Q3 2024 Unum Group Earnings Call
Good morning, my name is Mark and I will be your conference operator today. At this time I would like to welcome everyone to the Yenim Group 3Q2 for earnings.
Paul Einstein plays on mute to prevent any background noise after the speaker's remark, 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.
Speaker Change: I will not turn the goal over to Metro y'all senior vice president, head of in best relations and pressure. Matt, please go ahead.
Matt: Great, thank you Mark and good morning to everyone.
Matt: Welcome to Get In Groups third quarter 2024 earnings call.
Matt: has marked said today will begin with prepared remarks followed by Q&A session. Also today's call may include board-looking statements and actual results may differ materially, and we are not obligated to update any of these statements.
Matt: Please refer to our earnings release in our periodic filings with the SEC for a description of factors that could cause actual results to differ from expected results.
Speaker Change: Yes, we're afternoon. You can release our third quarter earnings press release and financial supplement. Those materials may be found on the investor's section of our website along with a presentation of the most directly comparable gap measures and associations of any non-gap financial measures included in today's presentation.
Speaker Change: As a reminder, references may today to core operation sales and premium are presented on a constant currency basis.
Speaker Change: participating in this morning's conference call, our unit is President in CEO Rick McKenney, Chief Financial Officer, Steve Zabel.
Speaker Change: Tim Arnold, who heads our colonial life in voluntary benefits lines.
Speaker Change: Chris Pine for Group Benefits and Mark Till CEO of Union International.
Speaker Change: Bellamy, turn it over to Rick McKenney for his comments.
Rick Mckenney: Good morning everyone and thank you for joining us. We're excited to discuss our third quarter of results in trends as we look to the fourth quarter and begins a look towards 2025.
Rick Mckenney: For 2024, growth has been top of mind as we answered the year and through three quarters.
Rick Mckenney: We are an assault path to achieve our EPS growth expectations of 10 to 15 percent for the full year, which is higher than our original outlook.
Rick Mckenney: Results continue to reflect strong broad-based performance and cash flow generation.
Rick Mckenney: Adjusted EPS was $2.13 per share and statutory earnings surpassed $300 million for the quarter, bringing us to over $1 billion of statutory earnings for the year.
Rick Mckenney: You'll note that additionally a reported EPS was significantly higher as our assumption updates led to an overall reduction in reserves and contributed to growth and bookfired [inaudible]
Rick Mckenney: Our top line remained healthy with a 4.6% increase in core operations premium growth and this is a little bit lower this quarter but year-to-date we are up 5.5%.
Rick Mckenney: Persistency remains high but sales were down over prior year. Third quarter is our smallest sales quarter at about 10% of the full year and we saw some difficult comparisons to last year so it does not have us overly concerned.
Rick Mckenney: The important thing is that we are optimistic for the fourth quarter, which is our largest sales quarter.
Rick Mckenney: We expect UNMUF to build momentum and be within our full-year outlook. Further, we expect sales in the UK will continue to sustain the growth trajectory achieved so far this year, while colonial life will likely be flat for the year.
Rick Mckenney: It takes a full team effort in a busy fourth quarter and we are most appreciative of the resilience of our team. They've done an excellent job navigating the changes in the environment and our market over the last several years.
Rick Mckenney: Our focus solely on employee benefits gives an advantage in concentrating our efforts.
Rick Mckenney: Specifically, the investments we've made into our processes have helped solidify the improvements we're delivering for our clients and allowing our highly productive sales teams a differentiated story to tell.
Rick Mckenney: This spans from our leading enrollment technologies, to ensuring a smooth experience for employees on leave, to helping employees get back to a more productive and fulfilling work life sooner.
Rick Mckenney: While we have an unwavering customer focus, the macro picture continues to support our resilient business model.
Rick Mckenney: The strong employment atmosphere, higher interest rates, and a benign credit environment are all positives.
Rick Mckenney: Looking across the franchise, results in UNUM-US were highlighted by very strong results in the group insurance business.
Rick Mckenney: Group disability experienced another strong quarter where recoveries drove low benefit levels. This line has been a multi-year strong performer, and we see this continuing in the near term.
Rick Mckenney: Our group life insurance business has been a very strong performer in 2024, with benefit ratios under 70%. We expect similar experience trends to persist across both lines as we head into the fourth quarter.
Rick Mckenney: Colonial Life continues to be a valuable franchise with margins continuing to be excellent with an ROE of nearly 20%.
Rick Mckenney: Premiums grew two and a half percent in third quarter with strong persistency and sales close to flat.
Rick Mckenney: We would like to see the top line grow faster and we remain focused on our key strategic initiatives within colonial life to do just that.
Rick Mckenney: The Gather platform, which transforms benefits, enrollments, and administration, continues to gain momentum with over 75% of new sales implementing Gather year-to-date.
Rick Mckenney: This is translated to premium sold on the platform of up to close to 100% year over year.
Rick Mckenney: Our international business had another quarter operating at full strength with robust premium growth of over 10% and UK underlying earnings consistent the last quarter at around 30 million pounds
Rick Mckenney: We continue to see excellent momentum as well in our growing Poland business and in the UK we continue to redefine the broker experience setting a market leading standard that is distinctly Unum and enhancing our relationship management model.
Rick Mckenney: Our business in the UK doesn't always get as much attention given its relative size, but we are very pleased with how our team is executing.
Rick Mckenney: Across the enterprise, our discipline in pricing and customer engagement combined with consistent execution translates to solid product returns as we continue to see attractive margins across our lines.
Rick Mckenney: Consolidated return on equity was a very healthy 12.5%, and our before-tax operating earnings and return on equity at our core operations were well above the top end of our most recent outlook ranges.
Rick Mckenney: In total, after-tax adjusted operating earnings of $398 million increased 4.3% from the same time last year.
Rick Mckenney: The positive results are true for both GAP and STAT and this cash flow generation flows into the strength of the balance sheet.
Rick Mckenney: We have been active in bolstering our balance sheet over the last couple of years across the board.
Rick Mckenney: It is true of our investment portfolio, where we've increased its credit quality, profile, and are well-positioned for future market cycles. We have also increased reserves and capital behind our long-term care business, where we don't expect to need more capital.
Rick Mckenney: With respect to long-term care, we continue to actively pursue risk transfer.
Rick Mckenney: Long-term care insurance is very different from everything else we do and can at times overshadow the strength of our franchise.
Rick Mckenney: Whereas long-term care is for customers very late in life, the core of our strategy and purpose is taking care of people in their working years.
Rick Mckenney: It is why removing this over time and at the right price is very much a strategic objective.
Rick Mckenney: Pulling the capital picture together with statutory earnings over 300 million dollars, our holding company liquidity ended at 1.4 billion dollars and our RBC was approximately 470 percent, both at levels well north of our targets.
Rick Mckenney: With the balance sheet actions taken last year, the substantial free cash flow generation of our core business has been building our capital position of strength and adding to our deployment flexibility.
Rick Mckenney: Our capital deployment priorities remain intact, investing in our business organically and inorganically, and then returning capital to shareholders through dividends and share repurchase.
Rick Mckenney: When we look at our overall balance sheet strength, we also continually examine our capital structure.
Rick Mckenney: As a result, we have decided to dissolve our pre-capitalized trust facility following in the end of the third quarter.
Rick Mckenney: This was a tranche of contingent capital we no longer deem necessary given our multiple sources of capital.
Rick Mckenney: We've decided to use the proceeds for a one-time additional share repurchase in the fourth quarter, and when combined with our normal pace of purchases, we'll bring the total amount of share repurchase to approximately $1 billion for 2024.
Rick Mckenney: Up from $250 million in 2023 and above our $500 million outlook coming into the year.
Rick Mckenney: When factoring in this expanded repurchase, we will have reduced our float by over 10% since restarting our share repurchase program in the fourth quarter of 2021.
Rick Mckenney: Overall we are pleased by the many positive trends across our operations and the supportive macro environment.
Rick Mckenney: Third quarter marked another period of strength for the company and served as an important milestone for the year.
Rick Mckenney: We remain forward-looking, ensuring we are well positioned to execute on our strategy to deliver on our outlook of 10-15% EPS growth, which sets up continued progress into 2025.
Rick Mckenney: Once again, we appreciate you joining us this morning, and let me turn it over to Steve for more details and perspectives. Steve? Great. Thank you, Rick, and good morning, everyone. The third quarter was a very good quarter for the company as we saw the continuation of our strong first half operating performance.
Rick Mckenney: With margins and persistency remaining at historically strong levels and above our expectations, helping support year-over-year premium and earnings growth across core operations.
Rick Mckenney: Last quarter we increased our outlook based on improved mortality trends and we saw these trends continue in the third quarter with group life and AD&D segment adjusted operating earnings increasing 80% over last year driven by continued lower incidence.
Rick Mckenney: Disability results in the third quarter were highlighted by strong underwriting performance with benefit ratios of 59.1% for UNM-U.S. group disability, 42.8% for UNM-U.S. individual disability, and 69.5% for UNM-UK, all favorable to our expectations.
Rick Mckenney: Sales in the U.S. were down in the quarter. This was most pronounced in group disability.
Speaker Change: As Rick mentioned, the fourth quarter is historically the largest sales quarter for this segment with over 40% of annual sales. Based on our results to date and a strong pipeline of new sales, we believe we will achieve our full year sales growth target of 5-10% for UnimUS.
Speaker Change: Across our other segments, Unim International is also on track to meet its sales target, while Colonial Life is tracking in line with last year's sales levels. Given the mix of sales and levels of persistency, we remain confident in the long-term outlook for future premium growth.
Speaker Change: As I review our results by segment, I will describe our adjusted operating income results and benefit ratios excluding the impacts from the annual GAAP Reserve Assumption Updates in the third quarter of both 2024 and 2023.
Speaker Change: The 2024 subsidy update process resulted in a $357.4 million pre-tax reserve release driven by a number of different product lines, including long-term care.
Speaker Change: I will provide additional details of the 2024 update following the discussion of our segment results.
Speaker Change: So, starting with the NMUS, adjusted operating income increased to $363.3 million, or 1.5%, in the third quarter of 2024, compared to $357.8 million in the third quarter of 2023.
Speaker Change: Results finished above prior year are primarily due to favorable benefits experience in group life.
Speaker Change: The group disability line reported adjusted operating income of $156.7 million compared to $170.1 million in the third quarter of 2023, driven primarily by a benefit ratio of 59.1% compared to 57.5% in the year-ago period.
Speaker Change: While the benefit ratio increased year-over-year, results were favorable to our outlook, reflecting continued favorable claim recoveries.
Speaker Change: As I mentioned, results for UNUM-US group life in AD&D improved significantly compared to the third quarter of last year, with adjusted operating income of $94 million for the third quarter of 2024 compared to $52 million in the same period a year ago.
Speaker Change: The benefit ratio decreased to 65% compared to 73.3% in the third quarter of 2023 due to lower incidence. We still plan for the benefit ratio to be below historical norms at around 70% as we close out the year.
Speaker Change: Adjusted operating income for the Union U.S. Supplemental and Voluntary Lines in the third quarter was $112.6 million dollars compared to $135.7 million dollars in the third quarter of 2023.
Speaker Change: This decrease was driven predominantly by benefits experience.
Speaker Change: The Voluntary Benefit Floss Ratio was 45.8%, compared to 39.1% in the third quarter of 2023, and our expected range of 40-43%.
Speaker Change: The dental and vision benefit ratio of 74.6% was also slightly above our expectation of 70 to 73%.
Speaker Change: UDMUF's results included steady year-over-year premium growth of 4%. Persistency for total group business of 92.5% remained strong and stable in the third quarter with stable results in most of our supplemental and voluntary lines.
Speaker Change: Moving to Unum International, the segment continued to show very strong trends in its underlying earnings power with adjusted operating income for the third quarter increasing to 40.3 million dollars from 36.8 million dollars in the third quarter of 2023.
Speaker Change: Adjusted operating income for the Unim UK business improved in the third quarter to 29.5 million pounds compared to 28.4 million pounds in the third quarter of 2023.
Speaker Change: The benefit ratio for Munim UK increased to 69.5% in the third quarter compared to 67.4% in the same period a year ago.
Speaker Change: And, as expected, the inherent benefit of high levels of inflation have dissipated and did not enhance third quarter 2024 results.
Speaker Change: In fact, UK earnings grew approximately 20% when excluding the inflationary benefit experienced in the third quarter of last year.
Speaker Change: International premiums and sales continue to show strong growth. UWK generated premium growth of 11.7% on a year-over-year basis in the third quarter, while our Poland operation grew 22.1%.
Speaker Change: Sales in the UK grew 26.9% compared to the third quarter of 2023, while Poland sales were up 8.6%.
Speaker Change: So that moving to Colonial Life, adjusted operating income for this segment was $113.4 million in the third quarter, compared to $102.9 million in the third quarter of 2023.
Speaker Change: The increase was driven primarily by a benefit ratio of 47.6%, which was down from 49.1% in the year-ago period.
Speaker Change: Colonial life premium income of $441.9 finished 2.5% higher than the premium year driven by prior period sales and strong persistency.
Speaker Change: Top line growth continues to build, and with year-to-date premium growth of 3.4%, we're positioned to meet our growth outlook for the segment of 2.4% for the full year.
Speaker Change: Sales in the third quarter
Speaker Change: of $120.9 million decreased slightly from $121.3 million in the prior year. As I mentioned previously, Colonial Life sales for full year 2024 are now expected to be in line with the 2023 sales of approximately $540 million.
Speaker Change: In the closed block segment, adjusted operating income remained consistent at $34.2 million in the third quarter of 2024. Higher net investment income was offset by lower premium income for long-term care.
Speaker Change: LTC elevated incidence experience normalized, albeit at a slower rate.
Speaker Change: The net premium ratio as of the third quarter of 2024 was 94.5% compared to 93.7% in the prior quarter. The increase was primarily due to the impact
Speaker Change: of the Annual Assumption Update, which I'll discuss.
Speaker Change: later in my talking points.
Speaker Change: So, wrapping up my commentary on the quarter's financial results, the adjusted operating loss in the corporate segment was $49.4 million compared to $41.5 million loss in the third quarter of 2023, primarily driven by lower allocated net investment income.
Speaker Change: Then lastly, the tax rate in the quarter was 20.7% compared to our expectation of 21.5% to 22%. The favorability was driven mainly by one-time prior tax return adjustments.
Speaker Change: So, moving on from the quarter's operating results, I'll now discuss the outcomes of our Annual Gap Assumption Review that we completed in the third quarter. The review resulted in a positive impact on financial results, with a net decrease in reserves of $357.4 million.
Speaker Change: for approximately $282.6 million after tax.
Speaker Change: While this impact was excluded from adjusted operating earnings, it added $1.53 to our book value per share excluding AOCI, which now stands at $74.15.
Speaker Change: Most product lines saw favorable changes.
Speaker Change: is highlighted by adjustments in our group disability, individual disability and the colonial life businesses.
Speaker Change: In addition, long-term care had a reserve decrease, which I will discuss in more detail momentarily.
Speaker Change: Getting into the specifics of the various reserve releases, similar to the past few years, and as is representative of our continued strong operating results, Group Disabilities Update was driven by continued improvement in our claim recovery assumption, and totaled $90 million pre-tax.
Speaker Change: For IDI, incidence and claim termination trends drove a $52.8 million pre-tax reserve decrease.
Speaker Change: And lastly, Colonial Life's $46 million release was driven by favorable claims trends that we expect to continue.
Speaker Change: out.
Speaker Change: Then for LTC, the assumption updates resulted in a decrease in reserves of $174.1 million before tax.
Speaker Change: reflecting incorporation of favorable premium rate increase experience partially offset by lower expected premium persistency on group cases.
Speaker Change: Premium rate approvals have outpaced our assumptions over the past year and we are currently 25% through our program following the assumption updates.
Speaker Change: LDTI cohorting dynamics are such that this quarter's reserve assumption update drives a decrease in reserves partially offset by an increase in the net premium ratio.
Speaker Change: Similar to last year, changes in interest margins since adopting LVTI are not reflected, nor do they offset changes in liability assumptions for financial reporting purposes.
Speaker Change: In short, consideration of today's long-term rates would indicate additional margins as we previously described.
Speaker Change: While interest margin is no longer reflected in our gap reserve analysis, we will still see the benefit of higher earned portfolio yields compared to the locked in discount rates as interest margins in earnings over the life of the block.
Speaker Change: We consider this dynamic when evaluating our best estimate reserves.
Speaker Change: Following the gap assumption updates, the buffer between our statutory reserves plus excess capital at Fairwind and our best estimate remains at a consistent level at approximately 2.8 billion dollars, providing meaningful levels of protection against adverse events and supporting our position that no additional capital contributions will be necessary for LTC.
Speaker Change: So moving now to investments, we continue to see an environment where new money yields are at levels above our own portfolio yield of 4.41%.
Speaker Change: Miscellaneous investment income was relatively flat in the third quarter at $23.6 million compared to $24 million a year ago.
Speaker Change: Income from our alternative invested assets was $19.6 million. Year-to-date, the alternative investment portfolio has generated $72.6 million, or approximately 5.4% in annualized returns.
Speaker Change: So then I'll wrap up my commentary by turning back to our capital.
Speaker Change: The weighted average risk-based capital ratio for traditional U.S. insurance companies is approximately 470 percent and holding company liquidity is robust at 1.4 billion.
Speaker Change: Capital metrics again benefited in the third quarter from strong statutory results with statutory after-tax operating income of three hundred and fifteen point six million dollars. This now brings year-to-date statutory after-tax operating income to over one billion dollars.
Speaker Change: Our strong cash generation model drives our ability to return capital to shareholders and in the third quarter we paid 77.9 million dollars in common stock dividends and repurchased 3.7 million shares at a total cost of 202 million dollars.
Speaker Change: For the three quarters of 2024, we have repurchased 9.7 million shares at a total cost of just over $500 million.
Speaker Change: As Rick described earlier, we decided to dissolve our pre-capitalized trust facility established during the pandemic.
Speaker Change: drying the facility, which settled this week.
Speaker Change: slightly raised our leverage ratio and brought approximately $270 million of invested assets onto our balance sheet.
Speaker Change: We plan to use these proceeds for incremental share repurchases in the fourth quarter.
Speaker Change: When considering this one-time special capital deployment, we expect share repurchases to total approximately $500 million in the fourth quarter or around $1 billion for 2024.
Speaker Change: So then, reflecting on our results, the first nine months of the year have been incredibly strong across many different aspects of our business, demonstrating our ability to execute against our strategy.
Speaker Change: The top line continues its upward trajectory as historically high levels of persistency and our outlook for fourth quarter sales bolsters our ability to reach our premium growth target of five to seven percent for the year.
Speaker Change: Earnings are robust, as our core businesses continue to exhibit exceptional margins, highlighted by the sustainability of disability and life results. Because of this, we are on track to achieve our outlook of 10-15% growth for EPS that we raised last quarter.
Speaker Change: In addition, year-to-date statutory earnings are already over $1 billion nine months into the year, putting us well on pace to generate $1.4 to $1.6 billion of holding company cash generation, which we laid out at our Outlook meeting.
Speaker Change: This performance fundamentally contributes to our robust capital outcomes, featuring an RBC ratio that surpasses our long-term target by 120 points.
Speaker Change: It also enhances our capacity for capital deployment including our anticipation to repurchase around $1 billion worth of stock this year, which significantly exceeds our original goal of $500 million.
Speaker Change: And then lastly, our balance sheet is strong, reflecting the results of our latest Assumption Update, including positive developments in LTC, and our continued expectation that no further capital contributions are needed for that block. Now I'll turn the call back to Rick for his closing comments, and I look forward to your questions.
Rick: Great, thank you Steve. You can take from our comments that the third quarter was positive across multiple dimensions on how we're running a balanced, disciplined, customer-focused company.
Rick: Our teams have done an excellent job through the first nine months of the year, which sets up for an all-important fourth quarter and as we look into 2025. The team's here to respond to your questions, so I'll ask the operator to begin the Q&A session.
Speaker Change: We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. I'll pause for a brief moment to compile the Q&A roster.
Speaker Change: And your first question comes from the line of Alex Scott with Barclays. Alex, your line is now open.
Alex Scott: Hi, good morning. First question I have is just on the actuarial review. And could you help us think about just the way these premium increases relative to your assumption may find their way into statutory results in the fourth quarter?
Alex Scott: Hey Alex, it's Steve. Yeah, and just let me kind of recap the Actuarial Review specific to LTC just so you know there's some dynamics around LTDI and then I'll get into some of the statutory dynamics.
Alex Scott: So
Alex Scott: Basically, we had two changes that we made to our assumptions.
Alex Scott: and they were treated very differently for GAP. The first one was around our expectation for rate increases on that book and
Alex Scott: Those increases, we kind of looked at the program that we had in place.
Alex Scott: and that we reset last fall. We didn't really increase the program itself, but based on the success we've had and just the discussions we've had with regulators since then.
Alex Scott: Our expectation of what the ultimate approvals on those submissions are going to be have increased and that's roughly $175 million of value of kind of present value of those premiums.
Alex Scott: Those were pretty much all reflected in earnings in the period, and that's just because of the cohorts that those impacted.
Alex Scott: Then we also made some adjustments to just the persistency of our group, LTC business. Those are mostly in cohorts.
Alex Scott: that are uncapped and have quite a bit of margin. So you would see those flow through the NPR. And basically, we had a slight reduction in margin, which increased the NPR for the period. So just to kind of size those up and also get the geography of how those flowed through. And so we feel good about both of those and how they're reflected.
Alex Scott: from a statutory basis. We did already consider in many of our statutory analysis.
Alex Scott: the impact of the rain increases that we had and based on kind of where those hit, whether it's the PDR or where we are with some of our other asset adequacy reserves, it may create a little bit more margin, but I would say it doesn't massively change our view on the buffers.
Alex Scott: that we have between our kind of best estimate reserves for LTC and the statutory reserves we have plus the excess margin, and I mentioned that in my comment. So I wouldn't view it as a major change to how we think about statutory reserve margins.
Speaker Change: got it that's helpful and maybe for a second one on
Speaker Change: Cashflow and holding company liquidity seems like stat earnings have been pretty strong this year. I think you guys take a bigger dividend in 4Q. There's already a substantial buffer built up at the holding company in terms of the liquidity you have there. So I'd just be interested in any help you could provide.
Speaker Change: and how we should think about the amount of cash that will come up towards the end of the year and just the You know capital deployment priorities and you know appreciating that like you guys have already stepped up to buy back a bit But just want to think more broadly about deployment
Speaker Change: Yeah, let's talk about the deployment, Alex, and I'll flip it over to Steve to talk about the specific dynamics we'll see in the fourth quarter, which we see most fourth quarters, and we'll get to that. But from a deployment perspective, you know, you are right. We've seen very strong
Speaker Change: Cashflow that's been generated by the company that's accruing it's allowed us to do over the last couple of years as I mentioned the Bolster the balance sheet, but now it's also accruing into just our operating metrics
Speaker Change: you know that strong statutory generation and what we see gives us a lot of flexibility so first and foremost putting into the core growth investing in what we're doing we really like the businesses that we're in and so we'll do that on an organic basis and if we see the ability to buy something to accelerate that pace
Speaker Change: to bring capabilities, that's something we'd like to put capital towards as well.
Speaker Change: And after we've done that and focused on the growth, then we look to also returning capital to shareholders on the dividend front, increasing that earlier this year, we increased our dividend by 15%.
Speaker Change: and then share repurchase is something that we're always focused on. And we've seen that increase over the course of the year in terms of both the pace and relative to last year. And so we've talked about that multiple times, about the pace at which we will increase share repurchase reflecting our very strong capital position.
Speaker Change: And so when you think about what happened in the third quarter and really what we're projecting going into the fourth quarter is a pretty steady pace of deployment, higher than we had in the first half of the year.
Speaker Change: we pulled quite a bit of our operating dividends out of the operating companies in the fourth quarter. So RBC will probably go down quite a bit. We'll bolster holding company cash, but I would say those are pretty good indicators of some of the targets that we set for year-end 2024 back at Investor Day.
Speaker Change: Got it. Thank you.
Speaker Change: Yep, thanks lads.
Speaker Change: Your next question comes from the line of Wes Carmichael with Autonomous Research. Wes, your line is now open.
Wes Carmichael: Hey, good morning. Thanks. On group disability, you talked about expecting favorable recoveries to continue. Do you think like that's continuing looking forward over a few quarters? Could that be an even longer-term tailwind? And I'm just trying to understand if that could turn at some point, like if the pool of people more likely to see a recovery is getting smaller.
Speaker Change: Yeah, Steve, I'll take that one. The comment was really meant to say the current level of operating performance within group disability and our ability to get people back to work, we think sustainable. And so, you know, this quarter, our benefit ratio was just south of 60%. We think 60% is achievable going forward based on the level of recoveries we've seen and don't really see a reversion of that. As we talked about in the past, the question just becomes around pricing and the pricing dynamics in the market and how that might adjust benefit ratios going forward. But right now, we think 60% is still, you know, a good expectation as we go into the remainder of the year.
Speaker Change: Yeah, that's helpful. And on LTC, I don't think you unlocked your assumption around incidents in period, and I imagine that was at least partially informed by experience this quarter, but could you help us with what you're seeing in recent trends? It sounds like it's slowed down in terms of the pace and if that differs between any large cohorts.
Speaker Change: Yeah, no, that that's good. And I kind of, you know, by omission, I validated that we really didn't adjust any other assumptions. So, you know, we clearly looked at mortality experience, lapse experience, generally incidence experience.
Speaker Change: felt comfortable with what we've seen over the last year.
Speaker Change: that we would not adjust our longer term assumptions in any way material. So we did look at incidents over the last year. You're right, it was really elevated going back close to two years now. We have continued to see that dissipate and we saw that trend continue.
Speaker Change: in the third quarter of this year, whereby our inventories continue to diverge closer to what our long-term expectation is. I'd say it slowed down a little bit, but we just saw kind of the economic
Speaker Change: types of incidents performance continue to slow down. Obviously, it comes to the cohorts a little bit differently, quarter to quarter, and so that, you know, has a little bit of impact. But feel good about the trends and, you know, those trends continue. And so, based on that, we felt, you know, good with our longer-term assumption around claims incidents.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Tom Gallagher with Evercore ISI. Tom, your line is now open.
Tom Gallagher: Good morning. Steve, you were referencing, you know, depending on pricing I think when you're thinking about
Tom Gallagher: I guess the emergence and where margins are going to go in your group business. Can you talk about what you're seeing for renewals?
Tom Gallagher: Is there pressure on rate? What the competitive landscape looks like? You know, clearly your disability and group life results have been really good, particularly in the last few quarters.
Tom Gallagher: Yep.
Speaker Change: We're thrilled that customers are you know, engaged with our capabilities, like what we're doing from an execution standpoint. It is competitive out there, as we talked about in the past, and we expect to have that nice combination of fair pricing.
Speaker Change: renewing business case-by-case. You know, we're still active with our discipline around, you know, rate increases when appropriate and rate reduction if appropriate.
Speaker Change: But, you know, our customers like long-term stability, so the more we can do to kind of triangulate around, you know, here are the capabilities that you have, here's good pricing for the long-term, you know, we do feel like we can get a fair return and continue that way. So that's, you know, that is a bit of a new business and a renewal pricing commentary, and our team is hard, you know, at the task of making sure that combination comes together.
Speaker Change: Gotcha, thanks. And then, and I hear what you guys are saying about the PCAPS dissolution and how that's going to drive a 4Q higher buyback.
Speaker Change: you know can you provide a little bit of color for what's what's driving this decision is it
Speaker Change: Are you more confident in, you know, just after a balance sheet review, you've done a more thorough look at long-term care and, I don't know, maybe you get added confidence?
Speaker Change: Or is it potentially because you think risk transfer is further away now and so you're not going to need, you know, access to additional sources of capital? Maybe just a little bit of color for, you know, what's going on behind the scenes in the thought process here. Thanks.
Speaker Change: Yeah, Tom, maybe I'll start and ask Steve to kick in as well. I think what you see is two things going on. One is just
Speaker Change: A lot of confidence in what we've built up over time.
Speaker Change: the cash flow generation that we've seen and so we've looked at share repurchase and I think we've been very consistent to say we're going to do this at pace and so we've seen that pace increase and so as you saw in the third quarter we did 200 million in the third quarter and you can expect a similar amount of underlying share repurchase in the fourth quarter.
Speaker Change: and then looking at the PCAPs really is a different evaluation. The team has done a really good job of
Speaker Change: continuing to optimize the balance sheet. I can look to what we've done with the dissolution. Most recently, the PCAPs, but I'd go back over the last several years, the work they've done to actually lengthen out the overall debt structure and things like that. So a lot of very positive things that we've done. Don't read too much into it in terms of what we will or won't do elsewhere. I think this is very much the course that we've been on. We're just dialing it up a little bit from a share repurchase perspective, just given the strength that we've seen and the ongoing outlook that we have.
Speaker Change: and the strength of the business.
Speaker Change: Yeah, Tom, the only other thing I'd say is, you know, just a little bit of history on that PCAP I think is helpful. We issued that back in 2021 and clearly we were in a much...
Speaker Change: different environment from an uncertainty with the pandemic. We also, we're looking at things like strengthening the LTC balance sheet and working through the PDR. We just thought at the time it was smart to get some contingent capital and we were able to issue that in a pretty benign environment at that point in time. I would say nothing acute has happened. It's just the progression of our thinking about capital strength and what's the most efficient capital structure for the company. We just made the decision that this probably wasn't the most efficient use of capital.
Speaker Change: and that we thought the most efficient use would be to go ahead and bring those on balance sheet, generate the cash and go ahead and buy back shares and really kind of shift our capital structure from the equity to debt, which, you know, cost of capital there is going to be lower. So we just thought it was a smart move.
Speaker Change: Gotcha. Thanks for the call, you guys.
Speaker Change: Yep, thanks Tom.
Speaker Change: Your next question comes from the line of Ryan Krueger with KBW. Ryan, your line is now open.
Ryan Krueger: Hey, thanks, good morning. Can you talk a little bit about what's causing some of the sales growth challenges at Colonial and the potential to improve the growth going into 2025?
Ryan Krueger: Yeah. Yeah. Right. Thanks. This is Tim.
Ryan Krueger: So when you look at the details in the sales growth for point of life
Ryan Krueger: in the third quarter and really for the year the headwinds have been in our existing sales sales from existing clients down three percent
Ryan Krueger: As a reminder, those sales represent about two-thirds of our annual sales, so those challenges have persisted all year.
Ryan Krueger: I believe largely it's an execution issue. We recently named a new Senior Vice President of Sales after a five-month national search. We
Ryan Krueger: identified an internal candidate who is outstanding at executing our strategic priorities and has led the one of our regions to really strong growth.
Ryan Krueger: And so we're excited about the impact that she and her team will have on that going forward. You know, we remain encouraged by the value prop overall. New sales in the quarter were up 6.7%.
Ryan Krueger: We had extremely strong growth in the large case commercial market and with our group product portfolio So it's really about getting the sales from our existing clients moving in the right direction again We're confident that actually the new sales SVP and the team will make that happen in 25
Speaker Change: Thanks and then you've had somewhat elevated benefit ratios in voluntary last you know I guess I think two of the last three quarters. Can you talk about what you're seeing there and what do you view as a good run rate of earnings for the supplemental and voluntary business at this point?
Speaker Change: Yeah, this is Steve. Yeah, when you look at our supplemental and voluntary benefits, there's actually...
Steve Zabel: three businesses kind of embedded in there. We've got our individual disability income business, our voluntary benefits business, and our dental business. And even embedded within voluntary benefits, there's quite a few product lines in there. And what we tend to see over time is period-to-period volatility in all of those lines.
Steve Zabel: We kind of went back and looked last, you know, five, six quarters, and specifically in voluntary benefits and in our dental business, they tend to bounce around a little bit, and it just so happens that this quarter, both of those were kind of at the lower end of the range.
Steve Zabel: of the results that we've seen. I wouldn't read too much into it. And I think, you know, kind of the run rates that we've had historically are probably a pretty good indicator of, you know, the business. So like maybe think 120 million.
Steve Zabel: range per quarter is probably a pretty good number with, like I said, kind of period-to-period volatility.
Speaker Change: Great, thank you.
Speaker Change: Thanks, Fred.
Speaker Change: Your next question comes from the line of Chawal Hurwitz with Dowling & Partners. Chawal, your line is now open.
Chawal Hurwitz: Hey, good morning. I wanted to start on UDEM U.S. sales. So it sounds like you're confident in achieving the full year 5 to 10 percent sales growth. Can you just provide more color on what you're seeing for Q4? Because I think that would imply that you need, you know, something like mid-teens growth just to achieve the low end of your target.
Chawal Hurwitz: Yeah, Joel, thanks, of course. This is Chris. Yes. So, again, we're coming off this small and volatile quarter. We also have been, of course, watching the pipeline through the course of the year, and when you look at both, you know, a nice uptick, particularly in the upper end of the market in terms of number of RFPs, but also quality of RFPs.
Chawal Hurwitz: We're really encouraged. So throughout the course of the year, we've been working on more and more cases that match up.
Chawal Hurwitz: with the capabilities we're building around lead management and capabilities around HCM connectivity and other platforms that are important to our customers and our brokers.
Chawal Hurwitz: This gives us a better chance for high close ratio and we're seeing that play through. We have a lot of work to do. The fourth quarter is the biggest of the year and obviously, you know a lot more about the large end of the business than you do the small, so the teams are still hard at work, but we're confident that the way we are executing and putting together capabilities and prospects is resonating very well in the market and we plan on finishing strong in that range you talked about.
Speaker Change: Okay, great. And Chris, maybe just on on persistency, it's also been very strong in the U.S. You know, with renewals, are you seeing, you know, or expecting similar persistency to what you've seen over the past several quarters?
Speaker Change: Yeah, obviously we're thrilled that the persistence has been good, and we do appreciate the fact that, you know, in a lot of cases, the loyal customers remain with us for a long time. I do think that we saw, you know, a little bit of an increase in activity in 24. There might have been some pent-up demand in terms of fewer marketings in 23, or kind of that post-pandemic time.
Speaker Change: So there are some companies out there that are in the market, testing capabilities, testing price.
Speaker Change: That's going to be good, I think, from a new sales perspective. It does put some pressure on our buck. We're going to work it through and, you know, again, feel good that the overall story is hanging together. It's a little bit of a different year in 24, though, than 23 and 22.
Speaker Change: Got it. Thank you.
Speaker Change: Your next question comes from the line of Sunit Kamath with Jefferies. Sunit, your line is now open.
Sunit Kamath: Great, thanks. Good morning. My understanding is that there's a industry study on long-term care that has either come out in the fourth quarter is coming out in the fourth quarter.
Sunit Kamath: I'm just curious if you've seen that and if there are any takeaways from that and if it does come out, how would that at all impact your fourth quarter assumption review? Thanks.
Speaker Change: Thank you.
Speaker Change: Yeah, to my knowledge there hasn't been anything that has come out. We did not use any additional industry data.
Speaker Change: When we were going through our third quarter assumption review, I would say going into our fourth quarter statutory review We'll be using the same data set
Speaker Change: confirmed the vast majority of the assumptions we had. So I don't see that driving any sort of change in our view of fourth quarter, if and when it comes out.
Speaker Change: Got it. Okay. Thanks. And then I guess sticking with LTC. I mean, you mentioned you're still at it in terms of risk transfer. I'm just curious if.
Speaker Change: If there's any change in sort of the conversations that you're having, and then maybe any commentary that you could give on just sort of how deep is the market in terms of like counterparties that, you know, are interested in these types of blocks of business. Thanks.
Speaker Change: Sure, Sunit. Risk transfer, as we were very clear on, we were still very much interested in, makes sense for us to continue to pursue it. In terms of the change, we really haven't seen a dramatic change. We've talked to multiple counterparties looking at
Speaker Change: at multiple ways they think about the business and how there may be a deal to be done between the two counterparties. That continues to be a very active dialogue. I think you also have
Speaker Change: interested parties out there, clearly interested in the assets associated with with long-term care and what they see over the horizon. So we're gonna stay at it. I think we've been very consistent in terms of how we've approached the market and what we continue to see out there and the ability to do something, but as we've also said these are these are difficult deals to do and so making sure we can have buyers meet sellers and do so that in a way that the price and structure make sense to us is something we're still very active on.
Speaker Change: Okay, thanks Rick.
Speaker Change: Your next question comes from the line of John Barnage with Piper Sandler. John, your line is now open.
John Barnage: Thank you.
John Barnage: Good morning. Thanks for the opportunity. If you were not to pursue a risk transfer, can you maybe talk about how long it would take for the policy to run off? Thank you.
Speaker Change: Yeah, so we are be very clear. We are pursuing risk transfer, but Steve maybe you just talk about the dynamics of the
Steve Zabel: Yeah, I mean, we, I don't know that we've publicly disclosed the duration of our LTC book. I mean, it, you know, suffice to say that this is a multi-decade type of runoff for a book of business like this around LTC.
Steve Zabel: So, I think probably the...
Steve Zabel: to say on the point here is that when we're looking at a risk transfer deal,
Steve Zabel: You know, we feel good about running this book, you know, ourselves. We feel good about managing this book ourselves, but as Rick said, it's just not strategically aligned.
Steve Zabel: with everything else we do. And so all things being equal, for the right price, we would like to transfer risk.
Steve Zabel: We know that it impacts our valuation, and so we want to be smart about it, but we also feel very good about our projections and understanding our book and being able to manage it.
Steve Zabel: if and when we were able to look at price discovery and just think that through, we would definitely still contemplate doing something, but it'd have to be at a price that made sense.
Speaker Change: Very helpful, thank you. And my follow-up question, HRConnect and leave management systems seem to be winning business and others are following suit and building their own platforms.
Speaker Change: Can you maybe talk how you view the tech connectivity winning in the large case market and how you're positioning for the fourth quarter as well? Thank you.
Speaker Change: Yeah, thanks, John. Chris, again, yeah, you got it. There's a lot of focus on big decisions that our larger company prospects and customers make around the human capital management platform that they
Speaker Change: choose. And when they make that decision, it's one where that ecosystem becomes, you know, the real cornerstone of how they want to run their company from a people perspective.
Speaker Change: Our intentional investments, which are multi-year, and I think that's important, we've been at this for quite some time, our investments feed into that ecosystem in a very robust way.
Speaker Change: you attach not only kind of the administrative elements of benefits but also the leave element. Our total leave initiative has been designed to build into our HR Connect and connect very well there so it's a robust one-two punch.
Speaker Change: that really solves a big problem for employers and plays into the, as I said, the ecosystem that they want.
Speaker Change: So the runway on that is long, and we can continue to add services and capabilities that enhance that offering. At the core, though, it's still a bundled insurance approach, where we've got wonderful financial protection products that fit really well. And, you know, we've got designs on what we can add. We want to continue to execute, and it's been a winning proposition in a bigger and bigger part of our sales each quarter.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Mark Hughes with Truby Securities. Mark, your line is now open.
Mark Hughes: Yeah, thanks. Good morning. How about the natural growth? Has that influenced the overall UWS growth? And did you see any change in trajectory through the quarter, any kind of deceleration perhaps, or was it reasonably steady in 3Q?
Mark Hughes: Yeah, this is Steve. Yeah, I would say it was reasonably steady in the third quarter. It was just over 3%. If you go back, there were periods of time during the pandemic or post-pandemic when that growth had gotten up to 5%, maybe a little bit more. So it was creating quite a bit of tailwind. A lot of that was during periods of wage inflation, but also we were seeing very strong employment. I would say it's kind of normalized more. Our expectation going forward and kind of historically that might have been between 2% and 3% that would impact our growth every year.
Speaker Change: Yeah, then the international growth, anything kind of structural or, you know, your competitive position in those markets that
Speaker Change: should allow you to keep up the rate of growth, or has this been a good period and we'll see how next year goes.
Speaker Change: I appreciate the question. I'm going to turn it over to Mark Till.
Mark Till: Thank you, hi. There's nothing fundamentally different about the market in which we're operating in at the moment.
Mark Till: competitive positions fairly similar we've been investing very hard in the quality of the proposition strength of the relationships that we've had with the brokers
Mark Till: and that's being reflected in the new business that we've been writing so at the moment I feel confident that it is the choices we've been making and the market is still remaining attractive.
Speaker Change: Thank you.
Speaker Change: Thanks, Mark.
Speaker Change: Your next question comes from the line of Jimmy Vollar with JPMorgan. Jimmy, your line is now open.
Jimmy Vollar: Hi, good morning. So most of my questions were answered, but just on the disability business, obviously your margins have been pretty strong the last couple of years. Your competitors have been as well. And it seems like you're expecting results to remain better than average in the near term. But what gives you the confidence that eventually maybe a year, two years out, we won't revert to where margins used to be pre-pandemic? What are the dynamics in the market that might be different now versus before?
Jimmy Vollar: This is Steve. I would say it kind of comes back to fundamentally, you know, there's two variables when we think about group disability benefit ratios. One is just the performance of claims experience itself, and I would say we have a lot of confidence.
Jimmy Vollar: that the levels of recovery, getting people back to work in a productive way, that those are sustainable. We know why that's happened.
Jimmy Vollar: We know what we've done within our business operations to drive those results. So, I think we have a lot of confidence that those are sustainable. And then the question becomes what the market will do from a pricing perspective. And Chris, I know we've kind of covered this, but just to kind of reiterate. Happy to add. You know, Jimmy, again, it gets back to that. You know, when you're having a broader relationship with our customers, and we're solving challenges around lead management, we fit the ecosystem from HR Connect and other platform connectivity that's important to them. That conversation around price, it's still very important, but it's a much more long-term stability type of a theme, as opposed to, hey, this is a commodity, you can market, you can drive price to the lowest experience.
Jimmy Vollar: So, you know, when we're covering price in more challenging times, you move up slowly. And I think when you're in good times, you kind of balance, you know, more towards the current and you move down more slowly. So we do see a good long-term value balance approach that will work for the future.
Speaker Change: Since then, it seems like you've been getting price increases, so that's a positive.
Speaker Change: but the net premium ratio has gotten worse. So what is it that someone can monitor from the outside to sort of assess whether or not you're nearing a potential need to raise reserves in the business again?
Speaker Change: Yeah, I would say that the thing to think about there and the NPR did go up and I didn't
Speaker Change: kind of get into the details of that, but it did go up this period by 80 basis points, about 50.
Speaker Change: basis points of that was the adjustment that we made.
Speaker Change: to our group, Persistency. And just to kind of put that into context, that represents about 25 million of GPV. So, you know, pretty small changes in how we think about reserve adequacy can drive, you know, some pretty big moves in that MPR.
Speaker Change: So, you know, you definitely have seen the impacts of the higher claims incidents over the last year or so, an increase in the GPV, so, or increase in the NPR. So I think that's still kind of a good, good thing to monitor, just the movements of that. I'd also say that the NPR has gone down in periods.
Speaker Change: And it really just depends on what the experience is, which cohorts.
Speaker Change: it hits and how that flows through either the financials or the NPR. I'd also say just generally speaking the closed block business is well within the range of absolute earnings expectations.
Speaker Change: that we set forth at the beginning of the year. So by and large, I think it comes back to those things. Are we executing on the rate increase? What's the NPR doing? And what are absolute earnings for the line of business during the period?
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Elise Rinspan with Wells Fargo. Elise, your line is now open.
Speaker Change: Hey, good morning. Thanks. It's Nick on for Elise. Thanks for squeezing me in here. Most of mine have been answered as well, but just wanted to touch on group life.
Speaker Change: and just see what's driving the confidence there that we should keep seeing robust results and should the expectation from us be that we should see this come into 25 or is this just a purely 24 dynamic?
Speaker Change: that can be volatile over time. What we're seeing, we still feel like the 70% benefit ratio is a decent kind of planning metric as we look into the fourth quarter. We'll look at how the fourth quarter's playing through as we get into kind of guidance that we give for Investor Day into 2025. So I don't want to get ahead of that and really give any guidance there, but we think at least in the short term.
Speaker Change: 70% is probably a good estimate to use, but again, you know, it can bounce around a little bit, so sometimes it's harder to predict.
Speaker Change: Got it. Okay. Thanks.
Speaker Change: That concludes our Q&A session. I will now turn the conference back over to Rick McKenney for closing remarks. Rick?
Rick Mckenney: Great, thank you. I want to appreciate, much appreciation for everyone joining us this morning and for your continued interest in UNUM.
Rick Mckenney: Third quarter results, very good. We are very focused on the fourth quarter as we wrap up the year and looking into 2025. We will be around, looking forward to connecting with a number of you over the course of the fourth quarter. And once again, this will conclude our third quarter 2024 call. Thank you.
Speaker Change: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.