American Equity Investment Life Holding Company

Good morning, and welcome to American Equity Investment Life Holding Company's conference call to discuss second quarter 2012 earnings. Our earnings release and financial supplement can be found on our website at www.american-equity.com.

Presenting on today's call are John Matovina, Chief Executive Officer; Ted Johnson, Chief Financial Officer; and Ron Grensteiner, President of the Life Company.

Some of the comments made during this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. There are a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied.

Factors that could cause the actual results to differ materially are discussed in detail in our most recent filings with the SEC. An audio replay will be available on our website shortly after today's call.

It is now my pleasure to introduce John Matovina.

Thank you, Julie. Good morning, everyone, and thank you for joining us on the call this morning.

This marks the first earnings call on American Equity's life as a public that Wendy Waugaman will not be part of the team communicating American Equity's quarterly performance to you. I think most of you know Wendy passed away several weeks ago, following a courageous battle with cancer.

She was a very valuable member of our management team that took Dave Noble's Vision for American Equity in 1995 and grew it into a public company with over $30 billion of assets today.

Her contributions to American equity are numerous and her leadership role in the industry's opposition against the SEC Over Rule 151A was instrumental in achieving both the legislative and a legal victory in that endeavor.

On a personal note, words cannot express how proud I was to be part of the [indiscernible] responsibility of communicating American Equity story with her to our investors, analysts, distribution partners and others.

On behalf of Dave Noble and the rest of the American Equity family, we thank each you for your kind words of support and memorial since her passing.

Fortunately, American Equity's got depth in its management team to move forward. Through the years we've always acknowledged the depth and strength of our team, as well as the commitment of American Equity's 400 dedicated employees.

I know some of you have been present to hear Dave Noble say it is his disbelief that what makes American Equity successful is the people who work here and how proud he is in the company they've built. I'd like to remind you that now we went through a change in executive or departure for an executive once before several years ago and the company has prospered since that time, so the transition to our new management or revised management team is progressing smoothly and we expect the company to continue to prosper in the years ahead.

Now moving to the quarterly results. Our view of the quarter was we have an exceptional quarter.

$27.4 million of operating earnings, which was $0.43 diluted share. As we acknowledged in the press release, the low interest rate environment continues to present challenges to us and more challenging to find investments that meet our credit quality, duration and yield requirements and the excess cash balance persists as securities are getting called and that's a challenge for us in the quarters that are ahead.

That being said, we feel we can restore our investment spread to the 3% target level that we've talked about on previous calls. And once that cash gets fully invested, we will make further adjustments to policy holder rates as necessary to get back to the target spread.

Our sales levels have been muted somewhat. Consumers are leary of making long-term saving decisions, thinking perhaps that interest rates are going to go up.

Of course, it's been quite some time since we've seen any rate increase. I think one benefit though of this low-rate environment is that our policy withdrawals are trending lower, and that's helped us preserve the aspects of the management's part of our earnings story.

Sales results for the quarter -- for first quarter, excuse me, when we released -- were released after our first quarter conference call. And at that time, we indicated we have lost some market share to certain competitors, who, in our judgments, were more aggressive in their product pricing.

However, in the past two months, we've seen numerous adjustments from our competitors and give us a sense that the competitive environment will be more favorable to us in the second half of 2012. An example, [indiscernible], there's been multiple adjustments to the terms of lifetime income benefit writers to where the payouts on American Equity's writers now compare very, very favorably to many of our competitors.

In addition, we've seen one of our more significant competitors reduce its commissions by 5%, so those are concrete examples of things that are making the competitive environment, I think, move our way.

As we compete in this unusual environment though, we remain committed to quality in our invested assets and we'll not compete by taking out a strategy of adopting undue risk.

As we've commented on previous occasions, we do not intend to pursue sales growth in market share at the expense of acceptable profits. It's now my pleasure to introduce Ted Johnson, Chief Financial Officer and Treasurer of American Equity, to discuss some of the specifics of our financial performance this quarter.

Some of you may we acquainted with Ted, but I suspect many of you are not. He joined American Equity back in 2000 as Vice President, Controller and our Principal Accounting Officer.

And prior to working for American Equity, Ted was in the public accounting industry with Ernst & Young for 8 years, working primarily on audit clients in the insurance industry.

Ted's a valuable member of our management team and his experience in excellent management skills make him the right person to be American Equity's CFO. Dave Noble and I, as well as the American Equity Board of Directors have a great deal of confidence to Ted, as well as team of -- the team of accountants that he leads.

So with that Ted, please give us comments and financials

Well, thank you, John, for those kind words. First of all, I'd like to say I'm honored by the trust that is in place with me as CFO of the company.

Even though the circumstances that have brought me to this position are unfortunate, I'm excited about my new role in the American Equity senior management team. As John said, our second quarter operating earnings were $27.4 million or $0.43 per diluted share.

That is a slight decline from a year ago where operating earnings were $29 million or $0.45 per diluted share. The results for the second quarter translate into a 13.7% return on average equity based upon a trailing 12-month period.

And if you exclude the impacts of the favorable unlocking we had in the third quarter last year, the trailing 12 months ROE would be 12.4%. Our investment spread was 2.7% for the quarter, total invested assets grew to $25.4 billion, and we'll grow by an additional $1 billion as we invest the excess cash balance held at the end of the quarter.

To date, we have invested approximately $135 million of that excess cash balance. Our spread result was 23 basis points less than the first quarter's spread result of 2.93%.

But on an adjusted basis, second quarter spread was 2.95% compared to 2.99% in the first quarter. The average cash excess -- the average excess cash balance in the quarter was $1.4 billion, which resulted in a reduction to spread for the quarter of 27 basis points.

Offsetting the costs of the liquidity were some incremental income with prepayments of commercial mortgage loans and residential mortgage-backed securities, which added 3 basis points to spread.

In addition, we had a 1 basis point cost from under hedging in the quarter. Cost of money declines 2.64% in the quarter compared to 2.68% for the first quarter.

This decline reflects management's actions to maintain spreads by adjusting rates to policyholders. We anticipate achieving an additional 15 to 20 basis points reduction in the cost of money over the remainder of 2012 based upon rate adjustments already implemented.

If necessary, we will make further reductions in policyholder rates to earn our target investment spread of 3%. We have approximately 67 basis points of room to reduce rates on index tenuity policies before minimum guarantees would cost spread compression.

In our financial supplement, we have included a disclosure on Page 10 that gives details in terms of our index annuities and the various index strategy, including where policyholder funds are currently positioned compared to minimum guaranteed rates.

During the quarter, we purchased $1.7 billion of new fixed income securities at an average yield of 4.53% and we funded $70.1 million of new commercial mortgage loans at an average yield of 4.92%. The majority of the security purchases were investment grade corporate bonds.

Calls, sales, maturities and paydowns for fixed income securities for the second quarter were $1.1 billion, with an average yield of 5.47%.

For the remainder of 2012, $924 million, with an average yield of 5.13%, has been or is expected to be called in August, and an additional $898 million, with an average yield of 3.29%, callable in the fourth quarter.

Operating costs and expenses for the quarter were $18.9 million, which is up from $15.9 million a year ago. The majority of this increase is related to the prospective adoption of the revised accounting guidance for deferred policy acquisition cost, which resulted in $2 million of additional expense recognized in the second quarter of 2012.

This amount relates to home-office expenses that were previously deferred and amortized over the life of the underlying policies under the prior accounting guidance. The decrease in operating costs and expenses from the first quarter is due to a $900,000 reduction in salary expense, primarily related to a reduction in the compensation liability, which is based upon the price of our common stock.

And a $700,000 reduction in expense for conferences and state taxes and assessment.

In addition, we incurred $1.2 million of expense in the first quarter that was unique to the first quarter or related to the prior year. Our RBC at June 30 was estimated at 337% based upon trailing 12-month annuity sales.

If sales trends from the first half of 2012 continue in the second half, we will see a benefit in RBC.

Book value per share, excluding the cumulated other comprehensive income, was $16.34. The increase from the first quarter reflects net income for the quarter, offset by the impact from the conversion of trust-preferred security.

With that, I'll turn the call over to Ron to talk about sales and production.

Thank you, Ted. Good morning, everyone.

As John said, we had acceptable sales in the second quarter with $917 million compared to $979 million in the first quarter. As John also mentioned, we did lose some market share when we adjusted rates last December to fit our pricing and spread philosophy.

Our competition did not follow and hence had some higher rate, higher caps and lifetime income rollup rate. However, in the last 2 months, it seems that some of the company's can't make changes fast enough.

A service that we subscribed to reported that [indiscernible] year, 18 companies have made 40 different announcements regarding changes, and that would include things like interest rates, caps, commissions pay-off factors, et cetera. 16 of those announcements were made in the months of June and July alone.

American Equity, we didn't make any rate change announcements since our December announcement, and so our message to our distribution is one of consistency.

With all these changes, our market share may not change much or perhaps might even come down for the second quarter. We won't know until we see the actual numbers, we'll typically see those probably in the next couple of weeks.

And that's because of a sense of urgency of trying to beat those deadlines of the other companies that have set further changes at the end of July.

As far as last July production, it was consistent with our production in the second quarter. It was just over $300 million.

The revised of all this is that American Equity is very competitive again and I fully anticipate that we'll win back market share in the second half of the year. Evidence [indiscernible] is an uptick of activity during July.

One indicator is inbound phonecalls to our marketing department during the average 500 calls per day. But in July, it was up to 630 calls per day.

And this is significant considering July is typically kind of a slow month and when people take vacations.

Our pending count averaged 2,835 cases in the second quarter and that compared to the 2,845 in the first quarter. So it was basically unchanged.

We did see some slippage in mid-July and it bottomed out at 2,600 but it has recovered and it's nearly 2,900 today.

Overall sales are somewhat [indiscernible] to today's lowering environment. As John commented, consumers are a bit reluctant to tie up their money for extended periods of time.

However, principal protection and guaranteed income are still very important especially as the baby boomer generation enters retirement. And fixed [indiscernible] may be low, but they're still competitive money when you compare them to other safe money alternatives.

As a backdrop to this, fixed annuity did receive some positive press in the last couple of weeks. Reuters had one entitled, S&P Report Annuities' Share of -- Annuities' Share of Retirement Market Set To Go Up and Fox Business also had an article entitled, Is There a Lifeboat in Today's Financial Seas?

Both of those articles are very positive about annuities and just kind of serves as proof that [indiscernible] retire, there's going to be a place for fixed [indiscernible] annuities.

We've been [indiscernible] playing a little bit of offense here at American Equity preparing for the second half of the year. For example, we introduced a couple of brand new products in the beginning of the second quarter, the Traditions Gold and the Traditions Gold Plus.

The Traditions Gold Plus had an 8% premium bonus on a 10-year chassis. Traditions Gold had no premium bonus but we put some higher rates on that product.

For example, the fixed rate is 235 on Traditions Gold compared to 160 under Traditions Gold Plus. And this is our attempt to try [indiscernible] environment some rates above the 2% and try and capture some attention.

Excuse me folks, I understand we're hearing that there's a technical problem with Ron's delivery so we're going to pause for a moment. Sorry for the interruption.

Okay. Well, this is Ron, again.

Sorry for the interruption. I guess when it comes to sales and marketing, the phones go crazy here.

So we apologize for that. I guess I'm going to start my comments from the beginning, and I'm sorry that if those of you that heard them the first time get it the second time.

But I want to make sure that we got the message across.

Just for starters, we had acceptable sales, as John had said, in the second quarter of $917 million compared to $979 million in the first quarter and we did lose some market share in the first quarter when we adjusted rates last December. That's been fit our pricing and spread philosophy.

Our competitors did not follow, and hence, we -- and hence, they had some higher interest rates, some caps and lifetime income rollup rate. However, in the last 2 months, it seems they just can't make their changes fast enough.

A service that we subscribed to reported that since the first of the year, 18 companies made 40 different announcements regarding changes, and that would include things like interest rates, caps, commissions, payout factors, et cetera. 16 of those announcements were made in the months of June and July alone.

We did not make any changes since our December announcements and our message to our distribution as American Equity is consistent.

With all these changes, our market share may not change much for the second quarter, might even go down a bit, we don't know yet. We'll see the numbers in the next couple weeks.

And this is due to a sense of urgency by the producers to meet those deadlines imposed by the other companies.

Our July production was consistent with production in the second quarter of just over $300 million. The results of all these changes is that we expect American Equity is going to be very competitive again.

I fully anticipate that we will win back some of that market share in the second half of the year. In evidence, there's an uptick in activity during July.

Now one indicator that we look at is inbound phone activity -- I guess I'm cutting out again, and I apologize for that. I don't know what to do other than maybe talk slower, softer or what I should do.

But we're going to hang up and we're going to try again calling in another phone. Again, we apologize, ladies and gentlemen.

Well, good morning for the third time. Again, we apologize for technical difficulties.

We have a new phone, so hopefully we'll be able to get through it now.

The report is that I don't have to start at the beginning, it was just kind of towards the end where I started to fade out, got every couple 3 words. So I guess what the point out I was trying to make is that we really feel like we're going to get some market share back again as our products are very competitive, again, as the companies -- as our competitors are really cranking down on adjustments.

And one of the pieces of evidence of that is our uptick in inbound phone calls in our marketing department.

In the month of June, we averaged 500 incoming phone calls. In the month of July, it 630 incoming phone calls per day and considering July, is a pretty heavy vacation month and typically one of the slower month of the year.

It's pretty significant.

Our pending count averaged 2,835 in the second quarter, which was basically unchanged during the first quarter down just a tick. It did bottom out around 2,600 in mid-July, but it has recovered and is at 29 or just below 2,900 today.

Overall sales, as John had said are muted by today's low-rate environment, consumers are just a bit reluctant to tie up their money for an extended period of time. However, principal protection and guaranteed income are still very important, and especially as those baby boomers start to get into retirement.

And while fixed annuity rates might be low, they're still more competitive than other safe money alternatives. And I guess as a backdrop to those comments, there were a couple of positive articles in the press in the last couple weeks.

Reuters had one entitled, S&P Report Annuities' Share of Retirement Market Set To Go Up. And Fox Business also had one that was entitled, Is There a Lifeboat in Today's Financial Seas.

Both of those articles are very positive about our products regarding principal protection, and in particular, income guarantees for life.

So when you consider that, that's why we are so optimistic about the second half of the year. We've also been playing offense at American Equity in preparation for the second half of the year.

We introduced a couple of new products right at the beginning of the second quarter. Traditions Gold and the Traditions Gold Plus.

The Traditions Gold Plus has an 8% premium bonus on a 10-year chassis. The Traditions Gold is the same product that we took the premium bonus off and turned it into higher rates.

So for example, the fixed rate is 235 under Traditions Gold compared to 160 onto Traditions Gold Plus. So again, in this low interest rate environment, we're just trying to get some rates above 2 to try and attract some attention.

We also, just this week, introduced a trail commission option. We have got many agents who are excited about this option since we already have absorbed a trail commission at American Equity with our current structure.

So we think we'll be more successful with the trail option and most of our competitors because of the existing option that we have or existing structure.

Through June, our Gold Eagle count was 893 for those who have qualified or are on pace to qualify. As a refresher, the Gold Eagle producer should those [ph] write at least $1 million in paid annuity premium on a calendar year basis.

In 2011, this group was responsible for 58% of our total business. So we want to make sure we pay close attention to this group.

And of the 893 scheduled to qualify, 621 of them are from our 2011 program. So we also will see these numbers accelerate in the second half of the year.

They do every year as they get closer to their goals, and usually our business does get a little bit better in the second half of the year.

Paying attention to these producers has paid off, with improved retention rates. For example, this is the sixth year that we have the program.

And if we look at actual qualifiers for this year, 77 of them are 6-time qualifiers compared to 56, who are just first-time qualifiers. So to me, that says the agents that have been writing business with us are loyal and they tend to be loyal because they're accustomed to our consistency and our excellent service that our staff here delivers to them.

We still continue to have our client appreciation events. We feel that they're big impact on our policyholders, as well as on us for that matter.

We've been doing it for 2 years now. We have hosted 45 different events.

Almost 8,800 people have attended and over 600 producers have been there and we're going to -- we continue to be the only company that hold these events, and we're going to continue to do them for the foreseeable future.

Finally, American Equity has received some positive attention recently. We were listed in a Barron's article in May that talked about the top 50 annuities.

We were listed in the top 10 for fixed indexed annuities with income guarantees. And last, but not least, we just won The Wards 50 Award.

The Wards group analyzes 800 life and health insurance companies domiciled in the U.S. and identifies the top performers.

So we made the top 50. They look at metrics such as 5-year average return on average equity, 5-year growth in total revenue, 5-year growth in surplus among some other things.

So we're very pleased to be in the top 50 and receive that recognition.

So with that, hopefully, I got the message across without too much interference. And I'll turn the call back over to John.

Thank you, Ron. That concludes, obviously, our prepared remarks in the second quarter results.

Kind of moving back to some of the comments I made at the outset about management. As we think about the future of American Equity, our vision for the company is unchanged.

We think we've had a highly successful strategy for building Assets Under Management, earning a consistent spread on those assets and liabilities. And then not losing or forfeiting any of those spread earnings to investment losses.

And that strategy has led us to over $30 billion of invested assets, and nearly $26 billion of annuity deposits in 15 years. We're certainly going to miss Wendy, but we have a relatively young and experienced management team here at American Equity that has lots of experience in the insurance business and lots of experience working together at American Equity.

And that team remains to build on our past success and lead us forward for the next many years.

And with that, I'll turn the call over to the operator, and we'll be willing to answer any questions you might have.

I had a question earlier in the call. I missed this.

Ted, you said the amount of cash that you had put to work -- it broke up, but I think, you just said something like 135 million of what amount has been put the work? And is that subsequent to the end of the second quarter?

As of today, we put -- of that excess cash balance that we held at the end of the quarter, which was 1 billion. We put a 135 million of that to work.

Okay. And so I guess the challenge -- the reason why it seems like it's going slow to outsiders, is it because you're hesitant to put money -- I think it's easier to put money to work in agency RMBS, but obviously, that's creating call issues.

So is it taking longer because you're being kind of more thoughtful and methodical about doing kind of credit work in corporates and CRE and other areas?

Jeff, are you on the call?

I'm on the call, yes.

You want to respond to that or?

Sure. I think what we've focused on is we're in an unprecedented time in terms of interest rates.

As a result of that, we're trying to make sure that we effectively manage the risk in the portfolio and that one element of that is the interest-rate risk. The other element that we focus on is the credit risk.

And you're exactly right. We're just being a little more patient, diligent as we put some of these assets on the books that we're not putting on some tenure assets at times when really felt too comfortable putting those on.

So we are also looking very closely from other asset classes and making sure that we get our arms around how the risk reward potential for each of those asset classes. And it could be something that we would allocate as we get into the third and fourth quarter.

Okay. So I guess to the extent we think about this $1 billion because there's going to be more costs, but this billion gets put to work hopefully by the end of the year.

I guess that's the way for us to think of it?

That would clearly be our objective. We definitely want to get ahead of the curve here as we approach the end of the year.

So that we have a clean start for 2013 and we don't have this issue facing us as we start next year.

Okay, cool. And then, I guess, a sales question for Ron.

And again, if I missed this I apologize. But the -- you talked about competitors changing their policy pricing in terms pretty significantly, call it in the last few months, 3 or 4 months.

But I didn't catch any commentary that we get usually this time of year about some of the competitors, sometimes they have an annual kind of goal to hit, and once they hit it, they kind of shut down production. Is that potentially a dynamic we might think about for the back half?

I usually call this company in and outers. They're in the market for the first half of the year and out the second half of the year.

That typically doesn't hit until probably the third quarter or fourth quarter when you see they're making changes when everybody else really isn't. There are a couple of companies that multiple changes in the first half of the year, 2, 3 changes a month.

And those are, I think, I would classify them at the beginning for those in and outers to start exit the market for the second half. But overall, all the changes that we've seen kind of so far are really I think companies just responding to economic times.

Okay. And then, I guess, just one more there.

So the pending counts kind of in that 2,900 range. So is that -- I guess; it seems; like something $900 million of quarterly sales.

Does that seem like something that we should plan on at least for the next couple of quarters?

I mean, based upon what they experienced in the last several months, we seem to have a pretty solid base at the $300 million a month level. And if the competitive outcome continues to merge our way, move our way, as it indicated that conceivably escalates up from that.

I don't know that we're necessarily predicting that, but there are favorable signs that sales might be a little bit better.

But I think we're feeling pretty good that the $300 million a month seems to be a reasonably solid low point, so to speak.

Ted, you mentioned a -- you're talking about operating costs and you've mentioned a $900,000 -- I'm not sure what you're talking about, a $900,000 reduction in salary or something like that? I just want to get this out of the way before I ask a different question.

There was a $900,000 reduction in salary expense quarter compared to the last quarter. The primary reason for that is we have a compensation liability that's tied to the fair market value of our common stock.

Okay. So this is basically -- it's not a -- in a sense, it's a non-trendable?

Correct. pretty feeling going to fluctuate with the value of our stock each quarter.

Okay, all right. Good.

And then I guess, well, 2 questions. One, John, a general counsel.

It's still rough out there. What are you guys thinking?

What are you guys doing?

We're certainly talking about it. We have nothing to comment about it at this time, but it is on our mind.

Okay. And then, I guess, I had to think about this.

You can support the 300 bps spread by lowering rates on the end force. You said you had something like 60 -- I think 67 bps average.

So you can support the spread there by lowering the crediting rates, lowering caps, participating rates, things like that. The question I only have though is, new money, 375 4; cost of money, 150, 155.

How are you thinking about returns on new sales? I know you've got a B in the market but return on new sales versus maybe share repurchase.

Well, one of the things that supports the rates for new sales, Steven, is the fact that there are investments being released with the outflows. And so our analysis of rates on new business not only looks at what can we invest new money I have today, but what level of the investments in the portfolio are being in effect freed up and that yield now available to support or help with the new money yield.

Historically, I don't know you if you call it an issue. But one of the things that people pointed to is your assets tended to be longer before interest rates dropped through the floor, but tended to be longer than the liabilities.

Is that paying off here? Is this basically what you're saying?

I think so, yes, other than the fact that the call -- callable agencies don't write that. But we've always looked at -- we don't look at funding the policy outflows with redemptions or maturities and all that, while we have some redemptions and maturities in the portfolio, and obviously we collect investment income and that's available for outflows as well.

But the net-net is the sales can support or the sales are bigger than the outflows so that just freeze up some of the existing investments that were placed at higher rates to support new money rate. I don't think that's probably any different for American Equity and what everybody else is looking at, that we're competing against.

We all seem to have -- or the sales are likely bigger than the outflows, so the portfolio helps support the new money rates.

The 67 basis point cushion, as you would mentioned earlier, if interest rates were to stay at the current level, how long would we have before you hit that cushion or before use that cushion assuming you start to run into some levels of their guarantees? How meaningful is that time before that -- it has certain of material impact on spreads, let's say.

Mark, I don't know that we've got a sophisticated analysis that runs that out. I'm sure we don't.

My sense is that several years down the road before that would happen.

For several years.

Yes, and one of the dynamics would be that new sales we've got more flexibility. We -- earlier this year, we adjusted minimum caps and participation rates in the product filings.

So we're creating some flexibility in the new business. I think part of the erosion from 75 to 67, which would have been 75, was the first quarter number, would have been the fact that, yes, we're in the middle now of reducing some rates.

But once that rate changed, gets implemented, we're likely going to -- would see that number start to escalate a little bit from the presence of new business.

Right, so go back up...

The rate changes as what we did on the renewal side, we started them last November. The changes get implemented on the policy anniversary.

So it takes a full 12 months before all the policies in the universe receive their rate change. So that's likely a primary factor in the decline of that number from first to second quarter.

We had a nucleus of policies in the second quarter that we set at lower rates than they were at in that first quarter table.

Right. So that implies a little more cushion and a little more time once it gets fully incorporated into the base.

And then from the sales standpoint, you might have touched on this, but it sounds like your competitors are adjusting their pricing to take into account the lower rates. But your sales trends have been relatively steady in recent months.

Would you anticipate that sales and the opportunity to improve once those competitors -- let's say, fully get reflected in their pricing? Is there -- how much of a lag is there or has business -- maybe the overall environment slowed a little bit in the last month or so.

Mark, this is Ron. I think that we're already starting to respond from the standpoint.

That pending averaged 2,800, middle 2,800, in the first 2 quarters. It dropped down 2,600 in the middle of July, but is now real close to 2,900.

So all those changes were made. A lot of them were effective at the end of July.

And now when you compare rates of our products compared to our primary competitors, we are looking real good. We're very competitive.

And so I think some of that market share we lost in the first half will come back our way, and I think that the positive signs of incoming phone calls, we look at how many website hits do we have for certain forms and supplies, all those little beginners on the front end are positive and when you have an increased phone calls, increased supply orders and those types of things, that's usually an indication that premium is to follow, and so I think we're at the beginning of a good second half.

Actually, I just want to follow up the point that John made. You put in the current rate decreases in November.

You've got 67 bps of room, but how much room will you have in November if you do nothing else and you just let the current rate decreases flow through the books? Do you know?

I don't know, and I don't know that we've got the capability to project that out. I mean we -- I know we're going to take 15 to 20 out of the cost of money, but how it's going to affect that number, I would [ph] know.