Good day, welcome to the Torchmark Corporation's fourth quarter 2011 earnings release conference call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Mark McAndrew, Chairman and CEO of Torchmark Corporation. Please go ahead, sir.
Thank you. Good morning, everyone. Joining me this morning is Gary Coleman, our Chief Financial Officer, Larry Hutchison, our General Counsel, and Mike Majors, Vice President of Investor Relations. 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 2010 10-K and any subsequent Forms 10-Q on file with the SEC. Net operating income for the fourth quarter was $128 million, or $1.25 per share, a per share increase of 12% from a year ago. Net income for the fourth quarter was $126 million, or $1.23 per share, a 4% decline on a per share basis. For the full year, operating income per share grew 10% to $4.68, while net income per share increased 12% to $4.72.
Excluding FAS 115, our return on equity was 14.2% for the quarter, and our book value per share was $35.59, a 9% increase from a year ago. On a GAAP reported basis, with fixed maturities carried at market value, book value grew 25% for the year to $41.54 per share. In our life insurance operations, premium revenue, excluding United Investors, grew 4% to $432 million, and life underwriting margins increased 6% to $121 million. Net life sales for the quarter increased 5% to $81 million. At American Income, life premiums were up 9% to $157 million, and life underwriting margin was up 5% to $51 million. Net life sales increased 11% for the quarter to $37 million. The producing agent count at year-end was 4,381, up 12% from a year ago. I continue to be excited by the growth prospects of American Income.
While the agent count dipped slightly in the fourth quarter, it has rebounded strongly in January to over 4,600. Our middle sales management ranks have grown 29% in the past year. As expected, we saw double-digit life sales growth in the fourth quarter, which we expect to continue throughout 2012. In our Direct Response operation at Globe Life, life premiums were up 6% to $146 million, and life underwriting margin was also up 6% to $36 million. Net life sales were up 8% to $33 million. We are beginning to see the impact of the increased insert media circulation, which we began in the third quarter. We expect to see similar or better sales growth through at least the first three quarters of 2012. At Liberty National, life premiums declined 3% to $71 million, and life underwriting margin was down 1% to $16 million.
Net life sales declined 23% to $8 million, while net health sales grew 43% to $5 million. The producing agent count at Liberty National year-end was 1,345, down 33% for the year. Since our last call, we have made some management changes at Liberty National. Roger Smith, the CEO of American Income, has also been appointed CEO of Liberty National, and Steve DiChiaro, a very successful SGA at American Income, was brought in as Chief Marketing Officer. These management changes have been very well received by the Liberty National sales force. I am optimistic that we will begin to see a turnaround at Liberty National in the next six to nine months. On the health side, premium revenue, excluding Part D, declined 5% to $179 million. Health underwriting margin also declined 5% to $34 million. Health net sales grew 7% in the quarter to $21 million.
Premium revenue for Medicare Part D declined 5% to $48 million, while underwriting margin was down 23% to $7 million. Part D sales for the quarter increased to $97 million versus $14 million a year ago, primarily as a result of low-income subsidized enrollees, which we discussed on the last call. The volume of business from new low-income subsidized enrollees who turn 65 has been a positive development. While we expected to enroll roughly 2,000 per month, for January and February, we have averaged closer to 6,000. We now expect to add 50,000 to 75,000 additional enrollees turning 65 in 2012 versus our prior estimate of 24,000. Administrative expenses were $41 million for the quarter, up 2% from a year ago and in line with our expectations. I will now turn the call over to Gary Coleman, our Chief Financial Officer, for his comments.
Thanks, Mark. I want to spend a few minutes discussing our investment portfolio, capital, and share repurchases. First, the investment portfolio. On our website are three schedules that provide summary information regarding our portfolio as of December 31st, 2011. As indicated on these schedules, invested assets are $11.4 billion, including $10.9 billion of fixed maturities at amortized cost. There is no exposure to European sovereign debt. There are no commercial mortgage-backed securities or securities backed by subprime or alt-A mortgages. Of the fixed maturities, $10.2 billion are investment grade with an average rating of A-. Below investment-grade bonds are $701 million compared to $863 million a year ago. The $162 million decline this year is due primarily to $140 million of dispositions and $22 million of net upgrades. The percentage of below investment-grade bonds to fixed maturities is 6.4%, compared to 8.3% at the end of 2010.
With a portfolio leverage of 3x , the percentage of below investment-grade bonds to equity, excluding net unrealized gains on fixed maturities, is 19%, which is less than most of our peers. Overall, the total portfolio is rated A- compared to BB B-plus a year ago. We have net unrealized gains in the fixed maturity portfolio of $964 million compared to gains of $942 million at the end of the third quarter and $108 million a year ago. The increase in unrealized gains in the fourth quarter is due primarily to slight declines in Treasury yields and credit spreads. Regarding investment yield, in the fourth quarter, we invested $273 million in investment-grade fixed maturities, primarily in the industrial sectors. We invested at an average annual effective yield of 5.22%, an average rating of A-, an average life of 28 years.
For the year, we invested $1.1 billion at an average yield of 5.65% and an average rating of A-. For the entire portfolio, the fourth quarter yield was 6.52% compared to 6.54% in the previous quarter and 6.65% in the fourth quarter of 2010. The decline in yield is due to the lower new money yields. As of December 31st, the yield on the portfolio is 6.49%. Regarding RBC, as we've said before, we plan to maintain our capital at the level necessary to retain our current ratings. For the last two years, that level has been around an NAIC RBC ratio of 325%. This ratio is lower than some peer companies, but is sufficient for our companies in light of our consistent statutory earnings, the relatively lower risk of our policy liabilities, and our ratings.
Although we haven't finalized our 2011 statutory financial statements, we expect that RBC at 12/31/2011 will be around the 325% target. Regarding share repurchases in parent company assets. In the fourth quarter, we used $67 million to buy 1.7 million Torchmark shares. For the year, we spent $788 million to acquire 18.9 million shares or 16% of the diluted outstanding shares at the beginning of the year. At December 31st, the parent company had liquid assets of $74 million. In addition to these assets, the parents will generate additional free cash in 2012. We define annual free cash flow as the dividends received from the subsidiaries, less interest expense and thus the dividends paid to our shareholders. Assuming shareholder dividends at the current level, we expect free cash flow in 2012 to be around $350 million to $360 million.
Including the $74 million of assets on hand, we will have approximately $425 million to $435 million of cash available to the parent during the year. To date, in 2012, we have used $16 million of this cash to buy 355,000 Torchmark shares. As noted before, we will use our cash as efficiently as possible. If market conditions are favorable, we expect that share repurchases will continue to be a primary use of those funds. Before I turn the call back to Mark, I'd like to discuss the impact of the new accounting rules for DAC. As of January 1st, 2012, the company will adopt ASU 2010-26, which changes the rules regarding the deferral of acquisition costs. The standard will change the timing of GAAP profits to the extent that certain expenses deferred currently will now be deferred under the new rules.
It does not affect our overall profitability, cash flows, or statutory earnings. We will elect to adopt the new rules retroactively, which means that DAC will be written down to the level as if the new standard had been in place in prior periods. Going forward, the earnings impact will be the combination of the reduction in expenses deferred on newly issued policies, somewhat offset by the reduced amortization of DAC resulting from the retroactive write-down. We currently estimate that the retroactive write-down will be around 16% of the current DAC asset, which will result in around a 10% reduction in GAAP equity, excluding net unrealized gains or losses on fixed maturities.
In addition, we expect that 2012 earnings will be 1%-2% or $0.06-$0.08 per share lower than they would have been under the old rules, and that ROE, excluding net unrealized gains or losses, will rise from the current 14% level to 15%-16%. These estimates were included in our guidance for 2012. Those are my comments. I will now turn the call back to Mark.
Thank you, Gary.
For 2012, we continue to expect our net operating income per share will be in a range of $5.10-$5.40 per share. Those are my comments for this morning. Gwen, I will now open it up for questions.
Thank you. For those of you joining us by telephone, please press star one to ask a question. If you are using a speakerphone, please make sure your mute button is turned off to allow your signal to reach our equipment. Once again, that's star one if you have a question. We'll pause for just a moment to assemble the queue. We'll take our first question from Jimmy Bhullar with JPMorgan.
Thank you. Good morning. First, for Mark, on recruiting trends, you mentioned that the American Income agent count recovered a bit. If you could just give us an idea on what caused the decline in the fourth quarter and your outlook for agents there. Also at Liberty National, the agent count dropped. I think you obviously made a lot of changes in December in that business. Should we expect another drop in the agent count there, or has most of the disruption already occurred? Lastly, Gary, you mentioned the $350 million- $360 million of free cash flow. You gave numbers for cash at the holding company, but I missed those. If you could just repeat those as well.
Okay. Well, first off, Jimmy, as far as American Income recruiting, I'm not sure if it was the way the holidays fell. We did see a drop-off the last couple of weeks of the year, which caused a little dip there. The fourth quarter is never a particularly strong recruiting quarter for us, although the January and early February results have been very strong. Recruiting is up significantly. Our agent retention is improving, and our middle management counts are growing. I feel very good about where it's at. Actually, if I look at the agent count at the end of January, we're up 24% from where we were at the same time a year ago. I'm very optimistic about where American Income is. At Liberty National, I think I have all the confidence in the world in Roger and Steve.
Realistically, I think it's going to take six months to get the recruiting and training and sales processes in place at Liberty. I think we'll see the decline slow, but I would still expect to probably see a small decline in the first quarter and hopefully turn around from there. I really think it'll be the second half of the year before we really see the results of a turnaround at Liberty. Gary?
Yeah. Jimmy, as I said at the beginning of the year, we have $74 million of cash on hand. We'll supplement that with additional cash of $350 million- $360 million of free cash flow.
Okay. Most of that, I think you mentioned most of that you intend to use for buybacks, how much would you want to keep just as a cushion out of that amount?
I think we probably want to keep a cushion of around $50 million, maybe a little bit higher. I think that there's no specific need or whatever that we're targeting. We just feel like we should have some cushion, that number feels about right.
Jimmy, the midpoint of our guidance, we're assuming that we're going to spend about $90 million a quarter on share repurchase.
Okay. Got you. Then just following up on the Liberty comments, have you seen, you mentioned the agent count being up at American Income, at Liberty, have you seen the agent count drop further so far this quarter?
As of now, it's down about 4% from where it was at year-end. It's still down a little bit from where we were at year-end.
Got you. Thank you.
We'll go next to Randy Binner with FBR.
Hey, thanks. Just on Liberty National, appreciate the comments on the management change there. It seems like we've been talking about, or you all have been talking about things you can do there, which has included, I think, closing offices and potentially changing product profiles and maybe compensation. If you could elaborate on kind of what else the new management team there might change going forward, I'd be interested to kind of get a little bit more kind of color on what they might expect to improve at Liberty.
The main thing, Randy, is really getting more organized in our recruiting and training of new agents. At American Income, we have systems in place where it is an ongoing, every week process of here's how you recruit, and every SGA that we have there is recruiting every week, and the middle management team that we have there, they're recruiting on a weekly basis. We just need to implement similar processes at Liberty National, that really hasn't been put in place in the past. It's primarily about improving the recruiting and training processes at Liberty. Again, we're starting with a handful of offices, then we'll expand it from there. Realistically, it's going to take us six to nine months, I think, to get all of the Liberty offices on board with those processes.
You don't think that you'll have to close, I guess two follow-ups would be, you don't think you'll have to close any more offices. I guess what I'm hearing is that you think this is something that can be addressed. It's not a macro issue of trouble getting-
Like that, you really think I guess you're not going to have to close more offices, and you think it's really isolated training and recruiting.
No, we had a Liberty managers meeting here a couple of weeks ago, where I introduced Roger and Steve to them, basically, I told them we're through closing offices. No, I don't expect the number of offices to decline further. I think the managers that we have are enthusiastic. We just need to show them a little better how to recruit and how to train, and I have all the confidence in the world that by the end of 2012, we'll see a turnaround there.
All right. Thanks, Mark.
We'll go next to Sarah DeWitt with Barclays Capital.
Hi, good morning. How are you thinking about the growth in the health earnings longer term? Is this now a growth business for you? If not, what do you view as the end game for that business?
Well, our emphasis is going to continue to be on the life, but we are seeing some improvement in the Medicare Supplement marketplace, which is a market we've been in since the 1960s. It's a business we're very comfortable with. Particularly, we're seeing actually, on our general agency and Direct Response, we're actually seeing some growth in our Medicare Supplement sales, as well as our premiums. We're not anticipating major growth there, but we'll take all of that business we can get. I think over the next three to five years, I think we'll start to see some growth in our Medicare Supplement line of business. Liberty National, most of their growth in the health sales are coming from a supplemental product sold through the work site, similar to the Aflac type products.
We're very comfortable with those products, been selling them for a number of years, and we expect to see continued growth in that marketplace. In those specific markets, we're very comfortable with the products we have, and I think we'll continue to see growth in those health sales.
Okay, great. What are your expectations for the Part D sales in 2012 based on the higher enrollment that you're seeing?
Well, as I mentioned, that is a positive, where we did pick up about 77,000 new people at the beginning of the year, where we were anticipating picking up 2,000 a month. It's been running closer to 6,000 a month, people turning 65. The average premium on that monthly premium is right at $100. You can multiply that out. Well, let's see if I've got it here somewhere. As far as we started the year, I believe, with $195 million of annual premium in force. By year-end, we expect that to be about $328 million of in force, where I think we expect to have a little over $300 million of collected premium for the year.
Great. Thanks for the answers.
We'll go next to Paul Sarran with Evercore Partners.
Good morning.
Good morning.
A couple of questions. I guess first, given the decline at Liberty, can you talk about whether it still makes sense to run it as a separate company apart from American Income? Second, I was hoping that you could help us reconcile some capital figures from the third quarter to year-end. I think there was $166 million of capital at the hold co at the third quarter. I was hoping you could walk us through how you get down to $74. Then, just lastly, do you still see buybacks as the most likely use for your free cash flow this year, or is there anything on the acquisition front you might be interested in?
Okay. I'll take the first one. As far as Liberty, it does still make sense to operate it as a separate company. American Income, there are enough differences between the two that it'd be very difficult to merge the two. American Income agents are all unionized. They're all union members, which is a niche that we like. It still comes down to, even though all new agents that we're hiring at Liberty National are independent contractors, the existing agents and management continue to be employees, which would not work well in the American Income environment. Liberty National has a good name in its markets, and we believe it can grow on its own. We intend to continue to operate it as a separate entity. Gary, you want to talk about the capital?
Sure. Yeah, Paul, we started the quarter with $166 million. The free cash for just the fourth quarter, again, that's the dividends less the interest expense and our dividend payments to shareholders was $13 million. That gets you to $179 million. From that, we used $68 million for share repurchases. We also used $25,000 to make a capital contribution to one of our insurance subsidiaries. That leaves another $12 million that we spent. It was a net of several different parent company expenses. If you net all those down, you get down to the $74 million.
Okay. Was there anything specific that prompted the contribution to the insurance company?
The primary reason for that is the NAIC changed the way it treats some trust-preferred or hybrid securities, and depending on the purchase price versus the par value, they raised the capital requirements for those particular bonds. That was unexpected. That was adopted during the year. This additional $25 million was put down there just to make sure that we stay at around our 325% target.
Okay. Then the question on buybacks or use of free cash flow.
Well, Paul, overall, as far as the acquisition front, we continue to keep our eyes open. We continue to talk to investment bankers, right now, still don't see anything on the short-term horizon that we're interested in. As far as buybacks versus dividends, well, we've been gradually increasing our dividends the last few years. We're at a lower yield than our peers. We may see some acceleration in the dividends. Again, what we've been doing, if you look at our free cash, including money spent for dividends, we're running about $400 million-$410 million a year. We've been using about $50 million for dividends. We may see that go up a little bit. We still expect the bulk of it to be used for share repurchase.
Okay, thanks.
We'll go next to Jeff Schuman with KBW.
Thanks. Good morning. I was wondering if you could talk a little bit about lapse rates and conservation. If I look at your life insurance lapse rate exhibit that you publish, the lapse rates do move around from quarter to quarter, and they are impacted by the mix of first year in renewal. On the surface, it certainly looks like the lapse rates are trending better. Do you think that's a real trend, and is it related to the conservation efforts, or how do you see that?
Well, I definitely think it's a real trend. Particularly at American Income, which again, that's where we focused our initial efforts. We're seeing some positive trends. In fact, I didn't really mention it in my comments, but our new initiatives this year on conservation, we conserved just over $12 million of annualized premium. Now, about half of that was at American Income. Next year, we expect those initiatives to conserve over $31 million of premium, is our estimate right now. We're starting to see some impact, and that's the reason we started publishing that exhibit. I think we'll see more of an impact over the next 12- 24 months as we continue to expand those conservation initiatives.
Okay. That's it for me. Thank you.
We'll go next to Chris Giovanni with Goldman Sachs.
Thanks so much. Good morning. I guess one of the things I was surprised by was the increase in the discount rate, albeit modestly. Just curious what's driving the increase there given the continued decline in the effective portfolio yield.
Chris, it's really due to the mix of business. You remember that most of our life business is protection type business. We're not crediting interest to policyholder accounts. The discount rate is truly a discount rate used to calculate the reserves. For policies issued in 2011, we did drop the discount rate to 5.75%, which in prior years had been even closer to six and a half. The 2011 issues are having just a small impact when you look at the overall block of business that we have. The increase is coming from the fact that we have more of the business at those higher rates for the few years prior to 2011. I think the rate where it is, it's not going to go up much from here, and in the long run, it'll start trending down.
Actually, Chris, as far as new business written in 2012, as Gary mentioned, we did lower the discount rate for business issued in 2011. We expect to lower that some more for business written in 2012, although we'll shed more light on that on the next call.
Okay. Your effective new money yield here in the quarter was 5.2%, should we be thinking about an adjustment to the discount rate down somewhere closer to that level?
Well, actually, could be a little bit lower. I think in the last call, we gave some assumptions what would happen over the next five years if we invested at four and three quarters, and we also talked about maybe dropping the discount rate to four and three quarters on 2012 issues. As Mark McAndrew said, we'll decide on that in the first quarter, but I think it'll be lower than 522, and it may be lower than 5%.
Chris Giovanni, you need to understand that that's only on new business issued.
Right. Correct. Okay.
Again, the midpoint of our guidance, we've assumed that we were going to lower it to four and three quarters, grade it up to six and a half over seven years, is what we've included in our guidance. Doesn't mean that's what we're going to use, that is what we've estimated in our guidance.
Okay, that's helpful. Just finally, in terms of new money, you're lowering the ratings, extending durations to try and protect the yields. Just curious to see if you're exploring any additional sort of investment strategies to help preserve yields, whether it's mortgage loans or alternative asset classes? Are you going to continue the same strategy you've been doing?
First of all, we're not extending durations. We've been investing at these durations for quite a few years, and it all gets back to asset liability matching. Our liabilities are very long. In terms of quality, we haven't stepped down in quality. We've been at A- level for new purchases for quite some time. I think there was one quarter we went down to BBB+. We really haven't changed, and we're being consistent with our investment strategy in the past. We look at alternative assets, we have stayed away from mortgage loans, as I mentioned in the beginning. Stayed away from whether it's residential or commercial or whatever. I think we feel more comfortable with investment-grade corporate bonds.
We don't like the lower yields, but we feel better with the credit of those assets, the credit quality, and I think that's what we're going to stay with.
Right. Chris, as mentioned on the last call, we can adjust to the lower interest rates. We did put through some rate increases January 1 in both Direct Response and American Income to offset the lower investment yield. We feel very comfortable with our investment strategy. We feel like it's served us very well for a number of years now. We expect to continue that.
Okay, thanks. All very helpful.
We'll go next to Steven Schwartz with Raymond James.
Hey, good morning, everybody. I got three here. Mostly some follow-ups, I think. Just to follow up on Chris's question with regards to discount rate. Mark or Gary, could you remind us, if you were to lower the discount rate to four and three quarters, what would that do to your pricing?
Well, again, we did a study about a year ago. To reduce it 100 basis points would be 1%-3% in most of our products. Would take a 1%-3% rate adjustment to offset 100 basis points lowering of discount rate. We put through about a 5% increase at both American Income and some of the Direct Response products January 1. We feel like we're ahead of that game.
Okay, great. Genworth, in their conference call, mentioned an issue with regards to GAAP accounting and level term life insurance. I think that's a product that you guys provide. Are you aware of this or have any thoughts on it?
Want to take that, Gary?
Yeah. I'm really not aware. Can you give a little more detail?
Yeah. As far as I understand, it has to do with the idea that upon conversion, when the level term runs out, the pricing is significantly higher, which can lead to a situation where reserves go negative on these policies. Genworth had historically used the reserves as a negative and has decided to put a floor on the reserves at zero, so they can't have negative reserves.
Okay.
Yeah, I'm sorry, Steven. I really don't have an answer for that.
I'll point out, Steven, actually, if you look at our business, most of our business is whole life at American Income, Liberty National, most of it's whole life.
Okay.
Even in the Direct Response. We show some term business in Direct Response, but it's term to 100 or term to 95. They're very long-term policies that we really don't see conversions.
Okay, great.
It's really not been an issue with us.
Okay. One more, if I could. With regards to L&L and beating that dead horse. I am fascinated by the trends within the new recruits and the veteran agents. Veteran agents being up, new recruits being down. On the new recruit side, is this a function of, you've said in the past, Mark, L&L was a place you went to work when you were looking for work.
I remember that comment.
Has that really changed, and is that what's driving the new recruits down? What's leading to the veterans up?
Well, there's no doubt closing as many offices as we did. Again, we went from 130 offices down to 70 in a little over a year. Part of the reason for that was just to get the expenses in line and to get the profitability of the business up to where it needs to be. That had a big impact on the recruiting. When you go from 130 managers down to 70, it's going to impact the number of new agents we recruit. In fact, I'm looking at that number. I don't really have an answer, Steven, for why that went from 552 to 648 on the veteran agents. I'll look into it, and I can have Mike get back to you on that.
Okay, great. One more follow-up, if I could, on this. You mentioned you're not closing any more offices. I think you've discussed in the past that you could lose maybe a third of the offices due to the changes that you made. Do you think that's still an accurate assessment?
No, I don't think it is anymore. Since the last call, we've actually had two meetings. One prior to the management, well, one about the last call. We had another meeting, and the attitudes there are extremely good. The last meeting we had was the most positive meeting that I can ever recall having at Liberty. We might lose a handful of managers, but I think we have people to replace them, so we don't anticipate closing offices or I don't think we'll lose a third of the managers, no.
Okay. All right. Thanks, guys.
We'll go next to John Nadel with Sterne Agee.
Hi. Good morning, everybody. I was just thinking about, maybe Gary's commentary about the trust-preferreds brought me back to it. Just thinking about, you guys have relatively large holdings in regional bank trust-preferreds on the balance sheet. I think as we watch over the past several months at least, we've been seeing more and more activity where these banks are redeeming these trust-preferreds. I'm wondering if you've seen or if you expect to see some of that type of activity with your holdings and what kind of reinvestment risk that might put you under to the extent you got to take proceeds and reinvest at 5.22% or lower.
John, I think we've only seen a couple issues called, they were smaller ones. We do have just under $750 million of bank trust-preferred hybrids that are contingent calls, we expect a large number of those to be called. Up until recently, with the expectation that those calls would occur in 2013. As you mentioned, there's talk that some of the banks are, instead of waiting for the change, that was tied to the change in the Tier 1 capital rules. Now there's some indication that some banks will say, well, when the rules are issued in 2012, that'll be the triggering event that allow them to call the securities. We really don't know how that's going to work out, whether they'll be a sizable amount in 2012, or it'll be 2013.
You're right, it will have an impact on our yield. The yield on those are just a little over 7%. If we refinance or reinvest at four and three quarters, it'd be a significant change to the yield. In the last call, we talked about if we invested rates at four and three quarters for the next five years, what would happen to the portfolio yield? I think what we said at the five years from now, instead of yielding 6.49% as it does today, the portfolio would be yielding 6%. Well, in those projections, we assumed that these trust-preferreds would be called and that the money would be reinvested at four and three quarters.
Okay.
That projection is still good. The question is, though, will some of them happen in 2012? We just don't know.
Okay. That's helpful. Just at the margin too, would you expect, particularly after the injection of the capital under the rule change, would you expect that all else equal, if you're investing like you are today at roughly A- , that the risk-based capital requirement when you make that shift out of trust into higher grade corporates, do you expect a required capital to fall a bit?
Yes, it should, because as I mentioned earlier, they've increased the capital charges on those trust-preferreds. I don't know how much the impact, but it would have a fairly significant impact on our capital. That would be a plus.
Okay. Thank you. Then I joined a little bit late, and I'm sorry if I missed this. Maybe you addressed it, but obviously the Medicare Part D sales were extremely strong. Could you just remind us how to think about the pattern of the earned premium?
Okay. Sure, John.
Thank you.
Well, first off, the average monthly premium we get premiums monthly is right at $100, $98.86 on these auto enrollees. We picked up 77,000 of those at the beginning of the year, January 1. Actually, we had anticipated picking up an additional 2,000 of people turning 65 each month. Through the first couple of months, that has actually run closer to 6,000 a month. We now expect to pick up somewhere in the 50,000-75,000 additional enrollees turning 65. Again, the monthly premium is right at $100. I did make the comment that if I look at total revenue, we had $197 million, I think, in 2011. We expect that to go to our current estimate, and our guidance is $306 million. I think it may be a little higher than that.
Okay. I recall in the press release, no expectation of any meaningful change in your margin on that premium.
No, we expect to continue roughly the same margin we have this year.
That's helpful. Thank you.
Once again, that is star one if you do have a question. We'll go next to Bob Glasspiegel with Langen McAlenney.
Just following the math on John's 75%. It means the $29 million of Medicare earnings will grow into the 40s. That'll be a pretty good source of earnings growth. When you got into this Part D, I think originally you guys said that this would be a good base of earnings with a good return on capital that would grade down. Now it looks like it actually could be a source of earnings growth prospectively.
Well, definitely for 2012 it is, Bob, it's something we're already looking at. What can we do for 2013 to not only hold on to what we have, but hopefully increase the volume of auto enrollees that we receive? Assuming we can at least hold on to the 21 regions that we're getting auto enrollees, it would become a significant area of growth for us.
Okay. Is Roger Smith on the call available for questions or no?
No, he's not.
Okay.
I might consider that in future quarters.
Well, I was going to say, now that he's running two key business units in, he's obviously quite busy.
Yes, he is.
I could understand that he's got things to work on now, but it'd be good for him to have some visibility to investors, so we could see what he's focusing on, how he compares and contrasts Liberty to American Income, because they're two different markets that you're employing sort of the same mousetrap of recruiting to. I was just wondering what nuances he's picking up and focusing on and where the opportunity is. It sounds like your answer for him is blocking and tackling and recruiting.
That's basically right, Bob. They've become much more similar than what they were a year ago, two years ago, five years ago. The basics of recruiting and training agents in those markets are very similar. I will think about your comment and at least try to get him on maybe one call here of the next two. I'll try to have him on.
Thank you.
Okay, Bob.
We'll go next to Mark Hughes with SunTrust.
Thank you. A refresher on what drives the sustainability on that very good pace of 6,000 per month. What could make that go higher or lower? You mentioned you're getting the 21 regions with the auto enrollees. How do you pick up more share there?
I think there are 34 total regions. I think we are getting the auto enrollees in 21 of the 34, so there is obviously 13 that we are not. We are looking there. Any place that our plan is below the median cost in that region, we pick up a portion of the low-income subsidized. That is something we are looking at. Are there ways that we can continue to shave a few dollars off of our premium to keep it below the median or actually get it below the median in some of the markets that we are not in? We are continuing to look at ways to be a little more price competitive.
How about outlook in 2012 for insert volume from the Direct Response marketing activity? Any interesting plans for the next few quarters?
We significantly increased the volumes in the second half of 2011, which we are starting to see the results of. Right now, at least for the first two quarters of 2012, we are just anticipating the circulation to increase 7%-8% above a year ago. That could change as we go through the year, but right now, that is our current anticipation of the volume for the first half.
Thank you.
There are no other questions at this time. I'd like to turn the conference back to our speakers for any closing remarks.
Well, those are our comments for today. Thank you for joining us. I hope you have a great day.
Thank you, everyone. That does conclude today's conference. We thank you for your participation.