Unum Group

Good morning. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to the Unum Group 3Q2 for Earnings. Call lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I will now turn the call over to Matt Royal, Senior Vice President, Head of Investor Relations and Treasury. Matt, please go ahead.

Great. Thank you, Mark, and good morning to everyone. Welcome to Unim Group's third quarter 2024 earnings call. As Mark said, today we'll begin with prepared remarks, followed by Q&A session. Also, today's call may include forward-looking statements, and actual results may differ materially, and we are not obligated to update any of these statements. Please refer to our earnings release and our 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 third 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. As a reminder, references made today to core operations sales and premium 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 over to Rick McKinney for his comments.

Good morning, everyone, and thank you for joining us. We're excited to discuss our third quarter results and trends as we look to the fourth quarter and begin to look towards 2025. For 2024, growth has been top of mind as we entered the year and through three quarters. We are on a solid path to achieve our EPS growth expectations of 10 to 15% for the full year, which is higher than our original outlook. Results continue to reflect strong broad-based performance and cash flow generation. Adjusted EPS was $2.13 per share and statutory earnings surpassed $300 million for the quarter, bringing us to over $1 billion of statutory earnings for the year. You'll note that additionally our reported EPS was significantly higher as our assumption updates led to an overall reduction in reserves and contributed to growth in book value per share XOCI of over 10% so far this year. Our top line remained healthy with a 4.6% increase in core operations premium growth, and this is a little bit lower this quarter, but year to date we are up 5.5%. Persistency remains high, but sales were down over prior year. Third quarter is our smallest sales quarter at about 10% of the full year, and we saw some difficult comparisons to last year, so it does not have us overly concerned. The important thing is that we are optimistic for the fourth quarter, which is our largest sales quarter. We expect the U.S. to build momentum and be within our full year outlook. Further, we expect sales in the U.K. will continue to sustain the growth trajectory achieved so far this year, while colonial life will likely be flat for the year. It takes a full team effort in a busy fourth quarter, and we are most appreciative of the resilience of our team. They've done an excellent job navigating the changes in the environment and our market over the last several years. Our focus solely on employee benefits gives an advantage in concentrating our efforts. Specifically, the investments we've made into our processes have helped solidify the improvements we're delivering for our clients and allowing our highly productive sales teams a differentiated story to tell. This spans from our leading enrollment technologies to ensuring a smooth experience for employees on leave to helping employees get back to a more productive and fulfilling Work life sooner. While we have an unwavering customer focus, the macro picture continues to support our resilient business model. The strong employment atmosphere, higher interest rates, and a benign credit environment are all positives. Looking across the franchise, results in Unum US were highlighted by very strong results in the group insurance business. Group disability experienced another strong quarter where recoveries drove low benefit levels. This line has been a multi-year strong performer, and we see this continuing in the near term. Our group life insurance business has been a very strong performer in 2024 with benefit ratios under 70%. We expect similar experience trends to persist across both lines as we head into the fourth quarter. Colonial Life continues to be a valuable franchise with margins continuing to be excellent with an ROE of nearly 20%. Premiums grew 2.5% in the third quarter with strong persistency and sales close to flat. We would like to see the top line grow faster, and we remain focused on our key strategic initiatives within Colonial Life to do just that. The Gather platform, which transforms benefits, enrollments, and administration, continues to gain momentum with over 75% of new sales implementing Gather year-to-date. This is translated to premiums sold on the platform of up to close to 100% year over year. Our international business had another quarter operating at full strength, with robust premium growth of over 10%, and UK underlying earnings consistent to last quarter at around 30 million pounds. We continue to see excellent momentum as well in our growing Poland business. And in the UK, we continue to redefine the broker experience, setting a market-leading standard that is distinctly Unum and enhancing our relationship management model. Our business in the UK doesn't always get as much attention given its relative size, but we are very pleased with how our team is executing. Across the enterprise, our discipline in pricing and customer engagement combined with consistent execution translates to solid product returns as we continue to see attractive margins across our lines. Consolidated return on equity was a very healthy 12.5%, and our before-tax operating earnings and return on equity at our core operations were well above the top end of our most recent outlook ranges. In total, after-tax adjusted operating earnings of $398 million increased 4.3% from the same time last year. The positive results are true for both GAAP and STAT, and this cash flow generation flows into the strength of the balance sheet. We have been active in bolstering our balance sheet over the last couple of years across the board. It is true of our investment portfolio, where we've increased its credit quality profile and are well positioned for future market cycles. We have also increased reserves and capital behind our long-term care business, where we don't expect to need more capital. With respect to long-term care, we continue to actively pursue risk transfer. Long-term care insurance is very different from everything else we do and can at times overshadow the strength of our franchise. Whereas long-term care is for customers very late in life, The core of our strategy and purpose is taking care of people in their working years. It is why removing this over time and at the right price is very much a strategic objective. Pulling the capital picture together with statutory earnings over $300 million, our holding company liquidity ended at $1.4 billion, and our RBC was approximately 470%, both at levels well north of our targets. With the balance sheet actions taken last year, the substantial free cash flow generation of our core business has been building our capital position of strength and adding to our deployment flexibility. Our capital deployment priorities remain intact, investing in our business organically and inorganically, and then returning capital to shareholders through dividends and share repurchase. When we look at our overall balance sheet strength, we also continually examine our capital structure. As a result, we have decided to dissolve our precapitalized trust facility following the end of the third quarter. This was a tranche of contingent capital we no longer deem necessary given our multiple sources of capital. We've decided to use the proceeds for a one-time additional share repurchase in the fourth quarter, and when combined with our normal pace of purchases, we'll bring the total amount of share repurchase to approximately $1 billion for 2024. up from $250 million in 2023 and above our $500 million outlook coming into the year. When factoring in this expanded repurchase, we will have reduced our float by over 10% since restarting our share repurchase program in the fourth quarter of 2021. Overall, we are pleased by the many positive trends across our operations and the supportive macro environment. Third 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 on our strategy to deliver on our outlook of 10% to 15% EPS growth, which sets up continued progress into 2025. Once again, we appreciate you joining us this morning, and let me turn it over to Steve for more details and perspectives. Steve? Great.

Thank you, Rick, and good morning, everyone. The third quarter was a very good quarter for the company as we saw the continuation of our strong first half operating performance. with margins and persistency remaining at historically strong levels and above our expectations, helping support year-over-year premium and earnings growth across core operations. Last quarter, we increased our outlook based on improved mortality trends, and we saw these trends continue in the third quarter with group life and AD&D segment adjusted operating earnings increasing 80% over last year driven by continued lower incidents. Disability results in the third quarter were highlighted by strong underwriting performance with benefit ratios of 59.1% for Unum US group disability, 42.8% for Unum US individual disability, and 69.5% for Unum UK, all favorable to our expectations. Sales in Unum US were down in the quarter. This was most pronounced in group disability. As Rick mentioned, the fourth quarter is historically the largest sales quarter for this segment with over 40% of annual sales. Based on our results to date and a strong pipeline of new sales, we believe we will achieve our full year sales growth target of 5% to 10% for Unum US. Across our other segments, Unum International is also on track to meet its sales target, while Colonial Life is tracking in line with last year's sales levels. Given the mix of sales and levels of persistency, we remain confident in the long-term outlook for future premium growth. As I review our results by segment, I will describe our adjusted operating income results and benefit ratios, excluding the impacts from the annual gap reserve assumption updates in the third quarter of both 2024 and 2023. The 2024 assumption update process resulted in a $357.4 million pre-tax reserve release driven by a number of different product lines, including long-term care. I will provide additional details of the 2024 update following the discussion of our segment results. So starting with the NMUS, adjusted operating income increased to $363.3 million or 1.5% in the third quarter of 2024 compared to $357.8 million in the third quarter of 2023. Results finished above prior year primarily due to favorable benefits experience in group life. The group disability line reported adjusted operating income of $156.7 million compared to $170.1 million in the third quarter of 2023, driven primarily by a benefit ratio of 59.1% compared to 57.5% in the year-ago period. While the benefit ratio increased year over year, results were favorable to our outlook, reflecting continued favorable claim recoveries. As I mentioned, results for UMUS group life and AD&D improved significantly compared to the third quarter of last year, with adjusted operating income of $94 million for the third quarter of 2024 compared to $52 million in the same period a year ago. The benefit ratio decreased to 65% compared to 73.3% in the third quarter of 2023 due to lower incidents. We still plan for the benefit ratio to be below historical norms and around 70% as we close out the year. Adjusted operating income for the Unum-U.S. supplemental and voluntary lines in the third quarter was $112.6 million compared to $135.7 million in the third quarter of 2023. This decrease was driven predominantly by benefits experience. The voluntary benefits loss ratio was 45.8% compared to 39.1% in the third quarter of 2023 and our expected range of 40 to 43%. The dental and vision benefit ratio of 74.6% was also slightly above our expectation of 70 to 73%. UNMUS results included steady year-over-year premium growth of 4%. Persistency for total group business of 92.5% remained strong and stable in the third quarter, with stable results in most of our supplemental and voluntary lines. Moving to Unum International, the segment continued to show very strong trends in its underlying earnings power, with adjusted operating income for the third quarter increasing to $40.3 million from $36.8 million in the third quarter of 2023. Adjusted operating income for the Unum UK business improved in the third quarter to 29.5 million pounds compared to 28.4 million pounds in the third quarter of 2023. The benefit ratio for Unum UK increased to 69.5% in the third quarter compared to 67.4% in the same period a year ago. And as expected, the inherent benefit of high levels of inflation have dissipated and did not enhance third quarter 2024 results. In fact, UK earnings grew approximately 20% when excluding the inflationary benefit experienced in the third quarter of last year. International premiums and sales continue to show strong growth. Unum UK generated premium growth of 11.7% on a year-over-year basis in the third quarter, while our Poland operation grew 22.1%. Sales in the UK grew 26.9% compared to the third quarter of 2023, while Poland sales were up 8.6%. So then moving to colonial life, adjusted operating income for the segment was $113.4 million in the third quarter compared to $102.9 million in the third quarter of 2023. The increase was driven primarily by a benefit ratio of 47.6%, which was down from 49.1% in the year-ago period. Colonial Life premium income of $441.9 finished 2.5% higher than the premium year driven by prior period sales and strong persistency. Topline growth continues to build, and with year-to-date premium growth of 3.4%, we're positioned to meet our growth outlook for the segment of 2.4% for the full year. Sales in the third quarter. of 120.9 million dollars decreased slightly from 121.3 million dollars in the prior year as i mentioned previously colonial life sales for full year 2024 are now expected to be in line with the 2023 sales of approximately 540 million dollars in the closed block segment adjusted operating income remained consistent at 34.2 million dollars in the third quarter of 2024. Higher net investment income was offset by lower premium income for long-term care. LTC elevated incidence experience continued to dissipate as claim inventories normalized, albeit at a slower rate. The net premium ratio as of the third quarter of 2024 was 94.5% compared to 93.7% in the prior quarter. The increase was primarily due to the impacts of the annual assumption update, which I'll discuss later in my presentation. Talking points so wrapping up my commentary on the quarters financial results, the adjusted operating loss in the corporate segment was $49.4 million compared to $41.5 million loss in the third quarter of 2023 primarily driven by lower allocated net investment income. Then, lastly, the tax rate in the quarter was 20.7% compared to our expectation of 21.5% to 22%. The favorability was driven mainly by one-time prior tax return adjustments. So, moving on from the quarter's operating results, I'll now discuss the outcomes of our annual gap assumption review that we completed in the third quarter. The review resulted in a positive impact on financial results with a net decrease in reserves of $357.4 million or approximately $282.6 million after tax. While this impact was excluded from adjusted operating earnings, it added $1.53 to our book value per share excluding AOCI, which now stands at $74.15. Most product lines saw favorable changes highlighted by adjustments in our group disability, individual disability, and the colonial life businesses. In addition, long-term care had a reserve decrease, which I will discuss in more detail momentarily. Getting into the specifics of the various reserve releases, similar to the past few years and as is representative of our continued strong operating results, group disabilities update was driven by continued improvement in our claim recovery assumption. and totaled $90 million pre-tax. For IDI, incidents and claim termination trends drove a $52.8 million pre-tax reserve decrease. And lastly, Colonial Life's $46 million release was driven by favorable claims trends that we expect to continue. Then for LTC, the assumption updates resulted in a decrease in reserves of $174.1 million before tax. reflecting incorporation of favorable premium rate increase experience, partially offset by lower expected premium persistency on group cases. Premium rate approvals have outpaced our assumptions over the past year, and we are currently 25% through our program following the assumption updates. LDTI cohorting dynamics are such that this quarter's reserve assumption update drives a decrease in reserves partially offset by an increase in the net premium ratio. Similar to last year, changes in interest margins since adopting LDTI are not reflected, nor do they offset changes in liability assumptions for financial reporting purposes. In short, consideration of today's long-term rates would indicate additional margins as we've previously described. While interest margin is no longer reflected in our gap reserve analysis, we will still see the benefit of higher earned portfolio yields compared to the locked in discount rates as interest margins in earnings over the life of the block. We consider this dynamic when evaluating our best estimate of reserves. Following the GAAP assumption updates, the buffer between our statutory reserves plus excess capital at Fairwind and our best estimate remains at a consistent level at approximately $2.8 billion, providing meaningful levels of protection against adverse events and supporting our position that no additional capital contributions will be necessary for LTC. So moving now to investments, we continue to see an environment where new money yields are at levels above our own portfolio yield of 4.41%. Miscellaneous investment income was relatively flat in the third quarter at $23.6 million compared to $24 million a year ago. Income from our alternative invested assets was $19.6 million. Year to date, the alternative investment portfolio has generated $72.6 million, or approximately 5.4% in annualized returns. So then I'll wrap up my commentary by turning back to our capital. The weighted average risk-based capital ratio for traditional U.S. insurance companies is approximately 470%, and holding company liquidity is robust at 1.4 billion. Capital metrics again benefited in the third quarter from strong statutory results with statutory after-tax operating income of $315.6 million. This now brings year-to-date statutory after-tax operating income to over $1 billion. Our strong cash generation model drives our ability to return capital to shareholders And in the third quarter, we paid $77.9 million in common stock dividends and repurchased 3.7 million shares at a total cost of $202 million. For the three quarters of 2024, we have repurchased 9.7 million shares at a total cost of just over $500 million. As Rick described earlier, we decided to dissolve our precapitalized trust facility established during the pandemic. Drawing the facility, which settled this week, slightly raised our leverage ratio and brought approximately $270 million of invested assets onto our balance sheet. We plan to use these proceeds for incremental share repurchases in the fourth quarter. When considering this one-time special capital deployment, we expect share repurchases to total approximately $500 million in the fourth quarter or around $1 billion for 2024. So then reflecting on our results, the first nine months of the year have been incredibly strong across many different aspects of our business, demonstrating our ability to execute against our strategy. Our top line continues its upward trajectory, has historically high levels of persistency, and our outlook for fourth quarter sales bolsters our ability to reach our premium growth target of 5% to 7% for the year. Earnings are robust. as our core businesses continue to exhibit exceptional margins highlighted by the sustainability of disability and life results. Because of this, we are on track to achieve our outlook of 10 to 15% growth for EPS that we raised last quarter. In addition, year-to-date statutory earnings are already over $1 billion nine months into the year, putting us well on pace to generate $1.4 to $1.6 billion of holding company cash generation, which we laid out at our outlook meeting. This performance fundamentally contributes to our robust capital outcomes, featuring an RBC ratio that surpasses our long-term target by 120 points. It also enhances our capacity for capital deployment, including our anticipation to repurchase around $1 billion worth of stock this year, which significantly exceeds our original goal of $500 million. And then lastly, our balance sheet is strong, reflecting the results of our latest assumption update, including positive developments in LTC and our continued expectation that no further capital contributions are needed for that block. Now I'll turn the call back to Rick for his closing comments, and I look forward to your questions.

Great. Thank you, Steve. You can take from our comments that the third quarter was positive across multiple dimensions on how we're running a balanced, disciplined, customer-focused company. Our teams have done an excellent job through the first nine months of the year, which sets up for an all-important fourth quarter and as we look into 2025. The team's here to respond to your questions, so I'll ask the operator to begin the Q&A session.

We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your questions, you need to press star 1 again. I'll pause for a brief moment to compile the Q&A roster. And your first question comes from the line of Alex Scott with Barclays. Alex, your line is now open.

Hi. Good morning. First question I had for you is just on the actuarial review, and could you help us think about just the way these premium increases relative to your assumption may find their way into statutory results in the fourth quarter? Hey, Alex, it's Steve.

Yeah, and just let me kind of recap the actuarial review specific to LTC just so, you know, there's some dynamics around LTDI, and then I'll get into some of the statutory dynamics. So basically, we had two changes that we made to our assumptions, and they were treated very differently for GAAP. The first one was around our expectation for rate increases on that book. And those increases, we kind of looked at the program that we had in place and that we reset last fall. We didn't really increase the program itself, but based on the success we've had and just the discussions we've had with regulators since then, our expectation of what the ultimate approvals on those submissions are going to be have increased. And that's roughly $175 million of value, of kind of present value of those premiums. Those were pretty much all reflected in earnings in the period, and that's just because of the cohorts that those impacted. Then we also made some adjustments to just the persistency of our group LTC business. Those are mostly in cohorts. that are uncapped and have quite a bit of margin. So you would see those flow through the MPR. And basically, we had a slight reduction in margin, which increased the MPR for the period. So just to kind of size those up and also get the geography of how those flowed through. And so we feel good about both of those and how they're reflected. From a statutory basis, we did already consider in many of our statutory analysis um you know the impact of the rate increases that we had and based on kind of where those hit whether it's the pdr or where we are with some of our other asset adequacy reserves it may create a little bit more margin but i would say it doesn't massively change our view on the buffers that we have between our kind of best estimate reserves for ltc and the statutory reserves we have plus the excess margin. And I mentioned that in my comments. So I wouldn't view it as a major change to how we think about statutory reserve margins.

Got it. That's helpful. And maybe for a second one, on cash flow and holding company liquidity, seems like stat earnings have been pretty strong this year. I think you guys take a bigger dividend in 4Q. There's already a substantial buffer built up at the holding company in terms of the liquidity you have there. So I'd just be interested in any help you could provide and how we should think about the amount of cash that will come up towards the end of the year and just the capital deployment priorities and appreciating that you guys have already stepped up the buyback a bit, but just want to think more broadly about deployment.

Yeah, let's talk about the deployment, Alex, and I'll flip it over to Steve to talk about the specific dynamics we'll see in the fourth quarter, which we see most fourth quarters, and we'll get to that. But from a deployment perspective, you know, you are right. We've seen very strong cash flow that's been generated by the company that's accruing. It's allowed us to do over the last couple of years, as I mentioned, to bolster the balance sheet, but now it's also accruing into just our operating metrics. You know, that strong statutory generation and what we see gives us a lot of flexibility. So first and foremost, putting into the core growth, investing in what we're doing. We really like the businesses that we're in. And so we'll do that on an organic basis. And if we see the ability to buy something, to accelerate that pace, to bring capabilities, that's something we'd like to put capital towards as well. And after we've done that and focused on the growth, then we look to also returning capital to shareholders on the dividend front, increasing that. Earlier this year, we increased our dividend by 15%, and then share repurchase is something that we're always focused on. And we've seen that increase over the course of the year in terms of both the pace and relative to last year. And so we've talked about that multiple times, about the pace at which we will increase share repurchase, reflecting our very strong capital position. And so, when you think about what happened in the third quarter and really what we're projecting going into the fourth quarter is a pretty steady pace of deployment, higher than we had in the first half of the year, certainly more than last year, but a steady pace of that deployment. And we'll be consistent on that. We did have a one time event that we see around dissolution of our pre-caps or pre-capitalized trust securities. That's going to enhance that a little bit. But think about this as a steady pace of redeployment through shared repurchase. So that's kind of the picture in terms of how we see deployment. Steve, maybe you could talk a little bit about how those metrics will move in the fourth quarter.

Yeah. And I think probably the way I think about it, Alex, is at year end, we're still on track for a lot of the targets that we set at investor day. And that would indicate that by year end, our holding company cash will increase. We pull quite a bit of our operating dividends out of the operating companies in the fourth quarter. So RBC will probably go down quite a bit. We'll bolster holding company cash. But I would say those are pretty good indicators, some of the targets that we set for year-end 2024 back at Investor Day. Got it. Thank you.

Thanks, Alex.

Your next question comes from the line of Wes Carmichael with Autonomous Research. Wes, your line is now open.

Hey, good morning. Thanks. On group disability, you talked about expecting favorable recoveries to continue. Do you think that's continuing looking forward over a few quarters? Could that be an even longer-term tailwind? And I'm just trying to understand if that could turn at some point, like if the pool of people more likely to see a recovery is getting smaller.

Yeah, Steve, I'll take that one. The comment was really meant to say the current level of operating performance within group disability and our ability to get people back to work, we think sustainable. And so This quarter, our benefit ratio was just south of 60%. We think 60% is achievable going forward based on the level of recoveries we've seen and don't really see a reversion of that. As we talked about in the past, the question just becomes around pricing and the pricing dynamics in the market and how that might adjust benefit ratios going forward. But right now, we think 60% is still a good expectation as we go into the remainder of the year.

Yeah, that's helpful. And on LTC, I don't think you unlocked your assumption around incidents in period. And I imagine that was at least partially informed by experience this quarter. But could you help us with what you're seeing in recent trends? It sounds like it's slowed down in terms of the pace and if that differs between any large cohorts.

Yeah, no, that's good. And I kind of, you know, by omission, I validated that we really didn't adjust any other assumptions. So, you know, we clearly looked at mortality experience, lapse experience, generally incidence experience. felt comfortable with what we've seen over the last year that we would not adjust our longer-term assumptions in any way material. So we did look at incidents over the last year. You're right, you know, it was really elevated going back close to two years now. We have continued to see that dissipate, and we saw that trend continue. in the third quarter of this year, whereby our inventories continue to diverge closer to what our long-term expectation is. I'd say it slowed down a little bit, but we just saw kind of the economic growth types of incidence performance continue to slow down. Obviously, it comes to the cohorts a little bit differently, quarter to quarter, and so that, you know, has a little bit of impact, but feel good about the trends and, you know, those trends continue. And so, based on that, we felt, you know, good with our longer-term assumption around claims incidence.

Thank you.

Your next question comes from the line of Tom Gallagher with Evercore ISI. Tom, your line is now open.

Good morning. Steve, you were referencing, you know, depending on pricing, I think, when you're thinking about, I guess, the emergence and where margins are going to go in your group business. Can you talk about what you're seeing for renewals? Is there pressure on rate, what the competitive landscape looks like? You know, clearly your disability and group life results have been really good, particularly in the last few quarters.

Yeah, Tom, it's Chris. Thanks for the question. And, you know, obviously persistency has been good. We're thrilled that customers are, you know, engaged with our capability, like what we're doing from an execution standpoint. It is competitive out there, as we've talked about in the past, and we expect to have that nice combination of fair pricing, renewing business case by case. We're still active with our discipline around rate increases when appropriate and rate reduction if appropriate. But our customers like long-term stability, so the more we can do to kind of triangulate around, here are the capabilities that you have, here's good pricing for the long term. you know, we do feel like we can get a fair return and continue that way. So that's, you know, that is a bit of a new business and a renewal pricing commentary. And our team is hard, you know, at the task of making sure that combination comes together.

Gotcha. Thanks. And then, and I hear what you guys are saying about the PCAPS dissolution and how that's going to drive a 4Q higher buyback. But I guess up until now, you've been very measured in terms of what you've been willing to do for buybacks. This marks a change. Can you provide a little bit of color for what's driving this decision? Are you more confident in just after a balance sheet review, you've done a more thorough look at long-term care and maybe you get added confidence? Um, or, or is it potentially because you think risk transfers further away now? And so you're not going to need, you know, access to additional sources of capital, maybe, maybe just a little bit of color for, you know, what's going on behind the scenes and the thought process here. Thanks.

Yeah, Tom, maybe I'll start and ask Steve to kick in as well. I think what you see is two things going on. One is just a lot of confidence in what we've built up over time. The cash flow generation that we've seen and so we've looked at sherry purchase and I think we've been very consistent to say. we're going to do this at pace and so we've seen that pace increase and so, as you saw in the third quarter we did 200 million in the third quarter. And you can expect a similar amount of underlying sherry purchase and the fourth quarter. And then looking at the PCAPs, really it's a different evaluation. The team has done a really good job of continuing to optimize the balance sheet. I can look to what we've done with the dissolution, most recently the PCAPs, but I'd go back over the last several years, the work they've done to actually lengthen out the overall debt structure and things like that. So a lot of very positive things that we've done. Don't read too much into it in terms of what we've, what we will or won't do elsewhere. I think this is very much the course that we've been on. We're just dialing it up a little bit from a share repurchase perspective, just given the strength that we've seen in the ongoing outlook that we have in the strength of the business.

Yeah. Tom, the only other thing I'd say is, you know, just a little bit of history on that PCAP, I think is helpful. We issued that back in 2021 and clearly we were in a much different environment from an uncertainty with the pandemic. We also were looking at things like strengthening the LTC balance sheet and kind of working through the PDR. And so we just thought at the time it was smart to get some contingent capital, and we were able to issue that in a pretty benign environment at that point in time. And so I would say nothing acute has happened. It's just kind of the progression of our thinking about capital strength and what's the most efficient capital structure for the company. And we just made the decision that this probably wasn't the most efficient use of capital. And that we thought the most efficient use would be to go ahead and, you know, bring those on balance sheet, generate the cash and go ahead and buy back shares and really kind of shift, you know, our capital structure from the equity to debt, which, you know, cost of capital there is going to be lower. So we just thought it was a smart move.

Gotcha. Thanks for the call, guys. Yep. Thanks, Tom.

Your next question comes from the line of Ryan Kruger with KBW. Ryan, your line is now open.

Hey, thanks. Good morning. Can you talk a little bit about what's causing some of the sales growth challenges at Colonial and, you know, the potential to improve the growth going into 2025? Tim?

Yeah, Ryan, thanks. This is Tim. So when you look at the details in the sales growth for Colonial Life, In the third quarter and really for the year, the headwinds have been in our existing sales, sales from existing clients down 3%. As a reminder, those sales represent about two-thirds of our annual sales, so those challenges have persisted all year. I believe largely it's an execution issue. We recently named a new senior vice president of sales. After a five-month national search, we identified an internal candidate who is outstanding at executing our strategic priorities and has led one of our regions to really strong growth. And so we're excited about the impact that she and her team will have on that going forward. We remain encouraged by the value prop overall. New sales in the quarter were up 6.7%. We had extremely strong growth in the large case commercial market and with our group product portfolio. It's really about getting the sales from our existing clients moving in the right direction. Again, we're confident that actually the new sales SVP and the team will make that happen in 25.

Thanks. And then you've had somewhat elevated benefit ratios in voluntary last, you know, I guess I think two of the last three quarters. Can you talk about what you're seeing there and what do you view as a good run rate of earnings for the supplemental and voluntary business at this point?

Yeah, this is Steve. Yeah, when you look at our supplemental and voluntary benefits, there's actually three businesses kind of embedded in there. We've got our individual disability income business, our voluntary benefits business, and our dental business. And even embedded within voluntary benefits, there's quite a few product lines in there. And what we tend to see over time is period to period volatility in all of those lines. We kind of went back and looked last five, six quarters. And specifically in voluntary benefits and in our dental business, they tend to bounce around a little bit. And it just so happens that this quarter, both of those were kind of at the lower end of the range of the results that we've seen. I wouldn't read too much into it. And I think, you know, kind of the run rates that we've had historically are probably a pretty good indicator of, you know, the business. So like maybe think $120 million difference. range per quarter is probably a pretty good number with, like I said, kind of period-to-period volatility.

Great. Thank you. Thanks, Fred.

Your next question comes from the line of Joel Hurwitz with Dolling and Partners.

Joel, your line is now open.

Hey, good morning. Wanted to start on UDEM-US sales, so it sounds like you're confident in achieving the before your five to 10% sales growth. Can you just provide more color on what you're seeing for Q4? Because I think that would imply that you need something like mid-teens growth just to achieve the low end of your target.

Yeah, Joel, thanks for the question. This is Chris. Yes, so again, we're coming off this small and volatile quarter. We also have been, of course, watching the pipeline through the course of the year. And when you look at both, you know, a nice uptick, particularly in the upper end of the market in terms of number of our RPs, but also quality of our RPs, we're really encouraged. So throughout the course of the year, we've been working on more and more cases that match up, you know, with the capabilities we're building around lead management and capabilities around HCM connectivity and other platforms that are important to our customers and our brokers. This gives us a better chance for high close ratio, and we're seeing that play through. We have a lot of work to do. The fourth quarter is the biggest of the year, and obviously you know a lot more about the large end of the business than you do the small. So the teams are still hard at work, but we're confident that the way we are executing and putting together capabilities and prospects is resonating very well in the market, and we plan on finishing strong in that range you talked about.

Okay, great. And then, Chris, maybe just on persistency, it's also been very strong in the U.S. With renewals, are you seeing or expecting similar persistency to what you've seen over the past several quarters?

Yeah. Obviously, we're thrilled that Persist has been good, and we do appreciate the fact that, you know, in a lot of cases, the loyal customers remain with us for a long time. I do think that we saw, you know, a little bit of an increase in activity in 24. There might have been some pent-up demand in terms of fewer marketings in 23 or kind of that post-pandemic time. So there are some companies out there that are in the market testing capabilities, testing price. That's going to be good, I think, from a new sales perspective. It does put some pressure on our buck. We're going to work it through and, you know, again, feel good that the overall story is hanging together. It's a little bit of a different year in 24, though, than 23 and 22.

Got it. Thank you. Your next question comes from the line of Sunit Kamath with Jefferies. Sunit, your line is now open.

Great. Thanks. Good morning. My understanding is that there's an industry study on long-term care that has either come out in the fourth quarter or is coming out in the fourth quarter. Just curious if you've seen that and if there are any takeaways from that. And if it does come out, how would that at all impact your fourth quarter assumption review? Thanks.

Yeah. To my knowledge, there hasn't been anything that has come out. We did not use any additional industry data. when we were going through our third quarter assumption review. I would say going into our fourth quarter statutory review, we'll be using the same data set that we used for our gap assumption review. You know, if something does come out in the fourth quarter in the next year, we'd want to process that a little bit and just make sure that we understand any implications that it may have on our book of business. But we feel really good about utilizing our experience that we've added, you know, more data to our data set over the last year.

and that that just really can you know confirm the vast majority of the assumptions we had so i don't i don't see that driving any sort of change in our view of fourth quarter if and when it comes out got it okay thanks and then i guess sticking with ltc i mean you mentioned you're still at it in terms of risk transfer i'm just curious if the con if there's any change in sort of the conversations that you're having um and then Maybe any any commentary that you could give on just sort of how deep is the market in terms of like counterparties that you know are in interested in these these types of blocks of business thanks.

Sure, Sunit. Risk transfer, as we were very clear on, we were still very much interested in. It makes sense for us to continue to pursue it. In terms of the change, we really haven't seen a dramatic change. We've talked to multiple counterparties looking at multiple ways they think about the business and how there may be a deal to be done between the two counterparties. That continues to be a very active dialogue. I think you also have interested parties out there, clearly interested in the assets associated with long-term care and what they see over the horizon. So we're going to stay at it. I think we've been very consistent in terms of how we've approached the market and what we continue to see out there and the ability to do something. But as we've also said, these are difficult deals to do. And so making sure we can have buyers meet sellers and do so in a way that the price and structure make sense to us is something we're still very active on.

Okay, thanks Rick.

Your next question comes from the line of John Barnage with Piper Sandler. John, your line is now open.

Good morning. Thanks for the opportunity. If you were not to pursue a risk transfer, can you maybe talk about how long it would take for the policies to run off? Thank you.

Yeah, so we are, to be very clear, we are pursuing risk transfer, but Steve, maybe you can just talk about the dynamics of the block duration.

Yeah, I mean, we, I don't know that we've publicly disclosed the duration of our LTC book. I mean, it, you know, suffice to say that this is a multi-decade type of runoff for a book of business like this around LTC. So, I think probably the salient point here is that when we're looking at a a risk transfer deal you know we we feel good about running this book you know ourselves we feel good about managing this book ourselves but as rick said it's just not strategically aligned with everything else we do and so all things being equal for the right price we would like to transfer risk we we know that it impacts our valuation and so um we want to be smart about it but um we also feel very good about our projections and understanding our book and being able to manage it so You know, if and when we were able to look, you know, at price discovery and just think that through, we would definitely still contemplate doing something, but it'd have to be at a price that made sense.

Very helpful. Thank you. And my follow-up question, HR connect and leave management systems seem to be winning business, and others are following suit and building their own platforms. Can you maybe talk how you view the tech connectivity winning in the large case market? and how you're positioning for the fourth quarter as well. Thank you.

Yeah, thanks, John. Chris, again, yeah, you got it. There's a lot of focus on big decisions that our larger company prospects and customers make around human capital management platform that they choose. And when they make that decision, it's one where that ecosystem becomes, you know, the real cornerstone of how they want to run their company from a people perspective. You know, our intentional investments, which are multi-year, and I think that's important. We've been at this for quite some time. Our investments feed into that ecosystem in a very robust way. You attach not only kind of the administrative elements of benefits, but also the leave element. Our total leave initiative has been designed to build into our HR connect and connect very well there. So it's a robust one-two punch. that really solves a big problem for employers and plays into the, as I said, the ecosystem that they want. So the runway on that is long, and we can continue to add services and capabilities that enhance that offering. At the core, though, it's still a bundled insurance approach where we've got wonderful financial protection products that fit really well. And, you know, we've got designs on what we can add. We want to continue to execute, and it's been a winning proposition and a bigger and bigger part of our sales each quarter.

Thank you.

Your next question comes from the line of Mark Hughes with Trove Securities. Mark, your line is now open.

Yeah, thanks. Good morning. How about the natural growth? Does that influence the overall U.S. growth? And did you see any change in trajectory through the quarter, any kind of deceleration perhaps, or was it reasonably steady in 3Qs? Yeah, this is Steve.

Yeah, I would say it was reasonably steady in the third quarter. It was just over 3%. If you go back, there were periods of time during the pandemic or post-pandemic when that growth had gotten up to 5%, maybe a little bit more. So it was creating quite a bit of tailwind. A lot of that was during periods of wage inflation, but also we were seeing very strong employment. I would say it's kind of normalized more. Our expectation going forward and

kind of historically that might have been between two and three percent um that would impact our growth every year yeah then the international growth anything uh kind of structural or you know your competitive positioning within those markets that should uh allow you to keep up the rate of growth or is uh this has been a good period and we'll you know we'll see how next year goes

Mark, appreciate the question.

I'm going to turn it over to Mark Till. Thank you. Hi. There's nothing fundamentally different about the marketing which we're operating in at the moment. The competitive position is fairly similar. We've been investing very hard in the quality of the proposition, strength of the relationships that we've had with the brokers, and that's being reflected in the new business that we've been writing. So at the moment, I feel confident that it is the choices we've been making, and the market is still remaining attractive.

Thank you. Thanks, Mark.

Your next question comes from the line of Jimmy Volar with JP Morgan. Jimmy, your line is now open.

Hi, good morning. So most of my questions were answered, but just on the disability business, obviously your margins have been pretty strong the last couple of years. Your competitors have been as well. And it seems like you're expecting results to remain better than average in the near term. But what gives you the confidence that eventually, maybe a year or two years out, we won't revert to where margins used to be pre-pandemic? Like, what are the dynamics in the market that might be different now versus before?

Yeah, Jimmy, this is Steve. I would say it kind of comes back to fundamentally, you know, there's two variables when we think about group disability benefit ratios. One is just the performance of claims experience itself. And I would say we have a lot of confidence that the levels of recovery, getting people back to work in a productive way, that those are sustainable. We know why that's happened. We know what we've done within our business operations to drive those results. So I think we have a lot of confidence that those are sustainable. And then the question becomes what the market will do from a pricing perspective. And Chris, I know we've kind of covered this, but just to kind of reiterate.

Happy to add. You know, Jimmy, again, it gets back to that. You know, when you're having a broader relationship with our customers and we're solving challenges around the lead management and we fit the ecosystem from an HR connect and other platform connectivity that's important to them. That conversation around price, it's still very important, but it's a much more long-term stability type of a theme as opposed to, hey, this is a commodity you can market and you can drive price to the lowest experience level. And when we're recovering price in more challenging times, you move up slowly. And I think when you're in good times, you balance more towards the current, and you move down more slowly. So we do see a good long-term value prop balance approach that will work for the future.

OK. And then maybe on long-term care, you obviously had the charge last year. Since then, it seems like you've been getting price increases, so that's a positive, but the net premium ratio has gotten worse. So what is it that someone can monitor from the outside to sort of assess whether or not you're nearing a potential need to raise reserves in the business again?

Yeah, I would say the thing to think about there, and the NPR did go up, and I didn't of get into the details of that, but it did go up this period by 80 basis points. About 50 basis points of that was the adjustment that we made to our group persistency. And just to kind of put that into context, that represents about 25 million of GPVs. So, you know, pretty small changes in how we think about reserve adequacy can drive, you know, some pretty big moves in that MPR. So, you know, you definitely have seen the impacts of the higher claims incidents over the last year or so in increasing the GPV or increasing the NPR. So I think that's still kind of a good thing to monitor, just the movement to that. I'd also say that the NPR has gone down in periods, and it really just depends on what the experience is, which cohorts. it hits and how that flows through either the financials or the NPR. I'd also say just generally speaking, the closed block business is well within the range of absolute earnings expectations that we set forth at the beginning of the year. So by and large, I think it comes back to those things. Are we executing on the rate increase? What's the NPR doing? And what are absolute earnings for the line of business during the period?

Thank you.

Your next question comes from the line of Elise Greenspan with Wells Fargo.

Elise, your line is now open.

Hey, good morning. Thanks. It's Nick on for Elise. Thanks for squeezing me in here. Most of mine have been answered as well, but just wanted to touch on group life and just see what's driving the confidence there that we should keep seeing robust results and should the expectation from us be that we should see this come into 25 or is this just a purely 24 dynamic?

Yeah, Steve, I'll cover that. And the group life block, it's a tough one to predict just because of the nature of the product. And we actually have a relatively small block. So you can see some volatility there, period over period. What we've seen over the last several quarters is just really good incidents on that block. And That, you know, that can be volatile over time. What we're seeing, we still feel like the 70% benefit ratio is a decent, you know, kind of planning metric as we look, you know, into the fourth quarter. We'll look at how the fourth quarter is playing through as we get into, you know, kind of guidance that we give for Investor Day in 2025. So I don't want to get ahead of that and really give any guidance there. But we think, at least in the short term, Seventy percent is probably a good estimate to use, but again, you know, it can bounce around a little bit, so sometimes it's harder to predict.

Got it. Okay. Thanks.

That concludes our Q&A session.

I will now turn the conference back over to Rick McKinney for closing remarks. Rick?

Great. Thank you. I want to appreciate – much appreciation for everyone joining us this morning and for your continued interest in Unum. Third quarter results, very good. We are very focused on the fourth quarter as we wrap up the year and looking into 2025. We will be around, looking forward to connecting with a number of you over the course of the fourth quarter. And once again, this will conclude our third quarter 2024 call. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining UMA Now Disconnect.