Q3 2025 Unum Group Earnings Call
Hello and thank you for standing by. My name is Bella and I will be your conference operator. Today at this time I would like to welcome everyone to Union group 3, key to 3Q 2025 earnings conference. Call all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session
We do request for today's session that you please limit it to one question and one follow-up.
If you would like to ask a question during this time, simply Press Start, then the number 1 on your telephone keypad to withdraw, your question, press star 1 again.
I would now like to turn the conference over to Matt Royal head of investor relations. You may begin.
Thank you, Bella, and good morning to everyone. Welcome to Unum Group's third quarter 2025 earnings call, which will include discussion of our annual reserve assumption review.
Please note that today's call may include forward-looking statements and actual results, which are subject to risks. And uncertainties, may differ materially, and we are not obligated to update any of these statements.
Please refer to our earnings, release and our periodic filings with the SEC for a description of factors that could cause actual results to differ from expected results.
Yesterday afternoon, Unum released our third quarter earnings press release and financial supplement those materials, which include an overview of the Gap. Reserved assumption update, and updates to key sensitivities may be found on the investors section of our website along with a presentation of the most directly comparable, gaap measures, and reconciliations of, any non-gaap Financial measures included in today's presentation.
References made today to core operations, sales and premium including un International are presented on a constant currency basis.
Participating in this morning's conference call are Unum President and CEO Richard McKenney, Chief Financial Officer Steven Zabel, Tim Arnold, who heads our Colonial Life and voluntary benefits lines, Chris Pine for Group Benefits, and Mark Till, CEO of Unum International. Now let me turn it over to Rick for his comments.
Great. Thank you, Matt and good morning everyone. We appreciate you joining us today. Our third quarter results underscore the strength of our core businesses, which have delivered consistent performance throughout 2025
Year-to-date solid premium growth is up 4%, and discipline and execution continue to drive industry-leading margins and robust capital generation.
We will get to the details of our assumption updates, particularly on the closed block, which an aggregate increased reserves and had an after tax impact of 378 million.
The changes there include a series of actions. We are taking to continue to manage the block while still affirming our view of. No, additional Capital contributions needed behind this business.
Turning to the details of the quarter, we delivered another solid performance across the board from Topline growth to bottom line profitability.
While earnings per share of $29 fell below. Our overall expectations, this is primarily due to volatility in the closed block.
Importantly, our core businesses have exceeded our most recent expectations and continue to demonstrate healthy, margins, and strong returns.
Our Core Business profitability Trends are underscored by continued discipline and pricing and risk selection. As we show continued strength in bro both group disability and group life. Each have shown very favorable levels of earnings power.
And we are particularly pleased with the premium growth across our core segments, which grew nearly 4 and a half percent, excluding transactions.
Colonial Life up, over 3% and international delivering 10% growth.
This growth is supported by high levels of persistency and sales growth of 12% in the quarter, and reflects the strength of our market position and the value employers place on our offerings.
That is true for new customers, but even more so for existing clients, which support our very high persistency trends.
Our growth is enabled by the success of key technology initiatives like HR Connect and Total Leave, which continue to differentiate us in the market.
These platforms create deep connections with employers and employees, who value a high-quality digital experience backed by the expertise and empathy of our team, supported by AI tools. We are equipping them with...
This combination of technology and human touch is driving, stronger engagement, and retention and employers increasingly of us as a trusted partner for integrated benefits Solutions.
Delivering on our purpose and growing. The number of people, we protect is highly motivating to our team.
Profitability and long-term growth.
our discipline approach to pricing and risk selection combined with consistent execution, translates into solid product returns
Return on equity for our core operations, continues to be near 20% as margins across our lines, remain above historical levels.
These results demonstrate the strength and scale of our core operations, and our ability to deliver sustainable margins and maintain expense discipline.
Combined with our closed Block in aggregate. Our return on Equity is 11.3%.
The stability of our core operations supports our ability to take strategic actions to advance our clothes block strategy and reduce the associated overhang of this Legacy business.
The third quarter began with a successful closing of our Milestone. Long-term care. Reinsurance transaction, with fortitude re which seated, 20% of our LTC Reserves.
The transaction showcased our ability to execute in the market, and we are actively pursuing additional opportunities with third parties to remove this risk.
Meanwhile, we continue to actively manage the block from within.
We implemented several actions in conjunction with our annual, assumption review, that de-risked the block and strengthen, its long-term stability.
While Steve will go into more detail on these changes. I'll stress that while our strategic strategic actions necessitate higher Gap reserves, we are pleased that they position us to reduce the size of our existing group policies. Remove an area of modeling uncertainty, and supports further risk management through premium rate increases
Altogether, these steps reinforce our confidence that no future capital contributions will be necessary.
Turning to the balance sheet, our Investment Portfolio continues to perform well.
We have de-risked the portfolio, improved credit quality and positioned their sales for future markets Cycles. Our portfolio maintains an A minus average rating with historically low, exposure to below investment grade securities.
Our overall position combined with strong, underlying statutory earnings of approximately hundred million dollars resulted in holding company liquidity of 2 billion dollars and an RBC ratio of over 450% both well above targets.
This robust level of capital provides tremendous flexibility to pursue our strategy and return capital to shareholders.
Through the first 9 months of the year, we have returned nearly 1 billion dollars to shareholders, including 750 million, in Cherry purchases, and 230 million in dividends.
Our Capital priorities have not changed first to invest in strategic initiatives that strengthen our core businesses second to pursue selective m&a opportunities. That complement our capabilities and third to execute on shareholder. Friendly actions through increasing dividends and share purchases.
These priorities, reflect our discipline approach to building franchise value and delivering long-term returns.
Underpinning these strong financial results is our team that is relentlessly focused on protecting more people and exceeding customer expectations and time of need.
Our digital first disciplined approach is driving favorable operating Trends as we advance our market-leading positions and prepare for continued growth into 2026.
With that. I'll turn it over to Steve for some more details on the quarters. Steve, great. Thank you. Rick, and good morning. Everyone. As Rick mentioned, we're pleased with the results of our Core Business, which continues to show strength and sustainability for both Topline Trends and margins in the quarter core operations, premium grew 2.9%, which does include the impact of both the seated IDI business, from our LTC, reinsurance transaction, and the runoff of our sold stop-loss business. When adjusting for these impacts premium growth exceeded for
Percent driven by strong persistency that continued to outpace our expectations. Additionally, while a smaller sales quarter results were robust with core operations. Sales growing 12.2%
Pre-tax or 377.8 million after tax across our product lines.
In our core businesses, the impact was favorable with Reserve releases totaling 162. Million pre-tax. In addition, the review recognized the recent elevated incidents experience in our long-term care business. It also reflected the implementation of several strategic actions within the block, which helped reduce the long-term care risk, profile and further Advance our closed block strategy.
As I outlined results for each segment, I'll provide additional detail on the impacts of the assumption update in my overview. So, starting with Unum, the segment produced adjusted operating income of $334.9 million for the third quarter of 2025 compared to $363.3 million a year ago. Not included in adjusted income is the impact of our third quarter assumption update, a $147.7 million reserve release driven primarily by $105.8 million of group disability releases. The group disability release reflects the favorable recovery trends in long-term disability, and we continue to believe recent levels of recovery are sustainable.
Reflecting these positive recovery Trends group disability, produced adjusted operating earnings of 133.5 million in the quarter compared to 156.7 million a year ago. While Down year-over-year results. This quarter reflect the benefit ratio of 61.3% in line with our low 60s. Guidance driven by continued strong. Recoveries, this translated to an Roe greater than 25%.
Adjusted operating income for group life and AD and D was 88.1 million which exceeded our expectation. But was lower than last year's high water. Mark of 94 million.
The benefit ratio of 66% outperformed, our Outlook of approximately 70% driven by lower overall incidents including favorable Trends in ad and D.
We continue to expect a 70% benefit ratio for this business with normal period to period volatility.
Our supplemental and voluntary lines, showed a year-over-year increase in operating income driven by growth in our voluntary benefits business.
Growth in this segment was despite the impact of our seated IDI business. That was part of our long-term care, reinsurance transaction.
Adjusted operating income of 113.3 million was above the 112.6 million a year ago, and slightly exceeded. Our expectation of approximately 110 million that we communicated following the transaction.
So then wrapping up the discussion on unimus Top Line, Trends were healthy sales, grew 16.1% and premium increased 1.9% but was impacted by factors such as the seated IDI premium for the long term care. Reinsurance transaction. And the runoff of our stop-loss business. Adjusting for these items, premium increase nearly 4% specifically for group disability, adjusted premium growth would have been approximately 3% while sales were strong in the third quarter. It is a smaller sales quarter for unimus and therefore persistency was a key driver for premium growth, as it has been all year long.
The persistency for total group was 89.8% compared to 92.5% a year ago and above our expectations coming into the year. Now shifting to Colonial adjusted operating income of 116.6 million was above the 113.4 million. From the year ago, result driven by growth in the business as evidenced by premium That Grew 3.3% From prior year.
Underlying the premium growth was persistency of 78.7%, which was 70 basis points higher than a year ago.
In addition, sales increased 3.1% in the quarter further demonstrating continued, continued Improvement in momentum.
Finally, the results of the reserve assumption update resulted in reserve releases of 8.9 million driven by favorable morbidity trends.
Continue to Trend favorably with premium growth of 9.5%, including 18.7% in Poland and sales growth for the segment of 24.9%.
Finally results of the annual assumption update resulted in 5.4 million of Reserve releases.
Before touching on clothes block earnings in the related, assumption update are all briefly cover the corporate segment, which produced an adjusted operating loss of 47.7 million slightly improved from the prior year result of 49.4 million driven by higher investment income, which was part, partially offset, by 1-time expenses from our recent m&a activity.
Rounding out the segments, the closed block, produced adjusted operating income in the quarter of 14.1 million, which was below. 34.2 million in the year ago, period driven by a combination of lower alternative investment income, and unfavorable average, new claim size in the long term care line of business. Alternative investment income in the quarter was 21.7 million or an annualized yield of 6.5% compared to our Outlook of a percent. Putting our year-to-date annualized yield at 6.2%.
Additionally, LTC experiences in the quarter continued to be impacted by the higher new claims size dynamic that occurred in the second quarter, though to a lesser extent.
I will note that claim counts for the quarter were in line with the expectations established under our updated Reserve assumptions.
Turning now to the re Reserve assumption update impacts for the segment close block reserves increased 640.5 million of which 643.1 million was attributable to long-term care.
As highlighted in the earnings release, I will distinguish the changes into 2 categories, those representing regular assumption refinements to our liability, cash flows, and those that are 1-time. Non-recurrent in nature and help Advance our clothes block strategy, over the long term.
In terms of the liability assumption refinements, incidents has rebounded from the significant lows. We saw throughout the pandemic and in recent periods have been elevated above our long term assumptions, leveling out over the past year.
While we while we continue to believe that some of this is delayed incidents that we did not see during the pandemic, we have increased our go forward, incidence assumptions,
This resulted in an increase of reserves of approximately million dollars.
Importantly, with this update and with the experiencing in the third quarter.
We believe that incidents counts are normalizing from the elevated levels. We've seen over the past few years.
In the same period of time. We have also seen consistent consistently elevated disabled claim. Mortality within the same experience, set resulting in a decrease in reserves of approximately 200 million dollars.
Taken together, these updates represent a net Reserve increase of approximately 100 million dollars.
I'll now move to the second category of impacts, which as I mentioned, make up the bulk of the reserve increase and reflect 1-time, non-recurrent actions that de-risk, our long-term assumptions, and align with our broader strategic objectives.
First, we fully remove the morbidity and mortality Improvement assumption which added approximately 850 million to Reserves.
the decision to fully remove this key variable follows Actuarial analysis, through the postcovid,
Period while evidenced through preco experience, we've elected to remove the Assumption as a result of this significant reduction. And then rebound of incidents in the most recent periods, which has heightened modeling uncertainty,
Next, as part of our ongoing efforts to align our portfolio with long-term strategic priorities, we took action to discontinue adding new employee coverage on existing group long-term care cases, effective February 1, 2026.
As a reminder, we closed our group business to new cases in 2021 and have not written new group cases. Since that time. However, we have historically allowed employers to enroll new employees, to those existing cases.
New employee pricing is then based on more recent assumptions. Therefore, those coverages have been profitable and contributed margin to our business.
As a result of our decision, we have fully removed the estimated future margin of new employees from our Reserve assumption which increased our reserves by approximately hundred million dollars. We believe this is a sound decision that will benefit our company and stakeholders by minimizing future risk and supporting our strategic priorities.
Finally, after considering all liability, assumption changes.
Program which reduced reserves by approximately 525 million.
We have been very pleased with Sue success of our premium rate strategy over time and feel confident in achieving this updated Target.
In addition, to changes, I've described to the Gap reserves, which were reflected in current results below the line, the Assumption updates. Also resulted in an increase of the future lifetime loss ratio or net premium ratio from 94.9% to 97.6% sequentially.
This change decreased close block quarterly earnings by approximately $10 million following the update. This impact will continue into future quarters.
Considering this change combined with the impacts of lower alternative investment income in the quarter, earnings per share in the quarter were impacted by approximately 10 cents. We expect a similar effect in the fourth quarter,
Despite the Gap Reserve impact, the statutory Reserve impact, which will be finalized in the fourth quarter is expected to be minimal with no Capital contributions needed in addition. Our long-term care protections which consists of statutory reserves of a best estimate reserves, plus the excess Capital at Fair win, remain robust at approximately 2 billion dollars. While this is a decrease, we see significant value in the trade-offs and substantial benefits of having fully resolved and removed, several assumptions.
As demonstrated this quarter, the protections not only provide substantial flexibility to manage, assumption refinements, but also affords. This optionality. We remain firmly in a position to proactively manage the block and pursue strategic initiatives and we are confident that no future Capital contributions to support. LTC reserves will be necessary.
Ultimately, these updates do not change or Capital Outlook in the quarter Capital metrics across the board, remain robust holding company, liquidity stood at 2 billion dollars and traditional RBC at 455% both. Well above our long-term targets and consistent with our expectations.
As we approach the end of the year, we remain confident in our Outlook of ending. The year with greater than 425%, RBC and holding company liquidity above, 2 billion dollars,
through the first 9 months of the year we have returned just under 1 billion dollars to our shareholders comprised of 750 million, in share repurchases and 230 million in common stock, dividends
In the third quarter alone. We repurchased 250 million of shares and paid 78.3 million in dividends.
As we close out the remainder of the year, we remain on track to repurchase shares at the top end of our previously announced range of Millions.
To 1 billion.
In addition, we expect to return approximately $X dollars to shareholders through dividends.
These actions position us to deliver a total capital return of approximately $1.3 billion to our shareholders in 2025, underscoring our ongoing commitment to enhancing shareholder value.
Our robust Capital position is enabled by our strong statutory earnings power which mirror the strong Gap margins. We saw in our core businesses. Adjusting for the 1-time items related to closing our Milestone, LTC reinsurance transaction, normalized. After tax. Statutory income was approximately dollars, demonstrating continued cash generation of our business model.
So before wrapping up the commentary on the quarter, I'll spend a few minutes on our Investment Portfolio.
Our portfolio is after tax, net investment gain totaled, 101.2 million for the quarter and was almost entirely attributable to closing of our long-term care. Transaction as a reminder, in previous quarters since announcing the deal, we recognized investment losses through a mark-to-market. However, gains are only recognized at closing driving. This quarter's result.
The Investment Portfolio remains. Well, positioned. Our portfolio is average rating is a minus.
And uh, both below investment grade exposure and watch list Securities are at historical lows.
I already discussed this quarter's alternative portfolio is performance, but will re reiterate that while recent results have been lower than our long-term expectation. The portfolio provides immense value for our long-term care care or Al and strategy, and is produced returns of 9% since Inception.
In summary, this quarter stands as a testament to our strength and strategic Focus.
Our core business continues to deliver robust margins and healthy topline growth, fueling strong earnings and capital generation.
The decisive actions, we've taken in the closed block, demonstrate our commitment to ProActive Management of this business.
Exceptionally strong in ableness, to invest in growth, return value to shareholders and pursue new opportunities, as they arise.
As we look ahead to the fourth quarter and into 2026, we are energized by our momentum and confident in our ability to deliver sustainable results. For all of our stakeholders. Unum is well, positioned for the future, and we remain focused on driving Innovation. Operational excellence, and long-term value. Now, I'll turn the call back to Rick first. Closing comments and I look forward to your questions.
Thank you, Steve. As we wrap up our comments, I'd like to shine a light on our core franchise that has continued to lead in the employee benefits space for many years.
We have and will steadily invest in the capabilities that will build our future and bring leading solutions to our customers.
There will also understandably be discussion on the actions. We have taken this quarter importantly with our growth trajectory and the capital to back it up, we head toward the end of the year and into 2026 excited about our prospects.
We can now turn the call to questions and I'll turn it over to Bella to take your questions.
Thank you at this time. I would like to remind everyone in in order to ask a question, press star stand the number 1 on your telephone keypad, we do request for today's session that you please limit to 1 question and 1 follow-up. We will pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Ryan Krueger with KBW, your line is now open. Please go ahead.
Hi. Thanks. Good morning. My first question, is more on the statutory side of the, LTC assumption review? I know the the overall impact was is is limited, but can you give us any more color on some of the moving parts that that impacted stat? Whether it be, um, you know, how to think about some of the changes that that you did make how it came to stat and like, in kind of the offset from the, the future premium rate actions.
Sure, Ryan, this is Steve. Yeah, I'll kind of break it down a little bit because when you think about the reserve charge, it really impacted the entire block of business. And as you know, we, we have about 80% of the Block in Fairwind, and the way to think about it in Fairwind is the adjustments that we made in including uh, the future rate, increase adjustment that we made, really just flows through to the protections. Um, that we have there really did not impact our reported stat reserving levels with within Fairwind that there were well in excess of, um, the best estimate Reserve that we would have their
Then we, we do have 20% of the Block in our Tennessee company. As you recall, we reinsured, the New York block over into the Tennessee company, released quite a bit of capital in the process of doing that. We, we did reflect, um, these updates as well as uh, other updates around interest rates and what we've been doing around hedging. It did have a, a slight impact to what we would view as our statutory reserving levels as we go into the fourth quarter. I will remind, you know, we we've gone through really, the work to understand changes in our best, estimate to statutory reserving. We'll we'll report those in the fourth quarter, but but we have a really good handle the impacts and, you know, we, we do think that those are going to be pretty diminished and really not impact our Capital plans at all.
Thanks and then 1 follow up. Um, I you had originally planned to Upstream 200 million of of capital, out of fair and following the LCC transaction. Um, I think it sounds like maybe you're going to keep it, keep it in there now. But can you give us some thoughts on, um, the rationale there?
Yeah, I I'm not sure we have ever stated that that was our intent. Um, but you know, we obviously we're going to consider whether that's what we would want to do is we were going into the year and process. I would say our review right now is is we we would leave it in Fairwind at this point, you know, we, we feel really good about the protections. We have their um, at at 2 billion dollars and just think that's probably the prudent thing to do so that, that would be our current, our current intent
Okay, got it. Thank you.
Thanks Ryan. Thanks Ryan.
Your next question comes from the line of Tom Gallagher with evercore isi. Please go ahead.
Good morning. Um, first first question is just on the 500 million and change of the actual rating actual Justified rate increases, although, based on how you've laid it out, it looks like those are directly linked to the removal of the morbidity and mortality Improvement assumptions. And also the changing group, life contracts,
Is that, is that a fair way of looking at it? That those are the main drivers of the, of the rating increase, um, requests.
The Assumption changes. And if we as we've done in the past when we change our best estimate assumptions, we we'll flow that through to how we think about the projection of the blocks and what would be actual Justified. I mean I I think Tom the context, you can put it in the, the normal just, uh, experience updates that we made to our assumptions, you know. It, it was fairly small and so, you know, it's reasonable to say that that probably has an impact at our rate increase program as much, um, but it it's more just because of the, the magnitude of the adjustments themselves, but that those, those will all flow through to our thinking, as far as the rate increased program,
gotcha, and then can you
I I guess when you see a big change like this you wonder what sort of behind it? What's driving it? Um so is there anything in the experience? You've been seeing in your block
that would warrant these long-term assumption changes to morbidity and mortality or was this more due to Future uncertainty and Prudence, um, uh, and or, or was this more to get in line with what pairs are assuming because I guess what? I
What I wonder is you know, if I'm the regulator seeing this request, um is this is this viewed as if a management team is just becoming more prudent? Are they still likely to approve it? I guess is the thing I'm grappling with thanks.
Yeah, Tom. I I again I'd break it down into the 2 pieces Jew, just the the adjustments that we made to just the the cash flow assumptions for both morbidity and mortality. That, that was based on what we've seen over the past several years. On, you know, we we've talked about that quite a bit as far as the higher incidents that we've seen coming out of Co. We've also seen, um, higher mortality in part of the block, and so, that's really just reflecting that into our longer firm assumptions. I, I think the key here is that, you know, coming through Co that there that created a lot of uncertainty and how we view our experience set generally. And so, we were comfortable for those basic assumptions that it's, it's been reflected in our experience here, long enough that it's time to go ahead and make that that change I would say specific to morbidity Improvement. You know, we're now several years behind beyond the pandemic and we, we have observed morbidity Improvement prior to Coe, we felt really good about that assumption, the trend hasn't really fully reemerged. I would say in recent experience
And so when we just look at that and we, we look at some of the, um, you know, some of the uncertainty and volatility that we've seen in incidents and mortality becomes very tough to model it. And so it's created some modeling uncertainty. And so, you know it there's a lot of Actuarial judgment around this. But we did think based on the experience that we've seen this, this was the right time to go ahead and and make this change. And, you know, do you risk our assumptions that, um, it it's 1 of the largest sensitivities that we had to the protections for the block. And so, it just felt like the right time to go ahead and make that change. And, you know, Regulators, they'll take that into account as we're going through the rate increase, uh, process. Um, I would say we base all of our assumption changes on the experience that we've seen. And we think it's very supportive, you know, all the moves that that we would make. So, I, I don't have any concern, uh, about that process.
Got you. Thank you.
Thanks so much.
Your next question comes from the line of
Joel hurwitz. The
Willing, please go ahead.
Hey, good morning. Uh, for first a couple on the fair, 1 protein, and and PDR, uh, on the PDR, I believe there is more bidita Improvement, including included in that. How does this change, uh, impact that? And I guess what's actually left to the PDR, given the reinsurance transaction, and movement and interest rates. And, and then just on the 2 billion dollars of protection, could you, could you now provide caller, uh,
What portion of that is excess reserves versus capital?
Yeah, I'll make a couple points. I'll, I'll reiterate the comments I made earlier about how the assumption changes to the best estimate kind of flow through to fair wind and just think about it as the the pro rata piece of that block. It kind of a dollar for dollar um affected how we think about the protections, the best estimate Reserve went up.
A lot of the margin was built in um with the PDR itself. But at at this point when we think about margins to the business we think more about our best estimate reserve and where our reported locked in statutory reserves are
Got it. And and yeah, sorry. And the last part of that, none of these changes really impacted um, excess capital,
Within those that protection calculation. Uh, the the the change from the 26 to the 2, uh 00 at all, be related to the best estimate Reserve.
Got it.
Okay. And and then and then shifting gears uh to group disability just can you just provide some more caller, what you saw on the quarter in terms of incidents and and recoveries? Uh and and then on the the Actuarial assumption review, just I guess, what gives you comfort for for further Reserve? Releases in the uh in this business. I think this is the fifth straight year that that you've had a positive. Uh,
Assumption review and and that business and any statutory benefit from from uh, that change.
Yep, there's a lot in there. Let let me kind of Click through them. So first of all, you know, we're we're very pleased with a group disability benefit ratio um within the quarter, you know, internally from Management's point of view. We've been in the range all year when it comes to the benefit ratio right around the 62% range. Um, this quarter is a little bit lower. I would say you know, first half of the year we
We had a couple, um, things with incidents that our cost was a little bit inflated, whether it was count or it was average size, you know, that all kind of settled down in the third quarter I would say recoveries have been very consistent throughout the year and right on our expectations and you know we continue to think that operationally those are very sustainable. When, when you think about the Gap Reserve assumptions, we do want to see some time pass
before we go ahead and adjust the recovery assumptions within that Reserve. We've, we've now seen, you know, several Quarters at a higher level of recovery, and we went ahead and, you know, took the opportunity to adjust that assumption, uh, in the current period for Gap. That's something that we'll consider in the fourth quarter for our statutory reserves. Um, but, you know, we'll have to work through through that. And anything that we would do there, we'd record in the fourth quarter. I I would say it might give us a little bit of Tailwind, but doesn't really impact how we think about our Capitol Outlook.
Got it. Thank you, Steve.
Thank you.
Your next question comes from the line of Elise. Greenspan with Wells Fargo, please go ahead.
Hi, thanks. Um, you know, it seems like the actions you guys took um, with the LTC block this year, do position you, um, you know, for better for potential future risk, transfer deals. So, if you could just comment, um, you know, just relative to just discussions in the market. Um, and, you know, the potential for, you know, additional transactions, um, with the block,
Yeah, at least it's Rick. Uh, just to talk about the market first, in general, I think we've said it's been constructive, um, in terms of dialogue that are out there, people that are interested, as we said it es and flows in terms of who's interested, uh, because it is a something that needs some, uh, more detailed modeling some better understanding. Uh, but we feel like the market is, is constructive around that and we were really happy to get our transaction done earlier in the year more specifically, when you think about, uh, these actions that we've taken, you know, we've said pretty consistently that a counterparty, um, is going to be looking at the details. Um, so they're, they're going to be forming their own views of what things look like. And with all that being said, you know, I think that some of these assumptions that we have changed uh, sometimes it can Garner discussions in those in those negotiations. And so, it's always, it's always good to be on a simpler basis and I think that's what we saw as part of these actions. And then the last thing I'd say is we haven't discussed it, uh, more in detail in the Q&A, but the removal of new lives. Also makes it
Simpler, uh, in terms of what somebody, a counterparty, would need to model. So on the margins, it's.
but I would say that, you know, our current parties that we're talking to
Know the details and they're they form their own views around. Uh, what these risks look like. And so, so I think it's, uh, it's all part of the context, so it's a good question. I appreciate the question. Um, we're going to stay active on it as we've said, uh, this is something we want to continue to do to reduce the size of this block and and we'll stay active in the markets to help us do that.
To that guide also. And then, can you just give us some initial thoughts on 26? Does it feel like you'll still be kind of in in the in the low 60s there?
Yeah, so I I would say 62 is as good of an estimate as any for the fourth quarter, you know, there will be volatility around that. And so we, again, kind of feel like each quarter this year. We've been in that range of normal volatility around, kind of what our expectations were, and it was a little bit better in the third quarter, but we, we think 62 is still, you know, a good planning. Assumption is, we had in the fourth quarter and then what, what we'll talk more about 2026 as we get into our Outlook discussion, um, for next year? Yeah, I I just add to that too. When you think about, you know, these levels, the 62 as we're talking about low 60s, this is a very high returning business for us. And so making sure we continue to do that the teams working on that. And I I just remind with even with that range that Steve talked about and volatility. This is all at very high margins and so we're very happy with the results. We saw this quarter and actually that we've seen all year.
Thank you.
Question comes from the line of Alex Scott with Barclays. Please go ahead.
Hi. Um I just had a a follow-up on disability. Uh wanted wanted to get your views on, just the pricing environment as we're heading into the enrollment period. Um and and also maybe even just reflect on the pricing environment of the last couple years that that'll be earning in because of the, you know, longer duration nature of some of these contracts. I mean, do you have any kind of visibility on just the trajectory of, of sort of what's already happened over the last couple years? That that'll be earning in next year?
Yeah, Alex it's Chris. Thanks for the question. Um you know the competitions out there, we've talked about it before. It's, it's still a normal competitive environment. Uh, we also, you know, even the disability loss ratio conversation that's been going on, you know, we're operating at these levels because, you know, disability, uh, is
A stone product for what we do. Uh, it gets you to the lead management side. It gets you into the connection to HCM platforms. So the conversation isn't all about price um, you know, as you step back and you think about how we work with our customers, you know, we're very transparent on price, we renew Case by case. Uh, but they look for long-term stability. And when you're doing things like solving problems around need management and you're connected into their ACM platform and you can show them what a fair returning price is, uh, you know, there are some up some down, but it, it it does present uh, you know, a reasonable uh and fair pricing environment with I think we've seen over the past, uh, uh, period and we'd expect to continue.
Got it. Um,
Just just listening to some of the peers earnings calls, I think, it sounded like there was some pressure on leave management across the industry this quarter. So it was just interested, you know what you're seeing there. If there's any kind of repricing activity going on, any kind of, you know, way we should think about, from that this quarter,
Yeah, uh yeah. Again it's Chris and um, leave management is a major topic that we all do talk about quite a bit. Um, you know, I think there are, uh, you kind of got us into it in the first part of the question, on disability pricing. That's part of it. Uh, then you get, uh, you know, some elements of pricing around, you know, what are people getting for the fees for services? That's, uh, you know, a little bit more granular and then I think the third part is, uh, you know, those states that have Incorporated a new Paid Family Medical, Leave up up up a plan where, you know, private options exist and we very much participate in that, that's kind of core. Uh, a core element of our lead Management program as part of our total leave offering, uh, you know, as they come on. Uh, you know, you set a price and, and, and then you manage it. Oh, over time, you take a look at, uh, at, uh, the experience you make adjustments. This is just a very normal thing we do. Uh, obviously we're equipped to to manage that as part of our overall disability block. So we kind of absorbs in but, you know, I think that might be what you're referencing in terms of some of the maturing of
Of of the business. It's the maybe the new pfml States, uh, and we worked with that very normally.
Got it. Yeah, that that's it. Thank you.
Your next question comes from the line of cynet kimat with Jeffrey. Please go ahead.
Uh, great thanks. Um, I wanted to come back to the premium rate increases related to The Reserve review, the 523 C. Can you just provide unpack that a little bit and just provide some color around how this compares to what you've asked for in the past and sort of over what time frame? Are you assuming that you would get these increases? And, and I believe in the past, you kind of had a number and you put a haircut on it for, you know, potential that you wouldn't get what you asked for. Just wondering if there's an element of that baked in here.
Sure. Yep.
so,
Anytime we change our best estimate assumption set. We we really we look at that we flow that through our future cash flows. And then we look at the different blocks of business to really understand what's actuarially supported and then we go state by state and we really look at past experience that we've had in those States. Um, different states approved these differently as far as the the pace, the significance. And so we overlay that to that aggregate premium rate um, requests. And then we come up with what our best estimate is and and we've gone through the same process and that that affects the timing as well as the magnitude of what we think. Um, should be expected. It's very consistent with what we've historically. Um, done I think we're over 5 billion dollars of present value of approvals that we have gotten over time. So in the context of that, you know, this adjustment I think is pretty manageable.
I think the time frame of getting these approvals will be fairly consistent with what we've seen in the past. It usually takes 3 to 5 years. Um, anytime we have new requests to kind of work its way, both through the review process, the administrative process, the implementation process and then ultimately the the effective date of the premium increase. And so, I, I would view this as very much consistent with the Playbook that we've historically run. And I would say, you know, we feel like we've been very successful in in in the past. And so, you know, we we'll go through the process like we've done in the past and feel pretty confident.
Of our ability to to, you know, to be able to meet that. I, I will say, you know, more more recently. There's been times where we've actually over-performed that assumption a little bit. We did that last year with some large states and so we try to be prudent with the best estimate that that we set. Um, but also, you know, make sure it's a very reasonable uh, estimate and we feel like we've done done that this time around as well.
Yeah, I just add that Sony. This is a very mature process for us and the team knows exactly how they're going to go about it and what they're going to do, what they're going to talk to over what time frame. So we feel very confident about uh, about achieving these rate increases.
Okay, thanks for that. And then I guess on group disability, you know, 1, 1 of the things that we've been hearing from other companies is around recoveries and how they're just not as strong as they have been over the past few years. Um just kind of want to get a sense of what you're seeing there. Any big changes and uh just any color would be helpful. Thanks.
Yeah, thanks Anita. I mean, our our team does an incredibly good job of managing our group disability block, taking care of our customers, getting people back to work. And so when we look at that, we've talked a little bit about, uh, we had a really strong recovery year last year and it's been very stable as we look at it over the course of this year. I think what's important is the process hasn't changed uh, when you think of what we do and how we go through that. And so I wouldn't highlight those similar things, I think we do see and you can see on the incident side, um, you know, some volatility as people submit claims, but when it comes to recoveries, our teams, just do a good job of managing this over the longer term.
And I'd also caution the read across to to other companies and what they see on recoveries particularly in a given quarter, um, because I think that Dynamic just isn't going to be consistent uh across the across the industry. So we feel good about where they are team's done a great job uh loss ratio, 61.3 incorporating, all those things that that Chris talked about and and we feel we feel good about it.
Okay, helpful. Thanks.
Your next question comes from the line of Jack Madden with BMO Capital markets. Please go ahead.
Hi, good morning. Um, just just 1 on Capital Management. Um, I guess now that we're through the Assumption review, you're still running with a very healthy level of excess capital, I guess. Could we see level of of share BuyBacks potentially ramp up next year? And then, and then maybe other uses of cash, do you think could come into play
Yeah. Sure. Thanks Jack and and I think when you think about our Capital deployment uh plans you know they've been very consistent, we've been increasing our our share purchase over time. So maybe I'll talk a little bit about this year. I think it's probably a little bit earlier to talk about what we're seeing into next year. And the first thing I'd highlight is the strong Capital generation and so with that, you know, you can see the building in the balance sheet and as we redeploy that back to customers, you're starting to look at a cash conversion ratio. That's close to 100% between Sherry purchase and dividends and so we feel good about that there but I'd take you back and say, first and foremost, we want to put our money back into growing the core operations. How do we take these good franchises? We have and just a
That ramp-up. And I think Steve said in his comments, and I've reiterated, you know, we started the year at a range of $500 million to $1 billion worth of top end of that range. We feel good about that as we wrap up 2025, and then we'll have to see what we do in the future because we are in a good capital position. We are in a strong capital position, and it gives us ample flexibility to do the things that we want to do.
Got it. Thanks man. Um, follow up on on the premium growth Outlook especially for for um, us, um, I think you've been running kind of like a in the 3 to 6% range on on, on on underlying basis this year. I guess just wondering how sustainable you see that and are you seeing any changes in kind of that, that natural growth rate regarding employment and wage levels? If given that we've seen, some some signs of potential labor market softening, come in recent months,
Yeah, I just started the macro from a premium side and the growth in the company. We, we'll hear from each of our businesses around the next. I think it's very insightful in terms of what they're seeing. Uh, I think when you think about our premium growth overall, we feel good. It just continuing to engage with customers taking on, uh, protecting more people. And, uh, you talk about the natural growth. We are still seeing natural growth and we're seeing that somewhere in the range of, you know, 3% plus or minus. Um, so we're still getting a good natural growth behind the block the concerns that you hear about are usually 1 off in terms of what you see in the market. So we're just not seeing that in our block today. But it's helpful to hear from each of our business lines and maybe we'll start off in the US. Chris, you want to talk a little bit about how we're feeling about premium growth and the trajectory
Yeah, yeah, thanks Rick. Uh, uh, yeah. We're we remain very excited about the premium growth, uh, sales in the quarter. We're obviously, uh, quite good. There is some volatility. Small quarter for smallest quarter of the year as Rick pointed out at the outset. Uh, and we did have a couple large wins that, that presented some positive volatility which, which we're excited about, but wouldn't expect to continue uh, every year, uh, fourth quarter, you know, Rick's got it to to, you know, uh, flattish sales, which makes sense. And we're, we're excited about that, but it's coupled with really strong persistency and, uh, persistence has been going up through the course of the year, you know, where we see both close ratio on new and retained customers that are tied to our strategic Investments, uh, there's a lot of good logic as to, you know, why they're coming to us, why they're staying. And also why, we'll get a fair price over time. And, and, and those things add up to, to, you know, put us in that, strong premium growth range, uh, that you referenced uh, and uh, we expect that to continue and uh, we're really excited about it. That's good. Tim, you want to talk about Colonial, Life and voluntary? Yeah, I'll start.
With the VB on the udm side. You know, when you think about the industry growth rate most, uh,
Of the resources that we have suggested the industry growth rates in the 4 to 6% range on sales.
Uh, the last couple of years on the Unum side, we've had double-digit sales growth and that's led to some pretty strong premium growth in the first quarter. This year, we had a really strong quarter again. Second quarter was a lot softer, um, limra indicated, mid year that first year. Sorry sales for the first half of the year were a bit sluggish for the entire industry but we see that rebounding in the third quarter and we have expectations that 2026 will also rebounded to the uh range we've provided before strong persistency on the Unum side led, the 5.6% earnings uh premium growth in the quarter so we feel good about that. Also early indications on the 1q pipeline, look, pretty strong, especially in large case for units. So we we continue to believe that we can perform as we have over the last few years on the colonial life Side Sales momentum has been improving uh growth rates are better. Subsequently each quarter of 2025 our sales organization is now fully staffed.
And we have a high degree of confidence in their ability, to execute our prop continues to resonate with strong growth, in our strategic initiatives, including cross brand sales, and gather, which has a reminders, our proprietary HR and benefits platform fundamentals on the colonial side for Al also, really, really good with recruiting up, 29% sales from those new agents up, almost 36% offices that were established in 2025 new district offices. Uh, we have 20% more of those than we did last year and sales from those new offices are up to 75%.
As Steve pointed out his comments. Persistency was also up 70 basis points from last year. So that led to earnings uh sorry earned premium growth of 3.3%. We see that continuing into 26.
so,
mark,
Large case, uh, offset a little bit by slightly lower new lives on existing schemes. Uh, persistency in both countries has been good in the UK, we've hit a record 91.8 cents. That's an increase on the prior year, and premium growth overall in the UK is now, uh, on for the quarter was 7.6% and I think sitting behind all of this really is the very strong customer satisfaction that we're seeing which is at a record high for the business. And I think that's off the back of the Investments. We've been making in technology, uh, both customer facing from the employer and the employee perspective as well as the experience, we're offering for our Brokers. So I think we have uh, we're feeling pretty buoyant about how the market is playing out in both countries at the moment.
Right, Mark, and Jack as I wrap it up. I, I just say like when you think about our premium growth, you're representing the Rangers. You know? If you if you agree to 6% in that range, you get the 5% you're talking about a half a billion dollars of new premiums that we're bringing on, is there done at good margins? As you've heard about and you've seen from a discipline and it's really part of our engine. So when you think about the Enterprise and then the people we have here focused, we are focused on premium growth because we think that's all in line with our purpose. Do it at a good price, um, and we'll see the overall Enterprise growth. So I appreciate the question.
Thank you.
Your next question comes from the line of Wilma British with Raymond James, please go ahead.
Hey, good morning. Um, I just 1 question for you on. Why do you guys for why do you guys report earnings on clothes block and LTC, given that the block has lost Capital over 6?
I missed the last part of your question. Yeah. 1 can you repeat that.
Given that the block is lost capital.
Yeah, when we you keep cutting out, sorry.
Okay. Sorry, my question is, why do you guys report earnings on closed block and LTC, given that the block has lost Capital overtime.
Well, um, well I'll try to answer that question. I mean, you know, as part of kind of the overall organization, you know, clearly we have the requirement to to report earnings for the entire, you know, entity. And so we do that we we have put LTC and closed block status. So you know from a segmentation perspective we think that's the right thing to do. Um and then I I I think the key for the long term care block, obviously is Cash generation or cash deployment. And so we try to be very disclosed is just around kind of how we think about the capital needs of that block and clearly right now we're in a position that there really are no Capital needs for that block and we don't foresee that going forward and so that's
Kind of how we think about the type of information that it would be meaningful to investors. And, you know, we try to focus on that. Yeah, I I just I just reiterate that on the statutory side, we do kind of follow what you're talking about, which is we kind of split it into 2 and talk about our closed block separately and distinct from our core operations. And we think that's a better disclosure, but from a gap perspective, it's, it's a and a segment and earnings, we need to report on
I guess just my takeaways on the Assumption review are that, you know, it doesn't have a negative cash impact.
Ultimately, it will add cash generation given. The rate increase is that you're seeing and then um, I guess 30 just removes assumptions that are going to reduce the risk of future charges. Do you think that's fair? Um, thanks.
I I I think that's the, the, the right way to think about it. And and just generally speaking, you know, when you think about the assumptions that itself we've created less risk around some of the assumptions, which maybe are less controllable. Um, around morbidity Improvement and um, we've bolstered some of the assumptions specifically around rate increase which we think are more controllable and things that we can execute against and generate value in your right generate uh, cash generation, uh, directly from those actions that we can take. So I I think your your model is is good like how you're thinking about it?
Thank you.
Thanks woman.
Your next question comes from the line of West Carmichael with autonomous research. Please go ahead.
Hey, thank you. Good morning. Um, I had a follow-up question on the Assumption review, but is there a way to size each of the gross impacts of the removal of morbidity Improvement and the removal of mortality Improvement? And I know there's somewhat offsetting but wonder if you could provide the gross impact their
Fundamental Health trends that you would see in the population in specifically in our insured population. And so it's it's kind of tough to pull those apart and think about them independently in our view and we've historically seen those really move together. And so, uh, we did remove both of them, um, as part of this assumption update. Um, but really, really view those as kind of 1 concept and 1 assumption that we, you know, need to get comfortable with
Got it. Thanks Steve, and, and maybe just 1 more follow up on LTC. But on on the net premium ratio should should we think about that, increase to the NPR is, is expected to increase the volatility in quarterly earnings and the closed block segments, I guess, as most of the or more of the cohorts become Captain ldpi. I, I know you gave some insight on 42, but just wondering how you're thinking about overall volatility on a quarterly basis.
Yeah no it it's a good point and and just to kind of step back a little bit the the MPR did increase as part of the Assumption review and so therefore, you know, future margins expected, margins are going to be less with LTC and we kind of talked about that in 1 of the drivers in the third quarter. Um as well as, you know, going forward. I I would say generally speaking the, the more um, capped towards you get probably the more volatility you're going to see within the results. Um, but that's something that we'll, we'll just have to see how it plays out. And it's, it's very dependent on just variations against our expected results and which cohorts, the those are in
Thank you.
Your next question comes from the line of Tracy. With wolf research. Please go ahead.
Thank you. Um, most of my questions were asked, just a few quick follow-ups. Um, when you conduct your fourth quarter, statutory Reserve review, it will be helpful to understand if you're looking at similar factors, both on the experience side, and the Strategic update or you were just looking at a subset of those factors.
Yeah, Tracy, I can answer that right now, could be because we've already really evaluated that where every change that we have made for Gap. We have factored into um, our view of what this the results of the statutory Works going to be. So we we kind of already know the results as of 9:30 and understand what the results are going to look. Like, it's just the from a regulatory basis, we report on any kind of adjustments we make in in the fourth quarter, but I would consider the work to pretty much be done. As far as understanding the impacts of the changes. We made in the third quarter to statutory results, we just won't book them until the fourth quarter.
Perfect. Um, just another follow-up and what's driving, some of the experience adjustments. So on the morbidity Improvement. Assumption. Um, does any of that reflect? Some of these medical advances? We're seeing like glp1.
Yeah, I I would I would say we we are not able to kind of draw a straight line between any causes and how we think about the Assumption itself. It it more comes down to you go all the way back to preco, we had really good data that would support the assumption that we made at that point. There's been just a lot of volatility through Co and as we kind of come out of that period of time and also seeing some of the elevated incidents. It it's it's harder to really model and there's just more modeling uncertainty around being able to support that assumption. And so we really just made the choice to go ahead and remove that assumption completely.
Thank you. I think it's it's yeah, Trac. I was talking more about that. 200 million Improvement. Not the drop of the future.
Morbidity or some or mortality improvements.
Oh, oh. Oh around. Yeah, I'm sorry around. Mortality? I I yeah. So I I would say we we haven't probably seen a direct cause and effect there. Um, but we, we have seen improved mortality in, you know, certain segments of um, of that block. And we just went ahead and reflected that.
Okay.
It's hard to attribute it to any 1 thing. It's just it has built up over time and we feel confident now that, um, we should go ahead and change our longer term assumptions. Yeah, I I think important in that Tracy, is the GOP. Ones are just drugs in generals. I mean that that actually lend to Better Health outcomes. We we don't factor that in until we really seen that coming through our block. And So that's its early for that. Um, when you, when you think about that it's hard to project exactly how that will impact. We think it's probably good that there's better healthier populations across a number of our products. Um but we we really wait till we see it before we Factor those type of things in
Thank you.
Good morning, thank you. I'm on for Mark Hughes, just 1 for me on the government shutdown, any update there and are you seeing any effect on um, new disability Awards?
Yeah. Yeah Maxwell. This is Chris uh, you know, right now, uh, we are, uh, all systems go and and no particular impact. Uh, we we kind of have a Playbook. We have ready for government shutdowns and and you know, generally speaking it doesn't really hit uh, uh, and play out in reality. So I think we're living that uh right now but we're ready if anything changes. Um, and uh but also systems go right now.
Understood, thank you.
In your next, your next? And last question is from Josh chancre with Bank of America, please go ahead.
Well, thank you very much for filling me in at the end or I appreciate it. Um, in terms of thinking about, uh, the the review you made an interesting comment about that. You're closing the existing group, um, contracts to new cases. But that also, those cases that you were adding were actually beneficial. And that's cost you about $200 million in the review. Uh, if, if they were, uh, a positive, which, uh, just comes to me as a surprise given the cost of capital and whatnot, uh, why take them out? And maybe I can answer my own question if people are
Looking at this closed block, maybe you need to stop adding cases. What was the motivation of taking out? Something that was benefiting the, uh, the trends over time.
Yeah, first Josh, it's Rick. Let me let me clarify what you talked about cases. We were not writing new cases and so that that's first foremost, we actually close that down back in 2012 while we were talking about is if you think about an employer. So you have to think about a group construct um for any of our products where where when a new employee joins the company uh they get added onto the roles of uh, of their Healthcare or even our types of products on group, Disability Group, life, Etc. And so that was happening as well on the group contracts around LTC. Um, as we've looked at it over time, you know, and we we think about it. Um, you know, we're we're decided to actually curtail that in in terms of allowing new employees onto those contracts. That's the decision that we've made as we work our way through that. Um, and so, I think that that's, that's really the dynamic that you're seeing coming through the reserves. The these were profitable business but understand we go back to our strategy and our strategy is to reduce the size of our closed block. We're doing that through multiple ways through reinsurance. And then, this is another way, we will reduce ultimately the size of our closed block. So,
So these were profitable customers, coming onto the roles, giving our given the fact that our new pricing is much different than the pricing a long time ago. But we still made that trade-off decision. Um, to stop new lives coming onto these contracts.
so you're you're forgoing uh positive cash flows and uh and business because you simply want to make the book smaller
that is correct. I think if you look at the course of this call today, we've spent a lot of time talking about our closed block, when you think about our company, we are about protecting people during their working lifetime. Uh, and long-term care is not in tune with that. And so that's why reducing that block and having that out of our strategic focus is important to us. And this is 1 small piece. It's not actually overly material to the, to the, the size of the block. But we think this is a good action, uh, to take something out. So so that is a trade-off that we'll make
thank you.
Thanks Josh.
This concludes our Q&A session, I will now turn the call back over to Rick McKenney for closing remarks.
Yeah, thank you Bella and I appreciate it. Bye. Staying on with us today. Uh, certainly a lot to go through in this quarter and I'd really, I'd highlight just, uh, the underlying operations and what we've got, uh, going forward, as we look to the end of the year and into 2026, uh, we're excited about it and we'll be out uh, talking to a number of investors here, over the coming weeks. Uh, we look forward to seeing you out there at a number of conferences, both Steve and I and uh, we'll talk to you soon. Thanks. And this concludes, our third quarter call
Ladies and gentlemen, thank you all for joining and you may now disconnect everyone have a great day.