Unum Group Q2 FY2025 Earnings Call

Thank you for your patience. My name is Jeannie, and I will be your conference operator today. I would like to welcome everyone to the Unum Group Second Quarter 2025 Earnings Call. I will now turn the call over to Matt Royal, Investor Relations. Please go ahead.

Great. Thank you, Jeannie, and good morning to everyone. Let's get started. Welcome to Unum Group's Second Quarter 2025 Earnings Call. 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 second quarter earnings press release and 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 premium, including 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, and good morning to everyone joining us today to discuss our second quarter results. I will cover three key areas in my opening remarks. First, I'll review our current earnings and the variability we observed; second, I'll discuss market dynamics and their implications for our business; and third, I'll talk about our capital levels, deployment, and management of the closed block. In the second quarter, our results fell short of expectations, particularly in GAAP earnings. However, our core fundamentals remain strong, especially in premium growth, and we are making meaningful progress on our strategic priorities. Benefits in several lines of business were higher than anticipated this quarter, leading to the overall shortfall. From a revenue standpoint, the second quarter saw continued strong premium growth near 5%, with growth across nearly all product lines. Premium growth is essential to our business model, enabling us to protect more workers. It also sustains consistent earnings growth through disciplined pricing and risk management. Factors that support premium growth include renewing current customers, an increase in payroll employee counts, wage inflation, and acquiring new customers through new sales. Sales in the first half of 2025 have started slower than our annual growth expectations and are down year-over-year. The second half of the year is critical, as it typically accounts for the majority of annual sales, with the fourth quarter being the largest. Last year, that quarter represented over half of our annual group sales. Given our current trajectory, we acknowledge there is more work to be done. Although difficult to predict, we anticipate an improvement in sales growth in the second half of the year, aiming for relatively flat sales growth for the entire year. An equally important aspect of our premium growth is retaining current customers, which tends to have a more immediate positive impact on financial results than new sales. We noted a modest increase in persistency during the second quarter, finishing the first half above our expectations. This supports our premium growth. Market feedback indicates our investments in digital capabilities and service excellence are resonating with clients, reinforcing our competitive position for both acquiring new business and retaining existing relationships. Since 2023, we've noted higher average persistency on cases using our HR Connect platform compared to those without it, as this platform allows employers to simplify data connections with us. Regarding wage inflation and employment levels, both appear to be aligning with our expectations. Our core operations continue to showcase solid fundamentals, with benefit ratios across all lines within our expected ranges. However, earnings were lower than anticipated due to claims experience in our group products and the Closed Block. The benefit ratio in group disability stood at 62%, which exceeds our forecast entering the year but remains strong historically. We maintain leadership in disability insurance, and at these levels, the business is well-managed and yielding high returns. We continue to experience stable paid claim incidents and recovery levels, alongside reasonable pricing discipline in the market. We expect a full year benefit ratio in the low 60s. In group life and AD&D, the benefit ratio of above 70% was in line with our outlook but higher than last year due to increased average claim sizes, which can fluctuate. We are pleased with performance here, albeit the margin is somewhat lower than the very high margins of last year. Earnings in our International and Colonial Life Segments remained relatively flat, but both showed solid premium growth—12% growth in International on a constant currency basis and Colonial Life beginning to ramp up with 3.5% premium growth. Both segments present excellent margins and growth opportunities. For the Closed Block, we faced several challenges this quarter. Our alternative investment portfolio did not meet expectations for the second consecutive quarter but is gradually getting closer to our 8% to 10% target, yielding 7% this quarter on an annualized basis. Claims pressure in long-term care was evident, primarily driven by claim size rather than incidence counts. On a positive note, we made significant strides in addressing the Closed Block. Earlier this month, we announced an external reinsurance transaction, marking a considerable advancement in positioning Unum as a leading employee benefits provider while substantially reducing our exposure to Legacy Long-Term Care. This transaction underscores our disciplined approach to managing the Closed Block, enhancing our risk profile, freeing up capital, and focusing on capital-efficient, high-return core businesses to mitigate risks and strengthen protections for policyholders. We are prioritizing actions to increase prices where suitable and reduce risks associated with the Closed Block. Bringing everything together, given our year-to-date results and the anticipated environment for the remainder of the year, we now expect full-year EPS to be around $8.50. While this reflects a significant adjustment compared to our earlier expectations, we are committed to a consistent strategy and see ongoing high returns and growth opportunities for our core business. We remain dedicated to reducing our long-term care exposure, managed with the same discipline we have shown over the past decade. We conclude this strategy with a strong capital position. After ending the quarter with $2 billion in holding company cash and a 485% risk-based capital ratio, we are well-prepared to act when attractive opportunities arise. Recently, we have taken several actions aligned with our capital deployment priorities to enhance the franchise and position ourselves for future growth. In the U.K., we acquired a small block of group business and became the exclusive U.K. Employee Benefits partner for the Generali Employee Benefits Network. This move leverages our leading U.K. operations and supports our growth strategy in the coming years. In the U.S., we completed a capabilities-driven acquisition to enhance our digital platform further. Similar to our 2018 acquisition of Leave Logic, Beanstalk Benefits is a technology solution that will be integrated into our existing customer experience ecosystem, bolstering our digital offerings. While this entails a minor capital expenditure, it complements our traditional insurance products by offering digital resources that help employers better support their employees when needed. These transactions exemplify the types of investments we will continue to pursue. Of course, a significant portion of our capital is returned to shareholders. Following our long-term capital deployment framework, we announced a 10% increase in our annual common stock dividend and repurchased $300 million in shares during the second quarter. This brings our year-to-date total capital return to $650 million, consisting of $150 million in dividends and $500 million in repurchases. After closing the LTC transaction and considering our solid overall position, we expect to complete the year toward the high end of our share repurchase range of $500 million to $1 billion, concluding the year with strong capital reserves. Thank you for joining us this morning, and now I'll turn the call over to Steve to provide more detail on our results. Steve?

Thank you, Rick, and good morning, everyone. In the second quarter, our adjusted after-tax operating income per share was $2.07, down from $2.16 in the same period last year, which reflects the earnings pressure Rick mentioned earlier. Core operations premium growth was 4.6% for the quarter, keeping us on track for our full year premium growth outlook of 3% to 6%. This increase was driven by strong persistency and natural growth within our in-force block, both of which help to offset the impact of pressured sales. Despite these strong fundamentals, we did encounter some headwinds in the first half of 2025 that are reflected in our updated outlook. Taking into account our view of trends in the second half of the year, we now expect our after-tax adjusted operating earnings per share for 2025 to be around $8.50. I will take a moment to explain the key changes to our outlook shortly. Looking at our quarterly operating results by segment, the Unum U.S. segment reported adjusted operating income of $318.2 million in the second quarter of 2025, compared to $357.5 million in the second quarter of 2024. As indicated in our outlook, we anticipated an increase in benefit ratios for group disability and group life and AD&D, which would impact year-over-year earnings growth. Our expectations for full year 2025 are low 60s for group disability and around 70% for group life and AD&D benefit ratios. The adjusted operating earnings for group disability were $124.8 million in the second quarter of 2025, accompanied by a benefit ratio of 62.2%, up from 59.1% a year ago. This increase was due to lower recoveries compared to the past year. Although recoveries were less favorable than last year, they remain strong on a historical basis. The benefit ratio was consistent with the 61.8% in the first quarter, but results were affected by a larger average claim size, which can fluctuate quarterly. Even with the slightly higher benefit ratio in the second quarter, this line of business continues to show robust returns, with an ROE exceeding 25%. For Unum U.S. Group Life and AD&D, the adjusted operating income was $70.2 million in the second quarter of 2025, down from $89.1 million in the same period last year. The benefit ratio increased to 69.7% from 65.4% due to a rise in average claim size. This change is consistent with our expectations of around 70% laid out in January. Adjusted operating earnings for Unum U.S. supplemental and voluntary lines reached $123.2 million in the second quarter, up from $115.2 million a year ago. This increase was due to voluntary benefits premium growth and favorable benefit experience. Moving on to premium trends, Unum U.S. premium grew by 3.9%, supported by typical levels of natural growth and persistency that exceeded our expectations. Like last quarter, group disability reported flat premiums compared to the prior year due to the runoff of the stop-loss business, but excluding this impact, group disability premium grew by about 3% year-over-year. Quarterly sales for Unum U.S. totaled $262.4 million, compared to $313.2 million in the second quarter of 2024. Total group persistency reached 89.7%, increasing sequentially from the first quarter but down from 94% in the same period last year, as expected. Shifting to Unum International, the segment continued to perform well, with adjusted operating income of $41.6 million for the second quarter, down from $42.5 million a year ago. The Unum U.K. business reported adjusted operating income of GBP 29.4 million, compared to GBP 32.5 million in the second quarter of 2024. The results reflect claims performance, including a benefit ratio of 75% versus 69.5% last year, primarily influenced by inflation year-over-year, with the offset reported in net investment income. International premiums showed strong growth, supported by 91.6% persistency in the Unum U.K., which is higher than both the first quarter and the same period a year ago. Unum U.K. achieved 10% premium growth year-over-year in the second quarter, while our Poland operation grew by 21.8%. Sales for the international businesses were $65 million, down from $67.9 million in the same quarter last year. Next, the adjusted operating income for the Colonial Life segment was $117.4 million in the second quarter, slightly up from $116.9 million in the same period last year, with the increase driven by a 3.6% growth in premiums. The benefit ratio stood at 48.3%, up from 47.8% a year ago and within the expected range. Premium income for Colonial Life was $462.1 million, compared to $446.2 million in the second quarter of 2024, supported by high persistency and strong sales momentum driven by agent recruitment and productivity trends. Sales for the second quarter reached $126.5 million, a 2.9% increase from the prior year, primarily due to new account sales. In the Closed Block segment, adjusted operating income of $3.9 million was significantly lower than last year's result of $24.4 million, mainly due to unfavorable long-term care benefits experience, particularly in capped cohorts, which contributes to higher levels of earnings volatility. The long-term care net premium ratio was 94.9% at the end of the second quarter this year, higher than the prior year's 93.7% due to both experience and an assumption update. Sequentially, the net premium ratio rose by 20 basis points from the first quarter of 2025. The key drivers for this pressure included a higher average size of new claims and lower claim mortality. Incidence counts are above our long-term expectations but aligned with our recent experience. Our alternative asset portfolio achieved a 7% annualized yield, slightly below our long-term expectation of 8% to 10%. For the first half of 2025, the portfolio generated an annualized yield of 6%. Each percentage point of yield contributes roughly $14 million in annual earnings, mostly supporting Closed Block liabilities. Given our actual earnings and a revised outlook for alternative asset yields at the lower end of our expectations, Closed Block earnings are now projected to be between $90 million and $110 million for the full year. We advanced our Closed Block strategy with the completion of an external reinsurance transaction on July 1, focusing on actions that create value, reduce our footprint, and increase outcome predictability for the block. Regarding premium rate increases, we have made progress achieving about 60% of our current reserve expectation through the end of the second quarter. To summarize the financial results of our segments, the Corporate segment adjusted operating loss was $31.7 million compared to a $45.3 million loss in the second quarter of 2024, mainly due to higher miscellaneous net investment income, which we do not expect to recur. We anticipate quarterly losses in the Corporate segment to be in the mid-$40 million range for the remainder of the year. Now, regarding our investments, we see a favorable environment for new money yields and credit quality. Miscellaneous investment income rose to $37.3 million compared to $35.4 million a year ago as higher traditional bond call premiums offset lower alternative investment income. Income from our alternative invested assets was $25.3 million, representing a 7% annualized yield. As of the end of the second quarter, total alternative invested assets were valued at $1.5 billion, with 45% in private equity partnerships, 37% in real asset partnerships, and 18% in private credit partnerships. Regarding our capital position, our capital levels remain well above our targets and operational needs, providing us with significant protection and flexibility. The weighted average risk-based capital ratio for our traditional U.S. insurance companies rose to approximately 485%, one of the highest levels we’ve seen and holding company liquidity remains strong at $2 billion. Following the finalization of two long-term care transactions announced earlier this year, we expect to finish the year with an RBC of 425% to 450% and holding company liquidity between $2 billion and $2.5 billion, both above our long-term targets. Dividends from our insurance subsidiaries typically lean towards the fourth quarter, which will affect the distribution of excess capital from risk-based capital to holding company cash as we close the year. This solid position supports our intention to return capital to shareholders. In the second quarter, we distributed $74.2 million in common stock dividends and repurchased $300 million worth of shares. In the first half of 2025, we returned $500 million of capital through share repurchases, positioning us to finish the year at the top end of our expectations of $500 million to $1 billion for the full year. Our capital metrics remain strong, supported by statutory after-tax operating income of $291.8 million in the quarter, totaling $781.6 million for the first half of the year, which includes about $130 million from the internal long-term care restructuring we executed in February. In light of our current position, we are reassessing our outlook across all dimensions, including top line, margins, and capital. For the top line, we are confident in our ability to achieve our 3% to 6% premium growth target for core operations, but the path may differ slightly. From a sales standpoint, we expect relatively flat sales for 2025, with various considerations for each segment. Higher-than-expected persistency throughout our businesses will help compensate for lower-than-anticipated sales growth. Regarding margins, the first half of 2025 saw our group disability benefit ratio around 62%, which aligns with our low 60s target but is above our internal planning expectations. We expect results to remain in the low 60% range throughout the year, based on the stability of recovery levels. Additionally, we have seen lower results in alternative investment income. While returns have improved sequentially, they are still below our long-term target of 8% to 10%. Despite the results in the first half of the year, we believe achieving the lower end of these target returns is possible for the second half. Lastly, following the closure of the long-term care transaction, we are expecting approximately a $10 million per quarter decrease in supplemental and voluntary earnings effective in the third quarter, resulting from ceded individual disability income business. Considering all factors, our earnings per share forecast for the full year is around $8.50, with quarterly run rates expected to rise as the year advances, driven by growth in our in-force block and the impact of share buybacks. We now predict holding company cash at the end of the year to be in the range of $2 billion to $2.5 billion, reflecting the settlement of the long-term care transaction and anticipated increased share repurchases. We aim to buy back stock at the higher end of our $500 million to $1 billion range. We see considerable value in repurchasing our stock and will continue to do so to return capital to shareholders. In conclusion, although we have refined our outlook based on the first half's results, the underlying fundamentals of our business remain solid. Our core operations continue to deliver on both top and bottom lines, with a premium growth of 4.6% and robust returns showcasing a return on equity of 20.9%. Our ample excess capital positions us strongly, enabling growth funding, significant capital returns to shareholders, and the pursuit of further derisking opportunities in long-term care. We remain cautiously optimistic about what the rest of 2025 has to offer. Now, I'll hand the call back to Rick for his closing comments, and I look forward to your questions.

Great. Thank you, Steve. As we head to your questions, let me reiterate, we believe strongly in our strategic positioning and our business model. We have the capabilities and capital to deliver for our customers, expand our reach, and create increasing value for our shareholders. So now let's move to the question-and-answer session. Jeannie, if you could start the Q&A.

And your first question comes from Mike Ward with UBS.

On group disability, just hoping you guys could unpack the underlying drivers of the elevated claims and what you've seen that drove the change in guidance? And if you're seeing any of that continue into July?

Great. Yes, this is Steve. Mike, thanks for the question. And, yes. So generally speaking, we continue to feel great about the margins on this block and the loss ratio. It is a little bit above our expectations that we had coming into the year. It's been pretty consistent with the first 2 quarters at 62%. What I would do is refer back to last year, we did see recoveries that were a little bit higher than what our longer-term expectations might be an incident that was pretty favorable. So as we came into the year, we did think that we'd see a little bit of normalization there. And what we've really seen is recoveries have been a little bit below our expectations in 2025, but very stable kind of quarter-to-quarter. We have seen a little bit of elevation in our incidents. And really, it's kind of acute stories in the first quarter is a little bit more related to count and a little bit more acute earlier in the quarter. That really has subsided in the second quarter. Now what we're seeing in the second quarter is a little bit higher-than-expected size of those new claims. And as we look out the year and we're trying to set the outlook and set expectations, we think 62% is a pretty good anchor for that. But obviously, with this type of business, we may see some variability in both recoveries and new claims. But I feel like we have pretty stable experience for the first 2 quarters, relatively speaking, that we can use that as our anchors going in the back half of the year. The other question, obviously, with just the claims performance itself is just what's going on with pricing in the environment and the influence that might have on the loss ratio. And so maybe, Chris, it's always good to just hit on what we're seeing in the markets right now.

Yes. Thanks, Steve. So, good morning Mike, competitively, it's still a consistently competitive market, and we always expect to compete hard to make these deals come together. We would say where we can put capabilities together with the right prospect, we still find it to be a favorable environment. Obviously, sales were disappointing in the quarter. And Rick appropriately outlined what we think the back half of the year is going to be. It's going to be big, but we did reset to be flat for core operations. Unum U.S. will have the most headwind in that mix, but we're still looking hard to find plenty of prospects still out there in decision-making mode right now. So inventory is there. And we've got capabilities that are interesting relative to integration with tech platforms and lead management. So that's where we stand right now, and we're working hard in the back half of the year.

Yes. Mike, to kind of zoom into the current quarter a little bit as well, we don't really see pricing actions being a material part of what we saw in the benefit ratio for the second quarter. And so we'll definitely just be monitoring the operational aspects of just the claim management as we go to the back half of the year.

And then on Long-Term Care, just the lower claimant mortality. Do you see the current quarter result as truly a one-off or a normal volatility? Or is there anything about the remaining block or the health profile that could cause pressure to persist?

Yes. So yes, two important questions in there. So I'll focus just on what we saw in the second quarter. We actually saw the counts of new claims pretty consistent with what our expectations are. And I know that's been something, obviously, that has been elevated here for a couple of years. That was pretty much in line with what our expectations were coming into the year. And so you're right, there really was kind of an average size variability that we saw in the current quarter, it impacted both new claims as well as those claims that terminate due to mortality. And just to scope it out, they were both about 5% off what our expectation would have been. And so we view that right now from what we're seeing as just volatility. They were pretty different than what we've seen here over the last several quarters. And so we wouldn't expect that to continue as we go into the back half of the year. And so as we were thinking about the outlook for Closed Block, which I noted, our recent outlook is somewhere between $90 million and $110 million for the full year. We did bring the annualized yield on the portfolio down to that lower end of the 8% to 10% range. But we haven't really adjusted kind of the benefits performance for the back half of the year to any way, kind of put in less favorable benefits experience than what we had anticipated coming into the year. So what we're seeing right now, we think it's an anomaly. But obviously, with this line of business, we're going to have to just see how it plays out for the back half of the year.

Your next question comes from the line of John Barnidge with Piper Sandler.

My first question, given the Long-Term Care experience, just sticking with that in the first half of the year, how should we be thinking about the upcoming annual actuarial assumption review?

Yes. On that, I would say, just to reground, we complete our GAAP assumption review in the third quarter and report out on that as we get to our third quarter earnings review. And then we look at the statutory reserve adequacy as we're going into the end of the year. So it's pretty early in that process. We'll take into account kind of all the experience that we've seen over the last several years as we update our experience set. But we're constantly looking at that. I'd make two points. One would just be about just remind people around the $2.6 billion of protection that we feel we have within the Long-Term Care balance sheet. So when we make adjustments to our best estimate for GAAP, we do have a lot of protection against that best estimate when it comes to our capital position. And then I would just say we're kicking that off right now. And we'll see how that plays out as the year plays out. I will remind myself, I actually didn't answer all of Mike's question. And just to get that point across about with the deal, how did the experience we saw in the second quarter, how does that impact the part that's reinsured versus the part that's remaining? And what I'd say is we really saw this experience across both parts of our block of business. It didn't really influence what's going to be remaining in our block versus what we reinsured kind of nonproportionally. So sorry, I didn't hit that, Mike.

And then my other question around buybacks. Given the excess capital position, how should we be thinking about sustainable free cash flow conversion at the company given completion of the transaction? Why not more buybacks? Or is this more about the sustainability of free cash flow conversion, not just 1 year?

Thanks, John. It's Rick. To provide some insights on capital deployment, I want to highlight that our capital generation remains very strong, with $300 million reported in the latest quarter, following a solid first quarter. As we've previously discussed, we continue to experience robust capital generation, which is a crucial factor in our cash deployment strategy and free cash flow conversion. Regarding our cash allocation, I mentioned a couple of deals we completed this quarter, although they won't significantly impact our cash utilization. Now, when it comes to returning capital to our shareholders, our dividend has increased by 10%, totaling $150 million for the first half of the year, which is expected to exceed $300 million by year-end. On the topic of share repurchase, we've heightened our outlook to the upper limit of our $500 million to $1 billion range. Looking back, two years ago, our expectation was closer to $500 million, and last year it was approximately $750 million on a run rate basis, although we exceeded that due to some balance sheet adjustments. This year, we anticipate being at the top end of the $500 million to $1 billion range, aiming for sustainable practices. We recognize our excess capital and the potential to act on it, and that’s where we currently want to position ourselves. The opportunity for share repurchase is present, and we plan to remain flexible in that regard. As we continue generating strong capital, we're committed to making decisions that align with enhancing shareholder value. I hope this provides clarity; it's a long-term strategy we've been executing, and you can see the positive outcomes in share repurchase over the last several years for our shareholders.

Your next question comes from the line of Elyse Greenspan with Wells Fargo.

I guess I wanted to come back just to disability and the updated guide for the second half of the year. You guys are looking for it to kind of be consistent with the first half. And so when you think about that, are you expecting the elevated persistency from the first quarter to persist or the severity that you guys saw in the second quarter? And then I'm also interested, right, if kind of 62% is the level for this year, how should we think about kind of '26 beyond '25, just the loss ratio of the business as well?

So maybe I'd start and just say, Elyse, I appreciate the question. And I'd just reiterate some of the things that Steve said. This is a very high returning business even in the levels that we've seen thus far. So we're very happy about where that's been, the persistency level in this block, how it fits into the overall portfolio. And so I'd just reiterate that, first of all. And as we think about coming years, how we'll talk about that. But Steve, maybe you can give a little bit deeper context in terms of why we're thinking we are where we are and where we think we might go.

Yes, I kind of break apart the benefit ratio between what we're seeing with recoveries in the current year and then what we've seen with incidents. recoveries are pretty close to what we would have expected. And they are lower than what we saw last year. But last year's recoveries were very strong. And it's part of the reason that we were operating kind of that high 50% benefit ratio last year, and we really raised our expectation coming into this year. And it was because we thought that recovery rates would come down a little bit, but they're pretty much right on top of what our expectation would have been and how we see that playing through. So we think that part of it's pretty sustainable, and that's built into that 62% expectation for the back half of the year. Incidence is where it's been a little bit higher than what we would have thought coming into the year. In the first quarter, we had some kind of very early year count elevation within the benefit ratio. And then that came down in the second quarter. In the second quarter, it was more around average size. And so there is a possibility that incidents will come down in the back half of the year. But as we're trying to set an outlook, that has some reasonable assumptions, we thought it was just prudent to look at how it's performed for the first half of the year in the 62% range and just really carry that forward to the back half of the year to set that kind of that spot expectation for EPS for the full year. And then really beyond this year, we wouldn't see any reason for the operational performance to change longer term, but that's something we'll get into as we close out the year, see how the back half of the year performs, see how things are going just kind of from a commercial competitive environment, and then we'll set expectations as we're going into 2026. But we don't see anything operationally right now that wouldn't be sustainable.

And I'd just reiterate that, Elyse, which is the team is doing a really good job of pricing on the front end of the business, good risk management, the claims management of the team that's actually able to do that, helping to get people back to work. That's all going very, very well. And so it is that competitive dynamic, which is hard to predict in terms of what that looks like. But I would reiterate that where we stand today, the competitive environment has been reasonable. It's always competitive. People are always looking to grow their own piece of the business. But what you look out for is somebody that comes into the market and actually is unreasonable in terms of how they price. We're not really seeing that. We think we're seeing good competition in the market today. And I think that bodes well for where this is going to go over the next couple of years.

My second question relates to your commitment to further decreasing your LTC exposure, as mentioned in your prepared remarks. When you announced the transaction, you indicated that you were considering other options as well. Now that the deal is finalized, could you provide an update on any discussions regarding future transactions with the block?

Certainly. I think there's a couple of things that we did early in the year. One was actually the transaction, external reinsurance. We also did some internal structuring in the block, which I think was a good positive move for the enterprise. And then as we said then, as we'll say now, we're continuing to look at how we reduce the size of the footprint of LTC from an external perspective, and we continue to be active in the market. So that really didn't slow down with the transaction. We think this is something that strategically we want to continue to do, and we'll keep looking at that. From a market perspective and how it is, I think it ebbs and flows. And so I think we're still in that period of time. As you've looked at three transactions that have happened externally now, I think that's a good thing overall for the market. So you're starting to see repeatability in these type of transactions. But they're very hard to do. And so I would just reiterate that we'll keep working hard at that, but the ability and the timing of when something will get done is very hard to predict.

Your next question comes from the line of Ryan Krueger with KBW.

First question was on the dynamics with more plans staying put with their existing carriers. I guess maybe can you just give a little more color on why you think that's happening? Do you think it's more related to the pricing and competitive dynamics? Or do you think it's more about uncertainty in the external environment and plans just summing to not make changes right now?

Yes, Ryan, it's Chris. Thank you for the question. You’re correct that we’ve observed a situation where some power lies with the incumbent carrier, particularly on our block. People are trying to protect their position since it is currently favorable, and they want to ensure that they strike fair deals. We take a leading role in this by collaborating with customers individually to transparently present our loss ratios. In some instances, rate increases are necessary, and we communicate that; in other cases, we suggest rate reductions. Occasionally, we determine that holding prices steady is best for a more stable environment. That’s always our goal. Right now, within the financial structure of the business, we notice that some competitors are likely taking similar actions to retain customers that yield reasonable returns. We believe there are still many potential clients who need assistance, whether that involves leveraging their technology investments or addressing larger issues like lead management. The market is still dynamic, and there are customers actively seeking solutions. We are working to create our own opportunities, aiming to achieve strong sales results in the second half and beyond. It’s important to note that while the competitive landscape may favor incumbents currently, the macro perspective shows that companies are making their own decisions based on various factors in their industries, though I believe those factors are more localized than overarching.

And Ryan, I just maybe I'd put a bow on that a little bit and just come back to our feeling for our premium growth outlook as this year plays out. And I mentioned in my remarks, we do think that the trajectory is going to look a little bit different as far as the contribution of sales versus the contribution of persistency. And so as we look out, though, we still feel really good about the outlook that we put out there for premium growth in our core operations. And we mentioned a couple of things. We'll have to adjust that for stop-loss, obviously, and then there's part of the individual disability business that we ceded now for the back half of the year. But as we go into 2026, we still think we're going to have a really nice in-force premium coming out of the dynamics that we're seeing right now in the markets.

Yes. And Ryan, we were talking about specifically group care. I think it would be helpful to go to Tim, too, to talk about what's happening in the voluntary benefit space, both for the Unum brand as well as for Colonial Life, Tim?

Yes, specifically with respect to the question about persistency, we're seeing improved persistency for both Colonial Life and for Unum U.S., BB driving improved levels of premium growth and a little bit above expectations. In addition, you think about persistency at the employer level and also at the employee level for BB. And increasingly, we're seeing that the people who buy these products understand the value of them and want to keep them for longer periods of time. As you think about premium growth also, we're very fortunate to have had double-digit growth on the Unum BB side over the last few years with 10.3% growth in '23, 11.5% growth in '24 and about 14% growth in the first quarter of this year, which again drives premium growth. And then on the Colonial Life side, we're seeing a lot of really positive momentum in the leading indicators for sales with recruiting up 31% in the quarter and sales from those new agents at plus 34%. The sectors that we like a lot, public sector, up 9% for the year, new sales up almost 10% for the year, and we're also having a good first half of the year from a large case perspective. So we're excited about the momentum we're seeing on the Colonial Life side, really pleased with the persistency results we're seeing driving premium growth above where we thought it might be at this point.

And Ryan, I have to bring international into the mix, too, with double-digit premium levels of growth. Mark Till, maybe give us some context in terms of what's happening in the markets around the world.

Yes, Rick. Persistency has been very strong, which both Tim and Chris mentioned. In the U.K., persistency is up about 1%, reaching levels not seen in quite a while, while Poland has seen an increase of 2%. Core business sales in both countries have shown impressive year-on-year growth, with the U.K. experiencing low double-digit growth. Large cases in Poland have performed well, although large cases in the U.K. have slightly declined compared to last year. The market can be somewhat unpredictable, and we had a notable jumbo case in the second quarter that affects the comparison to the previous year. However, the pipeline in both countries remains robust, and we believe the premium sales guidance we provided at the beginning of the year is still a reasonable outlook for the international business.

I would like to follow up on long-term care. I know there was an unusual mortality rate this quarter, but it seems that overall mortality is improving among the population and for the insured businesses. Do you have any concerns that this might just be linked to broader improvements in mortality, or what gives you confidence that this is simply an abnormal quarter?

The variability we experienced this quarter wasn't really related to claim counts, as those remained consistent with our expectations over the past several quarters. The issue was more about the value of the claims that were terminated, which relates to the richness of the benefits. This can be somewhat unpredictable on an individual level, but typically, when considering a larger number of claims, the averages tend to remain stable over time. However, this quarter, we saw particularly low claim reserves for the terminated claims, often influenced by the richness of benefits or the duration of the claims. We view this as an unusual occurrence, but we will need to monitor how it unfolds in the upcoming quarters.

Your next question comes from the line of Alex Scott with Barclays.

I had a follow-up on LTC. I just wonder if you could give us an update on sort of where you're at with your last premium, I guess, pricing approvals from regulators and maybe just how that's comparing with what you assumed in the reserves the last time you reviewed?

Yes. Things are going really well. From a regulatory perspective, the environment continues to be very favorable. I mentioned before that the process has transitioned to a more administrative one, where the focus is on working with states, submitting documents, and answering questions, rather than the more political nature it had a decade ago. We feel great about this environment. We have achieved about 60% of what was reflected in our last reserve adjustment. This quarter, the revenue from approvals is approximately $90 million, marking it as a good quarter. The progress has been stable each quarter, and we feel confident about our advancements in relation to the reserve assumption and pleased with the general environment.

I know you guys provided a lot of commentary around like what kind of drove benefit ratios here or there. But I wanted to see if maybe you could talk more broadly about potential for medical cost inflation. We've seen it from a number of health insurers, I think a little more like Medicare and Medicaid, but I think even more recently, some of the commercial health stuff with United. So I just wanted to see if you could kind of walk us through like are there areas of your business that you get impacted by that? And then I assume there are a lot of areas of your business that are much less impacted by that. So maybe you could frame that.

Yes, Alex, I appreciate the question. I actually say, in general, we are not very impacted across the board in terms of what's happening from a medical inflation perspective. If you think about our benefits, and I just talked about life insurance, it's going to be what happens. Disability insurance is really about some of these wages, not about what cost of care looks like. And even as you get into the long-term care business, we're indemnity-based business, so it's a fixed benefit level. So in general, yes, I don't know, Chris, if there's anything out there, we'd highlight that we're watching.

Yes. Thanks, Rick. Alex, it's an interesting point. I would say just some of the things we don't always talk about are just the quality of our claims organization and the work they do behind the scenes. Medical cost isn't really our big issue, but we do a great job of making sure that people on claim get the right care and that they're on the right treatment plans that improve outcomes. So we're tied to medical in that way, but not so much in terms of the cost of care. So I think that it's an interesting point, though.

Your next question comes from the line of Tom Gallagher with Evercore ISI.

First, I have a question about Long-Term Care and a follow-up on disability. Since your last actuarial review, it seems that the incidence trends or inventory have remained higher than long-term expectations. Is there a possibility that this could become a permanent situation? The anticipation was that there would be an improvement by now, but it appears that hasn't happened. Is my understanding correct? If it is, does it seem that this would only be a GAAP charge and is not likely to affect statutory results, considering the significant buffer you have in Fairwind? That's my first question.

Yes, Tom, I'm not going to preview kind of any results from the reserve adequacy work this year. That's ongoing. We'll report out on that as we get to the third quarter. I would say there was really nothing new in the second quarter that would be different than maybe some of the elevation of counts that we've seen prior to that. And so we'll take that into account as well as all of the rest of our dataset as we go into that. So I don't take any of my comments for saying that we might have an impact here, but not there. We'll take it all into account as we're looking at our best estimate reserve, which is really what our GAAP reserves are based on. My only point is if there was some sort of adjustment there, we continue to have a significant buffer when it comes to the margins that we have in our statutory reserves. And we just feel really good about that and really good about statements that we've made just around capital deployment in the past. behind LTC, and that buffer remains. So that was my only point there, but really no preview of results of the reserve assumption review.

My follow-up is regarding the disability loss ratio. I understand your response to Elyse's question indicating stable operational performance beyond 2025. However, I want to point out that a 62% loss ratio is still 13 points better than pre-pandemic levels. When comparing to peers, the best-in-class is around 10 points better. While I appreciate your perspective, it seems that your accounting improvement has surpassed that of peers, making it challenging for us to accept 62% as the stable level. Even a 65% outcome would still reflect good performance and a solid return on equity. Can you clarify this further? Is there a possibility that the 62% could drift higher, or do you believe, perhaps due to claim recovery, that 62% is indeed the right number for you, despite being better than peers?

Yes. We believe we have top-notch operations and the ability to handle claims effectively. Therefore, we don't really see the need to benchmark ourselves against competitors. Our focus is on our internal performance, and we understand the reasons behind our improvements, which are evident in our operational enhancements. This reassures us that the recovery levels we're currently experiencing are likely to be sustainable. These businesses operate over long periods, and while we’re not forecasting far into the future, we feel optimistic about the durability of the results from our claims management in the medium term.

And maybe just one other comment, Tom. In terms of, again, the way we're selling to customers, the way we're tying into their ecosystem and managing things like leave, price is still an important part of the discussion, but it's not what it was years back, where in a lot of ways, price was the first and primary thing we talked about. There's much more kind of connectivity into their ecosystem, much more problem-solving. And that gives us a little bit of capacity to get a fair return and work things through. And I think that shows up in the analysis that Steve just shared.

Your next question comes from the line of Joel Hurwitz with Dowling.

I just want to go back to Colonial Life real quick. Tim, you provided some good metrics on recruiting and overall momentum. I guess, do you see a path for sales to improve to your 5% to 10% growth target for '25 at this point?

Thank you for the question, Joel. We've maintained that we expected momentum to build throughout the year. In the fourth quarter of last year, we brought in a new Head of Sales, and her team has done an excellent job refocusing on the fundamentals and executing our business plan consistently. You heard some metrics earlier, and I want to add that for those who joined Colonial Life in 2023, 2024, and the first half of 2025, their sales have increased by a collective 16.3%. We are currently experiencing broad-based success. For the areas where we still see some softness, Ashley and her team are actively addressing those challenges. Our goal is to continue building on this momentum in the second half of the year, and we believe we have a chance to reach the lower end of our target range.

With the transaction now closed, where do you stand on extracting capital from Fairwind?

Yes. Our perspective hasn't changed at this time. We generated approximately $200 million of release capital from Fairwind, which is included in our $2.6 million or $1 billion of protection there. Currently, we haven't made a decision about whether to keep it in place or not. This is something we'll consider as we conclude the year and evaluate overall capital deployment for the organization. So there's no new information to share on that front.

Your next question comes from the line of Wes Carmichael with Autonomous Research.

So on LTC, you obviously closed a pretty significant transaction. But in the month, I guess, since you've announced that deal, has there been any change in the risk transfer landscape, whether that's new counterparties or any other changes? And I guess, relatedly, do you have any insight into the appetite for global reinsurers want to take additional biometric risk like this deal was structured?

Thank you for your question, Wes. As I mentioned earlier, the market has had its ups and downs. The news of three transactions has likely sparked more interest in understanding the market dynamics. This recent deal was beneficial for us, as well as for our two reinsurance partners involved. People are showing interest and exploring the market further. However, it requires significant effort from counterparties to fully comprehend the dynamics of the liability and investment profiles associated with the block. Each transaction tends to attract attention as people seek to understand the underlying changes. While it’s difficult to predict how long this interest will last, more transactions are definitely a positive development. Each one has its own unique characteristics, which adds to the market’s appeal. Therefore, I anticipate continued interest, similar to what we've seen in other reinsurance markets with varying liability profiles. There is still a lot of work ahead, and we are focused on the long term.

Yes, I mean the way to think about it is the benefits experience that we look at is in multiple cohorts. Each of those kind of that unfavorable experience, it's going to articulate itself differently. And so what you would see is on the capped cohorts, that's going to come through earnings more directly because there's really no buffering impact on those. And then on the other cohorts, that will come through as a change in NPR and in essence, get a portion of that buffered into the reserve itself. The current period experience that we saw was really across both capped and uncapped. So you would have seen unfavorable earnings results in the period, but also a little bit of an uptick in the NPR.

Your next question comes from the line of Suneet Kamath with Jefferies.

I wanted to revisit the buybacks for a moment. Rick, I appreciate that your company has been increasing its annual buyback levels. However, I've noticed that the excess capital has also been rising. According to your prepared remarks, it seems you could end the year with $2 billion to $2.5 billion in holdco cash, which exceeds your initial estimates from the 2025 plan. So my question is, why not increase the buybacks beyond the $1 billion, especially since you have the additional $630 million from the LTC restructuring?

Yes, it's a fair question, Suneet, we don't minimize that returning capital to shareholders is an important part of our overall construct and our value proposition. And so we do think about it. We've said we'd be dynamic. I think as we look at where we are today and given the performance and closure of the LTC transaction to move to the top end of our range going into the year is appropriate. But it's something that we'll always look at in terms of the pace and how we look at it. And all your facts are right. I mean the generation has been good. We had even some excess generation with reinsurance earlier in the year. We put that into our outlook and then the ability to buy back shares. So facts are right, something we'll evaluate and continue to talk to the market about, but this is where we see things right now.

Your next question comes from the line of Suneet Kamath with Jefferies. Ladies and gentlemen, thank you all for joining. You may now disconnect.