Globe Life Inc (GL) — Q3 2018 Earnings Call Transcript

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 2017 10-K and any subsequent Forms 10-Q on file with the SEC. Some of our comments may also contain non-GAAP measures. Please see our earnings release and website for a discussion of these terms and reconciliations to GAAP measures. I will now turn the call over to Gary Coleman.

Thank you, Mike, and good morning everyone. In the third quarter, net income was $179 million or $1.55 per share compared to $153 million or $1.29 per share a year ago. Net operating income for the quarter was $183 million or $1.59 per share, a per share increase of 29% from a year ago. Excluding the impact of tax reform, we estimate that the growth would have been approximately 10%. On a GAAP reported basis, return on equity as of September 30, was 4.4%, and book value per share was $48.35. Excluding unrealized gains and losses of fixed maturities, return on equity was 14.7%, and book value per share grew 26% to $43.10. In our life insurance operations, premium revenue increased 5% to $606 million and life underwriting margin was $169 million, up 10% from a year ago. The growth in the underwriting margin exceeded premium growth due to higher margins at American Income and Direct Response. For the year we expect life underwriting income to grow around 7%. On the health side, premium revenue grew 5% to $255 million and health underwriting margin was up 8% to $60 million. Growth in underwriting margin exceeded premium growth due to higher margins at Family Heritage and American Income. For the full year, we expect administrative expenses to be up around 5% and around 6.5% of premium compared to 6.4% in 2017. I will now turn the call over to Larry for his comments on the marketing operations.

Thank you, Gary. At American Income, life premiums were up 8% to $273 million and life underwriting margin was up 11% to $93 million. Net life sales were $55 million, down 5%. The average producing agent count for the third quarter was 7,105, down 1% from a year ago but up 1% from the second quarter. The producing agent count at the end of the third quarter was 7,066. While we're still optimistic about American Income's growth potential, we do have some challenges. First, we have opened ten new offices this year. While this is great news because it supports sustainable long-term growth, it doesn't have production in the near term as top middle managers leave existing offices to become agency owners in new offices. In addition, our economic conditions historically have had a little impact on agent growth at American Income, as unemployment is currently at a 50-year low, leading to an uptick in new agent terminations due to the abundance of other career opportunities. There is one issue, however, that we do not consider to be a challenge. There have been reports and discussions recently regarding the potential impact of the Supreme Court ruling that prohibits public unions from assessing collective bargaining fees from non-union members. As we stated on the last call, we do not believe this will have a significant impact at American Income. We expect to see a reduction of only about 2% in American Income's overall lead production as a result of the ruling. In addition, we do not expect an impact on the persistency of our in-force business. These policies were individual policies, not tied to union membership. The premiums are collected directly from the individual policyholders. As discussed previously, the majority of our new business leads are non-union leads. Furthermore, our union leads are more weighted towards private unions. Our American Income Labor Advisory Board has significant representation from public unions, but our penetration into public union membership has historically been low. There is no correlation between the makeup of our advisory board and our mix of business or leads. In fact, we believe the court's ruling creates an opportunity to strengthen relationships with public unions as they seek ways to incorporate programs that add value to union membership. At Liberty National, life premiums were up 2% to $70 million while life underwriting margin was down 11% to $17 million. Net life sales increased 1% to $12 million and net health sales were $5 million, up 4% from the year ago quarter. The average producing agent count for the third quarter was 2,180, up 2% from a year ago and approximately the same as the second quarter. The producing agent count at Liberty National ended the quarter at 2,021. In our direct response operations at Globe Life, life premiums were up 4% to $208 million and life underwriting margin increased 27% to $39 million. Net life sales were down 4% to $30 million. We continue to refine and adjust our marketing programs in an effort to maximize the profitability of new business. At Family Heritage, health premiums increased 8% to $69 million and health underwriting margin increased 14% to $17 million. Health net sales grew 13% to $16 million. The average producing agent count for the third quarter was 1,086, up 6% from a year ago and up 3% from the second quarter. The producing agent count at the end of the quarter was 1,143. At the United American General Agency, health premiums increased 7% to $96 million. Net health sales were $13 million, up 40% compared to the year-ago quarter. To complete my discussion of the marketing operations, I will now provide some projections. We expect the producing agent count for each agency to be as follows: American Income at the end of 2018 around 7,000, for 2019 1% to 7% growth; Liberty National, at the end of 2018 around 2,250, for 2019 flat to 7% growth; Family Heritage at the end of 2018, around 1,185, for 2019 1% to 5% growth. Our approximate life net sales are expected to be as follows; American Income for the full year of 2018 flat to 1% growth, for 2019, 3% to 7% growth; Liberty National, for the full year of 2018, 6% to 7% growth, for 2019, 6% to 10% growth. Direct Response for the full year of 2018, 6% to 9% decline, for 2019 flat to 4% growth. Total health net sales are expected to be as follows: Liberty National, for the full year 2018, 5% to 6% growth, for 2019, 4% to 8% growth; Family Heritage, for the full year of 2018, 7% to 9% growth, for 2019, 5% to 9% growth; United American Individual Medicare Supplement for the full year 2018, 20% to 22% growth, for 2019, 6% to 10% growth. I’ll now turn the call back to Gary.

I want to spend a few minutes discussing our investment operations. First, excess investment income, which we define as net investment income less required interest on net policy liabilities and debt, was $62 million, a 1% increase over the year-ago quarter. On a per share basis, reflecting the impact of our share repurchase program, excess investment income increased 6%. For the full year 2018, we expect excess investment income to grow about 2%, resulting in a per share increase of about 5%. Now regarding the investment portfolio, invested assets were $16.8 billion, including $15.5 billion of fixed maturities at amortized cost. Of the fixed maturities, $14.8 billion are investment grade with an average rating of A minus. Below investment grade bonds are $682 million compared to $661 million the year ago. The percentage of below investment grade bonds to fixed maturities is 4.4%, the same as in the year-ago quarter. With a portfolio leverage of 3.1 times, the percentage of below investment grade bonds to equity, excluding net unrealized gains of fixed maturities, is 14%. Overall, the total portfolio is rated BBB+, the same as the year-ago quarter. We had net unrealized gains in the fixed maturity portfolio of $769 million, approximately $165 million lower than the previous quarter, primarily due to changes in market interest rates. As investment yields in the third quarter, we invested $206 million in investment grade fixed maturities, primarily in industrial and financial sectors. We invested at an average yield of 5.14% and an average rating of BBB+ with an average life of 26 years. For the entire portfolio, the third quarter yield was 5.56%, down 8 basis points from the 5.64% yield in the third quarter of 2017. As of September 30, the portfolio yield was approximately 5.56%. At the midpoint of our guidance, we are assuming an average fixed maturity new money rate of 5.2% in the fourth quarter and a weighted average rate of 5.4% in 2019. We are encouraged by the recent increase in interest rates; our new money rates will positively impact operating income by driving up excess investment income. We are not concerned about potential unrealized losses or interest rate-driven declines, as we do not anticipate realizing them. Importantly, we have the intent and ability to hold our investments to maturity. Now, I’ll turn the call over to Frank.

Thanks, Gary. First, I want to spend a few minutes discussing our share repurchases and capital position. In the third quarter, we spent $75 million to buy 877,000 Torchmark shares at an average price of $85.84. So far in October, we have spent $34 million to purchase 403,000 shares at an average price of $85.28. Thus far for the full year through today, we have spent $284 million of parent company cash to acquire more than 3.3 million shares at an average price of $85.51. These purchases are being made from the parent company’s excess cash flow. The parent company’s excess cash flow, as we define it, results primarily from the dividends received by the parent from its subsidiaries, less the interest paid on debt and the dividends paid to Torchmark shareholders. We expect excess cash flow in 2018 to be around $340 million. With $284 million spent on share repurchases thus far, we can expect to have approximately $56 million available to the parent for the remainder of the year from our excess cash flows plus other assets available to the parent. As noted on the previous call, 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 funds. We also expect to retain approximately $50 million to $60 million of parent assets at the end of 2018, absent the need to utilize any of these funds to support our insurance company operations. Looking forward to 2019, we preliminarily estimate that the excess cash flow available to the parent will be in the range of $345 million to $365 million. Now regarding capital levels of our insurance subsidiaries, our goal is to maintain capital at levels necessary to support our current ratings. For the past several years, that level has been around an NAIC RBC ratio of 325% on a consolidated basis. In light of the current tax reform legislation that changed the NAIC RBC factors and following discussions with our rating agencies, we are reducing the target consolidated RBC ratio to be in the range of 300% to 320%. This does not represent an intent to hold lower statutory capital within the regulated subsidiaries, but simply reflects the fact that the amount of required capital, which represents the denominator in the net ratio, has increased. In fact, the overall quality of statutory capital maintained within our insurance subsidiaries post-tax reform will be greater as deferred tax assets will have been replaced with invested assets. On September 27, 2018, Torchmark completed the issuance and sale of $550 million aggregate principal amount of 4.55% senior notes due in 2028. The company intends to use the net proceeds of approximately $543 million to redeem on October 29, for a price of $304 million, the 9.25% senior notes that were scheduled to mature in 2019, including a May call premium, as well as define approximately $150 million of additional capital in the insurance company. The company also intends to utilize the remaining proceeds for general corporate purposes, including approximately $75 million for the repayment of a portion of the company's outstanding commercial paper. Following the redemption of the 9.5% senior notes, Torchmark’s debt-to-capital ratio should be below 25%, less than the 26% ratio carried prior to tax reform and less than the 30% ratio that supports our current ratings. With the additional capital in insurance companies, our statutory capital will not only exceed previous levels, but as previously noted, the quality of the capital maintained will be greater. In conjunction with the new senior debt issuance, each of our rating agencies, Moody's, S&P, and Fitch, affirmed their existing ratings. Moody’s also indicated that they were reducing the threshold RBC level for our current rating from 325% to 300%, while A.M. Best affirmed its A- rating on our new debt issue. It is our understanding that their normal practice is to not formally review the negative value placed on our rating until their next regularly scheduled review in 2019. Next, a few comments on our operations. With respect to our direct response operation, the underwriting margin as a percent of premium in the quarter was 19% compared to 16% in the year-ago quarter. This was primarily attributable to favorable claims in the third quarter of this year compared to higher than normal claims in the third quarter of 2017. While the 19% margin percentage for the quarter was higher than we anticipated, it was within the overall range we expected. On our last call, we estimated that the underwriting margin percentage for the full year 2018 would be in the range of 16% to 18%. Now, for the full year 2018, we are estimating the underwriting margin percentage for direct response to be in the range of 17% to 18%. We are encouraged by the improved claims experience and the fact that the underwriting margin percentage for the last four quarters has averaged 17.6%. While we expect the margin percentage for direct response to remain in the 17% to 18% range in 2019. With respect to our stock compensation expense, consistent with previous quarters we saw an increase in the expense during the quarter compared to the last year, primarily attributable to the decrease in the tax rate and excess tax benefits in 2018, as a result of the tax reform legislation. We still anticipate that expense for 2018 to be approximately $22 million. For 2019, we expect the expense to be in the range of $19 million to $23 million. As Gary noted, our net operating earnings per share for the third quarter was $1.59, $0.04 higher than our internal estimate of $1.55 per share for the quarter. The excess earnings were primarily attributable to better-than-expected results, not only in our direct response operations, but also in our American Income and Family Heritage channels. The underwriting margin percentage for each of these channels is at the high end of our expectations, and the results for American Income and Family Heritage were at five-year highs. As such, we believe this favorable experience is a fluctuation, and we expect the underwriting margin percentages to revert to more normal levels in the fourth quarter. With respect to our earnings guidance for 2018 and 2019, we are projecting a net operating income per share in the range of $6.08 to $6.14 for the year ended December 31, 2018. This $6.11 midpoint of this guidance reflects a $0.01 increase over the prior quarter midpoint of $6.07, primarily attributable to the positive result in underwriting income, especially for our direct response and American Income channels. For 2019, we are projecting the net operating income per share in the range of $6.45 to $6.75, an 8% increase at the midpoint from 2018. Those are my comments. I will now turn the call back to Larry.

Thank you, Frank. Those are our comments. We will now open the call for questions.

First on Liberty National. I guess life margins have deteriorated a bit year-to-date, this is followed a period of strong sales growth. So I was just hoping you could provide some more guidance on what dynamics you're seeing? And what you're assuming for margins in your 2019 guidance?

First of all, looking at the quarter-over-quarter, the policy obligations are 38% - it was high for this year as compared to last year at 36% which was a low for 2017. So part of it’s an unfavorable comparison. However, we were expecting a lower policy obligation ratio in the third quarter this year because just the normal seasonal pattern - and that pattern didn't occur. So we do expect that fluctuation, and it will return back to a more normal pattern, but still because we have the higher order, we're going to be able to get a higher ratio this year than we were in 2017. So that's about a point difference in the margin. The other main difference in the Liberty National margins is in the non-deferred commissions and amortization. We're running about one percentage point higher, around 38% versus 37% last year. The reason for that is because the amortization on the business in the previous years is higher than the amortization rate on the older airports bought the business that's running off. So, that will probably continue. Looking forward, we’re at about a 24% underlying margin for the year, we expect to end up around that for the year, and we're also in 2019 expecting the amortization percentage to creep up a little bit. But we also expect that the policy obligations will revert back to more of the 36% range as opposed to 37%. So to sum that up, for 2019, we’re looking for the margins to stay at around that 24% level.

Erik, the one thing that I would add to that is that we are seeing the non-deferred expenses creeping up just a little bit on that as well as we are expanding some of the sales there and our sales efforts and making some investments in both the agency, as well as technology investments to support those future sales, and we do anticipate future sales growth from that paying back over time.

And then following the debt raise and the capital contribution, you'll have your RBC ratio in the range you talked about of the 300% to 320%, how do you think about the need to maintain a buffer in that or where you fall in the range just for the potential impact of either a credit market downturn or ratings downgrades? Or if there are C1 changes from the NAIC that come through?

Yes, we're very comfortable with our liquidity position, if you will, and so I don't feel a strong need for a whole lot of a tougher buffer for some events that may or may not occur in the future. We've been at this general level of RBC for quite some time; we know that we have capacity within our debt-to-cap ratios and still fit within the overall perspective from our rating agencies of probably about $500 million from where we expect to be at the end of the year. Our debt-to-cap ratio is just a little less than 25%, and once the 9.25% is actually redeemed, we'll fall within that 30% ratio that our rating agencies prefer to see as a maximum. We saw around $500 million of capacity there, and we really have access to that just through our bank line. But even if we didn't have the bank line for some reason and access to the public markets, we know that we have free cash flow coming up in that $340 million to $360 million range next year, which we would anticipate for the year after that. That creates that added amount of liquidity for us, so I think all those factors together give us good comfort that if we were to experience some downgrades or impairments, we'd be able to deal with that when the time comes.

Erik, I would add that historically, we consider the buffer to be the liquidity that we have. As Frank mentioned, the ability to add debt but also the free cash flow; we know that free cash flow is there. We would prefer to wait until we have a determination of the need before we inject capital into companies. Once that money is invested in the companies, it’s challenging to retrieve that money because you must navigate regular dividend processes and good regulators. We feel very comfortable that we have more liquidity than we'll need, but we don't see the utility of investing it into the companies until we genuinely require it.

My first question is just on the agent growth at American Income. I appreciate the further comments on the union impact. I guess could you elaborate more on just why the decline in the number of agents in that business and some of the things that are going on?

I think the challenge lies in how we’re going to increase agent growth at American Income. As I stated in my comments, we've seen several factors this year that negatively affected agent growth. The first is the higher unemployment. Recruiting for the year at American Income is actually up 5%. Of course, terminations have been a little higher than the growth in recruits, so we've had a flat agent count at year-end. As we go forward, we're changing our compensation system to improve our agent count and productivity. The changes include increasing our new agent commission and new monthly bonuses for agents to encourage retention. We’re increasing bonuses for managers to train new agents. Lastly, we’re changing our bonuses for middle managers and agency owners for recruiting agent retention. We believe this will have a positive impact in 2019; our guidance for 2019 is 1% to 7% growth in the agent count at American Income.

And then just in Direct Response, the increase in expected margins there, what is it about what you're seeing in the performance of the block that causes you to feel like the go-forward expectations are increased? Is it lower incidence that's driving the favorable mortality?

Yes, we've really seen favorable experience across most issue years with no specific particular causes of death or product types responsible. It's fairly broad. We've actually seen some improvements overall in the claims with respect to what has been our problem issue years, 2010 to 2014, which we’ve discussed over the past few years. So, some of the claims in those more recent issue years have moderated. That gives us confidence in maintaining the overall claims level. Looking forward into 2019, we expect the first couple of quarters to have lower margins with higher claims just due to the normal seasonality and claims following the same pattern that we observed this year.

So I'd like to add that when we mention lower claims, we are referring to lower volume claims; the average claimed dollars remain fairly stable.

Hi. I had a couple of questions. First, just on direct response sales, they've been weak. But I think the pace of decline has been decelerating a little bit. So what's your expectation of when they begin to turn and what do you think will drive that?

Jami, I think sales will start to churn in early 2019. We're seeing an increase in total inquiries in the insert media. We're seeing a slightly higher mail volume. So as we've adjusted our marketing, we expect to see higher sales in 2019.

And then, on health sales, you've had pretty good sales, I guess in the last four quarters really. What's driving that? Is it mostly individual policies or group, and what's your expectation for that business in 2019?

So, for the Medicare supplement sales, 40% of the increase comes from the group and 46% comes from individual Medicare supplement. We’ve seen strong growth in individual sales for the last year because market conditions are favorable from a pricing standpoint, in addition, we had good recurring results over the past several quarters. The group is particularly hard to forecast due to the uneven nature of group sales, which are impacted by the size of the groups. However, we expect some growth in group sales in 2019, but it's difficult to predict at this point. In Family Heritage, the increase is driven by group productivity and the increase in number of agents, while productivity in terms of the percentage of agents and the average premium written per agent is increasing, which is what's driving the sales in Family Heritage.

The bond refinancing, I mean even though you've issued a lot more than you are paying back, your overall interest costs go down and you’ll have $250 million to invest. So I have it as a decent bit accretive, $0.11 to $0.12. Is that in your guidance?

Yes, Bob, it is indeed in our guidance. There is a portion of that that’s probably going to be used for CP reduction as well. So we're looking at the possibility of $150 million to $200 million which is going to give reinvested within the company.

What's your CP rate these days?

We've been a little bit north of two and a half recently, and we expect it to tick up over the course of the remainder of this year into 2019 along with changes in the bids.

But you're sort of arbitraging your debt cost because I mean you're investing at two-digit rates say new money and your debt cost is at $490. So you pick up 30 basis points on the excess that you’re not repaying. And you are saving 500 basis points on what you're repaying, clearly a nice transaction. Are there any charges - I'm sorry, go ahead.

Absolutely, we are seeing that, on that arbitrage as far as being able to reinvest a portion of that at a decent spread over what our borrowing costs were. In the fourth quarter, Bob, I think your question was when we actually redeem this, we will be making a whole premium, and that make whole premium will be expensed below the line in the fourth quarter.

And a little bit of extra interest per month, right, with the double…

Yes, in the fourth quarter, roughly we will have about $2 million of excess interest expense in the fourth quarter, because we did have to double up on that debt for a month. Now, a portion of that will get reinvested and help our investment results.

I have about a $4 million pickup in investment income, but I guess they got knocked down the CP, so maybe $2 million to $3 million pickup quarterly in investment income just from this, just roughly, right.

Yes, that sounds fair.

And last thing, your statutory earnings must be growing a decent bit. We've had a growth penalty that has held back free cash flow. So we passed a crossover point and the earnings from the past, sort of flowing through offsetting the need for keeping more for growth, or is there something else that's causing the bump up in dividends this year that you're looking for next year?

I think that's fair. We’re kind of anticipating our statutory earnings, Bob, it’s a little bit early yet for 2018, but we expect them to be up probably $15 million to $20 million over where we were in 2017. For the most part, that's about a 4% growth. So you're growing pretty much in line with overall growth in premiums. But clearly the moderation of our obligations, which we’ve been having challenges with over the past several years, has clearly been helpful. The higher interest rate will not help us much until 2019, but that will at least be a positive factor, and then we’ll see some incremental benefits from a lower tax rate in 2018 as well.

So from here, statutory earnings should be able to grow in line with GAAP earnings?

Yes, I think we would expect that; now, if we do end up having some high growth years, that will tend to work against statutory earnings. But if sales are growing in those lower single-digit numbers and mid-single-digit numbers, you're not going to see it as much stress on statutory earnings.

From your lips to God's ears if that problem develops? Thank you.

I'm not sure exactly how to follow up that last comment. The first question I have is just thinking about the midpoint of the 2019 guide. I think it’s what $660 million. So, at that midpoint, how should we be thinking about the overall portfolio yield and impact on excess investment income? And then I assume the upper and lower end of the range give some flexibility for new money yields or portfolio yields to shift a bit?

John, I think as far as portfolio yields - you know we've been experiencing declines. We’ve been having year-over-year declines in the range of 9 basis points to 10 basis points. We've reached a point now where we're investing in what's coming off the portfolio. Whereas we are at 5.56% for this year, we think that at the end of next year the portfolio yield will be 5.53%, so rolling is about three basis points. We’re getting to a point where the portfolio yield and investment grades are getting very close.

That's helpful; that's a outlook that what we've got in terms of decline.

I’ll just say, John, you’re just considering some of the sensitivities from plus or minus 25 basis points on those new money yields over the course of the years, that will impact about $0.02 overall.

So, new cash flows to invest, I mean, other than the incremental investment you've got from the net debt?

Correct.

The new cash flows to invest, what about $500 million, $600 million bucks, give or take, I’m guessing?

Well, next year we’ll invest just over $1 billion, $1.2 billion or so. But as you’re talking about new money, you're correct on that, because after the department we've been reinvested. The first one, the maturity is less than about $500 million.

And then, the second question is, I know it's early days yet. And this stuff is going to be ferreted out over a lengthy period of time, but Gary or Frank, any early thoughts on conceptually or otherwise, how you think the new FASB long-duration accounting standards are going to impact your financial statements?

Yes, it is pretty early. They did provide the final amendments here this quarter, and they will be effective in 2021. At this point in time, we’re still reviewing the amendments to determine what changes we’ll ultimately need to make to our systems and processes to comply. There is a lot of work required between now and then. I think at a very high level, you have a couple of things that are changing; a lot of changes in assumptions with respect to future cash flows, and changes to those assumptions will flow through net income, with at least the potential for some of that to impact losses. The bigger change is that you’ll revalue reserves quarterly using a current market rate. Those adjustments to the interest rate will flow through OCI, impacting overall current operations. In general, it looks like companies that may be writing policies with some margin risk benefits, as discussed in the guidance, may experience a bit more volatility because those are just a little bit harder to nail down regarding future cash flow assumptions. With the nature of our products, there will be a lot of work to ascertain the exact impact it might have on us, but we’re hopeful it may not be as volatile as we once thought.

We'll stay tuned, and I’m sure there’s a lot more to go on that topic. I have just got one more for you guys. I appreciate the lower asset leverage of your operation; I appreciate the non-callable liabilities, which completely eliminate a run on the bank type of scenario or risk. But you do have a very heavy exposure within your investment-grade portfolio, the BBB securities. So sort of circling back on, I think it was Erik's question earlier. Because we’re getting very late in the cycle here, is there any expectation of some sort of at the margin even portfolio reallocation to move credit quality a little higher to protect capital ratios against the potential downturn?

Well, John, I think we - although we haven’t changed our overall investment philosophy, we have made a few tweaks in what we're doing. One is we've invested more in municipal bonds than we have in the past, which are a little bit higher quality bonds. Also, there are certain issuers that we may have invested in in the past we aren’t now because they have higher leverage than we prefer at this point in the cycle. We have made changes like that, but overall, the strategy remains the same.

I had a follow-up to Bob’s question on longer-term earnings generation. This year we saw a little bit of uplift from tax reform, but fairly minor on a statutory basis given some of the cash tax changes. I'm just wondering if you look longer-term, will you see more of the tax benefits from tax reform start to emerge on a statutory basis over a much longer period of time?

Yes, we think you’re right; in the near term and kind of intermediate term, there will be incremental benefits from tax reform. We've estimated in that $10 million to $15 million a year range. Once we get past year eight, because there are certain transition rules as part of that tax reform that cause us to, if you will, pay back a portion of our tax reserves over the first eight years. After that period, we will start to see much more significant benefits from the tax reform. The transition rules are probably costing us around that $19 million or $20 million range a year. So that will provide relief after year eight.

So once you get that pathway in year eight, you could see about $20 million or so of uptick immediately?

That's right. And then, of course, statutory income grows and your overall taxable income base grows, that differential will also be responsive to the reduced tax rate.

Okay. Thank you for joining us this morning. Those are our comments, and we’ll talk to you again next quarter.