I will now turn the call back to Larry..

Thank you, Frank. For 2015, we expect our net operating income to be within the range of $4.20 per share to $4.36 per share, a 6% increase over 2014 at the midpoint. Those are our comments. We will now open the call up for questions..

Thank you. [Operator Instructions] And we will take the first question today from [indiscernible]. Please go ahead..

The margins in the business you had addressed your Direct Response margins, but as I look at American Income the margins there were a lot weaker than they been in a while as well.

So maybe talk about what caused that and what your expectations are? And then secondly on growth in the agent count, the average agents were down but the ending number was actually higher across all channels, so just wondering if you could describe a little bit what you're doing in each of the businesses -- each of the channels than what your expectations for growth in the agent count are?.

Okay I'll go first on the America income margins.

The margins at American income were little bit -- underwriting margins were a little lower than anticipated but it's because we had, as we've mentioned higher claims, but if you look at the -- it's more of a timing thing, if you go back and look at the fourth quarter of last year the claims were low and they were 31% of premium.

This quarter they're 33%. We're expecting 32% for the year, so it would maybe think that it's just the timing. We think that the margin, we had 31.7% underwriting margin in 2014 and we're expecting to go about that same margin for 2015..

The agents count, we saw the increase in agent recruiting and better agent retention in each of the distribution units as we moved through the first quarter. The trend after the first quarter has been positive. We continue to see a strong agent recruiting and better retention in the each of the distribution units.

And then just one more on capital, your RBC obviously is lower than other companies but the business flex different as well, a while ago S&B had these issues about just preferred stock and how they're going to -- they potentially might changes the treatment of those, have you had any discussions with them and order your view on the potential for that and how that would affect your capital management strategy?.

Sure, Jimmy, we have not had any recent discussions with them with regard to that.

At the time we that we had last fall when we had our initial discussions, it was contemplation that there would sometime to address the situation and really looking at within couple of years and so we instead really talked about some of the prior calls, we're really taking a look at our various options and really don't have any update as far as what we're going to do or how we're going to address that going forward.

I think the bottom line is we don't thing at this point in time that we need to or that any resolution to the issue would impact our stock buyback.

We think we can address the issue through other forms of financing, another options that we would have available and so we probably and so we probably would look maybe towards latter part of this year or first part of the next year to really get some resolution to that..

Our next question comes from Erik Bass with Citigroup..

Hi, thank you.

I just want to touch first on Direct Response margins and I think when you've talked about it in the past you said that I think pressure point in margins was sort of isolated towards older block, if you could just maybe size -- what the size of that older block is and at first anything that you're seeing there that you think might also be relevant to other pieces or other vintages of the Direct Response business?.

Yes, Erik, on last call we discussed, it's a block of business that was written over 10 years ago and the clients are coming little bit higher than expected.

Now as far as the size of that block, it's currently about -- if you look at total Direct Response for you that block is about 18% of premium, but it's declining about 6% to 7% a year and so as it continues to decline and as we add new business, combination of those two things will make the impact of that block on the policy obligations going forward.

It will be declined or less the impact as we go forward..

Got it and is there anything unique about that block that you've identified that will cause the margin profile to be different?.

Not anything in particular, it's certain, it's in those products that we settle and so we've taken a look at that, we haven't seen anything that is troublesome there, but we'll say this our current pricing, our pricing the last few years we feel is adequate to point we won't have this problem going forward..

Great, thank you, and just one last question on your sales guidance changes, are those mainly just to reflect sort of where you've seen stronger recruiting it American Income then you’d expected.

And I think that was probably the biggest change for, you've raised the sales guidance there?.

That's the American Income making a stronger agent recruiting, agent intention earlier than anticipated and that’s reflected in our guidance..

We'll now to go Seth Weiss with Bank of America Merrill Lynch. Please go ahead..

Just a question on margins again, did you see any weakness due to more severe flu season if you have any comments on that that would be helpful..

No we really haven’t seen any impact to that..

Follow up on Eric's question in terms of American income increase sales guidance. The agent recruiting obviously has a go forward benefit.

First quarter sales seemed particularly strong, was that significantly higher than what you are expectations were? And how much that lead to the increased sales guidance?.

So we probably had strong recruiting and then increase in agent count in the third and fourth quarter, we think sales will improve in part because the agent recruiting the last half of 2014 have gained experience and become more productive..

And Randy Binner with FBR Capital Markets is next..

I guess just a couple on the agent count. So one would be, you mentioned agent retention improving in a couple of [tons]. I was wondering possible for you to quantify how that got better than wherever it was before. And then on the data that’s been provided now on the average producing agent count.

I was just curious was that it was flat on a linked quarter basis meaning in first quarter '15 relative to fourth quarter '14.

Is that a normal first quarter versus fourth quarter dynamic if you look back at that data set historically?.

Its look that’s really agent increase first of all I think the strength of the American income as we've increased our agent activity through better training, new technology. And as you have higher agent activity of a better retention rate because the agent are making more money and they stay with agent's longer..

As far as the average agent counts we've really going to started putting that information together in the first quarter last year.

But I think what -- based on as trend I think what we were seeing is that average agent count for the first quarter not be lower than the fourth quarter in prior years because we generally -- the later of part of the fourth quarter and past years is a pretty low in terms of recruiting.

As Larry we have a strong third and fourth quarter recruiting so we either stay at about the same level I think is the improvement. I don’t have the exact numbers , but that’s the way the agents [indiscernible]..

Experience, Gary because of holidays in each of the distribution units..

Yes, that was my question because we don’t have data either and so that helps explain it just normal seasonality recruiting and then but back to retention again, any quantification there on how much better it is now versus before? However you guys measure that internally. .

We measured internally and we checked it on the monthly basis as we check for cash and it’s like thirteenth month retention.

It's one of the factor, we've had higher agent activity which means we have more submitting agent, so it’s not just agent retention its greater activity related to our greater percentage of agents that submit every week and that results in higher retention for us. I don’t want to misled is just retention is driving the increase sales.

It's a combination of better training, better recruiting, our focus on retention, it’s changing our compensation models to drive those behaviors. .

So just on the yield assumption for the second half 475 basis points. How long can you stick with that before having to revisit it..

We'll keep looking at it as we go forward that’s not something we're just sticking to because we want to. We're looking at the, all the projections of somewhat treasure rates are going be. We're looking at the consensus and treasury rates and where we think spread will fall in.

Right now we're comfortable with the four and three quarter but that’s something we revisit constantly..

We'll now go to Yaron Kinar with Deutsche Bank..

Have couple of questions, one on the revised sales guidance. Seems like in Directly Response Life and also in Liberty National you're actually lowering the top end of the guidance despite very strong first quarter sales. So I was wondering if you could maybe give a little more color say what was behind that. .

We did have a strong first quarter in Direct Response, but we’re starting to get again stronger quarter in the second, third and fourth quarter 2014. So I think that reflects the sales guidance for the whole year being in the range of 4% to 7%. .

So would that mean that initially you'd expected recent even stronger quarter in the first quarter?.

I'll say the first quarter from a litter stronger on side with growth of the first quarter. For each of these agencies and for Direct Response you go back to 2014 you saw that was significant increase in our net sales in the ,second third and fourth quarter. We’ll be measuring against those quarters as we go forward. .

And then with regards to agent growth, family heritage clearly showed a very significant improvement in the first year agents or is there anything in particular that drove that?.

We didn't have the recruiting push, just a focus on recruiting. Basically the benefit is to use our internet recruiting, it is now up 25% and the recruit over 400% which is personal recruits.

So that's been a plus at family heritage and we’ve managed new agencies are coming here and regionally showing the positive impact of an increased number of agencies at the family heritage system..

Okay.

And a quick numbers question I know it’s on the balance sheet, the cash number was actually quite low, about 3 million always there anything in particular going on there and should we expect that to increase?.

Yes I think that is just I think just a quarterly fluctuation and then just kind of the timing issue with respect to the end of particular quarter. I do think that it is on a normal basis would be a little bit higher than that, just happen to hit both [indiscernible] during the quarter..

And will go John Nadel with Piper Jaffrey..

Hi, good morning. Just a question about the level of life insurance sales production in particular and maybe health sales too. I guess it's sort of an issue that we haven't really had to grapple with for some time in this high quality issue.

I mean how strong do life sales have to be before it actually does negatively impact your expectation for free cash flow generation IE you need more capital to support the fact that your growing faster than you might have otherwise expected to grow..

John this is Larry, your questions are little hard for us to hear, but I think your question was as we see higher life sales what impact does it have on our capital requirements and then turn on our free cash flow, was that your question?.

Yes I'm sorry if that was little bit difficult to hear, yes it's essentially right along those lines Larry..

Okay.

Gary?.

Yes you are seeing a drag on the one of the reasons why statutory income is actually down from ‘14 and ‘13 and you are seeing a little bit of the decrease in the cash -- in our free cash flows in expectations for 2015 versus 2014 really is resolve of several of those strong sales that we had in 2014.

Those new create statutory drag at the current levels and I mean we’re happy to have those strong sales and at current drag, but I think that with the level of sales that we're seeing you will see kind of the flattening of that free cash flow for the next -- for as long we continue to have the sales kind of see that whereas filtering in just kind of having free on of flat free cash flows..

John, I would add to that is that I would probably still have a first year of drag, but since we get into the second we start turning into -- now we have set for a positive cash positive drag, so it's at a great price it can be a temporary drag but so we want to put as much business on the books as we can.

That generates the -- we won't grow the in-force and of course -- because of the high underwriting that we had that also grow to free cash in future..

Yes I don't think it wrong I like what you said high quality problem right.

Can you remind us how fast on the statutory basis you are license showing sales, let say sales in year one, at what point do you get back to sort of the cumulative break even on the statutory basis?.

Yes I think, John, I think it's in about somewhere in that 6 to 8 year time frame..

Okay and maybe another high quality issue that we've talked about in the past given the stock price, price to both multiple, price to earnings multiple I guess there has been one or two occasions over Torchmark public, publicly traded life were it felt like the share price was approaching your own internal view of embedded value or whatever they say exactly that you guys calculate but how do you, are there any sort of updated thoughts alone those lines? I know you've talked about shareholders really liking the buyback over a significant increase in your dividend yield, as an example..

Well John, what we’re said in the past is that we think that at some consolidated value we will stop the share, more marketing stop the share repurchase. But our objective is to get cash back to the shareholders so we will probably move that into something of a dividend -- special dividend or whatever.

But yes we’re trying to get this towards the higher side of the price of book for Torchmark, but still if as we’ve talked about before we had to recalculate what we think that intrinsic value is of -- and what are we looking at and we’re liking in the market variety and look at it over trends over a period of time.

We still don't think we at a point where buying the shares at too high price and thus we anticipate continuing to buy the shares, but that's something that we're committed to returning the gain access to shareholder, but we're not going to dilute the shares, so we don't think we're there yet, we'll continue to follow in a week, if we get that point, then we'll consider doing probably a special cash dividend..

We'll go to Steven Schwartz with Raymond James & Associates..

Frank, can you kind of give us I guess, did you know the effect of the Canadian dollar both on the change in premium in force for the life business between yearend and quarter end and maybe talk about how that might be playing into new sales guidance?.

Yes, that's sure, but I have to quite to breakdown exactly the quarter versus the yearend, but if you recall we -- it's the average rate that works in overtime that impacts the actual amount of reported premium and as well as the reported underwriting from those premiums.

In 2014, we had an average exchange rate of about 90.7% and we're anticipating now that the average rate for all of 2015 would be around 80%. And so that's based upon -- we have Canadian premium of around in Canadian dollars a little over $90 million. Roughly for the full year 2015, roughly a $10 million impact on American Income's reported premium..

Okay..

Now for the first quarter of the year, the average exchange rate was around 88%.

So that's one of the things that kind of a continuing impact, we didn't really see that much of a drag on first quarter earnings as results of the near the lower foreign exchange rate, but you'll see a continuing drag over the course of the year as long as -- assuming that the existing in the current rates stay there, the exchange rates stay in place for the remainder of the year..

Okay thank you that will be useful.

And then little bit of one-off maybe the Doc Fix for Medicare, this is a few years away but the Doc Fix includes a proposal to do away with first dollar med supp, I am wondering if that's an important product for you?.

That's really going to kick in with regard the med supp policies in 2020 and what they're looking right now is the reduction incenting our first dollar coverage, but primarily with the hospital elimination of the Part D deductible.

I mean we still maintain that it's not affecting our current policyholders and it's hard to estimate, it's hard to know exactly what other changes there might be going down the road and future budget talks or further Medicare reform, but that is something that we are watching very closely..

Is it a large part of your business currently, your sales currently?.

The Medicare supplement, I mean on that?.

First dollar med supp?.

Well, first dollar med supp, that's going to be med supp products are..

All your med supp products are first dollar?.

Larry do you want to comment on that?.

Where you're trying to deductible reach, when you define high first dollar med sup, we have to be careful on how we define it because it is different level of coverage on med supp.

We tend to sell the higher deductible med supp products, it's so far out, Brian, it's really difficult to give guidance at this in 2015 for something that might, maybe I could in 2016, certainly now in 2015 --..

Between now 2020..

When we were considering first dollar coverage plan, I mean generally what that means plans that cover almost all deductibles and co-pays, is that that what's your referring to?.

Yes, I also number the plans they were talking about, it was two special plans that they were referring, but I don't remember what the letters were. I’ll leave it at that..

I mean I have to look into specifics more closely, but I mean reading that act, the macro it references the first dollar coverage and specifically the Part D deductible, but again that's not going to take place for five years and so we're not anticipating any of that now, but that is something that we're monitoring and looking at very closely..

We will go [indiscernible] with Jefferies. Please go ahead..

I had a couple of questions, first with respect to the average policy size you're selling now, clearly been very successful as recruiting as and much stronger than I think most of your peers.

Are you starting to move up the average policy size and thinking I guess on average is well about 30,000 and is around 17 is that starting to trend up is the first question. Second question is they can turn back on the capital issue, unless I’m mistaken, I do believe SMP with the changes for the capital model has Torchmark on criteria watch.

And if you can perhaps elaborate on what the issue is that they're looking at and how that may impact potentially on buyback. And the next one would be as you well aware the NAIC is changing the base factors on fixed income securities this year. I had heard that on average RBCs are going down about 50 point from the NAIC.

I would think that’s probably about fair estimate for Torchmark and I would assume that based on what you said that you don’t want your RBC sort of really dropping much below 325. So again what are you going to be doing to start address that? Thank you. .

This is Larry, I’ll address the agency question first. In terms of size of the policy we're seeing some impact in the American Income. We talked last year about introducing our new senior life sales and the average premium for senior life products is $720 versus the average premium for non-senior life product is about $470.

So there assuming the difference that’s a percentage of our sales of senior life has increase from 15% to 20%. American business we've seen a positive impact for the size, but I think the real change in the industry is not in the size of the premium model or the base amount.

I think what really what’s impacting is the strong leadership we have our agencies.

From a home office perspective we have very strong leadership in American Income, Liberty National, and Family Heritage have also strong leadership in the field and the owners of those agencies, the SGAs, the sales directors, provider with the ideas for better training, better technology and they work with their whole office staff and I think that’s where the impact is, they worked together in 2014.

We're seeing the benefit of those actions in 2015. .

You're asking about average stake amount, it varies by company, but American over $40,000 average base amount. What we're seeing a new increase really in the base amount is Direct Response.

The Direct Response is been lower than the 40,000, in the past we're starting to sell some higher based amounts up to 100,000 and that we see it hasn’t been a dramatic increase yet, but we are seeing an increase there. But still when you compare to other companies, our prices amounts are pretty low.

American income around -- a little over 40,000 and in globe is still under that..

It's not build like much ‘17 [indiscernible], but I just trying to get, if the success you had in recruiting and I think we got the answer to that, is also sort of flowing through to success in higher phased amount, higher premium amount. So it's not just you're adding more agents.

But you really are adding more productive and I assume more profitable agent, so that’s a fair way to [indiscernible]..

Rather effective at the start of 2014 was growth in middle management. We saw growth in middle management in each of our sales system and in each of our agencies. You should grow your middle management, you have better training. Those middle manager are then recruiter, sends another positive impact from 2014, as follow through the 2015..

Frank you want to handle the RBC question?.

So I'll touch on the SMP issue first and you are right, the SMP is perfect places to find negative outlook last fall. It's really based upon their view of certain inner company preferred stock that is part of our insurance company's capital structure.

This preferred stock has been in place since 1998 and then has not really changing in a substantial level since that period of time.

But the SMP in there adoption of -- they don’t look at RBC they have their own capital model and basically there was a just a change in view on their part on how much credit they wanted to get that’s with respect to that preferred stock.

And so with respect to and again they want to give us a little bit or some less credit than what we're getting into our RBC model. So we are taking a look at different options that we have with respect to address the additional capital that they would like to see within the insurance company.

And we're taking a look at whether we want to if we’re interested in keeping our SMP rating. We also do recognize that the SMP is not that critical or isn’t critical at all from our marketing efforts.

And that we probably tend to one notch above many of our peers with respect to -- at least a one notch down grade should we have one, it really wouldn’t be that costly from perspective and so we are looking at different methods to cure that and it might take different forms of financing and also maybe we’ll end have having a little bit more external financing and replace some of that preferred stock -- intercompany preferred stock that is currently down in insurance company, really don’t see that having any impact on the RBC within the company's, it may in fact improve it to some degree.

With respect to the bonds and the initiative going on at TNIC it is something that we’ve been watching. The information that I have is that it’s truly not going to for the most part [befalling] it, not until 2017 or 2018.

If once it’s fully implemented it definitely could have some meaningful impact on how we think about the capital and at some of our RBC levels, we don't see it having any impacts on us from 2015.

But I don' t have any numbers in front of me here hear that would indicate that exactly what that would be, other than it's definitely something that we’ll have to watch a year or two down the road..

Okay, just come back on S&P for a second, what I had seen as you did going criteria watch and that’s it, going to make it outlook -- but criteria watch when they announce the capital model changes towards the end of March and my understanding of that process is somewhat mechanical but it's going to get result in the next six months, or I’ll say it could take some [Indiscernible] action.

Now you mentioned on the preferred I guess it was might be helpful for all, is how much are they actually talking about in terms of dollars, because I do appreciate [indiscernible] It is something that’s got a dollar cost to it, they are looking for XML, that if you add that to the capital structure I assume the writing will say this is what it is.

So if could just maybe put a number on it because it does seem to me that this is something that's got to get result but at the end of the third quarter..

Well I don't think I don't think that is some of that we have to have for the additional amount of capital resolved by the end of the third quarter we will have discussions with them, that are kind of a normally schedule discussions sometime in the later part of the second or likely the third quarter that will be talking about that.

The total amount of preferred stock that is in the insurance companies is around 300 million but that is not an amount that we believe in the -- that has to be replace in its entirety and so the numbers that we think we would have to do to address the situation are is much less than that.

But again as we're looking through the options not really at a point to say exactly what we think we would have to replace that with..

Okay and I guess the final clarifications is just to be certain. Does [indiscernible] use any sort of captive reinsurance, the fund held in reserves and/or [indiscernible]. .

Not the later, we do have an off shore captive insurance company that does seed some redundant reserves. They are not Triple X or A triple X reserves, they’re just not economic results that we are require to hold that at -- of our company and we do reinsure a couple of 100 million dollars of that..

Okay. Thank you, I suspect that a criteria watch issue. But thanks very much..

And will now go to Eric Brook with RBC capital markets..

I wanted to start with Globe, are you in effect saying that the business was effectively and modestly more underpriced than you had thought it was when you first approached this topic last year..

I'm sorry could you just repeat the question. .

Sure, you've discussed the fact that underwriting profitability, I believe you are saying at globe, please correct me if I don't have that right; is not as great as you thought and in particular are you saying that's it's just modestly worst then you thought it would be when you first approach the topic of this older [indiscernible] business several quarters ago?.

Yes as [price] mentioned looking at premiums we had -- instead of being our -- the total policy responsible for this entire grid response unit, instead of being 48%, we’re expecting it to be more 48.5% to 49% and again it is due primarily to this older block of business, is they the clients are coming in on that block..

My second questions relates to Family Heritage. It's clear that you had a sharp increase in recruiting, as we think about all of the measures that look quite, strong growth in premiums, strong growth in sales, strong growth in force.

It is you just about the fact that you have a lot more people selling your product these days or is it more going on at Family Heritage that would explain the very healthy increase in all of the major measures of corporate performance at this company?.

Fairly Heritage is driven primarily by an increasing number of agents and want to caution that those additional agents, I would expect that they will wright in lower weekly premiums than experienced agents, but additional, this will result in overall premium growth for Family Heritage. .

Is that connected to that -- sorry please continue..

I see that productivity as much as I see a greater number of agents, providing business at Family Heritage..

If I could just sneak in one more quick one, as we continue to monitor the study of the data that you report out in of our your supplementary pages on agent count, I'd be curious to know how you look at those data, do you -- are you interested in the relationship between say renewal agent and the total the idea of being the first year agents tend to be not nearly just productive as renewal agents? Are you looking at the total number, what would you -- what numbers would you encourage readers of your financial statements to really hone in on or ratios on that page showing the agent count?.

Two things that we focused on is the average agent count is indicative of what production was for the quarter, as we've provided ending agent count I guess some indicator of what's going to happen on this subsequent quarter in terms of new samples, for the mix of first year agents versus renewal agents is a concern, you -- on February you’ve seen some improvements and that ratio, but the two primary focus points are average count and ending count in terms of an indicator of where we are going with that recruiting..

At this time, there is one name remaining in the roaster, [Operator Instructions] and we'll now go to Mark Hughes with SunTrust. Please go ahead..

I am sorry if you touched on this earlier but could you talk about trends in policy retention with the good strong growth in the life sales lately, has there been any impact on retention any new initiatives or sustained initiatives internally that will influenced that going forward?.

Mark this is Larry. I think the one concern we had as we look at Liberty National, we saw little decrease in agent retention as we just look further in that item. It really was some specific agencies that we're addressing the Liberty National.

We have a conservation person in the agency and she's at the agencies we don't think there will be decline within. We'll see normal persistency or cancellation rates within that agency..

As far as if you could look at the policy lapse rates, we’re continuing to see improvement in our lapse rates, we've talked about conservation program and its continuing to improving there. We're expecting to conserve a little over 18% of policies that laps this year versus this just three years ago, it was or five years ago it was like 5%.

We're continuing to find the new ways to conserve policies that had lapsed or about lapse, so we feel very good about where we're with our conservation programs, I know that they are doing a really good job and we think that we will continue to see improvement in the conservation.

So that's a good sign as we’ve mentioned in our production grows as we put the conversation, I think we'll see further improvements in our lapse rates..

Mark this is Larry again, if I meant strong, I may have said agent retention, I was talking about policy retention, with that. We talked about agent retentions, so I may be used that term but certainly that delivery is actually what policy retention and it’s been addressed..

And there are no other questions. At this time, I'd like to turn the call back to Mike Majors for any additional or closing remarks..

Okay, thank you for joining is this morning. Those were our comments and we will talk to you again next quarter..

And thank you very much, that concludes our conference for today. I'd like to thank everyone for your participation..