Q2 2023 Unum Group Earnings Call
Thank you for standing by.
My name is Bailey and I will be your conference operator today at this time I would like to welcome everyone to the Unum Group second quarter 2023 earnings results and conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' 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 again press star and the number one I would now like to turn the call over to senior Vice President of Investor Relations, Matt Royal You may begin.
Great. Thank you Billy and good morning, and welcome to the second quarter 2023 earnings call for Union.
Our remarks today will include forward looking statements, which are statements that are not a current or historical fact.
As a result actual results may differ materially from results suggested by these forward looking statements information concerning factors that could cause results to differ appears in our filings with the Securities and Exchange Commission and are also located in the sections titled cautionary statement regarding forward looking statements and risk factors in our.
Annual report on Form 10-K for the fiscal year ended December 31 2022.
Our SEC filings can be found in the investors section of our website at www Dot Dot com I remind you that the statements in today's call speak only as of the date. They are made and we undertake no obligation to publicly update or revise any forward looking statements.
A presentation of the most directly comparable GAAP measures and reconciliations of any non-GAAP financial measures included in today's presentation can be found in our statistical supplement on our website in the investors section.
Unless otherwise noted all comparisons to historical results are based on recast financials for the long duration targeted improvements accounting pronouncement, which can be found on the investors section of our website.
Further all references to Unum International sales in premium results are presented on a constant currency basis, unless otherwise noted.
Yesterday afternoon, Unum reported second quarter 2023, net income of $392 9 million or $1 98 per diluted common share an increase from $367 3 million or $1.81 per diluted common share in the second quarter of 2002.
'twenty two.
Net income for the second quarter of 2023 included the after tax amortization of the cost of reinsurance of $8 7 million or four cents per diluted common share.
The after tax impact of Noncontrolling rainiest reinsurance of $7 9 million or four cents per diluted common share and a net after tax investment gain on the company's investment portfolio of approximately 700000 or it didn't amendments amount per diluted common share.
Net income and net income in the second quarter of 2022 included the after tax amortization of the cost of reinsurance of $10 5 million or five cents per diluted common share. The after tax impact of non container or non contemporaneous reinsurance of $7 9 million or four cents per diluted common share and a net.
After tax investment loss on the company's investment portfolio of $3 1 million or two cents per diluted common share excluding.
Excluding these items after tax adjusted operating income in the second quarter of 2023 was $408 8 million or $2.06 per diluted common share and.
An increase from $388 8 million or $1.92 per diluted common share in the year ago quarter.
Participating in this morning's conference call, our <unk>, President and CEO , Rick Mckenney, Chief Financial Officer, Steve Zabel, Chief Operating Officer, Mike Simonds as well as Mark till who heads our unum International business and Tim Arnold who heads our colonial life and voluntary benefit lines Rick.
I'll now turn to you for your opening commentary.
Great. Thank you Matt it's good to be with you. This morning, and we appreciate you all joining us.
Our second quarter results are headlined by a record level of quarterly operating earnings and underlying these results are also some very strong trends of a growing top line historic levels of profitability and a continuing favorable macroeconomic environment for our business.
It is evident that the employers we work with and families. We protect are increasingly realizing the value of our products and services.
This quarter, we delivered nearly 20% sales growth across our core operations and earned premium growth that exceeded 4%.
This ongoing growth trajectory is made possible by the investments and advancements we continue to make.
Differentiating ourselves through digital capabilities is solidifying deep connections with both existing and new employers and their employees, who value a high quality experience and lasting relationships.
Our sales results for the quarter illustrated this approach continues to resonate with customers.
Growth was strong in our group lines across the board.
Unum International saw sales growth of over 70% as compared to last year trending up from 47% growth last quarter.
Unum U S. A second straight quarter of at least 20% year over year increases.
Persistency also remain within our expectations across most lines, which keeps our premiums on a solid growth path.
Turning to colonial life, the pace of growth accelerated from the first quarter premiums grew just under 1% in the second quarter on track to meet our 1% to 3% expectation for the full year.
Sales growth also picked up slightly and was three 2% for the quarter.
These are steady improvements off the good year ago quarter, and we're encouraged by some of the early successes and key initiatives of colonial life that we believe will drive growth as we move through 'twenty, two 'twenty three and beyond.
Overall, we're pleased with the growing top line momentum, especially when considering our healthy margins and ability to further grow our level of earnings our franchises in a period, where earnings power is stronger than ever not only because our customers are increasingly valuing our offerings, but also because of our disciplined approach to our customers, which.
Includes pricing and operational excellence and taking care of employees at time of need.
This disciplined approach translates to our solid product returns as we continue to see attractive margins across our lives.
Our track record of results for the past year stems from our ability to invest in our operations and deliver returns above our typical industry leading levels.
On a consolidated basis Roy was a healthy 13.8% and coupled with our strong top line results that I referenced earlier before tax operating earnings and return on equity across our core operations were well above the top end of our most recent outlook ranges.
After tax operating earnings of 408 million $408 $8 million increased five 1% from the same time last year and represents one of the highest earnings levels on record.
As discussed last quarter. We believe this environment will remain very positive for us as the macroeconomic factors and are receding pandemic environment favorably impact our business.
This quarter's results see that playing out.
Your interest rates wage inflation low to no pandemic mortality and a continuing tight labor market are all positives for us.
Also when we look to our balance sheet, our investments continue to perform very well with portfolio quality strengthening in the quarter and income in line with our long term expectations.
The results across the board have taken our strong capital position and made us stronger.
Providing us ongoing financial flexibility and options, we have cash north of $1 billion at the holding company in our RBC level was 450%, which is 100 points above our target levels.
This coming quarter, we will be paying a 10% higher dividend and increasing the run rate of our share repurchases by 50%.
Concurrently funding excess reserve margins within our closed block continues to be the 'twenty two 'twenty three priority.
And year to date, we have contributed almost half of our full year expectations.
While the quarterly LTC loss ratio was slightly above our long term expectation, we focus on the longer term trends and we remain steadfast with our plans to fully recognize the premium deficiency reserve by year end.
This allocation of capital eliminates the need for further LTC contributions in the near future.
Wrapping up my overview I continue to be proud of what the team has accomplished by extending the momentum we've seen at the halfway mark of 2023.
The path, we're on has us well positioned for earnings growth at the upper end of our expected range.
It all comes back to our purpose that drives us to protect more people meeting the needs and exceeding the expectations of our customers.
We will continue to achieve this by utilizing a digital first and disciplined approach to capitalize on the favorable trends in the operating environment as we advance our market leading positions.
Now, let me turn it over to Steve for additional details on the quarter, Steve Great. Thank you Rick and good morning, everyone. As Rick described the second quarter was another very good quarter for the company as we benefited from strong operating performance in many parts of our business, particularly across all of our disability lines, where trends support the upper end of our most recent full year.
<unk> after tax adjusted operating EPS outlook.
Disability results in the second quarter were highlighted by strong sales and underwriting performance across the board, including benefit ratios of 59, 4% for Unum U S group disability, 42.1% for individual disability and 72.3% for Unum U K or in the mid sixties when removing inflationary.
<unk> all below our long term expectations.
Sales were strong across most areas of the company with our various disability products performing very well consolidated sales grew 19.5% across our core operations highlighted by 20% growth in Unum U S, including 53, 5% in individual disability and 72% for Unum International.
National.
Core operations premium grew at a healthy rate of four 6% in the second quarter.
<unk> was generally improved from first quarter results and within our expectations. However, most lines were unfavorable relative to prior year.
Let's review our quarterly operating results across the segment beginning with Unum U S. Adjusted operating income in the Unum U S segment increased 17.5% to $343 $1 million in the second quarter of 2023 compared to $291 $9 million in the second quarter of <unk>.
22.
Results finished significantly above prior year, primarily due to favorable benefits experience, partially offset by higher operating expenses.
The group disability line reported another robust quarter with adjusted operating income of $159 8 million compared to $105 $5 million in the second quarter of 2022 with the increase driven by improved incidents higher discount rate on new claims and higher earned premium.
These drivers contributed to an exceptional benefit ratio of 59, 4% for the second quarter. This now marks a full year of the benefit ratio being below our long term expectations, driven primarily by improving recoveries and incidents.
The trailing 12 month group disability benefit ratio is in the low Sixty's and it has contributed to strong operating earnings. We continue to expect a full year benefit ratio to be in the low sixty's driven by strong recoveries in incidence levels.
Results for Unum U S group life in a D and D decreased compared to the second quarter of last year with adjusted operating income of $51.6 million for the second quarter of 2023 compared to $64 $7 million in the same period a year ago.
The benefit ratio increased to 73% compared to 70.8% in the second quarter of 2022 due to higher underlying claims incident.
The benefit ratio was also at the low end of our expectation due to minimal COVID-19 related mortality in the current in the current period.
Adjusted operating earnings for the Unum us supplemental and voluntary lines in the second quarter were $131 $7 million, an increase from $121 7 million in the second quarter of 2022.
Increase was driven by strong underlying benefits experienced in both the individual disability and voluntary benefits.
The individual individual disability benefit ratio of 42, 1% was driven by favorable mortality ality, while the voluntary benefits results of 39, 2% was favorable to prior year, primarily due to favorable reserve development and lapses.
Turning to premium trends and drivers natural growth a tailwind for our group products continued to contribute to strong year over year premium growth of four 5% in Unum U S.
Sales trends for Unum U S were also solid with sales increasing 20% year over year in the second quarter.
Persistency for total group of 89.8% remained generally stable in the second quarter with less favorable results within our supplemental and voluntary lines now.
Now moving to Unum International the segment experienced exceptional exceptional overall, earning results with adjusted operating income for the second quarter, increasing to $43.5 million from $28 $1 million in the second quarter of 2022.
Adjusted operating income for the Unum UK business improved in the second quarter to $34 3 million pounds compared to 21.5 million pounds in the second quarter of 2022.
The reported benefit ratio for Unum U K decreased to 72, 3% in the second quarter, which compares to 87, 9% in the same period a year ago. You may recall, a portion of our policies in the U K, having them inflation rider, which is backed by inflation linked gilts the inflation linked benefits our cash.
But the income we receive from the linked gilts is not which does benefit earnings levels in periods of very high end flotation.
When you remove direct and flush inflationary impacts Unum U K adjusted operating income was in the mid 20 million pound range, reflecting strong underlying claims performance.
International premiums continue to show strong growth Unum U K generated premium growth of 14, 5% on a year over year basis in the second quarter, while our Poland operation grew 22%.
Both businesses continued to generate positive levels of year over year sales growth with Unum, UK up 64, 3% and unum, Poland up nearly double.
Next adjusted operating income for the colonial life segment was $115.5 million in the second quarter compared to $96 $6 million in the second quarter of 2022 with the increase driven by favorable benefits, partially offset by higher operating expenses.
The benefit ratio of 48, 3% improved from 53, 8% in the year ago period and was within our expectations.
Colonial premium income of $436 million finished slightly higher than prior year, primarily driven by sales momentum, partially offset by lower persistency.
Premium income was higher than our expectation.
<unk> is on the full year growth trajectory of 1% to 3%, which we laid out in February .
Sales in the second quarter of $122 million increased three 2% from prior year, primarily driven by a healthy agent recruiting and productive small case sales, partially offset by a decrease in new account sales across larger sized segments.
Now in the closed block segment adjusted operating income excluding adjustments related to the closed block individual disability reinsurance transaction was $51 $2 million compared to $86 $9 million in the second quarter of 2022. This decline was primarily due to a year over year decrease.
In the segments miscellaneous net investment income of $32 $3 million.
This was driven by less favorable income from our alternative asset portfolio year over year.
For benefits experienced the LTC interest adjusted loss ratio was 92, 4% compared to 84, 9% in the year ago period, driven by higher claims incidents.
<unk> incidence remained at elevated levels, which also impacted first quarter results why the favorable climate mortality in the first quarter did not persist into the second quarter.
Notably the monthly trend of new claims improved towards the end of the second quarter and has continued to improve early into the third quarter. The.
The interest adjusted loss ratio on a rolling 12 month basis was 86, 6%.
Which is within our range of expectations.
Wrapping up my commentary on the quarter's financial results. The adjusted operating loss in the corporate segment was $34 $9 million compared to $36 $9 million loss in the second quarter of 2022, primarily driven by higher investment income on shorter duration corporate owned assets I get.
A dynamic that should continue while short term rates remain elevated.
Moving now to investments we continued to see good in a good environment for new money yields and risk management purchases made in the quarter were again at levels above our own portfolio yield which was 4.43% for the first six months of 2023.
As expected, we experienced net upgrades of high yield to investment grade fixed maturity securities of $107 $5 million and an improvement in the overall portfolio credit quality.
In addition, our interest rate hedge program for LTC is performing as expected.
Since inception of the program last year, we've entered into nearly $1.9 billion of treasury forwards with more than $300 million closed out and applied to recent bond purchases.
Miscellaneous investment income decreased in the second quarter to $21.2 million compared to $57 2 million a year ago as both traditional bond call premiums and alternative investment income declined.
Income from our alternative in alternative invested assets was $19 $9 million, which is right at the lower end of our long term expectation of $20 million to $25 million we.
We continue to be pleased with and benefit from the composition of the portfolio as of the end of the second quarter. Our total alternative invested assets were valued at just under $1 $3 billion.
With 41% and private equity partnerships, 37% and real asset partnerships and 22% in private credit partnerships.
As we discussed last quarter, our commercial real estate investment portfolio, which is substantially underweight office properties compared to industry averages as thoughtfully constructed and well positioned to manage through cycles.
A rigorous origination process and multi tiered approach to monitoring loan performance and valuations does not waiver in volatile periods.
Earlier this year, we began an accelerated revaluation process for office CML portfolio and expect to complete reviews of 100% of our office holdings over the next several months.
Currently with just under half completed our office LTV has modestly increased and is not meaningfully impacted overall, CML ltvs, which remain around 60%.
While not immune to secular pressure and rising cap rates or office loan exposure profile consists of low levels of major metropolitan locations.
The debt service coverage ratios and very few in maturities through 2026, and as a reminder, our office portfolio accounts for just under 18% of our 2.4 billion dollar commercial mortgage loan portfolio.
So now I'll end my commentary with an update on our capital position.
Expected, our capital levels remain well in excess of our targets and operational needs offering tremendous protection and flexibility.
Weighted average risk based capital ratio for our traditional U S insurance companies is approximately 450% and holding company liquidity liquidity remains robust at $1 $1 billion.
We are comfortably on track to end the year at or above our expected levels of 400% RBC and $1.5 billion of holding company liquidity following execution of planned capital deployment.
Capital metrics benefited in the second quarter from the strong statutory results with statutory after tax operating income of $313 $7 million for the second quarter.
This puts us on pace for generating well over $1 billion for the full year, which translates to strong free cash flow generation at the holding company in the coming year.
Our strong cash generation model drives our ability to return capital to shareholders and in the second quarter, we paid $65.2 million in common stock dividends.
And repurchased one 1 million shares at a total cost of $47 million.
We expect to increase the pace of share repurchases in the second half of the year.
Other capital plans, such as fully recognizing the premium deficiency reserve by year end also remain on track.
As planned we contributed $200 million of capital into our fair when subsidiary in the second quarter, which brings the total for the year to $400 million.
As a reminder, we expect to contribute $800 million to $900 million of capital in the fair when over the course of the year and fully recognize the premium deficiency reserve.
Full recognition of the PDR results in significant excess margin over our current best estimate and supports our plans are not contributing capital and a fair wind as we discussed at our outlook meeting.
So to close we're encouraged by the momentum that is built throughout the first half of the year and expect similar operating trends to persist in the second half driving strong sales.
And earnings growth across our core businesses.
For the past 12 months group disability results had been a focal point in driving higher earnings power and we expect this to continue for the foreseeable future supporting our expectation of being at the top end of our outlook for the full year, our EPS growth.
Now I'll turn the call back to Rick for his closing comments and I look forward to your questions.
Thank you, Steve I'd wrap up our comments by reiterating that we're in a great position halfway through the year and the momentum it creates as we look to execute on our growth strategy team is here to respond. Your question. So I'll ask Bailey to begin the question and answer session Bailey.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
And your first question will come from Brian Kruger with BW. Your line is open.
Yeah.
Hey, Thanks. Good morning, I was hoping you could talk about pricing trends that youre seeing in the industry I think you are.
You can see very favorable group disability results. Many of your peers are also seem pretty favorable results.
Have you seen any change in the competitive environment as a result of this or are things still pretty stable at this point.
Good Ryan Good morning. Thank you for your question and I'll turn it over to Mike talk about what our what we're seeing in the markets. Mike. Thanks, Zack Good morning, Ryan and yes I would.
Start by saying, we're really pleased with sales results in the quarter. We have continued to be pleased with the renewal placement success that we've had.
So those are sort of our best indicators of how we're meeting the market and feel good about that it has been a good run from our group disability loss ratio.
Point of view and certainly some of that experience over time will flow through into renewals.
Where we sit right now it seems like.
The external favorable risk trends have continued the performance of our underwriting and benefits teams.
Remain really strong so.
As Steve had in his comments I think that the low sixty's is still a really good spot for us and our best guess at where the second half of the year will play out and from a pricing point of view, it's always been a competitive market, but we feel like we're getting that chance to tell our story and we feel like it's a differentiated one.
Thanks, and then a separate question.
On the Ntic's negative INR proposal.
Do you think that would potentially allow you to increase the amount of interest rate hedging you are doing on long term care beyond.
Qualify for hedge accounting treatment given that there would be some ability to absorb.
The net negative by Omar.
Hey, Ryan Steve Yeah, I can take that one you know it's it's it's an interesting question. When we think about a lot and we we have very little I M. R negative by EMR right now in our portfolio. So kind of the the current period or the immediate impact would be pretty de minimis to us if that negative <unk> would be.
He admitted but we do think about it moving forward just around the stat accounting for hedges and if we were able to in essence take the the negative marks the realized losses on those and put those in <unk> and be able to admit that that would be something we'd have to consider that'd be helpful too to really ramp up.
The hedging program a little bit more so you know on the on the margins. We're supportive of that it really wouldn't have kind of an immediate impact on us, though so we continue to monitor that discussion at the NSE.
Okay, great. Thanks.
Thanks, Ryan and thanks Ryan.
Your next question comes from West Carl Michael with Wells Fargo.
Hey, good morning on group disability, very strong loss ratio performance, but I just wanted to get an insight on any kind of recovery trends in the quarter or was that incrementally beneficial from the first quarter or was incidence really the driver there.
Thanks, Mike.
I think actually directly pre right. It's a recovery trends have been strong pretty consistent quarter to quarter and again, we continue.
Continue to invest in the people in our organization and making sure that we're appropriately resource our benefit specialists. The clinicians are both teams.
All kind of geared towards helping those claims to get back to work and.
That has been at a high level and it's persisted at that high level and then.
From an incidence of point of view, we pretty much have seen a return all the way to pre COVID-19 incidence levels. So we talked a lot over the last couple of years about some of those environmentally sensitive type claims and how they had become elevated that's been running down and continued to do sell here in the second quarter.
Thanks, that's helpful and then on the long term care that the loss ratio did tick up and you know you mentioned this in prepared remarks, but just any help on how thats trending is this just normal quarterly volatility and I think you said, it's getting it's getting better in terms of incidence, but just maybe any color there would be helpful.
Yeah. Wes this is Steve I'll, just reiterate a couple of other remarks that I made in my prepared remarks, and then maybe give a little bit more color. So we did see elevated incidents in the first quarter that did continue into the second quarter. While we also saw though in the first quarter was pretty elevated claimant mortality, we don't think that that was necessary.
Early related to Covid. It was a tough flu season, I think more broadly and so but mortality.
He was a little bit above our expectations I would say in the first quarter you roll that forward to the second quarter climate mortality came down closer to what we would view as our seasonal expectations, where incidents did did remain elevated now we did talk about the trend and that is a trend. We saw really the submission of claims peak in the I'd say the end of the.
First quarter into the March period, and then we did see a gradual decline of the submission levels March to April April to May may to June and then June even into July and so I'd say, although we're not completely back to our expected level of submissions. We were optimistic about the trend we'll have to see where the third quarter plays out.
We'll continue to monitor it but we are happy about that trend I will just go back to and reiterate on a 12 month trailing basis. The loss ratio was at 86, 6%, which is at the lower end of our longer term expectations and we did see that loss ratio really experienced a lot of volatility over the last few years.
Ours and most of it favorable votes building this quarter, a little bit unfavorable but what will just track that in the third quarter and see how it progresses.
Thank you.
Your next question comes from Tom Gallagher with Evercore ISI.
Okay.
Good morning.
Just a follow up on long term care.
So Steve I heard what you said on the I guess the levels of.
Paid claims.
Now I guess the level at which you saw towards the end of the quarter. When you said it was returning toward normal with that.
If it kind of continues at that level would that.
He then back within the range of 85 to 90 or would that be more on the upper end just wanted to get a sense for where where you see it really that trending.
And is your when you kind of step back and say what's happening here is your expectation that.
We might actually have a period of elevated long term care claims following a period of three years worth of favorite ability.
Or does that not necessarily what you're expecting.
Okay. Thanks, Thanks, Tom.
Let me I'll break that apart a little bit just from a perspective of giving any kind of guidance for loss ratios in the third quarter, It's really I'd say too early to do that but all things being equal we did have an elevated loss ratio in the second quarter above our range on claims experienced claims submission experience that really so far is not recurring in the third.
Quarter end and it's early it's July but we're optimistic about that.
So, but I'm not I'm not going to give guidance about what that loss ratio may look like yet in the third quarter and then when I think about kind of longer term expectations. We do take a very long view when we look at experience and just think about expectations going forward and so yes, we take into consideration some of the experience that we saw.
During the pandemic, where claim submissions were low we will take into account what we've seen over the last six months, but we we we look at that all kind of together and look at what our longer term expectations would be so neither of those are going to completely drive our longer term views, but we'll we will incorporate that into our dataset.
Okay. Thanks, and then my follow up is.
Let's say if you take a more adverse case scenario and claims remain elevated in long term care.
For a while here we'll call it mean reversion just considering the.
The recency bias of that if claims were to remain.
Around current levels in the low nineties.
What what consequence would this have for Unum I.
Would it be a GAAP charge only I I presume just given how strong your stat reserves are.
It's probably unlikely to have much of an impact there, but can you talk about in the adverse case scenario what impact do you think it would have just for contingency planning purposes here. Thanks.
Yes, Tom I might just step back and just take the opportunity to just talk about our reserving process and how reserve adequacy really is going to work. This year, it's a little bit different than what you may have seen historically historically it was very focused on.
Reserve sufficiency with locked in assumptions for the majority of our lines of business and then you had L. T C, which was in loss recognition and again, we needed to look at our current best estimate and whether we felt reserves are adequate moving.
Moving forward in the L. D T I, where we're more on a best estimate reserve basis, which means that we're going to look across all of our product lines, we're going to look across all of our assumption sets and how those look to our experience over a longer term period and then we'll we'll look to see if we need to make any adjustments to those best estimates we anticipate that.
Occurring here in the third quarter, So we'll be able to report out on that here in the next quarter.
If you drill down though into specifically the L. T C.
I just I just go back through marks that I made earlier, where we will look at all of the experience that we have and not necessarily have a recency bias will look at it in aggregate will look at what trends, we're seeing and it's probably too early to predict.
You know kind of the outcome of that review just given the more recent elevated claims experience that we've seen the other thing that I'd say is where we won't just look at claims submissions will look at the full performance and experience of that block went when we go through that that review of assumptions, so that not not able to really predict for you too.
<unk> necessarily now the other thing that I would go to that which you brought up is the difference between how we think about our GAAP assumption review, which again is on a best estimate basis.
And how we think about our statutory reserve adequacy review our estimation is that by the end of this year, we'll probably have close to $3 billion of margin.
Between our statutory reserve levels and what our best asked of our current best estimate would be for those reserves and so we do feel like we have quite a bit of margin there and so we'll go through the process here in the third quarter for GAAP and later in the year for our statutory reserve basis, just like we normally would do on an annual basis.
Thanks, Tom.
Your next question comes from Erik bass with Autonomous research.
Okay.
Hi, Thank you maybe if we could start on the international businesses, you've had very strong sales growth the past few quarters, particularly in the U K.
Just curious for a little more color on what's driving that and how you see that translating into future premium growth.
Great. Thanks, Eric will turn it over to Mark Taylor in the U K market.
Thank you very much alright, yes, we had good growth.
Across all of the products. So we have all historically been very strong in the low seven disability market. We've been seeing some slightly increased growth in the life market is pricing is rationalized.
And generally across the market, we've been performing strongly such that we've actually had the highest.
Sales in the group risk markets.
Last year end and expect to do so in the first half of this year the trends are positive although.
The economy is not growing quite as strongly it's not affecting demand for the product set.
Employers are still finding a war for talent quality of the product that we've got is very high and we may.
Some big investments in value added services in particular, the employee Corso held the hand, which is making a difference and I think we feel confidence about the future growth of <unk>.
In the business.
Alright, thank you.
Then if we could pivot a little bit to capital you talked about the really strong stat earnings in the first half of the year credit impacts have been benign. So it seems like youre trending towards the upper end of your range for both free cash flow and probably where you would expect to end the year from an excess capital standpoint.
The priority for the remainder of this year is fully funding the PDR, but as we think about future capital return plans should.
Should we really be focused on the plus in your kind of a 300 million plus unplanned for buybacks as we think to 2024.
Yeah. Thanks, Eric I think you actually in your question you get really hit what we're talking about which is this statutory earnings have been really good for six months and we're hopefully will stay the same but regardless, we will be above our range. If that holds up from a capital generation perspective, when we think about putting them back to work we've been very consistent talking about <unk>.
Investing in our lines I think when we think about the returns that we're seeing we want to make sure. The investments are going right back into our core businesses very clear strategy of how we're looking to grow and that's where our capital will go first I think M&A is another place back on strategy, making sure that we can put money behind anything that will add to that growth capability.
Internal to our business and then we think about returning capital to shareholders as I mentioned in my comments, we're increasing dividends, 10%, which will come out this quarter share repurchases going up by 50% to a run rate of $300 million.
And you also articulated our priority 2023 is to fully fund the PDR, we're about halfway through that process. The funding that so we will look to complete that over the course of the year and then as you start to look out into 2024 I think we've also been clear that we're going to we're going to get all those things done this year and then as we get later in the year towards the end of this.
Year, beginning of next year, we'll talk about our capital redeployment plans that we have there. So we feel great Oh, we're all feel really good about where we are we're doing the things we've talked about balancing funding LTC with returning capital to shareholders and we look to be communicated.
Communicate more as we get towards the end of the year and the other thing that I'd add to that I was kind of implied in my remarks is the over performance of statutory earnings. This year is really going to be a driver for free cash flow next year. As you know, we're a year in arrears as far as being able to take dividends out of the operating companies and really taken that up to the holding company in the making.
<unk> deployment decisions around that capital.
Got it all makes sense and as you talk about investing in the business I assume a lot of that in terms of the capital deployed and growing sales is getting reflected in the current statutory earnings.
Is that what you are referring to our.
More investment on top of that.
Yeah. It's Mike in addition to that we talked a little bit about the outlook meeting the investments in our technology digital and analytics agenda has grown pretty substantially each year over the last four and we would continue to look to increase those investments so that'll be another.
Place, where we'll look to take what has been very good returns on the investments, we're making in those capabilities and continue to double down there.
Got it thank you.
Thanks, Eric.
Your next question comes from Mike Ward with Citi.
Okay.
Thanks, guys good morning.
I was just wondering.
You've gotten this question before but these days it feels just incrementally important around long term care and.
Potential Derisking avenues.
Activity just continues to pick up.
In lines that we wouldn't have thought possible just a few years ago, we're likely just a few years ago. So I was just wondering any update.
On that landscape.
Yes, Thanks, Mike It's a good question. It's one that the team is focused on making sure. We are prepared for risk transfer opportunities as we think about our long term care block as we've said multiple times is kind of the demand in the market or the availability of capital coming into that lines from third parties.
It increases and decreases depending on what Theyre looking at but we've been very consistent that we're looking to find the right partner to do either a with risk transfer on the block and even thinking about different slices of that block. So we're continuing on that path of keeping active up there and parties I think that people that are have the ability to deploy that capital know that.
We're very interested and so we'll take it from there your point is a good one though that I'd reiterate without blocks that have the ability to to be risk transfer we would be beneficiaries of one of those to remind you of three years ago. We did the same with our individual disability block and so those those markets will come to fruition, so nothing more nothing new.
New to eliminate around our demand or our process just would just reiterate that we are actively looking to think about risk transfer opportunities.
Thanks, Rick and then maybe.
You mentioned I think about capital deployment in out years.
Uses of capital if you were to turn acquisitive.
To any degree.
Any specific lines or regions that you think could make sense for them.
Yes, we wouldn't want to get too specific on that I think we've talked about capabilities I think the most important thing to think about as we think about M&A, it's about being on strategy. When you think about the markets. We participate in today it would be about making ourselves stronger as opposed to getting into something a new category. So so that's that's how I'd think about it it's not.
Necessarily geography or product line dependent but it will be on the strategy that we've articulated to you over the last several years.
Thank you guys.
Thanks, Mike.
Your next question will come from Sydney connect with Jefferies.
Hi, Thanks, good morning.
I wanted to go back to group disability for a second.
I hear you on the low <unk> loss ratio I guess for the balance of this year, but I guess the question is how much line of sight do you have on that and as we think about rolling into 2024.
On a glide path would you expect that that loss ratio would take.
Jason It's Mike and Deb I appreciate the question.
I think the first thing I'd say is just you know this but just to reiterate it is a lot in terms of any forecasts just going to be dependent on the external environment. So what does.
But as submitted incidence look like how conducive in environment, we have been labor markets getting people back to work those kinds of things that we've talked about for years. So.
Really I mean, I think if you sort of think about hey, I don't have a crystal ball on those fronts, but if you were to assume pretty consistent.
Macro risk trends and then we sort of look at our own pricing approaches and how that might impact the loss ratio over time.
Currently where we sit right now is lower than where we've been historically and as those favorable experience patterns play through good rules of thumb or things like that.
Mid and large employer markets about a third of those clients will go through a renewal process each year and importantly, we use experience usually about three years of experience in those renewals. So a year of favorability would be weighted against.
Two years prior as well and then in the core market is actually a smaller percentage. So maybe 20% of those cases will go through.
So I think it would be a pretty gradual change to our loss ratio driven by the favorable experience coming.
Through and again, not just finish where I started which is all of that also is dependent on what's happening externally.
Right now, it's a really good time to be in the group disability market and as Rick said in his comments. The disability successes is moving beyond just that long term disability line, we've seen really good growth in our short term disability and our total lead offering that's packaged with that short term and long term.
We're starting to see really good growth in our recently issued individual disability book of business at the very often packaged with our ltvs as sales up 50% plus and Mark talked a little bit about the success. We've had in LCD in the U K as well so it's a pretty favorable outlook at this point.
Okay. It makes sense and then I guess just going back to long term care I hear you on the you know you don't get too weighted to sort of short term fluctuations and that makes sense, but maybe coming at it. The other way we had some pretty interesting developments on like Alzheimers drugs are earlier in the quarter.
Just wanted to get a sense of how you think about those types of developments ultimately informing kind of your longer term views of reserve adequacy and potentially even risk transfer.
Yeah, I'd say the short answer is we will monitor it but in the short term.
It doesn't really influence our view of the future right. Now we are optimistic about some of the trials that have taken place. They continued to progress, which just for society as a very very good thing and so we'll continue to track those but it takes a long time for those types of drugs to make its way through all the trials that it needs to be production lines.
<unk> actually get out there in the market and then be able to see the impact of what that may have.
On the types of claims that we receive around our long term care block. So I would say right now it doesn't really influence our view of the longer term, but we are obviously, we're very happy that some of those drugs are progressing through trials its a very positive thing.
For the industry, but also just for society.
Makes sense. Thanks.
Yes. Thank you.
And your final question will come from Mark Hughes with Trish Securities.
Yes. Thank you good morning.
Did you provide a specific number for natural growth in the <unk>.
<unk>.
Hey, Mark it's Mike got nothing specific but we've talked about.
Trending above that 5% level and we are continuing to see a good split between.
Employment growth within the client base as well as wage inflation coming through.
Understood and then on the colonial the benefit ratio.
Sure.
Back down this quarter.
Should we anticipate.
Fairly good results there through the balance of the year and then also sales just kind of latest thoughts on the sales outlook.
Yes, I appreciate the question I'm glad you hit sales, we're encouraged by the trends at colonial life, you highlighted benefit ratio, but sales as well and maybe I'll turn it over to Tim to speak to that.
It's Mike on the benefit ratio side, we do think the first quarter was a bit of an anomaly and we would look for results that.
Came about in the second quarter to be sustained throughout the balance of year overall.
On the sales side, you know as Mike mentioned, we are very encouraged by some of the trends we're seeing some leading indicators COVID-19 was very challenging for our business from a lot of perspectives certainly impacted.
Moving in 2021, and first half of 2022 as we shared with you all during those times.
We're really encouraged for the first half of this year.
New agent recruiting is up 34% and new agents sales are up 16%.
We have grown our 10 99 sales manager cohort by 10 for <unk>.
<unk> net in the first half of the year. So we're encouraged by that.
All are also very encouraged by the sales coming from those new sales manager teams.
A few years ago, we made a conscious decision to deemphasize some less profitable lines of business that have lower persistency and focus more on higher quality industries and public sector is one of those really high quality industries for US we saw sales up 18% and public sector in the first half of the year and that calls a really strong 2022.
Public sector as well.
The sales that are direct to employer.
Up 7%, we saw really strong growth in our dental vision products in the quarter.
Got a little pressure as Steve mentioned earlier in large case sales and part of that is because we've been deemphasizing those lower persistency industries in another part of it is just.
It's a little more competitive in the large case market. So we're going to be.
Any opportunistic as it relates to the opportunities in large case so on balance.
Really encouraged by the momentum that we're seeing in the market and encouraged about what we think we'll be able to do in the second half.
I appreciate that detail. Thank you.
Thanks Mark.
There are no further questions at this time I will turn it back over to Mr. Rick to close.
Great. Thank you Bailey, thanks, everybody for joining us today I will look forward to seeing a number of you over the course of the next quarter, but I. Appreciate your continued support and we'll look forward to talking to you next quarter. Thank you.
This concludes today's conference call you may now disconnect.
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