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spk08: noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Matt Royal, Senior Vice President, Investor Relations. You may begin.
spk02: Great. Thank you, Mandeep, and good morning to everybody. Welcome to Unim Group's second quarter 2024 earnings call. Please note that today's call may include forward-looking statements, and actual results, which are subject to risks and uncertainties, may differ materially, and we are not obligated to update any of these statements. Please refer to our earnings release and periodic filings with the SEC for a description of factors that could cause actual results to differ from expected results. Yesterday afternoon, Unum released our second quarter earnings press release and financial supplement. Those materials may be found on the investor section of our website along with a presentation of the most directly comparable gap measures and reconciliations of any non-gap financial measures included in today's presentation. References made today to core operation sales and premiums, which includes Unum International, are presented on a constant currency basis. Participating in this morning's conference call are Unum's President and CEO Rick McKinney, Chief Financial Officer Steve Zabel, Tim Arnold, who heads our Colonial Life and Voluntary Benefits lines, Chris Pine for Group Benefits, and Mark Till, CEO of Unum International. Now, let me turn it to Rick for his comments.
spk04: Thank you, Matt. Good morning, everyone, and thank you for joining us today. We're excited to discuss our second quarter results the robust performance in the first half of the year, and trends we see carrying us into the back half of 2024 and into 2025. Our purpose-driven team has done an excellent job navigating the change in the environment and our market over the last several years, and we are most appreciative of their efforts. This quarter, we saw the continuation of some favorable trends and notable improvements in multiple areas of performance, leading us to increase our earnings per share outlook for 2024. Our results thus far in 2024 evidence the way we approach the employee benefits markets and growth orientation is really paying off. We are actively engaging with new and existing customers and growing our top line while maintaining healthy industry leading margins. As we move forward, we are poised to continue on a growth trajectory in the second half of the year. Our strategic initiatives and diligent execution have set a strong foundation. and we are confident in our ability to sustain this momentum. We're excited to see our outlook for opportunities for the next year, building and reflecting the prospects for continued success. As we stand here today, our team is supported by distinctive technologies and remains fully committed to delivering for our clients each and every day. Focusing on our second quarter, it reflects sustained broad-based performance. We saw statutory earnings surpassing $350 million and earnings per share reaching $2.16 per share, marking yet another record level of earnings for the company. Our top line was healthy, with a 5.4% increase in core operations premium growth, and capital metrics significantly exceeded our targets. Given our robust results and positive outlook, we're adjusting our full-year earnings per share growth outlook from the previous 7% to 9% to double-digit growth of 10% to 15%. Our exclusive focus on the group benefits markets continues to offer a promising landscape for client growth and expansion. This is further bolstered by the inherent tailwinds in our business, stemming from what we consider natural growth factors, such as an increasing covered employee base and wage levels. Consequently, we are well positioned to enhance our top line growth through various cycles, a trend we have consistently observed over this past decade. The second quarter was consistent with this view and the outlook for the economy, with job growth continuing and wage increases more than the norm. We see this reflected in our existing client base, where we witnessed sustained natural growth that contributed to our trajectory. In addition to the labor market, we continue to be happy with where rates are for the 10 and 30-year Treasury, at levels similar to those during our prior call. Current rate levels are beneficial as we continue to invest new money above our portfolio yields. While we were able to adjust our core businesses based on longer-term movements in rates, we continue to take steps to de-risk our exposure within the closed block, which we've now done for the last 10 consecutive quarters through both our hedging program and asset repositioning. Altogether, the macro backdrop aids us in steadily and consistently building on our solid foundation and delivering profitable growth and strong returns across all of our businesses. Looking across the franchise, results in Unum US were highlighted by a 5.5% top line premium growth and strong persistency levels. The opportunistic nature of large case sales drove the lighter headline result for our group products. However, we were pleased with the underlying results, including nearly 12% sales growth in our less than 2,000 employee group segment. and remain confident in achieving our full-year growth expectations from a margin perspective. Group disability experienced another strong quarter, where recoveries drove low historical benefit levels, and we expect similar experience trends to persist. The group life and AD&D segment had another standout quarter, with both strong top-line premium as well as favorable benefits experience in the quarter. In our Colonial Life franchise, margins continued to be excellent, with an ROE of 20%. Premiums grew nearly 4% through the first six months of the year with strong persistency and sales which rebounded nicely compared to the first quarter. Rounding out our core segments, our international business had another quarter operating at full strength with robust premium growth of nearly 9% and UK underlying earnings in excess of 30 million pounds. We continue to see excellent growth momentum in our growing Poland business And in the UK, continue to redefine the broker experience, setting a market-leading standard that is distinctively Unum and enhancing our relationship management model. From an overall return perspective, our commitment to innovation, prudent capital management, and shareholder returns remains unwavering. As anticipated, our long-term CARES capital buffer is in a healthy position, so substantial free cash flow generation of our core businesses flows straight to a capital position of strength and deployment flexibility. Statutory earnings through the first half of the year totaled over $700 million, putting us on pace to reach the top end of our outlook range for the year for capital generation. This adds to a balance sheet that is strong, with ample levels of cash and RBC at 470%. Considering these factors, we're pleased with our new board authorization of $1 billion for share repurchase. as it illustrates the level of confidence we have in the sustainability of our business results. Our capital priorities remain intact, that is, investing in our businesses organically and inorganically, and then returning capital to shareholders through dividends and share repurchases. As such, we will be prudent with the pace at which we exhaust the authorization, but plan to increase our pace in the back half of the year. This is significant, as entering the year, we plan to repurchase $500 million of stock, which represents a doubling of the amount we repurchased in 2023. This increased authorization is a testament to the robust position of the business, as well as the immense value we see in our shares, with book value per share, excluding AOCI, crossing the $70 mark. In summary, we're pleased by the positive trends across our operations and the supportive macro environment. The second quarter marked another period of strength for the company and served as an important milestone for the year. We remain forward looking, ensuring we are well positioned to execute our strategy and achieve our revised outlook of 10 to 15% earnings per share growth. Thank you once again for joining us, and let me turn it over to Steve for some of the details.
spk03: Great. Thank you, Rick, and good morning, everyone. As Rick described, the second quarter was another very good quarter for the company, with adjusted after-tax operating income per share of $2.16 as we benefited from strong operating performance across our businesses. Based on this performance, the performance that we've achieved through the first half of the year compared to our expectations presented in January and our view that improved margins will continue, we are increasing our 2024 after-tax adjusted operating earnings per share growth outlook from 7.9% to 10 to 15%. I will provide additional context to where we see the sustainability of the margins as we get into the segment financial results. In addition to the great margins we're seeing, our growth momentum has also continued into the second quarter, with core operations premium growing 5.4%, putting us well on pace to achieve our full year outlook of premium growth in the 5% to 7% range. Aiding this growth were a combination of strong levels of persistency, continued benefits from natural growth, and in-line new sales. Although sales growth was muted this quarter, we remain optimistic that we'll receive our growth goals for the year as we enter into the second half of 2024. As Rick mentioned in his opening, our high-performing teams and industry-leading technology are a differentiator for us in the market and are a reason why we are seeing the healthy levels of growth and strong margins today. While we continue to expect expense ratios to decline over time, we continue to invest heavily in these areas and see that reflected through increased expense ratios across the company this quarter. We are happy with our investments and are confident in the payoff they will provide, driving future growth and profitability. So now let's dive into our quarterly operating results across the segments, beginning with Unum U.S., Adjusted operating income in the Unum U.S. segment increased 4.2% to $357.5 million in the second quarter of 2024, compared to $343.1 million in the second quarter of 2023. Results finished above prior year primarily due to favorable benefits experience across multiple lines. The group disability line reported another robust quarter with a benefit ratio of 59.1%, driving adjusted operating income of $153.2 million. Although this result was lower than the second quarter of 2023's result of $159.8 million due to higher expenses, we do continue to be very pleased with the sustained margins in this business as a strong claim recovery performance has continued. Results for Unum US Group Life and AD&D increased significantly compared to the second quarter of last year. with adjusted operating income of $89.1 million for the second quarter of 2024 compared to $51.6 million in the same period a year ago. The benefit ratio decreased to 65.4% compared to 73% in the second quarter of 2023. This improvement was driven by lower incidence levels in group life. We believe the favorable experience in this segment will continue for the next several quarters And therefore, we are now expecting a benefit ratio range around 70% for the remainder of the year. Adjusted operating earnings for the UNMUS Supplemental and Voluntary Alliance in the second quarter were $115.2 million, a decrease from $131.7 million in the second quarter of 2023. The decrease is driven by underlying benefits experience, involuntary benefits, and higher expenses in the segment. The voluntary benefits benefit ratio of 45.1% was higher than the prior year's result of 39.2%, due primarily to less favorable experience in disability, critical illness, and hospital indemnity product lines. This was partially offset by an improvement in the individual disability benefit ratio to 39%, compared to 42.1% a year ago, driven by favorable recoveries. So then turning to premium trends and drivers, Unum US premium grew 5.5% with support from natural growth and a strong level of persistency. Unum US quarterly sales were $313.2 million compared to $314.6 million in the second quarter of 2023. Total group persistency of 92.4% maintained a sequentially strong level and was significantly above the same period a year ago result of 89.8%, which is more in line with historical norms. Moving to Unum International, the segment experienced exceptional results. Adjusted operating income for the second quarter of $42.5 million was down from $43.5 million in the second quarter of 2023, as inflation benefits in the UK did decline approximately $10 million compared to the year-ago period and to the lowest levels we have seen since the pandemic. Adjusted operating income for the Unum UK business was 32.5 million pounds in the second quarter, compared to 34.3 million pounds in the second quarter of 2023. When removing the inflationary benefits referred to earlier, adjusted operating income increased nearly 30% and was in excess of 30 million pounds. These strong results reflect strong underlying performance, including an improved benefit ratio of 69.5% compared to 72.3% a year ago. International premiums continue to show strong growth supported by solid sales trends and increasing persistency. Unum UK generated premium growth of 6.1% on a year-over-year basis in the second quarter, while our Poland operation grew 24.6%. The international businesses continued to generate year-over-year sales growth, up 4.8%, driven primarily by Unum UK growth of 5.7%. Next, adjusted operating income for the colonial life segment was $116.9 million in the second quarter, compared to $115.5 million in the second quarter of 2023, with the increase driven by premium growth and favorable benefits experience. The benefit ratio of 47.8% improved from 48.3% in the year-ago period and was within our expectations. Colonial premium income of $446.2 million grew 3.6% compared to $430.6 million in the second quarter of 2023, driven by higher levels of persistency and the growing trends we've seen in sales momentum. Premium income growth at 3.8% for the first half of 2024 compares favorably to the full year growth outlook of 2% to 4%, which we communicated in January. Sales in the second quarter of $122.9 million increased just under 1% from prior year, primarily driven by new account sales. In the closed block segment, adjusted operating income of $51.6 million was higher than last quarter's result of $24.3 million. The increase was due primarily to improved alternative asset income and higher earnings from other products within the closed block. Annualized yield on the alternative asset portfolio of 9.9% was at the top end of our long-term expectation of 8% to 10% returns. The LTC net premium ratio was 93.7% at the end of second quarter of 2024, which is higher than the reported 86.1% in the same year-ago period due primarily to the assumption update in the third quarter of 2023. Sequentially, the MPR decreased 10 basis points compared to the first quarter of 2024, driven by the impacts of favorable experience in non-capped cohorts. Let me also provide an update on the underlying LTC claims experience. As we have discussed on prior calls, the LTC claim inventory is in a period of normalization as we continue to return to pre-pandemic claim patterns in this block. Similar to last quarter, recent trends continue to support these expectations as incidents experienced in the second quarter, while still elevated compared to our long-term expectations, improved compared to the first quarter of 2024. Finally, we continue to advance our closed block strategy through actions such as pursuing rate increases and expanding our hedging program. This active management contributes to our goals of creating value, reducing the footprint, and increasing predictability of outcomes for the block. I'll now highlight the specific actions we took in the second quarter to progress these goals. First, we continue to see success in the execution of our rate increase program. Since the rate increase program refresh in the third quarter of 2023, we have achieved approximately 25% of our target and continue to feel confident in achieving our best estimate assumption. Next, we took the opportunity to continue the expansion of our interest rate hedging program, which reduces interest rate risk in the LTC product line by locking in this favorable macro environment for years to come. During the quarter, we entered in to $458 million of treasury forwards, and the value of open notional hedges was approximately $2.4 billion at the end of the second quarter. So then wrapping up my commentary on the segment's financial results, the adjusted operating loss in the corporate segment was $45.3 million compared to a $34.9 million loss in the second quarter of 2023. primarily driven by lower allocated net investment income. As discussed last quarter, we expect losses in the corporate segment will stay relatively consistent in the mid $40 million range for the remainder of the year. Moving down to investments, we continue to see a good environment for new money yields with purchases made in the quarter once again at levels above our earned portfolio yield. Overall miscellaneous investment income increased to $35.4 million compared to $21.1 million a year ago as both alternative investment income and to a lesser extent, traditional bond call premiums increased. Income from our alternative invested assets was $32.7 million in the quarter. We continue to be pleased with and benefit from the composition of the portfolio. As of the end of the second quarter, our total alternative invested assets were valued at just over $1.4 billion, with 42% in private equity partnerships, 36% in real asset partnerships, and 22% in private credit partnerships. This diversified construction helps manage acute volatility that can be experienced in portfolios with asset class concentration. Year-to-date and since inception, our diversified alternative portfolio has achieved returns that meet our long-term expectations. So then I'll end my commentary with an update on our capital position. As expected, our capital levels remain well in excess of our targets and operational needs, offering tremendous protection and flexibility. The weighted average risk-based capital ratio for traditional U.S. insurance companies is approximately 470%. and holding company liquidity remains robust at $1.3 billion. We are on track to end the year at or above our expected levels with no capital contributions to LTC as we previously communicated. I will also add that dividends from our insurance subsidiaries are traditionally weighted towards the fourth quarter, which will change the geography of excess capital from risk-based capital to holding company cash as we get into the fourth quarter. Capital metrics benefited in the second quarter from strong statutory results with statutory after-tax operating income of $366.1 million for the second quarter and $716.6 million for the first half of the year. This does put us on pace to generate capital near the top end of our range of $1.4 to $1.6 billion, which we laid out earlier this year. Our strong cash generation model drives our ability to return capital to shareholders, and in the second quarter, we paid $69 million in common stock dividends and repurchased $179.8 million of shares. As Rick referenced, our board of directors has approved a new share repurchase authorization of up to $1 billion. This new authorization is effective tomorrow, August 1st, and will replace the current authorization. This provides us additional flexibility to dynamically utilize this deployment option as we remain committed to our capital deployment priorities. In the first half of 2024, we returned $300 million of capital through share repurchase, and we now expect that amount to be greater in the second half of the year. So to close, we're encouraged by the momentum that we have built throughout the first half of 2024 and expect similar operating trends to persist in the second half, which will drive strong sales, premium, and earnings growth across our core businesses. For the past 12 months, group disability results have been a focal point in driving higher earnings power, and we expect this to sustain for the foreseeable future. Coupled with our improved outlook for group life, our expectation for full-year EPS growth is now 10% to 15%. Now I'll turn the call back to Rick for his closing comments, and I do look forward to your questions.
spk04: Great. Thank you, Steve. And I'd like to reiterate, we thank everybody for joining us this morning. You know, we are in a great position halfway through the year, and the momentum created as we look to execute on our growth strategy We are here to respond to your questions, so I'd like to open up the call and turn it over to Mandeep, our operator. Mandeep?
spk08: Thank you. We will now begin the question and answer session. If you've dialed in and would like to ask a question, please press star 1 on your telephone keypad, raise your hand, and join the queue. If you'd like to withdraw your question, simply press star 1 again. If you're called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. We do request for today's session that you limit yourself to one question and one follow-up question. Again, press star 1 to join the queue. Our first question comes from the line of Ryan Krueger with KBW. Please go ahead.
spk17: Hey, thanks. Good morning. My first question is on the competitive environment in Unum U.S. Can you discuss how you see the environment today as well as, I guess, maybe anything you've distinguished between the core market and large states at this point?
spk04: Great. Thanks, Ryan. It's a good, broad question. We're going to turn it over to Chris. I would say competitive environment-wise, you know, we are in a competitive situation. business. And so we look forward to that. But let me get Chris give some details, especially across, you mentioned different segments where we see different competitors. Chris?
spk05: Yeah, Brian, thanks for the question. Certainly, it's an exciting time in our market space. You know, I'd start with capabilities that continue to be really important, where we're making our technological investments, solving customer problems that you have that, that does make us show up in what is a real competitive environment in a very different way. So while having a lot of respect for, you know, our traditional competitors who are doing, you know, their good work, you know, we show up with reason to talk to customers about things like lead management, things like connecting to their human capital management platforms through HR Connect and other broker platforms that help serve their markets through our broker connect strategy. And it really does change the game where price is important. And that is a factor in negotiations, but it's not the only thing. And we feel really good about that. I would couple that with the fact that, you know, to your point around for market versus large, you know, we're right now working through the one one large market inventory. We're off to a good start. We feel really good about what we're working through, but there's still work to do to arrive where we believe is going to be a very strong place at the end of the year. Mid-market gives us, you know, kind of a little bit of an earlier view in terms of what actually happened in the quarter. And, you know, our sales in the mid-market are quite strong through the first half of the year, both in terms of new sales premium and the number of customers that we're winning. And we feel like it's a really good indicator of, you know, sophisticated buyers who are choosing the capabilities that we're putting in front of them. And the last thing I would add is, you know, we're doing it with a really strong team. We've got a team of folks who believe in what we're selling. They're showing up in the market really well. And it's all part of a very coordinated strategy. Thanks for the question.
spk17: Thanks. My follow-up is just, you know, when you think about the outperformance in group disability and now group life as well, I know this has been asked a number of times in the past, but just how you think about the, you know, the pricing environment, how sustainable those loss benefit ratios are in Unum U.S. and kind of thinking about the next few years.
spk05: Yeah, thanks, Ryan. Chris, again, and, you know, we continue to work, you know, our book of business in terms of, you know, what the right pricing levels are for long-term stability. We do it, you know, upmarket. We do it on a case-by-case basis. You know, we think, again, when you're tying capabilities in with pricing levels that are fair and with a very transparent approach. We can give people that predictable pricing level that gets the returns that we need and also allows them to kind of feel good about the partnership. Again, competition's real. Price negotiation's a part of it, but we feel very good that the combination of, you know, how we're approaching the market with a capability-based approach serves us really well in terms of that result.
spk08: Thank you. Thanks, Ryan. Our next question comes from the line of Suneet Kamath with Jefferies. Please go ahead.
spk13: Hey, good morning. Thank you. I just want to follow up a little bit on what Ryan's line of questioning was, but maybe focusing on persistency. It seems like, I think the number you quoted in Unum US was 92.4, and it seems like that number continues to just be very strong. Is this just the outcome of some of those additional services that you provide, you know, HR Connect and leave management? And should we just expect a higher level of persistency going forward relative to the past when perhaps those strategies were not as big of a part of your story?
spk05: Yeah, Sunit, Chris, thanks for the question. But, you know, if I were to step back and just think about persistency in total, you know, right now we are enjoying exceptional persistency, and that's obviously a good thing. And capabilities, you know, that's a part of the story, but there's a lot more to, you know, what comes with keeping our enforced block, renewing that block, expanding that block. And, you know, as the capabilities that we're investing in become a bigger part. Obviously, that'll be a bigger part of future persistency. But for right now, it's a more complex story. And I would say that some of the exceptional result we're seeing right now probably came from maybe fewer RFPs that were in the historic past, and now we're starting to see a pretty robust uh level of code activity uh in the larger end of the market that's good for from a prospecting new sales standpoint but it also you know creates some some uh activity on the enforced block going forward so it's a it's a it's a dynamic uh body of work part of that is capabilities but it's not the whole story okay got it and then i guess just on the group life um if i think back to group disability and your confidence in the benefit ratio i think there were some structural things going on around recoveries that gave you confidence but i guess i don't
spk13: quite understand what gives you the confidence in group life just given so much of it is mortality and that bounces around and you don't really have control over that. So what is it that you're looking at that suggests that that benefit ratio in group life, AD&D, can remain kind of in the neighborhood where it is right now?
spk03: It's neat. This is Steve. I can fill that one. Just first of all, to step back, this is a relatively small block of business, about $500 million a quarterly premium. So it can be volatile and it is tough to just pick a number and, you know, have tremendous confidence that we're going to be able to hit that exact number on a quarter to quarter basis. I would say what we've seen is really three quarters of pretty favorable claims experience. We're also seeing a market where pricing right now for us is pretty stable. So, you know, we've targeted the 70% loss ratio just kind of as an expectation for the remainder of the year. We've seen it over the last three quarters now, and so it gives us some confidence that usually it doesn't change tremendously, maybe quarter to quarter, but over time, you know, it can change and those margins can change. But we feel good for the remainder of the year to use that for us as kind of a planning expectation.
spk13: Okay, got it. Thank you.
spk08: Our next question comes from the line of Joel Horwitz with Dowling and Partners. Please go ahead.
spk18: Hey, good morning. So first question, Steve, can you just provide some more color on the long-term care incidence trends? I guess how far off are you guys from the assumption and at this point, given the trend that you're seeing, when would you expect to get to that long-term expectation?
spk03: Yeah, you know, I'm not going to predict when we're going to get back to it. We did see elevated levels continue for claims incidents above our long-term expectations in the second quarter. What I'll say is, sequentially, claims incidents, when we look at our internal operating metrics, it did improve in aggregate in the second quarter. It was interesting, though, as we've discussed in the past, how that played through the cohorts and how that actually impacted earnings in the net premium ratio and What you would see is we did have favorable experience against our long-term reserve expectations within the uncapped cohorts, and that is what drove the reduction in our net premium ratio. It was reduced about 10 basis points, so feel good about that. But there did continue to be some unfavorable experience in the capped cohorts, and that would have been reflected just in the current earnings during the period. We do believe that incidents will continue to dissipate in the back half of the year just because of the trends that we are seeing. But obviously, we just need to see how that plays out in the back half of the year. I've talked in the past about really the claim inventory on an absolute basis and how that trends back to what our long-term expectation is. And I would just say, again, for the quarter, we saw that just kind of flatten against what that long-term expectation would be. for the overall inventory. So it gives us some confidence, but we'll just have to see how the year plays out.
spk18: Okay, that's helpful. And then shifting to Colonial Life, can you just touch on both sales and persistency? So sales, well, improved a little bit quarter over quarter, still a pure challenge, but the top line was still pretty solid, I think, on strong persistency. So just what are you seeing from those two fronts?
spk12: Yeah. Yeah, thanks for the question. This is Tim. So from a sales perspective, slightly improved over first quarter with almost 1% sales growth year over year. There were a lot of bright spots. New case sales were up 8.7%. Public sector, our best profitability sector, was up 8.8%. And our other target markets, not including public sector, we were up 14.9% in the quarter. The headwinds came primarily as they did in the first quarter on the existing book. And we think there's some evidence that we're finally beginning to see the effect of inflation on consumers. And so we've just got to double down on our enrollment capabilities to ensure that we're reaching as many consumers as possible, to the extent that that's the pressure we're seeing. You mentioned persistency overall is really strong. We feel great about where we ended with persistency in the quarter. We think that our capabilities on the quantity of life side and the service levels that we have which are near record levels are all contributing to that so we feel good about persistency and the impact it had on earned premium we're also continuing to see strong success with our gather agent assist and cross-brand sales initiatives unit group product sales from colonial life agents which are not reported in the colonial lifeline were very significantly in the quarter and we're pleased to see the quality life agents continue to leverage that capability You didn't ask, but on the UNMVB side, the really strong quarter, sales up 27%, new sales on the UNM side up 31%, so really strong results on the UNMVB side as well.
spk08: Great. Thank you. Our next question comes from the line of Elise Greenspan with Wells Fargo. Please go ahead.
spk11: Hi, thanks. Good morning. My first question is on capital return. Should we think of you guys guided to the second half of this year being greater than the first half? So that puts, you know, 24 at above 600 million. Is that like the baseline expectation for capital return when we think about, you know, going into 2025?
spk04: Yeah, thanks for the question, Elise. Let me step back a little bit and talk a little bit about the capital deployments. First, I'd start with the generation. I mean, I would reiterate that we've seen very strong generation coming out of our statutory entities, taking us up to the higher end of our range of the capital generation that we expect to see this year. And so we take that into account as we think about deployment. Certainly want to continue to deploy straight back into our business, talk about the capabilities that Chris referenced as we are out there competing and looking to grow the business on a core basis. And as we've said all along, M&A is also on the table to grow a little bit faster. And so as we think about all those things, putting good capital to use, we were happy at the beginning of this year, talking about our dividend increase we have out there, very important to us. And then share repurchase, you know, our $500 million we talked about earlier in the year was double the pace of what we saw previous year. And so all that's good. But what we've seen in the second quarter, you would have seen us actually accelerate a little bit. What we said at the beginning of the year is we're going to be dynamic when we think about share repurchase. We make these decisions quite often. And then more specifically to your question, that $300 million, we did say we expect it to be higher in the second half. So you talked about that as a baseline. It's probably a reasonable way to think about that. But we are going to be continuing to be dynamic and think about putting capital to use through our share repurchase plan. And I just remind you that our Our board did authorize up to a billion dollars. So we do have the flexibility to put capital to work by buying back our stock.
spk11: Thanks. And then my second question, going back, I guess, to group life and AD&D, you guys said the benefit ratio should be, you know, around 70% for the remainder of the year. When we think about 25, should we think about that kind of going back to, you know, where you guys had, you know, kind of guided for this year and like the low to mid 70s?
spk03: This is Steve. You know, I think it's probably a little premature at this point to talk about 2025. You are right. Historically, that benefit ratio was in kind of the low 70%. I would say, you know, we'll see how the remainder of the year plays out. We'll see how the sustainability of margins are. And then as we get through the back half of the year, we can start to get a little bit more visibility into what we think 2025 looks like. I think it's safe to say, Elise, that there's nothing that we know that would say something in that 70 to low 70s wouldn't be kind of an expectation. But it's hard to just, you know, predict right now what that might look like until we see the back half of the year.
spk11: Thank you.
spk08: Thanks, Elise. Our next question comes from the line of John Barrage with Piper Sandler. Please go ahead.
spk09: Good morning. Thank you for the opportunity. Can you talk about the growth in the U.S. and how much of that's coming from pricing versus expanded offerings and new employee count? Thank you.
spk05: Yeah, thanks, John. It's Chris. And we, you know, we are seeing growth up several different ways. You know, the wage growth that we saw in the past has kind of come back to normal. Employee growth also kind of, you know, back to normal. But, you know, our premium growth, we work the cases. where we need to get a price increase based on experience, setting price for sustainable levels. We'll adjust down if we need to. And then, you know, obviously the new business sales that come through, it's a mix of things that contribute to what you're seeing. But we feel good that it's very balanced and we're optimistic for the future.
spk03: John, the only thing that I add to that, in the script, we didn't really talk about natural growth. quantifying it, it was around 4% in the second quarter. I'd say that probably was a little bit heavier weighted to wage growth than employment growth, but, you know, continue to provide a nice tailwind for us.
spk09: And then my follow-up question, with the higher premium base and force on the back of persistency that seems to be secularly stronger the last several years, how do you view the opportunity to extend the duration of that higher EPS growth?
spk03: John, can you repeat the last part of that?
spk09: Yeah, how do you view the opportunity to extend the duration of that higher EPS growth that we're now expecting?
spk03: Yeah, I would say we kind of go back to what our longer-term expectations would be. You know, as we're talking about future years, We're pretty comfortable with the type of long-term guidance that we would have given back in January and think that that provides, you know, nice support for the business. We've tended to be able to operate pretty well through different, you know, environmental and market, you know, expectations. And we feel that way going forward. So probably a little bit early to talk about, you know, going into next year. But that long-term expectation would be in that 8% to 10% range. But we'll update the market as we get into January of next year.
spk04: I think the key thing, John, too, is you think about it, it's about driving the premium growth. And so if we get that good top line growing, our team does a really good job with discipline and getting margins in our business. And then you combine with that reducing the share count, as we talked about, that leads us to that 8% to 10% growth. We're happy with that, but we're especially happy this year, you know, growing in that 10% to 15% range.
spk09: Thanks for the answers.
spk08: Our next question comes from the line of Jimmy Buehler with JP Morgan. Please go ahead.
spk15: Good morning. So first, just a question on long-term care. If I look at your net premium ratio, it improved a little bit sequentially, but it seems like for the first half as a whole, it's still running fairly high. So just wondering, what are the key metrics that you're watching to see if you need to raise reserves as you do your review and any comments on how those are trending versus initial expectations.
spk03: Yeah, thanks for the question, Jimmy. I just go back to kind of our internal operational metrics. We did see the elevation in the first quarter. We did see that come down in the second quarter, all those still elevated. It all comes down to which cohorts we see it in. I would say in the first quarter, We had unfavorable experience against expectations in those cohorts that were uncapped. So you would have seen the NPR go up. And then that reversed a little bit in the second quarter where we had favorable experience in those cohorts. And so that's just a dynamic that we'll see play forward Specifically about our reserve assumption review, it's early really to talk about any conclusions, but just to remind, we go through a comprehensive review on all of our product lines as part of LDTI in the third quarter for GAAP. And we will do that this year and be able to talk about the results of that on our third quarter call. And then we go through the statutory version of that in the fourth quarter, and we'll be able to report out on that. But, you know, obviously we're looking at longer term experience sets when we look at all of these assumptions and so we'll take not only the last year that we've seen in new account but um you know what we've seen for the last several years and and that will that will factor into how we think about reserve assumptions but again no conclusions yet we'll we'll update you when we get through third quarter earnings and then just on your sales results uh some of the commentary from your peers on
spk15: competition in group benefits has been more cautious than your commentary. And if I look at your overall sales, they haven't been that good in the first half of the year. So how much of the weaker sales is because of competition you're seeing, whether it's large case or otherwise, versus just sort of normal volatility you see in some of the larger cases?
spk04: Yeah, thanks, Jimmy. I think we'll go and talk to each of our business about what sales are and the story that we see beyond just competition. Where do we see sales going? Chris, you want to start us off in the US?
spk05: Yeah, thanks. Thanks again for the question. So we come through the first half of the year really, frankly, ahead of our plan. So we feel really good about where we sit mid-year. We feel very good about capabilities that I've talked about driving, lots of prospective conversations with customers, getting us to finalist meetings and winning the market. We see that mostly in the mid-market. Again, just based on effective dates, it's a little bit you know more normal to see smaller and mid-market effective dates uh that fall in the first half of the year uh you know what you see from unum us from a comparative basis uh year over year the volatility in large uh is most pronounced uh last year we had you know our largest group insurance sale happened for seven one by and that's a little bit abnormal just based on effective date Normally that would be more centered on 1-1, and even our largest individual disability sale happened in the second quarter of last year. So when I compare year over year with, again, mid-market sales, new coverages and new premium, we're really pleased with where things stand. And when I, you know, kind of put a cap on it and look forward to 1-1, we're very confident with the position we're in that we can deliver
spk01: uh the full year sales result and that isn't a dynamic competitive environment no question but uh but again we've got a strong team bringing a strong message good then we'll go to the uk mark thanks very much rick um i think we're really pleased in international with the growth that we've generated in quarter two uh it was much improved on quarter one if i look at the uk first 5.7 growth in local currency in sales that was a record quarter two for us And actually, from a competitive intensity perspective, the second half of the year, we'll see one of our competitors leave as that business has been acquired. And we've been investing very strongly in the UK in Proposition, which creates a story beyond price. Poland, I would say the market is pretty consistent. And overall, I think we're feeling very good about ourselves being in line with the 8% to 12% outlook that we gave at the start of the year.
spk04: Thanks, Mark. And Tim, I know you talked a little bit about sales. Anything you'd add to the question?
spk12: Yeah, just to reiterate a couple points. New sales up 8.7%. Sales in our target markets up significantly year over year. Those are the places I think you would see pressure from the competitive environment. So the voluntary benefits marketplace is competitive, but the pressure we're seeing is with our existing clients, and we believe that's inflationary versus competitive.
spk04: Thank you. So appreciate the question, Jamie. I think, you know, wrapping up the competitive, I think we've all hit on it. We live in a competitive environment. That is not new. We're used to operating in that environment. And so I think, you know, we look out for the rogue competitor that's out there pricing irrationally from our perspective in the market. We don't see that. We just see good, aggressive competition. And that's a world we thrive in.
spk15: Okay. Thanks again.
spk08: Our next question comes from the line of Tom Gallagher with Evercore. Please go ahead.
spk16: Morning. Sorry to beat a dead horse here. Another question about group benefits competition. So on another company's earnings call last week, we heard about new competitors entering into the group benefit space. They were flagging mutual insurers as well as some public companies that aren't big players but that appear to be ramping up and growing fairly aggressively. Can you comment on what you're seeing in terms of new competition? Are you also bumping into that and how is that affecting things from a pricing or from a growth perspective?
spk05: Yeah, Tom, it's a good point. We certainly can name some new entrants into the market. You know, some of them are, you know, they're generally on the smaller end of the market. Some of them are getting products approved in, you know, a subset of states. They're starting to show up in different places. You know, I don't want to just, I certainly don't want to dismiss that as a factor. That's part of the competitive dynamic that we've all talked about. Rick just reiterated. We compete really well there. My sense would be that, you know, the newer entrants, you know, more likely show up, you know, where they see kind of openings in the market to show up maybe on a price basis to get attention. And when you start getting a little bit deeper on, you know, digitized self-service portals and, you know, connected platforms and, you know, things as complicated as lead management, you probably see a little less of the new entrant, which is maybe why I would say, yes, it's a real part of the market, but, you know, not the biggest thing that we think is going to drive any sort of, you know, true headwind to our sales results for the year.
spk16: Gotcha. That's helpful. And I guess just broadly... I think, Rick, you guys have described the market as being rational price competition, or I should say rate that you're getting has been fairly stable for both disability and group life. What are you thinking on renewals into 25? Is it still stable? Would you expect some pressure on pricing? Just some directional commentary would be helpful.
spk04: Yeah, Tom, I think I agree with how you capitalized. We actually see the rationality in the market. Now, that's a range. So we have to be very clear that the irrational that we've seen in previous years, I go back five plus years, were people that were real outliers. And so there is aggressiveness in the market today, but that's a range that we can compete in and bring forward our capabilities and win on that front. Maybe, Chris, you could add to that.
spk05: Just to build on a little bit, Rick, you know, there's no question this year's persistency level is exceptional. So, you know, this is ahead of our plan. We do plan on meaningful persistency, but not as high as this year reflects. Maybe just get back to how we work with customers and the fact that we do try and use our pricing discipline and their desire for long-term price stability to adjust for the future. When your block is running well, like ours is, that does mean there are cases that deserve some sort of a rate adjustment down. But again, they don't want it to be a pendulum swing where you're moving right down and then up again in two years or whatever it might be. And we will still dynamically kind of work customers that need a price increase up to make sure that they're priced well for the long term. And that's a process we're very comfortable with. So I go back to the discipline. I go back to, you know, working hard to solve customer problems and focus on things that are, you know, meaningful in their technology ecosystem. And in terms of, you know, lead management and other factors, the bundled sale is really important. And we're able to put together a nice package that gets a fair return and is stable for the long term.
spk16: Okay, thanks.
spk08: Our next question comes from the line of Wes Carmichael with Autonomous Research. Please go ahead.
spk06: Hey, good morning. Thanks for taking my question. I wanted to drill down just again in group life and just in the current quarters experience. Just wondering if you could maybe just unpack what you saw in terms of incidence or frequency. And, you know, is this still maybe a normalization a little bit post-pandemic? And if you could offer any color in terms of specific mortality cause where you saw a little bit more favorability, that would be great.
spk03: Hey, Wes, it's Steve. Yeah, I can cover that. That segment is a combination of both kind of traditional group life as well as accidental death and dismemberment. I would say it's definitely in the traditional group life. It's really focused on incidents. and what we're seeing. There's really nothing around severity that I think we would call out. It's really just around count and incidence levels. And again, we've seen pretty consistent performance over the last three quarters. I can't really comment on whether it's still, you know, it has something to do with the pandemic. I will say that, you know, we had predicted some endemic mortality in our block, and there is still some of that, but I'm not sure I would connect the two. I just think that we've had a pretty good run here and that we think that that should continue at least in the short term.
spk06: Thanks.
spk03: That's helpful, Steve.
spk06: And just maybe any update in the long-term care risk transfer market, has anything changed over the past couple of months in your view?
spk04: Yeah, thanks, Wes. Not a lot. I mean, I just take it back and say that we were happy to see another transaction happen in the market. It's exactly how we've been talking about it as well in terms of being able to look at our block in different pieces and parse it to find the right buyer at the right price. I think that certainly opened up the market a little bit. People raised tension levels. But, you know, once again, this is us doing the work, which we've done, finding the right buyer. and going through what can be a pretty detailed process. So I wouldn't set anything new on that front. It is still something that we are very focused on, still something that we want to do, but until we actually find that right buyer, we'll announce that when it happens. But the market's kind of the same, but I'd say that a year ago it probably did open it up a little bit, but it ebbs and flows, as we've talked about over the last several years.
spk08: Thanks, Rick. Our next question comes from the line of Mark Hughes with Truist. Please go ahead.
spk07: Yeah, thank you. Good morning. What is a good target benefit ratio in supplemental and voluntary?
spk03: Yeah, I mean, I think we've had fairly consistent benefit ratios, that line of business, you know, the combination of our individual disability income business that we're currently marketing, our voluntary benefits business, and our dental and vision, and those tend to bounce around a little bit. If you go back to what we were looking at last January when we gave guidance, we were looking at something that I'd say ranged around 50%. We've seen some favorable experience probably against that expectation. But I think it's a pretty good planning assumption going forward of the margins that we would expect in that business.
spk07: Very good. And then this may be premature, but thinking about the forward interest rate curve, if the Fed starts to cut, what does that mean for earnings growth next year? You referred to your long-term guidance of 8% to 10%. if we do go through a rate cutting cycle, does that have a material impact? I mean, is that worth 100 or 200 basis points or how should we think about that?
spk04: Yeah, I think your question is a good one. I know the day that it is in the market in terms of rates and where they are, but think about the rate cuts and it's premature because we don't know what's going to happen on the long end of the curve. as a result of any action that the Fed will take. I think we talked about this environment. And when we say this environment, the 10-year and 30-year kind of with a four handle on them, that's a good operating environment for us. And if it goes anywhere different than that, the impact will be. And I'd say it'll be longer term as well. We've talked about hedging. So we've actually locked up a bunch of that new cash flows that we'll see next year. And so it's premature, Mark, to talk about what that impact might be and Once again, we don't really know where the 10-year and 30-year are going to go either. We've operated in more difficult environments, and I think that we're happy when things have a forehand, Ilana.
spk08: Appreciate it. Our next question comes from Ilana Wilma-Berdes with Raymond James. Please go ahead.
spk14: Hey, good morning. Thanks for taking my questions. How are you guys thinking about the LTC hedging program going forward? Is there a natural stopping point or will you continue to add hedges until the rate environment just doesn't make sense anymore? Thanks.
spk03: Thanks, Wilma. This is Steve. I'll take that one. So first of all, love our hedging program. It's provided really good risk management and minimizes capital sensitivities as it relates to our LTC book and kind of the reserving methodology that we have there on a regulatory basis. We're happy with how we've grown it. We've been at it now for over a couple years. We kind of expanded it in the second quarter. Feel good about that. I'll just go back to how we've set the program up and what our targets are. We look at investable cash flows over a time horizon. And what we targeted is over the next five years to target 50% of those cash flows to put protection on. And then for year six and seven, we're targeting 40%. And really that's just because of As I mentioned before, the hedge accounting methodology and just making sure that we can execute and deliver on those securities and going out in the market and being able to buy them. So nice expansion. At the end of second quarter, we had $2.4 billion of notional. Our strike price is about $4.25 on our book of business. And cumulatively, we put on $3.2 billion of Specific to your question, we're getting pretty close to our targets. This last expansion pretty much got us to where we'd want to be. The only thing that I would note is we will continue to enter into new ones. as those mature because we have those laddered really on a quarterly basis where every quarter they're maturing, we're going out, we're placing the cash in securities, and then we're kind of extending the program another quarter. So the cumulative number will continue to build, but I would say the absolute notional, we feel pretty good about where we are right now.
spk14: Thank you. And then you talked a little bit more about the possibility of acquiring some capabilities. Has the market changed at all? Are there any attractive opportunities out there, or is this just part of kind of reevaluating your capital usage? Thanks.
spk04: Yeah, thanks Wilma. I think when we think about M&A, we've been clear to talk about that it is about capabilities. We want to have areas of our business where we can actually enhance growth. There are opportunities out there that we look at. Now these are These are deals that would be of a smaller size, and I've got to be careful where I size those type of deals. It's not a capital consideration in terms of changing the dynamics that we've talked about or deployment at year end, but these are areas that we think they're out there available and will enable us to enhance our growth trajectory and We stay very active in those markets to think about where that can be. But once again, it's not going to be a large consumer of the great capital generation that we've seen, so we feel very good about our capital deployment plans.
spk14: Thank you.
spk08: Our next question comes from the line of Michael Ward with Citigroup. Please go ahead.
spk10: Thanks, guys. Good morning. I was just wondering if you could unpack the alternative income in closed block, if there's anything specific that drove that up to this quarter and if there's any outlook for the back half of the year.
spk03: Steve, I can handle that. So, yeah, alternative income for the quarter was $32.8 million. That was an increase From the second quarter of last year, our yield last year was about 6.5% annualized yield, and it was 9.9%, close to 10% annualized yield for the quarter. Our longer-term expectation would be in that 8 to 10 range, so pick the midpoint. That's what we use for our planning expectation. And when we would build our outlook, that would be the assumption that we would use. It's about $1.4 billion in asset value right now in that quarter. You know, in that portfolio, we like the diversification. We think that that's really helped us be somewhat stable in the yields that we've had in that portfolio. But I just say we're really happy with the performance that we've seen since inception and definitely this year. And if you're just trying to, you know, kind of plan going forward, that 8 to 10 range is kind of where we would peg it. It is going to be volatile quarter to quarter. I mean, you know how these asset classes work, but over time, I think that's a pretty good assumption.
spk10: Okay, thanks. And then maybe one last one, just a higher level on, I guess, long-term care, but the potential benefits on underwriting, or I guess maybe on policyholders from GLP-1 drugs. Maybe it's a little early for this, but it feels like Like I saw a headline yesterday, I think, and other studies sort of showing that it's seriously preventing or maybe delaying the progression of Alzheimer's. Is there any point where you guys think that it might actually be something that we really need to think about?
spk03: I'll take that one as well. So I'll take it at a high level. For society, it's great. It does feel like the development of these drugs are really accelerating, which is wonderful. You know, we track very closely how these trials are going, the results that they're seeing in that. So obviously very happy with that. When we step back and think about the business, you know, it will take time for those advancements to work its way into the general population and then specifically into our insured population. Net-net, kind of how these are evolving, it should be a positive. And it should be a positive across many of our product lines for the other types of drugs that are being developed, not just things around Alzheimer's. So, you know, we're optimistic. Again, great for society, but we wouldn't change our expectations until we see something actually work its way into our block and really see changes in the trends of our insured populations.
spk10: Got it. Thanks for squeezing me in, guys.
spk08: Yep. Thanks, Mike. That concludes our Q&A session. I will now turn the call back over to Rick McKinney for closing remarks.
spk04: Thanks, Vaudev. Thanks, everybody, for joining us and staying on here for a couple extra minutes. You know, we do appreciate your continued support and interest. Our second quarter results were exceptionally strong, and we revised that and reflected our new outlook. And so I hope as you've dug into it, you see the strength that we see as well. We're very confident in our ability to maintain these levels as well as we look to the back half of the year. Operator, that will now end our call today. Thank you all for joining us. We'll look forward to talking to you either out in the market or on our quarterly call next quarter. Thank you.
spk08: This concludes today's call. You may now disconnect.
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