Unum Group Q2 FY2024 Earnings Call

Thank you for standing by. My name is Mandeep and I will be your operator today. At this time, I'd like to welcome everyone to the Unum Group Second Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I would now like to turn the call over to Matt Royal, Senior Vice President, Investor Relations. You may begin.

Great. Thank you, Mandeep, and good morning to everyone. Welcome to Unum Group's second quarter 2024 earnings call. Please note that today's call may include forward-looking statements and actual results, which are subject to risk and uncertainties, may differ materially, and we are not obligated to update any of these statements. Please refer to our earnings release and 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 second quarter earnings press release, financial supplement. Those materials 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 premiums, which include Unum International, are presented on a constant currency basis. Participating in this morning's conference call are Unum's President and CEO, Rick McKenney; Chief Financial Officer, Steve Zabel; Tim Arnold, who heads our Colonial Life and Voluntary Benefits lines; Chris Pyne for Group Benefits; and Mark Till, CEO of Unum International. Now, let me turn it to Rick for his comments.

Thank you, Matt. Good morning, everyone, and thank you for joining us today. We're excited to discuss our second quarter results, the strong performance in the first half of the year, and the trends we see continuing into the latter half of 2024 and into 2025. Our dedicated team has done a remarkable job adapting to changes in the environment and our market over the past few years, and we greatly appreciate their efforts. This quarter, we observed the continuation of favorable trends and significant improvements in several performance areas, prompting us to raise our earnings per share outlook for 2024. Our results so far in 2024 highlight our approach to the employee benefits markets and demonstrate that our growth strategy is really paying off. We are actively engaging with both new and existing customers, growing our top line while maintaining healthy, industry-leading margins. As we look ahead, we are well-positioned to continue our growth trajectory in the second half of the year. Our strategic initiatives and careful execution provide a strong foundation, instilling confidence in our ability to maintain this momentum. We are enthusiastic about the opportunities ahead for the next year as they reflect our prospects for ongoing success. Our team is driven by unique technologies and is fully committed to serving our clients every day. Focusing on our second quarter results reveals sustained strong performance. We reported statutory earnings exceeding $350 million and earnings per share of $2.16, marking another record for the company. Our top line showed healthy growth with a 5.4% increase in core operations premium, and our capital metrics greatly exceeded our targets. Given our strong results and positive outlook, we are adjusting our full-year earnings per share growth forecast from the previous range of 7% to 9% to a new range of 10% to 15%. Our exclusive focus on the Group benefits market continues to create a promising opportunity for client growth and expansion, further supported by natural growth factors like increases in the covered employee base and wage levels. As a result, we are well-positioned to enhance our top-line growth through various cycles, a trend we've consistently seen over the past decade. The second quarter aligned with this perspective and the economic outlook, with job growth continuing and wage increases above the historical norm. This is reflected in our existing client base, where we saw sustained natural growth contributing to our trajectory. Regarding the labor market, we are pleased with current rates for the 10 and 30-year Treasury, which are similar to those from our prior call. Current rates benefit us as we continue to invest new money at levels above our portfolio yields. We adjusted our core businesses in response to long-term rate movements, and we have successfully de-risked our exposure within the closed block for the last 10 consecutive quarters through our hedging program and asset repositioning. Collectively, the macro environment helps us steadily build on our solid foundation and achieve profitable growth and strong returns across all our businesses. In our Unum U.S. results, we experienced a 5.5% top-line premium growth and strong persistency levels. The opportunistic nature of large case sales affected our Group products' headline results, but we were satisfied with the underlying performance, including nearly 12% sales growth in our Group segment for companies with fewer than 2,000 employees, and we are confident we will meet our full-year growth expectations from a margin perspective. Group disability had another strong quarter, with recoveries leading to historically low benefit levels, and we expect similar trends to continue. The Group Life and AD&D segment also performed well, showing strong top-line premium growth and favorable benefits performance in the quarter. In our Colonial Life segment, margins remained excellent with a return on equity of 20%. Premiums grew nearly 4% in the first half of the year with strong persistency and sales rebounding nicely compared to the first quarter. In our international business, we operated at full strength again this quarter with robust premium growth of nearly 9% and underlying earnings in the UK exceeding £30 million. We continue to see strong growth momentum in our expanding Poland market and in the UK, where we are redefining the broker experience to set a market-leading standard as distinctly Unum while enhancing our relationship management model. From a return perspective, our commitment to innovation, disciplined capital management, and shareholder returns remains steadfast. As expected, our long-term care capital buffer is in a healthy position, allowing substantial free cash flow generation from our core businesses to contribute to a strong capital position with deployment flexibility. Statutory earnings for the first half of the year exceeded $700 million, placing us on track to reach the upper end of our capital generation outlook for the year. Our balance sheet is robust, with ample cash and a risk-based capital ratio of 470%. Given these factors, we are pleased with our Board's recent authorization of $1 billion for share repurchases, reflecting our confidence in the sustainability of our business results. Our capital priorities remain focused on organic and inorganic investments in our businesses, followed by returning capital to shareholders through dividends and share repurchases. We will be prudent in how we utilize this authorization, but we plan to accelerate our repurchase pace in the second half of the year. This is significant as we initially planned to repurchase $500 million in stock, doubling the amount repurchased in 2023. This increased authorization reinforces the strong position of our business and highlights the considerable value we see in our shares, as our book value per share, excluding AOCI, has surpassed $70. In summary, we are encouraged by the positive trends across our operations and the supportive macro environment. The second quarter was a period of strength for the company and represented an important milestone for the year. We maintain a forward-looking perspective to ensure we are well-positioned to execute our strategy and achieve our revised earnings per share growth outlook of 10% to 15%.

Great. Thank you, Rick, and good morning, everyone. As Rick described, the second quarter was another very good quarter for the company with adjusted after-tax operating income per share of $2.16, as we benefited from strong operating performance across our businesses. Based on this performance, the performance that we've achieved through the first half of the year compared to our expectations presented in January, and our view that improved margins will continue, we are increasing our 2024 after-tax adjusted operating earnings per share growth outlook from 7% to 9% to 10% to 15%. I will provide additional context to where we see the sustainability of the margins as we get into the segment financial results. In addition to the great margins we're seeing, our growth momentum has also continued into the second quarter with core operations premium growing 5.4%, putting us well on pace to achieve our full year outlook of premium growth in the 5% to 7% range. Aiding this growth were a combination of strong levels of persistency, continued benefits from natural growth, and inline new sales. Although sales growth was muted this quarter, we remain optimistic that we'll meet our growth goals for the year as we enter into the second half of 2024. As Rick mentioned in his opening, our high performing teams and industry-leading technology are a differentiator for us in the market and are a reason why we are seeing the healthy levels of growth and strong margins today. While we continue to expect expense ratios to decline over time, we continue to invest heavily in these areas and see that reflected through increased expense ratios across the company this quarter. We are happy with our investments and are confident in the payoff they will provide driving future growth and profitability. So now let's dive into our quarterly operating results across the segments beginning with Unum U.S. Adjusted operating income in the Unum U.S. segment increased 4.2% to $357.5 million in the second quarter of 2024 compared to $343.1 million in the second quarter of 2023. Results finished above prior year primarily due to favorable benefits experienced across multiple lines. The Group disability line reported another robust quarter with a benefit ratio of 59.1% driving adjusted operating income of $153.2 million. Although this result was lower than the second quarter of 2023's result of $159.8 million due to higher expenses, we do continue to be very pleased with the sustained margins in this business as a strong claims recovery performance has continued. Results for Unum U.S. Group Life and AD&D increased significantly compared to the second quarter of last year with adjusted operating income of $89.1 million for the second quarter of 2024, compared to $51.6 million in the same period a year ago. The benefit ratio decreased to 65.4%, compared to 73% in the second quarter of 2023. This improvement was driven by lower incidence levels in Group Life. We believe the favorable experience in this segment will continue for the next several quarters and therefore, we are now expecting a benefit ratio range of around 70% for the remainder of the year. Adjusted operating earnings for the Unum U.S. supplemental and voluntary lines in the second quarter were $115.2 million, a decrease from $131.7 million in the second quarter of 2023. The decrease is driven by underlying benefits experienced in voluntary benefits and higher expenses in the segment. The voluntary benefits benefit ratio of 45.1% was higher than the prior year's result of 39.2%, due primarily to less favorable experience in disability, critical illness, and hospital indemnity product lines. This was partially offset by an improvement in the individual disability benefit ratio to 39%, compared to 42.1% a year ago driven by favorable recoveries. So then turning to premium trends and drivers, Unum U.S. premium grew 5.5% with support from natural growth and a strong level of persistency. Unum U.S. quarterly sales were $313.2 million, compared to $314.6 million in the second quarter of 2023. Total Group persistency of 92.4% maintained a sequentially strong level and was significantly above the same period a year ago's result of 89.8%, which is more in line with historical norms. Moving to the Unum International, the segment experienced exceptional results. Adjusted operating income for the second quarter of $42.5 million was down from $43.5 million in the second quarter of 2023, as inflation benefits in the UK did decline approximately $10 million compared to the year ago period and to the lowest levels we have seen since the pandemic. Adjusted operating income for the Unum UK business was £32.5 million in the second quarter compared to £34.3 million in the second quarter of 2023. When removing the inflationary benefits referred to earlier, adjusted operating income increased nearly 30% and was in excess of £30 million. These strong results reflect strong underlying performance, including an improved benefit ratio of 69.5%, compared to 72.3% a year ago. International premiums continue to show strong growth supported by solid sales trends and increasing persistency. Unum UK generated premium growth of 6.1% on a year-over-year basis in the second quarter, while our Poland operation grew 24.6%. The International businesses continued to generate year-over-year sales growth, up 4.8%, driven primarily by Unum UK growth of 5.7%. Next, adjusted operating income for the Colonial Life segment was $116.9 million in the second quarter, compared to $115.5 million in the second quarter of 2023, with the increase driven by premium growth and favorable benefits experience. The benefit ratio of 47.8% improved from 48.3% in the year ago period and was within our expectations. Colonial premium income of $446.2 million grew 3.6%, compared to $430.6 million in the second quarter of 2023, driven by higher levels of persistency and the growing trends we've seen in sales momentum. Premium income growth of 3.8% for the first half of 2024 compares favorably to the full year growth outlook of 2% to 4%, which we communicated in January. Sales in the second quarter of $122.9 million increased just under 1% from prior year, primarily driven by new account sales. In the Closed Block segment, adjusted operating income of $51.6 million was higher than last quarter's result of $24.3 million. The increase was due primarily to improved alternative asset income and higher earnings from other products within the Closed Block. Annualized yield on the alternative asset portfolio of 9.9% was at the top end of our long-term expectation of 8% to 10% returns. The LTC net premium ratio was 93.7% at the end of the second quarter of 2024, which is higher than the reported 86.1% in the same year ago period due primarily to the assumption update in the third quarter of 2023. Sequentially, the NPR decreased 10 basis points compared to the first quarter of 2024, driven by the impacts of favorable experience in non-capped cohorts. Let me also provide an update on the underlying LTC claims experience. As we have discussed on prior calls, the LTC claim inventory is in a period of normalization as we continue to return to pre-pandemic claim patterns in this block. Similar to last quarter, the recent trend continued to support these expectations as incidents experienced in the second quarter, while still elevated compared to our long-term expectations, improved compared to the first quarter of 2024. Finally, we continue to advance our Closed Block strategy through actions such as pursuing rate increases and expanding our hedging program. This active management contributes to our goals of creating value, reducing the footprint, and increasing predictability of outcomes for the block. I'll now highlight the specific actions we took in the second quarter to progress these goals. First, we continue to see success in the execution of our rate increase program. Since the rate increase program refresh in the third quarter of 2023, we have achieved approximately 25% of our target and continue to feel confident in achieving our best estimate assumption. Next, we took the opportunity to continue the expansion of our interest rate hedging program, which reduces interest rate risk in the LTC product line by locking in this favorable macro environment for years to come. During the quarter, we entered into $458 million of treasury forwards and the value of open notional hedges was approximately $2.4 billion at the end of the second quarter. So then, wrapping up my commentary on the segments financial results. The adjusted operating loss in the corporate segment was $45.3 million, compared to a $34.9 million loss in the second quarter of 2023, primarily driven by lower allocated net investment income. As discussed last quarter, we expect losses in the corporate segment will stay relatively consistent in the mid-$40 million range for the remainder of the year. Moving on to investments, we continue to see a good environment for new money yields with purchases made in the quarter once again at levels above our earned portfolio yield. Overall, miscellaneous investment income increased to $35.4 million, compared to $21.1 million a year ago, as both alternative investment income and to a lesser extent, traditional bond call premiums increased. Income from our alternative invested assets was $32.7 million in the quarter. We continue to be pleased with and benefit from the composition of the portfolio. As of the end of the second quarter, our total alternative invested assets were valued at just over $1.4 billion with 42% in private equity partnerships, 36% in real asset partnerships, and 22% in private credit partnerships. This diversified construction helps manage acute volatility that can be experienced in portfolios with asset class concentration. Year-to-date and since inception, our diversified alternative portfolio has achieved returns that meet our long-term expectations. So then, I'll end my commentary with an update on our capital position. As expected, our capital levels remain well in excess of our targets and operational needs, offering tremendous protection and flexibility. The weighted average risk-based capital ratio for traditional U.S. insurance companies is approximately 470% and holding company liquidity remains robust at $1.3 billion. We are on track to end the year at or above our expected levels with no capital contributions to LTC as we previously communicated. I will also add that dividends from our insurance subsidiaries are traditionally weighted towards the fourth quarter, which will change the geography of excess capital from risk-based capital to holding company cash as we get into the fourth quarter. Capital metrics benefited in the second quarter from strong statutory results with statutory after-tax operating income of $366.1 million for the second quarter and $716.6 million for the first half of the year. This does put us on pace to generate capital near the top end of our range of $1.4 billion to $1.6 billion, which we laid out earlier this year. Our strong cash generation model drives our ability to return capital to shareholders, and in the second quarter, we paid $69 million in common stock dividends and repurchased $179.8 million of shares. As Rick referenced, our Board of Directors has approved a new share repurchase authorization of up to $1 billion. This new authorization is effective tomorrow, August 1, and will replace the current authorization. This provides us additional flexibility to dynamically utilize this deployment option as we remain committed to our capital deployment priorities. In the first half of 2024, we returned $300 million of capital through share repurchase, and we now expect that amount to be greater in the second half of the year. So to close, we're encouraged by the momentum that we have built throughout the first half of 2024 and expect similar operating trends to persist in the second half, which will drive strong sales, premium, and earnings growth across our core businesses. For the past 12 months, Group disability results have been a focal point in driving higher earnings power, and we expect this to sustain for the foreseeable future. Coupled with our improved outlook for Group Life, our expectation for full-year EPS growth is now 10% to 15%. Now, I'll turn the call back to Rick for his closing comments, and I do look forward to your questions.

Great. Thank you, Steve. And I'd like to reiterate, we thank everybody for joining us this morning. We are in a great position halfway through the year and the momentum created as we look to execute on our growth strategy. We are here to respond to your questions. So I'd like to open up the call and turn it over to Mandeep, our operator. Mandeep?

Thank you. We will now begin the question-and-answer session. Our first question comes from the line of Ryan Krueger with KBW. Please go ahead.

Hey guys, good morning. My first question is on the competitive environment in Unum U.S. Can you discuss how you see the environment today as well as maybe anything you distinguish between the core market in large states at this point?

Great. Thanks, Ryan. It's a little bit broad question. We're going to turn it over to Chris. I would say, competitive environment-wise, we are a competitive business, and so we look forward to that. But let me, Chris; give some details especially across you mentioned different segments where we see different competitors. Chris?

Yes. Ryan, thanks for the question. Certainly, it's an exciting time in our market space. I start with capabilities that continue to be really important, where we're making our technological investments solving customer problems you bet. That does make us show up in what is a real competitive environment in a very different way. So while having a lot of respect for our traditional competitors who are doing their good work. We show up with reason to talk to customers about things like lead management, things like connecting to their human capital management platforms through HR Connect and other broker platforms that help serve their markets through our Broker Connect strategy. And it really does change the game where price is important and that is a factor in negotiations, but it's not the only thing, and we feel really good about that. I would couple that with the fact that to your point around core market versus large, we're right now working through the one-one large market inventory. We're off to a good start. We feel really good about what we're working through, but there's still work to do to arrive where we believe there's going to be a very strong place at the end of the year. Mid-market gives us kind of a little bit of an earlier view in terms of what actually happened in the quarter. And our sales in the mid-market are quite strong through the first half of the year, both in terms of new sales premium and the number of customers that we're winning. And we feel like it's a really good indicator of sophisticated buyers who are choosing the capabilities that we're putting in front of them. And last thing I would add is we're doing it with a really strong team. We've got a team of folks who believe in what we're selling. They're showing up in the market really well, and it's all part of a very coordinated strategy. Thanks for the question.

Thanks. My follow-up is just when you think about the outperformance in Group disability and now Group Life as well. I know this has been asked a number of times in the past, but just how you think about the pricing environment, how sustainable those loss benefit ratios are in Unum U.S. and kind of thinking about the next few years.

Yes, thanks, Ryan. Chris here. We are actively assessing the right pricing levels for long-term stability in our business. We approach this on a case-by-case basis, particularly in higher market segments. When we align our capabilities with fair pricing and maintain a transparent approach, we can provide predictable pricing that meets our return goals while also fostering a positive partnership. Competition is a reality, and price negotiations are part of the equation, but we are confident that our capability-based strategy is effective in achieving desirable outcomes.

Hey, good morning guys. Thank you. I just want to follow-up a little bit on what Ryan's line of questioning was, but maybe focusing on persistency, it seems like, I think the number you quoted in Unum U.S. was 92.4%. And it seems like that number continues to just be very strong. Is this just the outcome of some of those additional services that you provide HR Connect and leave management? And should we just expect a higher level of persistency going forward relative to the past when perhaps those strategies were not as big of a part of your story?

Yes, Chris, thank you for your question. If I take a step back to evaluate our current persistency overall, I can say we are seeing exceptional persistency, which is certainly positive. The capabilities we offer play a role in this, but there's more involved in maintaining, renewing, and expanding our existing block. As we continue to invest in our capabilities, they will increasingly influence future persistency. For now, the situation is more intricate, and I would suggest that some of the exceptional results we are experiencing might stem from a smaller number of requests for proposals in the past. Currently, we're noticing a significant uptick in quote activity among larger market segments. This is encouraging for generating new sales, but it also impacts our existing block moving forward. It’s an ongoing and evolving process. While capabilities are a key element, they don’t tell the entire story.

Okay, got it. And then I guess, just on the Group Life, if I think back to Group disability and your confidence in the benefit ratio, I think there were some structural things going on around recovery that gave you confidence. But I guess, I don't quite understand what gives you the confidence in Group Life just given so much of it is mortality and that bounces around and you don't really have control over that. So what is it that you're looking at that suggests that that benefit ratio in Group Life, AD&D to remain kind of in the neighborhood where it is right now.

Hey Suneet, this is Steve. I can fill that one. Just first of all, to step back, this is a relatively small block of business about $500 million a quarterly premium. So it can be volatile and it is tough to just pick a number and have tremendous confidence that we're going to be able to hit that exact number on a quarter-to-quarter basis. I would say what we've seen is really three quarters of pretty favorable claims experience. We're also seeing a market where pricing right now for us is pretty stable. So we've targeted the 70% loss ratio just kind of as an expectation for the remainder of the year. We've seen it over the last three quarters now. And so it gives us some confidence that usually it doesn't change tremendously, maybe quarter-to-quarter, but over time, it can change and those margins can change, but we feel good for the remainder of the year to use that for us as kind of a planning expectation.

Hey, good morning. So first question, Steve, can you just provide some more color on the long-term care incidence trends? I guess, how far off are you guys from the assumption? And at this point, given the trend that you're seeing, when would you expect to get to that long-term expectation?

Yes. I'm not going to predict when we're going to get back to it. We did see elevated levels continue for claims incidents above our longer-term expectations in the second quarter. What I'll say is sequentially, claims incidents, when we look at our internal operating metrics, it did improve in aggregate in the second quarter. It was interesting though, as we've discussed in the past, how that plays through the cohorts and how that actually impacted earnings in the net premium ratio. And what you would see is, we did have favorable experience against our long-term reserve expectations within the uncapped cohorts, and that is what drove the reduction in our net premium ratio. It was reduced about 10 basis points. So feel good about that. But there did continue to be some unfavorable experience in the capped cohorts, and that would have been reflected just in the current earnings during the period. We do believe that incidents will continue to dissipate in the back half of the year just because of the trends that we are seeing. But obviously, we just need to see how that plays out in the back half of the year. I've talked in the past about really the claim inventory on an absolute basis and how that trends back to what our long-term expectation is. And I would just say again, for the quarter, we saw that just kind of flattened against what that long-term expectation would be for the overall inventory. So it gives us some confidence, but we'll just have to see how the year plays out.

Okay. That's helpful. And then shifting to Colonial Life, can you just touch on both sales and persistency? So sales, well improved a little bit quarter-over-quarter still appeared challenged, but the top-line was still pretty solid, I think on strong persistencies. So just what are you seeing from those two fronts?

Tim?

Yes, thanks for the question. This is Tim. From a sales perspective, we saw a slight improvement over the first quarter with nearly 1% sales growth year-over-year. There were several bright spots, including an 8.7% increase in new case sales and an 8.8% rise in public sector sales, which is our most profitable area. In other target markets, excluding public sector, we achieved 14.9% growth this quarter. The challenges mainly stemmed from our existing book, and we believe that we are starting to see the impact of inflation on consumers. We need to focus on enhancing our enrollment capabilities to reach more consumers given the pressures we are observing. Our persistency remains robust, and we are pleased with the results in that area. Our Colonial Life services, which are near record levels, are contributing positively to this. We are also witnessing strong success with our gather agent assist and cross-brand sales initiatives. Sales from Unum Group products through Colonial Life agents, although not recorded in the Colonial Life metrics, were significant this quarter, and it's encouraging to see Colonial Life agents utilizing that capability. On the Unum VB side, we had an excellent quarter, with sales increasing by 27% and new sales growing by 31%. Overall, we are very pleased with the strong results for Unum VB as well.

Great. Thank you.

Hi, thanks. Good morning. My first question is about capital return. Should we expect that the second half of this year will be greater than the first half? If so, does that mean we can anticipate capital return for 2024 to be above $600 million, and is that the baseline expectation as we look towards 2025?

Yes. Thanks for the question, Elyse. Let me step back a little bit and talk a little bit about the capital deployment. First, let's start with the generation. I mean, I would reiterate that we've seen very strong generation coming out of our statutory entities taking us up to the higher end of our range of the capital generation that we expect to see this year. And so we take that into account as we think about deployment. Certainly, want to continue to deploy straight back into our business. Talk about the capabilities that Chris referenced, as we are out there competing and looking to grow the business on a core basis. And as we've said all along, M&A is also on the table to grow a little bit faster. And so as we think about all those things, putting good capital to use, we were happy at the beginning of this year, talking about our dividend increase we have out there, very important to us. And then share repurchase, our $500 million we talked about earlier in the year was double the pace of what we saw previous year. And so all that's good. But what we've seen in the second quarter, you would have seen us actually accelerate a little bit. What we said at the beginning of the year is we're going to be dynamic when we think about share repurchase. We make these decisions quite often. And then, more specifically, to your question, that $300 million, we did say we expect it to be higher in the second half. So you talked about that as a baseline, that's probably a reasonable way to think about that. But we are going to be continuing to be dynamic and think about putting capital to use through our share repurchase plan. And I just remind you that our Board did authorize up to $1 billion, so we do have the flexibility to put capital to work by buying back our stock.

Thanks. And then my second question going back, I guess, to Group Life and AD&D, you guys said, the benefit ratio should be around 70% for the remainder of the year. When we think about 2025, should we think about that kind of going back to where you guys had kind of guided for this year in the like the low to mid-70s?

This is Steve. I think it's probably a little premature at this point to talk about 2025. You are right historically, that benefit ratio within kind of the low-70%, I would say, we'll see how the remainder of the year plays out. We'll see how the sustainability of margins are, and then as we get through the back half of the year, we can start to give a little bit more visibility into what we think 2025 looks like. I think it's safe to say, at least that there's nothing that we know that would say something in that 70 to low-70 wouldn't be kind of an expectation. But it's hard to just predict right now what that might look like until we see the back half of the year.

Good morning. Thank you for the opportunity. Can you talk about the growth in the U.S. and how much of that's coming from pricing versus expanded offerings in the employee count? Thank you.

Yes. Thanks, John. It's Chris. And we are seeing growth several different ways. The wage growth that we saw in the past has kind of come back to normal. Employee growth also kind of back to normal, but our premium growth, we worked the cases where we need to get a price increase based on experience, setting price for sustainable levels. We'll adjust down if we need to. And then obviously the new business sales that come through, it's a mix of things that contribute to what you're seeing, but we feel good. That's very balancing and optimistic for the future.

And then my follow-up question, with the higher premium base and force on the back of persistency that seems to be secularly stronger the last several years, how do you view the opportunity to extend the duration of that higher EPS growth?

Yes. I would say we kind of go back to what our longer-term expectations would be. If we're talking about future years, we're pretty comfortable with the type of long-term guidance that we would have given back in January and think that that provides nice support for the business. We've tended to be able to operate pretty well through different environmental and market expectations, and we feel that way going forward. So probably a little bit early to talk about going into next year, but that long-term expectation would be in that 8% to 10% range. But we'll update the market as we get into January of next year.

I think the key thing, John, too is, you think about it. It's about driving the premium growth. And so if we get that good top line growing, our team does a really good job with discipline in getting margins in our business. And then you combine with that, reducing the share count as we talked about, that leads us to that 8% to 10% growth. We're happy with that, but we're especially happy this year growing in that 10% to 15% range.

Hey, good morning. So first, just a question on long-term care. If I look at your net premium ratio, it improved a little bit sequentially, but it seems like for the first half as a whole, it's still running fairly high. So just wondering, what are the key metrics that you're watching to see if you need to raise reserves as you do your review and any comments on how those are trending versus initial expectations?

Yes. Thanks for the question, Jimmy. I just go back to kind of our internal operational metrics. We did see that the elevation in the first quarter. We did see that come down in the second quarter, although still elevated; it all comes down to which cohorts we see it in. I was saying the first quarter; we had unfavorable experience against expectations in those cohorts that were uncapped. So that you would have seen the NPR go up, and then that reversed a little bit in the second quarter where we had favorable experience in those cohorts. And so that's just a dynamic that we'll see play forward. Specifically about our reserve assumption review, it's early, really to talk about any conclusions. But just to remind we go through a comprehensive review on all of our product lines as part of LDTI in the third quarter for GAAP, and we will do that this year and be able to talk about the results of that on our third quarter call. And then we go through the statutory version of that in the fourth quarter and we'll be able to report out on that. But obviously, we're looking at longer-term experience sets when we look at all of these assumptions. And so we'll take not only the last year that we've seen into account, but what we've seen for the last several years, and that will factor into how we think about reserve assumptions. But again, no conclusions yet. We'll update you when we get through third quarter earnings.

And then just on your sales results, some of the commentary from your peers on competition in Group benefits has been more cautious than your commentary. And if I look at your overall sales, they haven't been that good in the first half of the year. So how much of the weaker sales is because of competition you're seeing whether it's large case or otherwise versus just sort of normal volatility you see in some of this larger cases.

Yes. Thanks, Jimmy. I think we'll go and talk to each of our business about what sales are in the story that we see beyond just competition where do we see sales going. Chris, you want to start us off in the U.S.?

Yes. Thanks. Thanks again for the question. So we come through the first half of the year really frankly ahead of our plan. So we feel really good about where we sit mid-year. We feel very good about capabilities that I've talked about driving lots of prospective conversations with customers, getting us to finalist meetings and winning the market. We see that mostly in the mid-market. Again, just based on effective dates, it's a little bit more normal to see smaller and mid-market effective dates that fall in the first half of the year. What you see from Unum U.S. from a comparative basis year-over-year, the volatility in large is most pronounced. Last year, we had our largest Group insurance sale happen for 7/1 by that's a little bit abnormal just based on effective date. Normally that would be more centered on 1/1. And even our largest individual disability sale happened in the second quarter of last year. So when I compare to year-over-year with again mid-market sales, new coverages, and new premium, we're really pleased with where things stand and when I kind of put a cap on it, look forward to, 1/1 we're very confident with the position we're in that we can deliver the full year sales result, and that is in a dynamic competitive environment, no question. But again, we've got a strong team bringing a strong message.

Thanks very much, Rick. I think we're really pleased in international with the growth that we generated in quarter two. It was much improved on quarter one. If I look at the UK first 5.7% growth in local currency and sales that was a record quarter two for us. And actually from a competitive intensity perspective, the second half of the year, we'll see one of our competitors leave as that business has been acquired and we've been investing very strongly in the UK in proposition, which creates a story beyond price. Poland, I would say the market is pretty consistent and overall I think we're feeling very good about ourselves being in line with the 8% to 12% outlook that we gave at the start of the year.

Yes. Just to reiterate a couple of points, new sales up 8.7%. Sales in our target markets up significantly year-over-year. Those are the places I think you would see pressure from the competitive environment. So the voluntary benefits marketplace is competitive, but the pressure we're seeing is with our existing clients and we believe that's inflationary versus competitive.

Yes. Appreciate the question, Jimmy. I think wrapping up the competitive; I think we've all hit on it. We live in a competitive environment that is not new. We're used to operating in that environment. And so I think we look out for the row competitor that's out there pricing irrationally from our perspective, in the market, we don't see that. We just see good aggressive competition and that's a world we thrive in.

Good morning. Sorry to beat a dead horse here. Another question about Group benefits competition. So on another company's earnings call last week, we heard about new competitors entering into the Group benefits space. They were flagging mutual insurers as well as some public companies that aren't big players, but that appear to be ramping up and growing fairly aggressively. Can you comment on what you're seeing in terms of new competition? Are you also bumping into that and how is that affecting things from a pricing or from a growth perspective?

Yes, Tom, that's a valid observation. We can certainly identify some new players entering the market. Many of these new entrants are on the smaller side and are obtaining approvals for products in select states. They are beginning to appear in various locations. I don't want to underestimate this factor, as it's part of the competitive landscape we've discussed. We compete effectively in this area. My impression is that these newer entrants tend to emerge where they identify opportunities, possibly using pricing strategies to attract attention. However, as we delve deeper into more complex services like digitized self-service portals and connected platforms, the presence of new competitors may diminish. While they are indeed a real aspect of the market, I believe they are less likely to pose a significant challenge to our sales results this year.

Got it. That's helpful. Broadly speaking, Rick, you have characterized the market as experiencing rational price competition, indicating that the rates for both disability and Group Life have remained fairly stable. What are your expectations for renewals heading into 2025? Do you anticipate stability, or might there be some pressure on pricing? Any directional insights would be appreciated.

Yes, Tom, I agree with your perspective. We recognize the rational behavior in the market right now. However, it's important to note that there have been irrational outliers in the market over the past five years. Currently, there is a level of aggressiveness in the market, but it falls within a range where we can effectively compete and demonstrate our capabilities to succeed. Chris, would you like to add to this discussion?

Just about that a little bit, Rick. There's no question, this year's persistency level is exceptional. So this is ahead of our plan. We do plan on meaningful persistency, but not as high as this year reflects. Maybe just get back to how we work with customers and the fact that we do try and use our pricing discipline and their desire for long-term price stability to adjust for the future. When your block is running well, like ours is, that does mean there are cases that deserve some sort of a rate adjustment down. But again, they don't want it to be a pendulum swing where you're moving right down and then up again in two years or whatever it might be. And we will still dynamically kind of work customers that need a price increase up to make sure that they're priced well for the long-term, and that's a process we're very comfortable. So I go back to the discipline, I go back to working hard to solve customer problems and focus on things that are meaningful in their technology ecosystem and in terms of lead management and other factors, the bundled sale is really important, and we're able to put together a nice package that gets a fair return and is stable for the long-term.

Hey, good morning. Thanks for taking my question. I wanted to drill down just again in Group Life. And just in the current quarter's experience, just wondering if you could maybe just unpack what you saw in terms of incidents or frequency and is this still maybe a normalization a little bit post-pandemic? And if you could offer any color in terms of specific mortality costs where you saw a little bit more favorability that would be great.

Hey Wes, it's Steve. Yes, I can cover that. That segment is a combination of both traditional Group Life as well as excellent depth in dismemberment. I would say it's definitely in the traditional Group Life. It's really focused on incidents and what we're seeing. There's really nothing around severity that I think we would call out. It's really just around count and incidence levels. And again, we've seen pretty consistent performance over the last three quarters. I can't really comment on whether it still has something to do with the pandemic. I will say that we had predicted some endemic mortality in our block, and there is still some of that, but I'm not sure I would connect the two. I just think that we've had a pretty good run here and that we think that, that should continue at least in the short-term.

That's helpful, Steve. And just maybe any update in the long-term care risk transfer market has anything changed over the past couple of months in your view?

Yes. Thanks, Wes. Not a lot. I mean, I'll just take you back and say that we were happy to see another transaction happen in the market. It's exactly how we've been talking about it as well in terms of being able to look at our block in different pieces and parse it to find the right buyer at the right price. I think that certainly opened up the market a little bit. People have raised tension levels. But once again, this is us doing the work, which we've done, finding the right buyer and going through what can be a pretty detailed process. So I wouldn't say anything new on that front. It is still something that we are very focused on, still something that we want to do. But until we actually find that right buyer, we'll announce that when it happens. But the market is kind of the same, but I'd say that a year ago, it probably did open up a little bit, but it ebbs and flows as we've talked about over the last several years.

Thank you. Good morning. What does the good target benefit ratio in supplemental and voluntary?

I believe we have maintained relatively stable benefit ratios. This segment includes our individual disability income, voluntary benefits, and dental and vision offerings, which can fluctuate somewhat. Reflecting on our guidance from last January, we anticipated a ratio around 50%. Recently, we've experienced some favorable outcomes compared to that expectation. I think it serves as a solid planning assumption for future margins in that business.

Very good. And then this may be premature, but thinking about the forward interest rate curve as the Fed starts to cut, what does that mean for earnings growth next year? You referred to your long-term guidance of 8% to 10%. If we do go through a rate-cutting cycle, does that have a material impact? I mean, is that worth 100 basis points to 200 basis points? Or how should we think about them?

Yes, your question is valid. I understand the current market rates, but it's too early to discuss potential rate cuts since we don't know how actions by the Fed will affect the long end of the curve. In this environment, with the 10-year and 30-year rates being favorable, it creates a good operating condition for us. If things change, the impact would be noticeable but more long-term. We've implemented hedging strategies, which means we've secured much of the new cash flows expected next year. Therefore, it's premature to speculate on the potential impact right now. Additionally, we are uncertain about the future of the 10-year and 30-year rates as well. We have managed through tougher environments in the past, and we feel positive when the rates are where they are currently.

Hey, good morning. Thanks for taking my questions. Are you guys thinking about the LTC hedging program going forward? Is there a natural stopping point? Or will you continue to add hedges until the rate environment just doesn't make sense anymore? Thanks.

Hey Wilma, this is Steve. I'll address that. First of all, I’m very pleased with our hedging program. It has provided excellent risk management and reduced capital sensitivities related to our long-term care book and our reserving methodology on a regulatory level. We are satisfied with how we have expanded it over the past couple of years, particularly with the recent growth in the second quarter, which we feel positive about. Regarding the structure of the program and our targets, we assess our investable cash flows over a timeframe. Over the next five years, we aim to protect 50% of those cash flows, and for years six and seven, we plan for 40%. This approach aligns with our hedge accounting methodology and ensures we can execute effectively in the market to acquire necessary securities. By the end of the second quarter, we had $2.4 billion of notional, with our stock price around $4.25 for our book of business, and cumulatively we have put on $3.2 billion. To address your question, we are nearing our targets, and the recent expansion has brought us close to our desired position. We will, however, continue to enter into new hedges as they mature, since we manage these on a quarterly basis. As new positions are added, the cumulative figure will increase, but we feel confident about our current notional position.

Yes. Thanks, Wilma. I think when we think about M&A, we've been clear to talk about that. It is about capabilities we want to have areas of our business where we can actually enhance growth. There are opportunities out there that we look at. Now these are deals that would be of a smaller size, and I got to be careful where I size those type of deals. It's not a capital consideration in terms of changing the dynamics that we've talked about of our deployment at year-end. But these are areas that we think they're out there available and will enable us to enhance our growth trajectory. And we stay very active in those markets to think about where that can be. Once again, it's not going to be a large consumer of the great capital generation that we've seen. So we feel very good about our capital deployment plans.

Thank you, everyone. Good morning. I would like to know if you could elaborate on the alternative income in Closed Block, specifically what factors contributed to the increase this quarter and what your expectations are for the latter half of the year.

Mike, this is Steve. I can handle that. So yes, alternative income for the quarter was $32.8 million. That was an increase from the second quarter of last year. Our yield last year was about 6.5% annualized yield, and it was 9.9% close to 10% annualized yield for the quarter. Our longer-term expectation would be in that 8% to 10% range. So pick the midpoint. That's what we use for our planning expectation. And when we would build our outlook that would be the assumption that we would use. It's about $1.4 billion in asset value right now in that portfolio. We like the diversification. We think that that's really helped us be somewhat stable in the yields that we've had in that portfolio. But I'd just say we're really happy with the performance that we've seen since inception and definitely this year. And if you're just trying to kind of plan going forward, that 8% to 10% range is kind of where we would peg it. It is going to be volatile quarter-to-quarter. I mean you know how these asset classes work. But over time, I think that's a pretty good assumption.

Thanks. One last question about long-term care and the potential benefits of GLP-1 drugs for underwriting or policyholders. I know it's early for this, but yesterday's headlines highlighted a study suggesting that these drugs might significantly prevent or delay the progression of Alzheimer's. Do you believe this is something we should start considering seriously?

Mike, this is Steve. I'll take that one as well. So I'll take it at a high level for society, it's great. It does feel like the development of these drugs are really accelerating, which is wonderful. We track very closely how these trials are going, the results that they're seeing in that. So obviously, very happy with that. When we step back and think about the business it will take time for those advancements to work its way into the general population and then specifically into our insured population. Net-net, kind of how these are evolving, it should be a positive. And it should be a positive across many of our product lines for the other types of drugs that are being developed, not just things around Alzheimer's. So we're optimistic, again, great for society, but we wouldn't change our expectations until we see something actually work its way into our block and really see changes in the trends of our insured population. Yes. Thanks, Mike.

That concludes our Q&A session. I will now turn the call back over to Rick McKenney for closing remarks.

Thanks, Mandeep. Thanks, everybody, for joining us and staying on here for a couple of extra minutes. We do appreciate your continued support and interest. Our second quarter results were exceptionally strong and we revised that and are reflected in our new outlook, and so I hope as you've dug into it, you see the strength that we see as well. We're very confident in our ability to maintain these levels as we look to the back half of the year. Operator, that will now end our call today. Thank you all for joining us. We'll look forward to talking to you either out in the market or on our quarterly call next quarter. Thank you.

This concludes today's call. You may now disconnect.