Unum Group

Thank you for standing by. My name is Kate and I'll be your conference operator today. At this time, I would like to welcome everyone to the Unum Group Q2 2026 earnings conference call. All 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 would now like to turn the call over to Matt Rial, Investor Relations. Please go ahead.

Thank you and good morning. Welcome to Unum Group's second quarter 2026 earnings call. Please note, 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 brief description of factors that could cause actual results to differ from expected results. Yesterday afternoon, we released our second quarter earnings results and financial supplement. Those materials are available on the investor section of our website. Also, please note, as usual, references made today to cooperation sales and premium, including Unum International, are presented on a constant currency basis for improved comparability period to period. Participating in this morning's conference call are Unum's President and CEO, Rick McKinney, and CFO, Steve Zabel. Following the remarks from Rick and Steve, additional members of management will participate in Q&A, including Chris Pyne, who leads our group benefits business, Mark Till, who oversees Unum International, and Steve Jones, who we welcome for his first earnings call as president of Colonial Life. Now, let me turn the call over to Rick.

Thank you, Matt. Good morning, everyone, and thank you for joining us. It's good to be back with you just a few weeks after the call to announce our latest transaction in our closed block. As we discussed then, the agreement to reinsure an additional $3.8 billion of long-term care reserves represents another meaningful step in our deliberate approach to reducing risk and actively managing the close block. We will provide more detail on that later in the call, but today our focus is on the second quarter results, first half performance and trending and outlook of our core employee benefits franchise. It is consistently a franchise that generates attractive returns, delivers free cash flow and creates long-term value for our shareholders. With that as context, let me turn to the second quarter. We delivered a solid second quarter. One that demonstrates the breadth of our diversified employee benefits offerings. A key tenant of that is continuing to be a consistent partner for employers and their employees as their employee benefits needs continue to evolve. The quarter reflected continued attractive returns, generally stable persistency, and favorable performance across several of our core businesses. Starting with the top line, we saw continued underlying premium growth of roughly 5%. Across the board, we saw good persistency, which has been true throughout this year as our customer centricity and connectivity has paid off. Getting to new customers has also been successful. Sales growth has been solid, which was highlighted by U.S. sales and our Unibrands growing 7.4% in the quarter, driving year-to-date sales growth of 14%. Across the broader enterprise, our business continues to perform well against this backdrop of solid demand for workplace benefits. Employers continue to look for partners who can help them manage increasingly complex workforce needs, and Unum is well positioned given the breadth of our product portfolio, our service capabilities, and the investments we have made in digital connectivity and leave management. Our model is built around disciplined pricing, strong customer relationships, and capabilities that support employers and employees at moments that matter. Our investments in connectivity and lead capabilities continue to scale. Roughly half of our Unum U.S. in-force block, excluding our IDI business, is now tied to HR Connect, Total Leave or Broker Connect, and premium and fees tied to these capabilities have grown nearly 70% since year-end 2023. We are also seeing clear evidence that these employer-facing capabilities are resonating in the market, with HRConnect representing more than 20% of second quarter new sales. Similarly, sales which are included in our total leave offering more than doubled year-over-year in both group and voluntary benefits. Colonial Life had another very strong quarter with 6% sales growth leading to solid premium growth and attractive returns of nearly 20%. It has been a multi-year journey of building momentum and the business continues to benefit from disciplined execution. As a result, in addition to sales growth, we have seen solid persistency and favorable benefits experience maintaining its important position in the worksite market. Colonial remains a critical part of our ability to reach employers of different sizes with solutions that help protect employees and their families. Looking internationally, premium growth remained positive in both the UK and Poland, both north of 5%, yet sales were relatively flat in the UK. Overall, our growth engine is performing well in a dynamic and competitive environment. From an earnings perspective, this quarter showed variation of performance within our lines of business. We had solid performance across most of our lines, which included a continuation of strong group life performance. At the same time, there were two specific areas of elevated benefit experience that we are actively managing. Most notably, paid family and medical leave within the U.S. group disability segment and group income protection in the UK. Importantly, we understand what is needed to address these areas, and we already have actions underway to do so. Equally important is that these lines continue to perform very well in aggregate. Total U.S. group disability is generating ROEs in excess of 20%, and the international segment as a whole is in the teens. To drill down a little, within U.S. group disability, results were pressured by elevated experience in short-term disability, primarily from the newer paid family medical leave states. Although we're not happy with some of the results of these markets in the early days, we know that PFML is important in a developing market that is closely connected to our broader leave capabilities. We have made the decision to participate early, even as the claim data is developing. It's a natural extension of the investments we have made in helping employers manage absence, disability, and mandated leaves. As the experience in the PFML market matures, we will respond, and we have the pricing know-how to incorporate this business into an overall high-returning group disability franchise. The UK story is a little bit different. Our UK Group income protection business had results that were below our expectations this quarter. While the recent claims experience has been elevated, we have a long history of managing through changing experience cycles. We clearly continue to have strong market positions, maintain deep expertise in the market, and are taking targeted pricing and underwriting actions to support attractive returns over time. These two areas are the current focus areas but aren't overshadowing an overall franchise that had very strong performance. As a good portfolio does, we also had business lines that outperformed, like our life business and Colonial Life. That diversification is a meaningful advantage, helping balance performance across the portfolio as market conditions evolve. While the majority of our team has been actively growing our business, We also continue to make meaningful progress in actively managing and reducing the closed block. The recently announced reinsurance transaction represents another important step in addressing our long-term care exposure and meaningfully improving the profile of that business that remains. Following closing later this year, the retained block will be predominantly group long-term care with a much smaller individual long-term care component. The ongoing business will be characterized by a simpler benefit structure, a footprint that was distributed in a group format, and continued natural runoff as employers reassess the role of long-term care coverage within their benefit programs. As a result, the remaining block will look materially different than it was just 18 months ago. Our objective remains to actively manage the risk and volatility of the closed block while keeping our focus on growing and strengthening the core franchise. Turning to capital, as we look at our position today and looking through to the closing of the long-term care transaction in a couple of months, we are in a very robust capital position. Our deployment plans remain unchanged. During the quarter, we returned approximately $275 million through dividends and share repurchases and approximately $750 million year to date on our way to $1.3 billion of deployment this year. Our cash generating franchise creates significant financial flexibility and allows us to be consistent with our deployment philosophy. That is, investing in growth, having the ability to act on enhancing M&A opportunities, and return capital to shareholders through dividends and share repurchase. Additionally, over the last several years, our strong core operations have also enabled us to manage and remove LTC risk from the company. Overall, the second quarter reinforces the quality and durability of our diversified business model. We delivered strong results across most of our business lines. This starts with solid growth metrics and customer demand on the top line while maintaining attractive returns through to the bottom line. We do have areas we can improve and our teams know how to address. Ultimately, we are clear-sighted about the opportunity in front of us to grow the company, to protect more individuals and families at time of need. We do so in a disciplined way that is good for our customers and good for our shareholders. And with that, I'll turn the call over to Steve to walk through the results in more detail. Steve? Great.

Thank you, Rick, and good morning, everyone. Second quarter after-tax adjusted operating income per share was $2.16, up 4.9% from prior year, while year-to-date after-tax adjusted operating EPS growth was 7.5%. As Rick noted, we continue to produce attractive returns with consolidated adjusted operating ROE of 15.9% in the quarter and 16% year to date, both within our outlook range. Top line trends remain positive, supported by strong sales and persistency in our core businesses. Second quarter core earned premium grew 3.6% with a 3.7% increase year to date. Adjusting for the runoff of the stop-loss business and the transactions executed last year, year-to-date core premium growth would have been just over 5%. Looking ahead, we are positioned to achieve our full-year expectation of 4% to 7% as the impacts of last year's transactions will not dampen the growth rate in the second half of 2026. Total U.S. Group persistency remains strong at 91.5%. up nearly two percentage points from the prior year. So then turning toward quarterly operating results, the UMUS segment produced adjusted operating income of $329.6 million in the second quarter of 2026 compared to $318.2 million in the second quarter of 2025. Results reflected favorable earnings in group life and AD&D and supplemental and voluntary, partially offset by pressure in group disability. Group disability reported the second quarter benefit ratio of 65.8% compared to our 62 to 64% expectation. This result included a couple of points of pressure from elevated short-term disability experience, primarily driven by higher claims activity in the newer paid family and medical leave markets. While traditional STD experience was also elevated, PSML remained the primary driver of the quarter's pressure with LTD recoveries remaining consistent with our expectation. We continue to view PFML as a developing market that is closely connected to our broader lead capabilities. Importantly, our initial PFML pricing structure generally does not include multi-year rate guarantees, allowing us to incorporate emerging experience in new pricing for both new business and renewals. We have begun implementing double-digit rate adjustments for new business and at renewal for existing clients. And we expect those actions to build into results over time. As a result, until new rates are fully embedded into the block, we expect to see continued elevation of the benefit ratio more in line with the experience seen the past two quarters driven by PFML. Importantly, underlying trends in LTD remain stable, driving confidence in our longer term view of the benefit ratio over time. Results for Unum US Group Life and AD&D were favorable. Adjusted operating income was $93.2 million for the second quarter of 2026 compared to $70.2 million in a prior year quarter. The benefit ratio was 66% compared to 69.7% in the second quarter of 2025, driven by continued lower incidents. This quarter's strong performance reflected the favorable mortality trends we've experienced recently, consistent with the pattern observed over the last several quarters, which we do expect to continue. Taken together, total group benefits generated a benefit ratio of 65.9% compared to 65.2% in the second quarter of 2025, as favorable group life mortality balanced increased PFML pressure in group disability. This translates to combined ROE exceeding 25%, a very strong result. Adjusted operating earnings for the UNMUS supplemental and voluntary lines were $133.3 million in the second quarter, an increase from $123.2 million in the second quarter of 2025. The benefit ratio was 47.4%. favorable to our 48 to 50% outlook range as the segment benefit fitted from strong multi-life individual disability claims experience. Turning to premium and sales, UnimUS premium grew 3.3% with support from strong sales and persistency. Excluding the impact from the runoff of the stop-loss business and our IDI transaction last year, UnimUS premium grew just over 5% year over year. Unimus quarterly sales were $281.8 million compared to $262.4 million in the second quarter of 2025, representing growth of 7.4%. Year-to-date Unimus sales were up 14.3%, reflecting continued momentum across several product lines. Moving to Unim International, adjusted operating income for the second quarter was $24.3 million compared to $41.6 million in the second quarter of 2025 and below our outlook. Segment's benefit ratio was 78.4% compared to 72.4% in the prior year quarter, driven primarily by unfavorable experience in the UK. Adjusted operating income for Unum UK business was 15.3 million pounds in the second quarter compared to 29.4 million pounds in the second quarter of 2025. The UK benefit ratio was 82.2% compared to 75% a year ago. Premium growth remained strong with UK premium growing 5.2% and Poland premium up 8.8%. The earnings pressure remains concentrated in the UK Group income protection business, where elevated average claim values continued during the quarter. Looking ahead, we expect pressure to continue in the UK segment, but at a lower level in the second half of the year from current elevated levels, supported by the pricing and underwriting actions we are taking. Given the impact of UK results on our international tax profile, We currently expect our effective tax rate to be approximately 22% for the remainder of 2026. So then moving to colonial life, the segment produced a record earnings quarter. Adjusted operating income for this segment was $131.4 million compared to $117.4 million in the second quarter of 2025. The benefit ratio of 46.7% was favorable compared to 48.3% in the year ago period and was better than our expected range of 48 to 50%. Premium income was $477.4 million compared to $462.1 million in the second quarter of 2025, which was driven by prior period sales. Sales in the second quarter were $134.1 million, which was up 6% from the prior year. Colonial Life produced strong returns, including adjusted operating ROE of 19.4%. We are continuing to see strong adoption of AgentAssist, our proprietary agent productivity platform and digital workspace. Over 70% of our more than 12,000 agents utilize AgentAssist to help build the client relationships and enhance sales. Colonial Life's results demonstrated discipline operating execution, resulting in overall strong sales, persistency, benefits, experience, and returns. I'll now provide an update on the closed block. As Rick mentioned, the most significant development since our first quarter call was the announcement of our agreement to reinsure an additional $3.8 billion of long-term care statutory reserves out of Fairway. As we described on the call earlier this month, The transaction represents approximately 26% of our total LTC block and 52% of our individual long-term care business, removing 100% of the remaining individual long-term care reserves held in Fairwind. The process to close is continuing as expected, with completion expected in the fourth quarter. Following the transaction, Fairwind retains approximately $7.1 billion of Group long-term care statutory reserves supported by total protections of approximately $1.9 billion. The transaction materially improves the risk profile of what we retain. Across key Fairwind assumptions, sensitivities decreased by 28 to 42%. The retained block is now predominantly group long-term care, which carries a different risk profile and generally more basic benefits than individual long-term care. It is also important to note that, following closing, the upfront costs of the transaction will be amortized and reported within the closed-block GAAP results, consistent with prior transactions. In addition, the transaction is expected to generate increasing amounts of non-contemporaneous reinsurance impacts, which represents the ongoing recognition of earnings associated with reinsurance transactions completed in prior periods rather than current period operating performance. The earnings impacts from both the amortization of upfront transaction costs and non-contemporaneous reinsurance impacts are expected to be approximately $30 to $40 million per quarter. Combined with our prior closed-block reinsurance transactions, the total impact from these items is expected to be approximately $90 to $100 million per quarter initially and will gradually decline over time. Excluding these items, we expect closed-block gap earnings to continue tracking to our expectations with some quarter-to-quarter volatility as we execute actions within the block. More importantly, the underlying exposure is well-protected from a capital perspective, supported by substantial reserve margins and protection within Fairwind and Provident Life. Outside of long-term care, we also expect impacts post-closing on the ongoing business, which includes the loss of net investment income on transferred holding company cash and the addition of temporary debt service as a result of our temporary financing for future tax benefits, which are associated with the transaction. Turning back to quarterly performance, closed-block earnings remain volatile, largely reflecting the impact of employers choosing to terminate coverage leading to Group LTC case terminations. In the second quarter, approximately 3% of Group long-term care cases closed, reducing our long-term exposure in the closed block by more than 20,000 lives. Since the end of 2025, around 10% of Group long-term care cases have closed, reducing long-term exposure in the closed block by over 50,000 lives. Outside of these impacts, underlying experience trends remain broadly in line with expectations. The net premium ratio increased 20 basis points sequentially to 97.8%, with most of the increase driven by Group LTC case terminations. Other key indicators we monitor for the health of the block remain solid. Following the close of the Fortitude Retransaction, we expect Fairwind protection to be approximately $1.9 billion. We also continue to make progress on our premium rate increase program, with the current program achievement rate at approximately 15%. Lastly, the alternative investment portfolio that primarily supports LTC generated an annualized yield of 6.1% in the quarter, below our long-term expectation of 8 to 10%. I'll end by covering our robust capital position. Holding company liquidity stood at $1.5 billion, and traditional RBC at 480%, both above our long-term targets and consistent with our expectations. We remain on track to end the year within our full year outlook of 400 to 425% RBC and 1.5 to 2 billion of holding company liquidity. Our robust capital position is supported by statutory after-tax operating income of $331 million in the second quarter. positioning us for our full year expectation of $1.2 billion to $1.4 billion of total statutory earnings when adjusting for the expected impact of our most recent reinsurance transaction. As we prepare for the anticipated closing of the Fortitude re-transaction, we have begun positioning capital to support the transaction in the third quarter. Holding company liquidity will decline in the third quarter as we use holdco cash to fund this temporary positioning. Accordingly, we expect to retain statutory earnings at Univ America rather than upstream in dividend, which may temporarily elevate our RBC ratio at the end of the third quarter. Our year-end capital expectations do remain unchanged, and we continue to expect to finish the year within our stated ranges for both RBC and holding company liquidity. This cash generation model, paired with our strong capital position, enables our durable approach to deploying capital to our shareholders while maintaining flexibility to support growth, manage risk, and execute strategic transactions. During the second quarter, we repurchased approximately $200 million of stock. Paired with our common stock dividend, capital return to shareholders was approximately $275 million in the quarter. This brings our year-to-date deployment to approximately $750 million and we remain committed to our plans of deploying approximately $1.3 billion back to shareholders by the end of the year, an amount that represents the entirety of our expected free cash flow generation during the year. So overall, the second quarter demonstrates the strength of our diversified business model. We delivered strong results in colonial life, group life and AD&D and supplemental and voluntary. Maintain expense discipline and attractive returns and continue to make meaningful progress in actively managing the closed block. At the same time, PFML and UK long-term disability experience remain areas of focus as we move through the remainder of the year. While results reflected offsetting performance dynamics across the business, in aggregate, they delivered an outcome in line with our expectations. As a result, despite the expectation for pressure in those two lines in the second half of 2026, We are reaffirming our full year outlook for after-tax adjusted operating income per share of $8.60 to $8.90. I will now turn it back to Rick for his closing comments before we move to your questions. Great. Thank you, Steve.

As you heard today, the second quarter demonstrates the strength and resilience of our diversified business model. Overall, we remain confident in the quality of our franchise, the durability of our capital generation, and our ability to create long-term value for our customers, employees and shareholders. With that, when we are ready to take your questions, I'll turn it over to Kate, our operator.

At this time, I would like to remind everyone in order to ask a question, press start then the number one on your telephone keypad. We request to limit yourselves to one question and one follow-up. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Sonit Kamath with Jefferies. Your line is open.

Great, thank you. Just wanted to start with paid family medical. I think you sized the impact at like two points on the benefit ratio. As we think about the price actions that you're talking about, are there any limitations on how quickly you can raise pricing or how would you expect that price increase to sort of feather in over the next few quarters? Thanks.

Yeah, great. This is Steve. And I'll kind of cover up the math on just the benefit ratio and then kick it over to Chris to talk to us about the pricing environment and what that looks like putting price into the market. So yeah, so the loss ratio was higher than expected. In the comments, we did talk about STD experience generating about 2% of the elevation in the loss ratio. Most of that was PFML. I would size that up as about 60% to 70% of that was driven by PFML. I would note, importantly, if we shift a little bit to our long-term disability, we were right on top of our expectations for recovery. Overall, that experience was within the range of our expectations in the quarter, and it's really performed really well. But we are going to see some pressure in PFML, and so we've already taken steps in the markets. and really how we size it out. It's going to take double digit pricing actions for PFML. And maybe I'll kick it to Chris just to talk about the receptivity and what the market looks like.

Yeah, thanks, Steve. And maybe just a little bit more about the environment. You know, first off, PFML is really core to what our customers depend on us for. It's a big part of the lead management, short term disability and overall benefits package that we can really help them. A lot of these new states put a burden on the HR teams to make sure they're compliant and also giving the employees, you know, what they need to operate their businesses. So, you know, we're square in the middle of it. And as Steve said, we've been out with rate increases. And what's, you know, kind of important to remember about PFML and short-term disability is these are high-frequency type of products. So we get a lot of good data at the customer level. We're able to share that early and often. And we've been doing that. You know, yes, we do have, we've got a, you know, we have a business in rate guarantee for, you know, generally a year. So as things come up for renewal, we're able to go and, again, communicate with them early about what claims experience looks like, what the needed increase will be. 1127 is a big moment for us to put a lot of, you know, action into the market. So we're on top of that. and then the other element of the environment that has changed over time is we've had some really nice profit in the disability lines and we've kind of resettled those rates on a go-forward basis with customers. So it's a little bit more of a balanced view than before where LT was in a really good spot and we were maybe a little slower to raise rates on PFML or STD given that dynamic that shifted a bit.

Got it. Okay. And then maybe on Group Life, it looks like the loss ratio there has been below 70% for, I don't know, 10, 11 quarters now. So maybe unpack what you're seeing there and I guess how quickly will that strong performance sort of build back into pricing?

Yeah, this is Steve. I'll kind of hit on just the performance we've seen. We've been extremely happy with performance, and it's really all been driven by lower incidents than what we would have anticipated. I know coming into the year, we set an outlook for the loss ratio that was in that 68 to 72 percent range. We clearly performed better than that for the year. Kind of as we look forward, we're thinking that the second quarter is probably more indicative of what we'll see for the back half of the year. We had a 66 percent Great, thank you. Thanks, Anine.

Your next question comes from the line of West Carmichael with Wells Fargo. Your line is open.

Hey, good morning. Thank you. Just a question on long-term disability. How would you describe, I guess, price adequacy there? And I think there were some concessions last year on price maybe. But would you expect from here, I guess I'm just trying to understand, when we think about excluding PFML and STD, what's the direction of travel of the benefit ratio in LTD? Is there more price concession to come?

Yeah, thanks, Chris. So over the past couple of years, it has been a very good story for long-term disability, and we're thrilled about that. We are very good about walking customers through, you know, how the performance of their particular case or, you know, broader blocks of business have gone, and then we try and set The right pricing level for the future. That has included, you know, being able to reset rates, in some cases a little bit lower, depending on the experience and performance of either a case level or block level book of business. We feel really good about where it is now. We also feel good that, you know, our disability business, long term disability and short term, it's tied to a much bigger strategic package. And whether we're, you know, kind of solving the needs for that customer inclusive of financial protection on the long term disability side, and or tying in technical investments with platforms. It really comes together in a robust way. So LTD is a really meaningful part. We have tremendous knowledge and strength in that business. We're super confident that the performance is highly sustainable. Really pleased with how we've kind of looked at rates over the past few years and feel great going forward.

Got it. Thanks, Chris. And just shifting gears, but on the group long-term care terminations, I think there's an additional 3% this quarter. Now that you've seen a couple of quarters, just hoping you can share updated thoughts on how meaningful additional terminations could be from here.

Yeah, let me step back for a second, Wes, and just talk about the long-term care actions that we've taken. You could even go back a couple of years and talk about many years on the pricing side. So we've continued to increase prices. And these all come together, I think, in what you're seeing in the first quarter. and then even in the business as we've gone through risk transfer. So we've taken out some of our individual long term care, particularly all of that that we had in the fairway entity. So we see more on the group long term care side. The big move last year was actually we told employers that had a group long term care policy that we were not going to allow new employees. So that in combination with what we've seen with rate increases lead us to a spot where an employer has to evaluate. Do they want to have different people in their organization with different benefit packages? and so we've seen some terminations. Steve maybe you can unpack that a little bit but that's what we started seeing. This is a pretty new phenomenon that we've seen because of the actions that we announced last fall.

Yep no that's great and yeah you're right we had about three percent of cases about 20,000 lives terminated in the second quarter and those are just ongoing discussions that that takes us to about 10 percent of the cases and 50,000 insured lives from the beginning of 2026. It's really hard to predict going forward what that might look like. What I would say is we do have kind of renewal effective dates throughout the year. And so there will continue to be employers making decisions about their next enrollment and renewal period. and so there definitely is you know the probability that we'll see continued terminations of cases but it's something that you know we're not able to predict and so we'll just have to monitor that as we go forward but we're always in ongoing discussions of just as Rick said you know just weighing what a company's benefit full benefit package looks like and you know what like any HR They're always going to be thinking about where they want to spend their money for the benefit package for their employees. Thank you.

Thanks, Wes. Your next question comes from the line of Alex Codford Barclays. Your line is open.

Hey, good morning. I first wanted to ask about Fairwind. And I've just been thinking about the amount of protection you have there. And I think relative to reserves, It's seemingly quite high, but I know there's RBC requirements, and I know the reserve also potentially builds over time for Group LTC. So I just wanted to get a feel from you all. What's driving such a big buffer there, and how will that trend over time?

Yeah, it's Steve, and I can take that. I'll go back to Some of the comments that I made when we announced the deal and kind of talk about the post-deal profile of what Fairwind would look like. If I compare that to kind of before the transaction, we had a nice combination in Fairwind of excess capital over a 350% target and margin within the reserve. And that kind of made up the $2 billion plus protections that we had there. And think about that as The excess capital is something that's a little bit more fungible that we can use across the organization. The reserve margin just kind of is what it is. You know, we have locked in reserve calculations there and we have our view of the best estimate. If you go to post-transaction, pretty much all those protections are in the margin of the reserve. So that, you know, makes you feel really good that we're well reserved for that Group LTC business. But it does make it less fungible. And so, you know, our intent obviously is would be to keep that business in Fairwind, be able to manage the business with those reserve margins. Over time, those reserve margins will play out if our expected experience plays out and will be released just into the capital of Fairwind. And then we'll decide what to do with it over time. But that'll be more over the lifetime of the block. But I just step back and We feel really good about the margins that we have there. We feel really good about the sensitivities. I mentioned that in my comments about just how we really reduced, will reduce the sensitivities of that block post-transaction close. And so I just think about it as very well protected. Short term, not a lot of flexibility to do what we might want to do with those margins because it's built into the reserves themselves. But over time, we will have more flexibility to do what we want with the excess capital there. Got it.

That's helpful. Second question I had is just if you could talk about your expectations for sales as we head towards the more important end of the year It sounds like you guys have a fair amount you're repricing between paid family medical leave and maybe on the flip side with group life and areas of disability. So with all of that movement, do you expect to see any differences in the way that the sales process will go?

Yeah, so maybe we'll talk about that on multiple lines because I think it's an important topic about how we feel about our proposition that we have that we're taking to the market more broadly. We'll start in the US, but I definitely don't want to miss the opportunity to hit on Colonial Life in the UK, what we have there. You mentioned, Alex, the pricing. Yes, we're going to work our way through that. It's going to weave its way into it. But these sales processes are much bigger than just the more near-term things. And Chris, maybe you can highlight, one, how we're doing on sales today, but also where we see it going over the course of the year.

Yeah, thanks, Alex. It's kind of ironic when you're in the middle of something important like a topic like lead management, which has a lot of parts. PFML is just one small part of it. Your relevance to both the distributor, the broker consultant, and or the customer just gets elevated. We've been living that for several years. So you think about the strategic investments we've made in lead management. You think about the strategic investments we've made in human capital management platforms and connectivity to those platforms. What we've done to promote capabilities to customers who will benefit from them to make the sales process more efficient for our brokers and consultants, that puts us in a really good spot. So when you start the year, essentially we're up about 14% year over year. That's an all-in Unum US number. That feels really good. And in the quarter, we're up right in the range where we'd expect. That feels strong. and knowing again that we are really solving problems that not every carrier can solve and that kind of changes the dynamic. There's a lot of trust there. We handle renewal programs like we are with PFML and we've got a lot of experience with this in a very kind of partnering and mature way. We leverage data to explain, you know, where things are, why they're happening. We are, you know, as we've talked about with LTD, where we have positive experience, we've made adjustments in the past that give us the credibility to go and raise rates as appropriately in the future. So, you know, I think to Rick's point, it's a very dynamic, broad, long-term effort. And I think the first, you know, half of the year results show that we are, you know, we're able to win business as appropriate and we're excited about the second half of the year.

Good. Thanks. Steve Jones, in your first call, maybe talk about Colonial Life and what we see on the sales front there. Great.

Thanks, Rick. And thanks, Alex. So, first of all, exciting time to step into this role as the Colonial Life business has a lot of positive momentum right now and a lot of exciting things happening. I've spent much of my first 60 days out in the field talking to our agents, talking to our broker partners around where we're doing well and where we still see opportunity to grow. What's clear to me is two things. One is the distribution system still has a lot of room for growth, a lot of upside, both in scale of agents and geographically, but also through investments in agent productivity. And then secondly, our value proposition still resonates in the market broadly. And that value proposition for Colonial Life is around benefits, education, enrollment support, technology support. coupled with voluntary benefits. And so we feel like that strategy is very solid. Looking forward, I see the opportunity with this business to continue leveraging technology to drive the growth and productivity of the sales force. We're making a lot of investments in digital enrollment experiences and AI tools aimed at lead gen and agent training and other things. And so a lot of opportunities to continue optimizing this business and growing. Relative to sales results in the quarter, we feel good about the 6% sales growth we saw. I think what's especially encouraging is we saw growth coming from new clients as well as our existing book. So we had 10% growth in the quarter from new clients coming through the door. That's certainly a positive sign relative to the value proposition. We're also seeing growth across different size segments in the business. So For example, our clients with more than 500 employees in the quarter grew 15%. So we feel really great about not just the overall top line growth, but the balance of those results. And then lastly, on the agency side, we continue to recruit at a high clip, which is important for Colonial Life. We had a banner recruiting year last year, really returning to pre-pandemic levels. and we're tracking 6% ahead of that number for this year. So continue to feel good about just the growth of the agency model in general. So a lot of positive indicators there for the second half of the year.

Thanks, Steve. Mark, you want to take us to the international business, UK and Poland?

Yeah. Well, let's start with the UK. I think we've come off a very strong momentum over the last few years. The latest data that came out said that for three of the last four years, We've been the largest writer of group risk business in the UK, including last year. And cumulatively over that period, that four year period, we were the biggest writer of business with our market share growing. And that's definitely driven by the strength of proposition of the business. There's an independent survey conducted by NMG for all brokers. And in the latest field study at the start of the year, it shows that Unum has got the highest quality proposition. in the market. So for those reasons, we've had a strong coming in period. This year's been a little bit slower for us. The market's still acting rationally, but we've chosen to make some pricing decisions on the back of our Group Income Protection business that makes us just a little bit harder on the new business front. I think in quarter two, sales were down about 14%, but if you look across the first half as a whole, That's closer to 4% down. So a little bit of that was timing between periods. In our Polish business, actually, we've had really strong growth in our individual business. That's growing very nicely as we continue to add LPAs. That's our life planning advisors. That's a very profitable business. And our Group business, again, we've chosen to be disciplined around pricing in that business. So we've accepted a slower sales trajectory there. but in return for which we see much stronger earnings out of that business.

So when you take it overall, Alex, I think it's when you think about it, we're very excited about the growth potential. We recognize the pricing, but we can do both. And I think as Chris said, which is really important, we bring more to these customers than just a price or a product. It's also the know-how capability to help them manage through. PFML is a good example of that. This is new for our customers as well. And so us being there to help them through this process of what was a state mandated leave is a good example of where we can be helpful even after we have to take some price.

Thank you. Very helpful.

Your next question comes from the line of Mike Ward with UBS. Your line is open. Hi, Mike. Your line is open. Your next question comes from the line of Tom Gilaher with Evercore ISI. Your line is open.

Hey, thank you. Just had a few PFML questions. So what portion of your book has multi-year rate guarantees versus the one year? That can be repriced. Can you just give us the percentage split there?

Yeah, Thomas, Chris, I don't know that I have a percentage exactly, but you in terms of the percentages is a very small percent that has multi-year. and, you know, with that, the gist of that, of course, is things emerge and we want to have that flexibility on a new product line with a new customer that gets credible very quickly due to frequency to be able to lean on, you know, the emerging experience. So, you know, short answer to the question is a small percentage.

Okay. That's good to know. And just a few other quick ones on PFML. When you think about the claims you're getting, Would you say, can you at least broadly quantify, what do you think are clearly short-term claims for things like paternity, maternity leave versus some other claims that could turn into LTD claims? That's one question. And the other one is just related to the double-digit rate increases that you're citing. Would you expect that any of that is going to lead to loss of business, or do you think that part of the market's hard enough and peers will be looking for similar rate increases that you'll be able to retain, you know, vast majority that you're putting rate through on.

Yeah, Tom, good questions. Starting with the kind of what type of claims, the profile of these claims, you know, essentially these are heavily short-term only claims. This still falls into the, whether it's, you know, something along the lines of, You know, general surgery, accident, maternity or bonding. And we do break out whether they're more family related, where it's something that's not actually happening to the employee, but that's impacting their ability to go to work, given, you know, lifestyle and family connections, or their own medical situation. So, you know, we've got a very good handle on which are short term medical and which are short term family. and you know they do perform in a way that has you know largely a lot of caps on how long the benefits will last. You know every severe claim does start in the short term so if you have a cancer or cardiovascular or something like that but we're very comfortable with that flow through of you know what normally is going to come to LCD and whatnot where we've got a tremendous amount of experience doing that. You can expect us to continue to kind of manage The PFL part and the PMO part appropriately. And again, we've got really great people and teams focused on that every day. In terms of rate increases and potential pressure, I think one of the elements of running a group insurance block of business is that you've got to be willing to communicate well with customers and explain what the expected performance going forward is based on Thank you for joining us. like the outsourced lead management partner to these customers. You're solving compliance for them. You're solving employer experience. You're solving employee experience. They're generally willing to pay a fair price based on experience. And again, I think we have a lot of good history and confidence that we can get that done.

Okay, thanks.

Your next question comes from the line of Friar and Kruger with KBW. Your line is open.

Hey, thanks. Good morning. I had a question on the UK. I know you talked about maybe a little bit better performance in the second half of the year than the recent quarter. Can you give us any quantification of what you'd expect as a kind of run rate earnings at this point for the UK business and then just how to think about the pace of remediation and how long that could take?

Steve, you want to take that?

Yeah.

Hey, Ryan, Steve. Yeah, I'll just kind of cover, you know, More to the point, like what experience we're seeing in the UK and then maybe Mark can just talk about pricing dynamics over there and the markets a little bit. So clearly the issue we're seeing with the earnings challenges in the UK is related to group income protection business. It's not a broader issue with the UK franchise. What we've seen over the last several quarters is the claims experience. It's driven mostly by higher average claim values. And I've talked about this a little bit in the past when we talk about severity of these types of claims. It's really driven by things like occupation, industry, income levels. And you just do the math and calculate what our expected ultimate claim is going to be for that situation. What we're seeing in the UK right now is a higher, greater proportion of claims coming from high income employees. and so that's really increased the overall average benefit costs of what we've seen over there. So, you know, it's something that we're able to really isolate and look at. We're able to then look at, you know, those new and existing customers and make appropriate, take appropriate actions. Now, a lot of that's going to take place, you know, during the year and be effective next year. So how we're thinking about the back half of this year, just from an earnings perspective, it's going to be, we think it's going to be a little bit better for the U.K., There's some other actions that we've been able to take. But as far as kind of the larger pricing actions going into next year, you know, it's going to take a little bit for that to bake in. But maybe, Mark, just talk a little bit about the pricing environment and, you know, our ability to execute on our pricing strategy.

Yeah, thanks, Steve. I think the core thing to say is the UK market remains a sort of competitive and rational environment. There are half a dozen large competitors, of which humans won. It's number three by size, graining ground on number two. The market operates rationally when it comes to pricing, although we do notice that with our dominant position in group income protection, it can mean we see and therefore responds to claims changes earlier than the market generally. There's now some signs that our competitors are beginning also to face into some of the higher claims experience being seen in the product, and that will be helpful over time. As Steve says, it's important to say that claims experience is linked just to the Group Income Protection product. We're actually seeing positive claims trends in our other product lines. And we view this Group Income Protection challenge to be consistent with cycles we've seen before. The claims experience adjusts and pricing then needs to adjust to reflect that. In recent years, that claims experience was lower and prices were falling. That claims pressure is now rising and pricing is following. However, given that the two to three year rate guarantee periods are typical in the UK market, It means that when rates are falling, we benefit, but when rates need to rise, it takes a little while to see the experience fully reflected in the pricing. What I would say is that in the meantime, we're very disciplined in our pricing actions. We've adjusted new business pricing. We're phasing in our new prices at renewals. We've taken on a notable expense action, some of which is visible in the H1 results, and more will come through in H2. So overall, I think I'm positive about the long-term trends in the UK, driven by our competitive position and our experience in managing these insurance life cycles.

Thank you. And then just one more on group disability in the US. You've talked about 65% as the long-term expectation for the benefit ratio, and I know you're seeing some short-term pressures on PFML, but you're at that 65% now. Is it still your view that 65% is the right sustainable level longer term that you can maintain?

Yeah, right, Steve. Yeah, the short answer is yes. But let me give you a little bit of math to get there and how that's going to play out over the next few years. So when we were coming into the year, you know, we set our expectation in that 62 to 64% range. And we had anticipated needing to put some price Thank you for joining us. Obviously, what we've seen now is about two percentage points of pressure that we didn't anticipate. We're seeing that play out. We think that's going to play out for the remainder of the year. And so we're already kind of at the 65% probably for this year. As we get into next year, we're going to have kind of two dynamics going on. We're going to be increasing prices on PFML, and those will take effect mostly going into next year. For long-term disability, we might also be making some price adjustments the other way still. But when it kind of evens all out, when you get to a multi-year view of this, we do still think that 65% is the right number. And we will price accordingly using that as our target. And so a couple of offsetting dynamics, but that is still the destination that we feel good about. Thank you. Thanks, Ryan.

Your next question comes from the line of Tracy Bingredge with Wolf Research. Your line is open.

Good morning. You're now active in 13 PFML states. Given the elevated incidents you're seeing, has that changed your appetite or timeline for expanding into additional PFML states?

Yeah, Tracy, it's Chris. Good question. We are active where private plans are appropriate, and we are also kind of managing PFML in states, you know, even where they don't accept private plans. We're still part of, you know, helping our employer customers and brokers solve for the lead problem. So our appetite for being a clear leader in the lead business is still enormous. We think it's critically important. We've invested a tremendous amount. We get great receptivity. from brokers and customers and consultants relative to helping with this really important element of managing their workforce. You know, leave is one of those things that is very important to the employee population. So in terms of attracting and retaining quality people, you've got to have a strong leave program. There's a compliance element relative to multi-state employers that gets complicated. They need help there. They want to be able to offer robust income replacement where it's deserved, and they want to make sure somebody's managing that carefully from a time and attendance perspective. We are central to all that, and we're continuing to make investments there. As new states come on, again, we get a little bit of a break in 27 in terms of not a lot of new activity. But as new states come on, we look at those states very carefully. We know more from experience, but each state is a little bit different. So we have to pay attention and make sure we're educating our broker consultant community as well as our customers. And we feel like we're in a perfect position to do that.

Okay. Since you announced your individual LTC deal, I'm getting a number of into a number of discussions with investors on the likelihood of doing a Group LTC deal and the merits of the Group versus individual. So I understand there's no precedent for Group LTC, so my questions are more theoretical. Are the bid-ask spreads wider there since you think it's less risky, or is the preference to do individual LTC deals rather than Group more about wanting to see how your enforced management performs through early 26th? before seeding that upside to a reinsurer. It was good to see during the first half of the year the 10% Group LTC case termination.

Yeah, thanks. Let me back up a little bit, Tracy. I think you highlight some interesting dynamics. When you go back and look at what we've been able to do and how we're able to do two transactions now in that area, it was about teams coming together, meaning an asset management team for one part of it as well as Biometric Reinsurer on the other part of it. That was really positive on the individual long-term care side. There are different dynamics in the group side. You highlighted some of them. These are still discussions that we will have with those same kind of counterparties. Think of the asset manager. They're going to like the fact that these are a little bit younger and they will last a little bit longer. And the biometrics is what it is, and they'll make judgments around that. You also highlighted, I think, an important thing is that there are new dynamics happening in our block of business. Given the changes that we've made. And so when we think about when we would continue to go forward in that business, you have to take into account that we've seen 10% of this block lapse, which if we had done a GLTC a couple of years ago, we wouldn't have experienced that. So there are new dynamics happening in the block. So we have to take that into account as we talk to different counterparties that are out there. But the markets are still good. The discussions are still out there. and ultimately think about what our goal is to remove this risk from overall, whether it comes organically, like we're seeing on the Group long-term care side at the moment, or through reinsurance, those are both part of our goals. And so that should give you a sense that this is still something that we're working on, but we have to be thoughtful about what's happening in our current book of business and what's happening in the marketplace today.

Okay, thank you. But what about the part of my question about the bid-ask spreads? Do reinsurers share the same sentiment? Yeah, sure.

Yeah, go ahead. Yeah, well, it's hard to talk about that. One is on the asset side of this business, there is no bid-ask spread. We know what it's going to be. There's still appetite for the assets on the side. So the question is probably more bid-ask spread with what we would see with a biometric reinsurer. And that really comes down to how we parse the block. It's true of how we do the individual. We're going to parse the block into the things that make sense for that counterpart to do it. So the bid-ask spread in aggregate It doesn't really make sense. It's how does VIT-ASPR look on each of those individual tranches that we may take to a counterparty that likes that particular tranche. And so I wouldn't want to speculate too much on that. We're happy to get the two deals done that we did, and we'll have to continue to look at what different tranches look like to different counterparties over time.

Thank you.

Your next question comes from the line of Joel Hurwitz with Doling. Your line is open.

Hey, good morning. Have one on expenses. So, Steve, the past couple of calls, you've talked about expecting the expense ratio to be flat to maybe down a little in 26. But expenses in the quarter, particularly in the US and UK, came down quite a bit. Anything unusual in the quarter? Is there some additional expense levers that you're pulling that could support a lower expense ratio for the year?

Hey Joel, it's Steve. Yeah, I'll just kind of take it back a few years and just the journey we've really been on when it just comes to expense management and the trade-off between investing into our business and driving productivity. You know, we have invested quite a bit in the business over time in our people as well as in our technology. That has driven our operating expense ratio up a bit historically. We did think coming into the year, we were kind of at this inflection point where we should see that Thank you for joining us. and really taking advantage of the investments we've made to drive productivity across the entire organization. And so we would expect that to continue, you know, albeit at, I'd say, you know, a moderate rate. But we are pretty happy with what we've seen so far this year as far as being able to, you know, drive that mindset within the organization.

Got it. That makes sense. And then just one on Colonial. So the second straight quarter for record earnings there. The benefit ratio, again, below the guidance range. Can you just unpack the experience trends that you saw this quarter and is this sort of lower benefit ratio sustainable?

Yeah, it's, Steven, I'll take that. I guess Steve's able to have to start differentiating the Steve's now, but, you know, Colonial is actually a lot of different products. And what we usually see over time is just because you've got Thank you for joining us. We're not saying we're going to be kind of outside of the range we gave for benefit ratios, but we may be at the lower end of that range as the year plays out. And it is one of the things we think about when we think about the full outlook and being able to be comfortable with that outlook for the full year.

Okay, thank you.

Your next question comes from the line of Mark Hughes with Truist. Your line is open.

Yeah, thank you. How do you think about the claims pattern in the paid family medical leave area, seemingly when the new states come online, there's probably a burst of activity. And then that evens out over time. And as long as those don't turn into long term claims, and that'll, to a degree correct itself. How should we think about that pattern?

Yeah, Mark, Chris, I do think you've hit on something that we have seen relative to a little bit of what is described as pent-up demand. And, you know, again, each state is different. It does seem like awareness of the benefits depends on the state and, you know, the public rollout of the mandate. So that can impact. You're right, it does Settle a bit, but we have seen some level of what I would call maturing activity in older states. So we're paying attention to both the new states, how they come on, but also the older states. And we're communicating with our customers to let people know that there is an element of awareness. There's an element of understanding what is covered by the regulations. And ultimately, that will be baked into the experience and ultimately the overall cost there. The good news is, in terms of flow through to LTD, we just have very normal patterns there, nothing that's abnormal. This is highly a short-term, paid family medical, measured in weeks away from work type of event, and that's kind of where we stand right now.

And then how do you protect yourself? New states coming on, so potentially we don't face another burst of higher claims?

Yeah, exactly right. We learn with each state. We have a, you know, a growing database of, you know, in addition to our broad disability database, we've got, you know, more information on the nuances of PFML. And then you've got nuances within that of, you know, what's unique to each state. And then, you know, whatever state comes next, Maryland, Virginia type states that are coming out in the 28-ish timeframe. We'll compare and contrast to what we've learned from prior states. And again, we will have a more kind of precise pricing approach going forward. But again, we'll watch the emerging experience as well. But it matures over time for us as well. Thank you.

Your next question comes from the line of Pablo Singzon with JP Morgan. Your line is open.

Hi, thanks. So first question in group life, I was wondering what the fundamental driver of the better outlook there is. Steve, you had mentioned good incidents that's been running for some time already, but any reason or theory why you're seeing a favorable break from the long-term trend there?

Yeah, no, it's as simple as that. Just lower counts. These are policies that have pretty low face amounts. So we don't usually see just the severity or the size of life claims be much of a driver of margin variability. It usually just comes down to the number of claims we receive. I think if you look across the industry, you know, we have seen lower mortality here for a bit. And We're experiencing that, you know, kind of that same trend in our book. So feel great about the margins that we've experienced so far this year. And, you know, we'll just monitor that and, you know, look at that for the back half of the year.

Okay, thanks. And then secondly, just a quick follow-up on Tom's question about STD transitioning into LTD claims. I think PFML itself does not cover LTD anyway, but I was wondering how much of an overlap you have between LDT plans and the insurance you cover under PFML, right? Or are those risk pools effectively separate with basically limited transition risk?

Yeah. Pablo, Chris, if I cut the gist of the question accurately, please redirect me if I didn't. You know, we sell PFML, short-term disability leave management as a package with LTD. They are kind of sequential. Your PFML and short-term disability leave is generally on the short, you know, again, measured in, weeks and months and then LTD is more that catastrophic cover that picks up for the small percentage but very important times when somebody's got a severe disability that's going to go out into the years and we manage that well. So we've got a tremendous amount of experience of high frequency, shorter duration claims like PFML, how they work through the system up front and then only kind of picking up those claims that are severe in nature for the longer-duration LTD programs.

I think, Pablo, if we got your question right, it was more of the, this is a package product. We don't sell PFML standalone.

Okay. Thank you. Understood. Yep.

Thanks. Your next question comes from the line of Mike Ward with UBS. Your line is open.

Hey. Thank you, guys. I swear I know how to use the phone. Thanks for squeezing me in. So I was just wondering, so expanding on that last question there, I'm just kind of curious, like the package deal, right? How do you kind of weigh the, I guess, pricing pressure with conceivably, maybe it's anecdotal, but the rate need for PSML? Yeah.

Hey, Mike, it's Chris. You know, we've alluded to a dynamic that had been in place. And you think about your general, these are our customers, we're communicating all the time, our brokers try and make sure that they're doing a good job for the customer to get a solid but sustainable deal. and the environment we had seen before was really good LTD returns and that, you know, kind of in a combined way with the Group short-term and PFML lines kind of felt like, well, you know, yeah, you could use a little bit more on the PFML SE lines, but your LTD is so good. Why don't you just take a pass or something like that dynamic? Well, we've been readjusting those LTD rates down to more normal returns. We're really happy with them, but more normal returns. So the dynamic shifts a little bit to say, hey, we're pleased with LTD, but it doesn't have any extra air cover for the SDPF from outlines. And in fact, the SDPF from outlines are a little bit hotter than they have been in the past. So we have a much different conversation at that point. And again, customers want price stability. They want to know what the experience is. We've got, you know, this is not just a kind of last minute discussion. We're talking to customers all the way through. Tons of contact because PFML and short-term risk failure are higher frequency. And again, that shorter rate guarantee enables us to have the conversation set rates. And, you know, someday if we have to lower those rates because they've recovered, we'll do that. And customers know that as well on both the LTD and the STD PFML side.

Okay. Thank you. You guys had some strategic action costs in the quarter. I was just hoping you could expand on that. Was that all just long-term care deal or was there other stuff?

Yeah, Mike, it's Steve. So the $31 million that we reported as strategic actions, and just to be clear, that was something that was excluded from our adjusted operating earnings in the quarter. And it was really made up of two parts. We had about $18 million. Thank you for joining us. We're constantly looking at our operating model and how best we can deliver for our customers and do it in a productive way. And so we've looked at some of that. We've made some changes in that operating model, and there were some employee-related costs. And so that would have been the remainder of the 31. So it's kind of a one-time thing. So we went ahead and reported that kind of below the line.

I see. Thank you, guys. Thanks, Mike.

I will now turn the call back over to Rick McKenney for closing remarks.

Thank you, Kate. And I want to thank everybody for joining us today and your continued engagement with UNAM. We look forward to upcoming opportunities to connect and talk more about this, talk more about the future. And that concludes our call for today. Thank you very much.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.