The Hartford Financial Services Group, Inc.
Q2 2010 Earnings Call Transcript

Published: 5 Aug 2010

[Operator:]

Good morning. My name is Ginger and I will be your conference operator today. At this time, I would like to welcome everyone to The Hartford Second Quarter 2010 Earnings Conference Call. [Operator Instructions] Thank you. Mr. Rick Costello, you may begin your conference.

[Richard Costello:]

Thank you, Ginger. Good morning and thank you for joining us for the Hartford's Second Quarter 2010 Financial Results Conference Call. Our earnings release and financial supplement were issued yesterday. The slide presentation for today's call is available on the company's website at thehartford.com. Chief Executive Officer, Liam McGee; and Chief Financial Officer, Chris Swift, will provide prepared remarks this morning and we will finish with Q&A. Also participating on today's call are Juan Andrade, President of Commercial Markets; Dave Levinson, President of Wealth Management; Greg Mcgreevey, Chief Investment Officer; and Alan Kreczko, General Counsel. Turning to the presentation on Slide 2, please note that we will make certain statements during the call that should be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These include statements about The Hartford's future results of operations. We caution investors that these forward-looking statements are not guarantees of future performance and actual results may differ materially. Investors should consider the important risks and uncertainties that may cause actual results to differ, including those discussed in our press release issued yesterday, our 2010 quarterly reports on Form 10-Q, our 2009 annual report on Form 10-K and other filings we make with the Securities and Exchange Commission. We assume no obligation to update this presentation, which speaks as of today's date. Today's discussion of The Hartford's financial performance includes financial measures that are not derived from Generally Accepted Accounting Principles or GAAP. Information regarding these non-GAAP and other financial measures, including reconciliations to the most directly comparable GAAP measures, is provided in the investor financial supplement for the second quarter of 2010, and in the press release we issued yesterday, both of which can be found on The Hartford's website at www.thehartford.com. Now, I will hand the call over to The Hartford's Chairman, President and CEO, Liam McGee.

[Liam McGee:]

Thanks, Rick. Good morning, everyone and thank you for joining us today. Before we get started, I want to welcome Dave Levinson. Last month, as you know, I asked Dave to lead Wealth Management and as we shared with you in April, we see exciting opportunities for this business. The Hartford performed well in the second quarter. First, we reported good core results, with healthy top line momentum in many of our businesses. Second, we saw significant improvements in the investment portfolio. And third, we are well underway executing the go-forward plan we outlined in April. As I said, The Hartford reported good overall results in the quarter. Given the economy, the volatile equity markets and as you already know, issues specific to the P&C and life industries, I was pleased that we navigated well through a bumpy quarter. We earned $76 million of net income compared to a net loss of $15 million in the second quarter of 2009. Core earnings were $92 million in the second quarter and included higher-than-expected catastrophes, a DAC unlock, an annual asbestos reserve charge, goodwill impairment and favorable prior-year reserve development in ongoing P&C. When you account for these items, adjusted core earnings were about $0.92 per diluted share. We believe this figure demonstrates the underlying earnings power of the company. Chris will discuss how we get to that number in detail later in his remarks. Book value per share was up 6% sequentially to $41.29. And with the market volatility we saw in May and June, I am pleased with the continued strength of our capital position. Revenues, excluding net realized capital gains and trading securities grew 3% year-over-year. We saw good top line momentum in many of our key businesses. In P&C Small Commercial segment, written premium grew 3% over the prior year, reflecting positive renewal pricing and a 9% increase in new business policy count. In P&C Middle Market, price competition is intense, and we are balancing growth and profitability. So we were pleased that pricing on renewals was flat. And policy count retention increased 2% over the prior year. Chris will talk more about Group Benefits later in the call but results there were below our expectations. We see some near-term challenges in this business and are working hard to address them. In Wealth Management, sales and deposits increased in many businesses. Retirement plan deposits increased 12% over the prior year. Mutual fund deposits were up 11%, and Life insurance sales grew 8%. Second, over the last year, we have seen significant improvements in the investment portfolio. In the second quarter, we had a 13% increase in net investment income, excluding trading securities, driven by strong partnership returns. Another positive sign was that net unrealized losses declined by more than 50% since March 31 to $1.5 billion. We are also seeing favorable trends on impairments, which declined again this quarter. Barring a severe economic or market reversal and given the actions we've taken today, we believe the worst is behind us on impairments. Over the next several quarters, we expect to see credit losses similar to those we've experienced in the first half of the year. Given the recent interest in municipal bonds, I want to provide some background on our $12.5 billion portfolio. We feel good about this portfolio given its broad diversification and high average credit quality of AA-. We are heavily weighted towards general obligation and essential service revenue bonds that are supported by clearly defined and dedicated tax or revenue sources. We have also reduced exposure to municipalities in areas of particular economic stress. As Rick said, Greg is here for the Q&A session to answer questions you may have on the portfolio. Finally, I want to provide an update on the company's strategy. We're making good progress executing on the plan we outlined in April and are seeing a number of encouraging signs. On July 1, we completed the transition to a new organizational structure. Leadership of the Commercial Markets and Wealth Management business unit is in place. We also have a number of very good candidates for the Consumer Markets role and expect to have that position filled in the early fall. Now as I mentioned earlier, I'm pleased to have Dave Levinson lead Wealth Management. In his 15 years at The Hartford, he has a broad range of experience across Wealth Management, which along with his strategic vision and bias for action, are among the key reasons I selected him for this role. I have charged him with accelerating the profitable growth of Wealth Management, working within the strategy we announced in April. I can tell you that Dave is moving quickly and decisively to identify the best individual and collective opportunities for these businesses. I've also asked Dave to review the Annuity business, including the performance of Personal Retirement Manager. The new product is now broadly available in the marketplace and the next few quarters will be critical in determining its ultimate success. As we said in April, annuities with an appropriate balance of risk and return are an important part of The Hartford's Wealth Management business. We are committed to the Annuities business and we continue to invest in product, distribution and marketing going forward. And finally, I'm excited about our unique potential to profitably grow in the Wealth Management business. In Commercial markets, we're optimistic about our go-to-market strategy. I'm pleased with the early results coming from the combination of our Group Benefits and Commercial P&C businesses. Together, the efforts of these two sales teams have already built a solid pipeline, with close to 1,000 new opportunities, a significant percentage of which we have already quoted. Our early joint efforts have generated several million dollars in sales to date. Juan and his team are optimistic about using this collaborative business model on the full year sales cycle in 2011. And consistent with that, we're implementing additional sales tools to drive the sustained success across this organization, which include

[Christopher Swift:]

Thank you, Liam. Good morning, everyone. Let's begin on Slide 4. As Liam mentioned, net income for the second quarter was $76 million. Reported core earnings were $92 million or $0.17 per diluted share. Second quarter results were very noisy. To help better understand the company's core earnings strength, I'd like to discuss our calculation of adjusted core earnings, which we estimate at $460 million or $0.92 per diluted share. Our estimate of adjusted core earnings excludes five items

[Richard Costello:]

Thank you Chris. Before we begin the Q&A session, I would ask the callers to limit themselves to two questions. This will allow us to get to as many callers as possible. Ginger, you may now open the call to questions.

[Operator:]

[Operator Instructions] And your first question is from Jimmy Bhullar from JPMorgan.

[Jamminder Bhullar:]

I had a question first on your -- like just to get an idea on how far along you are in your portfolio restructuring. And then related to that, on the CMBS assets that you sold, the $800 million, what sort of pricing you got on those? And then secondly, on the variable annuities, your deposits and flows have obviously been weak. And the new products have been only out for a little bit. But it doesn't seem like it's been as well received as I would have thought at least initially. So just wanted to get an idea if you've discussed or would you consider rolling out products with more rich equity market type guarantees that some of the competitors are selling, to improve your results?

[Liam McGee:]

Hi Jimmy, this is Liam. Why don't I take the second question first and I'll turn the first question over to Greg on the portfolio. I think in context, as you allude, the new product is just now fully available in the distribution partners, as well as the larger states. We've told you in the last quarter or two, that, that process took longer than we would like. You're right. The volumes have not yet hit the levels that we would like in total for annuity. But we still receive quite encouraging feedback. I was with one of the larger broker dealers myself just a few weeks ago and the feedback has been quite positive. So as I said in my remarks, now that we're in the distribution and in the states we need to be in, we'll evaluate it very factually over the next few quarters. Lastly, just to reiterate, we are committed to the Annuity business. We're going to continue to invest in product, marketing and distribution toward our ultimate goal of that approximately $5 billion in 2012. Greg, why don't you comment on Jimmy's questions around an investment portfolio?

[Gregory Mcgreevey:]

Yes, Jimmy, there's two parts to your question. On the first part on portfolio repositioning. I think overall, we feel very comfortable and largely through a lot of our portfolio positioning from a de-risking standpoint, we're encouraged by a lot of the transactions that we've done in the first half of this year. Balancing the things that Chris had mentioned, which are fair value, capital and future net investment income. We'll continue to re-underwrite our portfolio, come up with fair values, look at market values relative to those fair values and then, again balance capital and income and continuing to look at trade opportunities. But in general, we feel from a de-risking standpoint, we feel largely through most of that portfolio positioning. In terms of CMBS, which was the second part of your question. In the second quarter, we sold about $600 million of CMBS holdings. Most of those were to take advantage of an improvement that we've seen in CMBS pricing overall. We sold those at a net slight unrealized gain for the quarter. And again, it's really taking into consideration those things that I had mentioned before, in balancing, those fair values, capital and future net investment income. And we'll continue to look at our CMBS portfolio and other parts of our portfolio to take those things into consideration.

[Operator:]

And your next question from Darin Arita from Deutsche Bank.

[Darin Arita:]

On the investment portfolio, and going back to the capital scenario laid out in April. And you talked about a $2.8 billion investment really that impacted the use of capital. I'm wondering how reasonable is that number, given the unrealized loss position is now down to $1.5 billion.

[Liam McGee:]

Hi, Darin. This is Liam. First, just to put in context. Recall, the $2.8 billion was under a severe stress scenario, as you recall. There were many factors but the two primarily stress factors were prolonged S&P decline starting at $700 million and then an additional 20% reduction in values were residential and commercial real estate. Even under that scenario today, we think the $2.8 billion number would be reduced. And obviously, assuming that scenario, which we all hope doesn't materialize, our losses over the cycle should be well inside that number. Greg, is there anything else you want to say?

[Gregory Mcgreevey:]

The only thing I'd say, Darin, is clearly, that's not our expected view of economic formation. We're beginning to see stabilization in real estate values of both residential and commercial. And I think as Liam pointed out in his comments, we think impairments as we move forward, are going to moderate compared to certainly what we've seen. And we'd expect that trend to continue as we proceed over the next number of quarters.

[Darin Arita:]

Thank you. And just one other looking at the Life business and the statutory capital. The declines during the quarter, can you talk about the cause of the decline and whether we should expect a similar size decline if the market fell by 12% again in the third quarter?

[Christopher Swift:]

Darin, it's Chris. Thank you for the question. I think as I pointed out, from the end of the year, statutory surplus is level. We increased in the first quarter, decreased here, primarily driven out of equity market decline and the yen/dollar, yen/euro movement. As we sit here today, as you know, the markets were recovered slightly in July. And I would estimate that we recovered approximately 50% of that $700 million decline that you referenced.

[Darin Arita:]

Okay. Just so I understand though. Is it rather linear as we go up and down? Or is it a little more complex than that?

[Christopher Swift:]

It's a lot more complex. We could talk to you more about it if you'd like but it's more complex.

[Operator:]

And your next question from [ph] (57

[Unidentified Analyst:]

First, I was wondering if you could give us some sense for statutory earnings, either six months or how you're thinking about statutory earnings for the full year in the Life business. And then the second question is, I was wondering if you had thought or looked at any closer to the idea of hedging more of the risk in Japan. And if you have any update as to how much it might cost today if you were to go out and try to hedge the entire exposure.

[Liam McGee:]

Ed, it's Liam. The second part, obviously, in any element of our business, we're constantly evaluating risk and risk protection. Japan would be among those. I couldn't give any more specifics about what the cost parameters would be for a variety of options. But as in any part of our business, we're evaluating risk protection. Chris, did you want to comment on the first part?

[Christopher Swift:]

Yes, on the statutory, Life earnings, I have numbers in front of me, Ed. Maybe if we could talk more in detail offline. But through the first half of the year, we actually lost about $500 million on a statutory basis and then projected to make up all of that and then some in the second half of the year, ultimately earning $700 million of statutory net income. And I would just add on Japan. We've looked at a lot of different activities over the last couple of months here. There's nothing out there that we feel is appropriate at this time.

[Unidentified Analyst:]

Okay. And just to follow-up. The statutory numbers that you're giving me. That's net income or operating?

[Christopher Swift:]

Operating income.

[Unidentified Analyst:]

And is the loss in the first half because of the reserve increases for the equity market decline? Or is something else going on?

[Christopher Swift:]

Exactly, there's the [indiscernible] (59

[Unidentified Analyst:]

Okay. Can I just ask, when you gave your -- you had your investor day and you talked about sort of the stress analysis and you gave a two-year cumulative number for statutory operating income under sort of a bad case scenario. If I recall, I think there was like $1.6 billion or something of earnings. Is that correct over two years?

[Christopher Swift:]

Over two years for both the Life and Property-Casualty.

[Unidentified Analyst:]

Okay. But I guess the question is if you lose money when the market's down in the Life business, what was it that led you to assume that you made money over two years in a down market scenario?

[Christopher Swift:]

Well, if you recall, we shocked the down market scenario, we shocked at 1/1/2010. So you had the immediate decline and then sort of the gradual recovery in market rates, plus the other spread-based businesses that would produce statutory income. So it's a day one impact and then sort of slow and steady going forward.

[Operator:]

And your next question is from Tom Gallagher from Credit Suisse.

[Thomas Gallagher:]

Chris, just a follow-up. The $700 million reduction in the statutory capital in the Life business. Can you just split that out between equity market impacts, interest rates and other, just so we have the components? And then the second question is, can you talk also about how lapse rates are trending for your U.S. variable annuity business? In particular, when I think about the DAC review that you'll be doing for 3Q for your full-year update, are they trending better or worse than expected as it relates to utilization of the GMWB benefit and just overall for withdrawals?

[Christopher Swift:]

Sure, Tom. On your first question, I think you were looking really for the attribution of the $700 million. Simply stated, through a number of pluses and minuses on the liability side to hedge asset offset, I would attribute 60% of the $700 million decline to equity and 40% to FX, with interest rates really being offset by our hedge position on the hedge side. On lapses, as you know, we're in the middle of our review right now. I don't think we have a definitive view, if we're seeing a trend one way or the other at this point in time. So as we continue to close out the third quarter, we'll keep you posted as far as what we're seeing. But right now, we don't have any indications one way or the other.

[Thomas Gallagher:]

And just a follow-up, Chris. Can you talk about what kind of utilization rates you're seeing on your GMWB policies, as a percent of in-force?

[Christopher Swift:]

What I've seen is it's fairly consistent. I can't quote you the exact numbers, but the trends and the data I see, it's fairly consistent from period to period.

[Operator:]

And your next question is from John Nadel from Sterne Agee.

[John Nadel:]

As it relates to the guidance, you're assuming the S&P of 7.2% annualized from June 30 and that clearly looks reasonable after we see the move in July. However, in the next sort of bullets in the release, you talk about that the guidance doesn't include an estimate on DAC unlocks, positive or negative. But clearly, if the S&P were to close the quarter around this level, you've got a positive DAC unlock. I mean I guess ignoring the potential for some hits or some adjustments with your annual review. I was just hoping you could sort of quantify what the positives essentially DAC unlock, reversing the second quarter numbers would be if markets closed here?

[Christopher Swift:]

Thank you. The way we estimate it is basically for each 10-point movement in the S&P, we would expect to see a $10 million to $20 million earnings impact. So if it's up 100, hopefully through today, you could see a general range of what we would expect the DAC unlock to be positive in the third quarter. Does that help?

[John Nadel:]

I'm sorry, that was 10% is $10 million to $20 million or 1% is $10 million to $20 million?

[Christopher Swift:]

A 10-point move.

[John Nadel:]

A 10-point move, thank you. My second question's just on Group Benefits. In your supplement, you show the reserves for the underlying product lines there and I noticed that the group disability reserves increased nearly $100 million quarter-over-quarter, about 2% and premiums in group disability fell 2% quarter-over-quarter. So I was just wondering if you could give us some detail on the driver of that reserve increase. Was that incidents related? Was that lower discount rate on new claims reserves? Something else?

[Juan Andrade:]

Yes, John. This is Juan Andrade. Really, the driver of all of this is really increased incidents from long-term disability. And also to a lesser extent, lower claim terminations.

[John Nadel:]

Okay. And is that increase reflecting just what you saw in 2Q? Or does that bake in an expectation that those incidence rates and lower claim terminations continue?

[Juan Andrade:]

Yes, so this is basically baking in the trend that we started to pick up, I would say at the end of the first quarter, really into the second quarter of '09, of '10 rather.

[John Nadel:]

Okay. So in other words, if incidence and claim terminations remained at around the same level, we shouldn't see increased reserves as a result, you already have that baked in?

[Juan Andrade:]

We're already starting to bake that in. The other thing that we're putting in there is additional pricing in our long-term disability lines to make sure that we maintain our pricing for our target returns.

[John Nadel:]

Okay. And how long should it take to re-price the book then?

[Juan Andrade:]

So I would say, as you know we have three-year guarantees on this book of business and so roughly 40%, 50% of the book would be impacted on an annual basis.

[Operator:]

And your next question is from Randy Binner from FBR Capital Markets.

[Randy Binner:]

I think Ed was asking about Life's stat earnings. Did we discuss P&C's stat earnings in the quarter or first half?

[Christopher Swift:]

No, we did not, and again they're trending as expected as had a little bit of obviously a bump with cat. We've been taking dividends out. So their statutory surplus is pretty much unchanged also from year-end. On the statutory, I'll call it actual earnings side, just looking at my notes here, we'd expect the second half of the year to make statutory net income of around $600 million.

[Randy Binner:]

Okay. And then that's operating, right?

[Christopher Swift:]

Correct.

[Randy Binner:]

And then, I'm sorry, what was the first half number?

[Christopher Swift:]

View it as pretty much breakeven to maybe just slightly positive.

[Randy Binner:]

Understood, with the surplus comment, that's great. And then just on the 11% ROE goal for 2012, that was kind of the key takeaway from the April Investor Day. Expense improvements, P&C margins, among other items, were kind of the key drivers there. There's been a moderate decrease here in guidance, but just would appreciate any color on how that longer-term goal is still trending.

[Christopher Swift:]

Yes, Randy, I would just point out that I don't believe we decreased guidance. So if your premise is that we decreased guidance, I would say that's generally not true, except for Group Benefits. Everything else in our guidance remains unchanged. If you look at total Property and Casualty, loss ratios are still within the range that we published initially. We still see that during the outlook years through 2012. So we believe completely that the 11% is an achievable number based on the results that we're producing right now.

[Operator:]

And your next question is from Eric Berg from Barclays Capital.

[Eric Berg:]

I mean I know sort of why you wrote down the goodwill. I mean it's not an inconsequential number. Could you offer some insight into what happened there? I realize that this was part of a larger plan here, but I'm not sure if it sort of justified overpaying to the extent that you did. And my second question is in your financial supplement, you disclosed the results of proprietary versus non-proprietary mutual funds. When you were talking about the -- when one is talking about the funds that are marketed under The Hartford brand by independent financial advisers and managed by Wellington, would those be the proprietary funds?

[David Levenson:]

So on the non-proprietary side, those are the funds that are subsidized by Wellington. And on the proprietary side, those are the funds that are managed internally by [ph] (1

[Liam McGee:]

And then, Eric, on the first question. It's Liam. As you're well aware, the thrift was purchased primarily as a vehicle to receive CPP funds from the government. As Chris also said, GAAP requires a goodwill evaluation at year-end, which we just completed. And the difference, as he said, is between what the purchase price was and what our current valuation of its value is. And all of the charge that was taken and the timing, again I'd reiterate, is really driven by GAAP.

[Operator:]

And your next question is from Mark Finkelstein from Macquarie.

[A. Mark Finkelstein:]

I want to go back to Group Benefits and maybe reframe Nadel's question just a little bit. Thinking about it from a guidance perspective. Year to date, the loss ratio is about 77%. The full year guidance, if I'm reading this correctly, is 73% to 76%, implying a 75% or lower benefit ratio for the back half of the year. I mean knowing the environment we're in and just kind of the rising level of incidents that you're showing, I guess what gives you the confidence that the benefit ratio is going to subside as much as that in the back half of the year?

[Juan Andrade:]

Great thanks, Mark. This is again Juan Andrade. I would say the revised guidance that we put out there on loss ratio for the Group Benefits business is between 73% and 76%. Part of the reason that we have confidence that the second half of the year will be better is historically, we do see lower claims incidents in the second part of the year, typically about one point on after-tax profit margin. So that does give us the confidence that we'll be able to be within that guidance range.

[A. Mark Finkelstein:]

Okay. So typical 4Q seasonality is a pretty sizable benefit assumption?

[Juan Andrade:]

That is correct.

[A. Mark Finkelstein:]

Okay. And then Chris, at your Investor Day on April 1, you discussed the 200-basis-point cut in the expense ratio. I think you'd been there a month at that stage. I guess what I'm asking is do we now have a formal plan on the expense side? How crystallized is it and how should we think about the timeframe for these expenses starting to get pushed through the businesses?

[Liam McGee:]

Hi, this is Liam. Let me take that one. As you accurately recall, we did talk about 200-basis-point reduction in the efficiency ratio, which as you know is both revenue and expenses, number one, and that's by 2012. Secondly, as I alluded in my comments, we do have very specific work already underway. First tangible evidence of that was to take the various parts of the operations in the company, which were distributed among the businesses and now running it as an enterprise operations function, which will help us from a customer service perspective, as we do have inconsistencies. We have redundant, and oftentimes non-compatible technology platforms between those businesses and we'll drive efficiencies. And so there will be other bodies of work across the company, very analogous to that. So that work is underway. It has very specific project management and accountabilities for the results.

[Operator:]

And your final question is from Andrew Kligerman from UBS.

[Andrew Kligerman:]

I wanted to ask about the $700 million drop in surplus and the fact that your macro hedge delivered $193 million. Is that robust enough in your view? And you mentioned you weren't changing the international hedging program, but maybe some additional plans on that. Then real quickly, LTD. You mentioned you're taking rates. How much? To what degree? And on asbestos, could you give us a ratio that would indicate the adequacy of your new reserves? I remember about seven years ago, I think asbestos reserves were taken up by about $3 billion. So I'm wondering if there's some ratio or benchmark that would give us comfort that your new study really nailed it and that we shouldn't expect more reserve hits.

[Liam McGee:]

Andrew, on the first question, I'll let Juan answer the second one. On the first question, as you know, we have a combination of hedging and capital. And we'll constantly, as I said in my earlier response to the specific Japanese question, we do and we'll constantly reevaluate that balance. And if we think we should rely more on hedging than we have, we'll do so or less if we think that's appropriate. So I think that's a dynamic process. But let me reiterate, as I said in my comments and I think Chris has said in his comments as well. On the capital side, I'm really pleased with the capital strength we are able to demonstrate with all the volatility in this quarter. Juan? How would you answer Andrew's question?

[Juan Andrade:]

Great, Andrew. Thanks. This is Juan Andrade. First, on the LTD piece of it. As I mentioned, we are seeing increased incidence in LTD. And in order to ensure that we continue to price to our long-term partner returns, we are taking price. I would say in the low single digits at this point in time. But this is something that we monitor very carefully and we will react as we need to. I think with regard to asbestos, I think as you know, every second quarter, we do our ground-up review. We took asbestos up by about $169 million, and what we found this time was really an increase in severity and expense, driven by litigation in certain jurisdictions, cancer cases, et cetera. Very much in concert with what some of our competitors have also reported in recent asbestos studies. As to the number that we took up in this study, we do feel very comfortable with it. Obviously, we don't forecast what we think development is going to be. It's one of the reasons why we do such a thorough ground-up review of this. And we have consistently been really in the 61-percentile range, as we said, our asbestos reserves and we continue to be there. So we actually feel very good about the number that we've just put up.

[Andrew Kligerman:]

61 percentile, Juan, meaning 61% of what?

[Juan Andrade:]

So this is typically the range of reserves for asbestos and this number happens to be again, between the 50th and the 70th percentile of confidence. So it's typically where we have been historically with our asbestos reserves. So again, it goes back to the confidence that we feel about the consistency of our reserving methodology.

[Andrew Kligerman:]

And I mean there's no number on like reserve to trailing, payments or something like that, that kind of sticks out, that would give us additional comfort?

[Juan Andrade:]

No, I think really, there isn't per se anything at least that is comparative. We look at these ground-up studies on a very detailed basis every time that we do them. And the number that we put up is really the number that we feel is the exact number that we need at that point in time.

[Christopher Swift:]

It's Chris Swift. If it disappears, I'll throw this out there. I just wanted to clarify your question, now that I could picture the chart that we put up there on April 1. On the right-hand side of the page was the VA impact of the down-market. So we isolated the impact of the down-market of $1.7 billion on the right-hand side of the page. The left-hand side of the page was again, stressed operating income for the two periods for Property-Casualty and Life, shown on a gross basis. So we didn't net the two numbers together. We showed them gross, and my comments still stand. I mean they will have normal operations that'll produce operating income outside of the VA decline effective 1/1/2010. Hope that helps.

[Richard Costello:]

Ginger, I think we have no more questions at this time.

[Operator:]

No, sir.

[Richard Costello:]

This is Rick Costello, with no more questions. Thank you all for joining us. We look forward to seeing you on the third quarter conference call.

[Operator:]

Thank you, ladies and gentlemen for participating in today's conference call. You may now disconnect.