Unum Group Q4 FY2025 Earnings Call

Hello, and welcome to the Unum Group 4Q 2025 Results and 2026 Outlook. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to withdraw your question, press 1 again. And please limit to one question and one follow-up. I will now turn the call over to J. Matthew Royal, Investor Relations. You may begin.

Thank you, and good morning. Welcome to Unum Group's Fourth Quarter 2025 Earnings Call. Today, we will be discussing full year 2025 results along with highlights from the fourth quarter. We will also use the time to discuss our outlook for 2026. As such, we have extended our time today to allow for the additional presentation and discussion. Note, today's call may include forward-looking statements and actual results may differ materially. 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 earnings press release, financial supplement, and webcast presentation for today's call. All of those materials may also be found on the Investors section of our website. Also, please note, references made today to core operation sales and premium including Unum International are presented on a constant currency basis for comparability period to period. Participating in this morning's conference call are Unum's President and CEO, Richard Paul McKenney, and Chief Financial Officer, Steven Andrew Zabel. Following the remarks from Richard Paul McKenney and Steven Andrew Zabel, additional members of management will participate in Q&A, including Mark Till, who heads our Unum International business, Timothy Arnold, who heads our Colonial Life and voluntary benefits lines, and Christopher Wallace Pyne for group benefits. Now I will turn the call over to Richard Paul McKenney.

Morning, everyone, and thank you for joining us. 2025 was a year of disciplined operational performance across our core businesses, sustained investment in digital capabilities that create differentiation for Unum, and decisive progress in the closed block, materially improving its risk profile. We delivered for customers, advanced our strategy, and closed the year with strong capital and liquidity. On the earnings front, for full year 2025, adjusted EPS was $8.13. This was down year over year and below our expectations going into the year. The primary driver of the softer outcome for both the quarter and the year was higher than expected benefits experience. That experience varied in total and by line throughout the year. We will dig into our benefits experience more, but throughout the call today, you will hear more about our leading franchise in group benefits that has grown notably over time as we serve employers and their employees. As we have grown, we have done so profitably. As our core operations delivered approximately 20% return on equity. This reflects durable earnings power supported by disciplined underwriting, solid persistency, a focused product mix, and a sales force that appreciates building relationships with clients. Those fundamentals have been true for many years. Combined with strong risk management and capital management, we remain excited about the opportunity moving into 2026. As we look at the top line, this opportunity is demonstrated by a growing premium base and customer relationships. Core operations premium grew within our expected range at nearly 4.5% excluding transaction impacts. This includes a 3.1% premium growth at Colonial Life and 10% in international. Given our healthy persistency and the ongoing demand from employers who value integrated benefits, we are well-positioned to deliver premium growth within our long-term target range of 4% to 7% in 2026. A key enabler of that performance is the progress we are making in digital. Today, over one-third of our core premium base is associated with customers experiencing one of our leading digital capabilities. The idea is simple: connect our benefits to the HR platforms employers already use and wrap those connections with an experience of service, expertise, and empathy. The execution, particularly when building at scale, is complex, but our teams are up to the challenge. HR Connect, Broker Connect, and Total Leave strengthen the employer link. MyUnum, Gather, and The UK's Help at Hand make enrollment and administration easier while adding value-added services. AI-enabled tools help our teams respond faster and with higher quality. Where these capabilities are adopted, we see stronger engagement and persistency. We pair that digital momentum with paying attention to the fundamentals across the enterprise. In group disability and group life in the US, we maintain strong pricing discipline and risk selection, and returns remain attractive and industry-leading. In Colonial Life, we continue to strengthen our independent distribution model, improving agent productivity through better digital tools and workflow. This supported steady premium growth, strong returns, and sales that finished the year at a multi-year high, which included double-digit growth in the fourth quarter. In international, we also delivered double-digit premium growth, reflecting a sharper broker experience in the UK and continued progress in Poland. While 2025 had some variability in reported benefits experience, the underlying earnings power remains resilient. Our strategy continues to translate into durable growth and meaningful long-term value creation. This growth also flows through to our capital generation, conversion to free cash flow, and deployment. Consistent with our deployment philosophy, 2025 was a year in which we grew the company organically and made two small acquisitions. At the same time, with our continued strong statutory earnings, we were able to increase our dividend 10% and buy back $1 billion of our shares. That combination effectively returned to shareholders what we generated in the year. We ended the year with robust capital levels of 440% risk-based capital and $3.2 billion of cash at the holding company. 2025 will also be remembered as a year where we reached some pivotal moments in addressing the closed block. It dates back many years, but in 2023, we provided additional funding to our Fairwind entity and stated at that time that no further contributions would be necessary. Three years later, our position remains unchanged. Today, we have $2.2 billion of protection between reserves and capital to guard against any future adverse development. As you have heard before, a consistent part of our block management has been to seek price increases over time where appropriate. With our steady and mature approach, we have crossed the $5 billion mark in cumulative premium rate increases since initiating our program. Finally, in 2025, we completed a reinsurance transaction that ceded roughly 20% of long-term care reserves coupled with an internal reinsurance action that reduced potential capital volatility. Combined, we reduced LTC reserves by more than $4 billion in total through these transactions. Our progress in 2025 has meaningfully strengthened our risk profile while maintaining strong capital protections, and we remain focused on further reducing legacy exposures to drive the focus to our leading employee benefits franchise. We are excited about how we are positioned entering 2026. We are starting the year in a real position of strength. That is true in our market position and reputation, the depth and expertise of our team, and, of course, the financial flexibility to capitalize on opportunities when they present themselves. Our performance is grounded in purpose: helping the working world thrive throughout life's moments, delivered through the right balance of digital connection and human empathy. With our continued investment in technology, we expect a good year of growth in 2026. Across the company, we see top-line growth in the range of 4% to 7%, with meaningful contributions from each part of the enterprise. This stems from both new sales and persistency, driven by the connections we have developed over the years. With disciplined focus on our margins, our EPS will return to growth of 8% to 12%, driven by our high ROE businesses. Finally, we continue to return value to our shareholders in a consistent manner, as we have done over the last several years with an increasing dividend and share repurchases of approximately $1 billion. Steven Andrew Zabel will now take you through the quarter details, and then we will cover our 2026 outlook.

Great. Thanks, Richard Paul McKenney, and good morning, everyone. While earnings in the fourth quarter were below our expectations, our top line continues to grow, and the franchise remains strong. Core operation sales finished the fourth quarter on firm footing after a slower than expected first half and were up 1.1% in 2025 over the prior year. This included Colonial sales increasing 10% in the quarter over a year ago and 5.3% for the full year. We were also pleased with our persistency results, and we continue to see high levels across our businesses, including U.S. Group persistency of 90.2%. Considering all this, core operations premium in the fourth quarter increased 2.9% compared to a year ago and finished up 3.7% for the full year. When we adjust for the runoff stop-loss business and the ceded IDI business from the LTC transaction, core premium grew approximately 4.5%. This growth is consistent with our outlook from last February and within our long-term expectation of 4% to 7% annual premium growth. Turning to margins in the quarter, results across the franchise generally performed lower than our expectations. This was reflected in Unum US group disability, with a 64.2% benefit ratio in the fourth quarter, which was above our expectations, driven by lower average size of recoveries and lower than expected mortality on our claimant block. Despite this, we continue to be pleased with the high returns our business generates. In both the quarter and for the full year, adjusted ROE for our core operation was approximately 20%, a good reminder of the underlying earnings power of our business. Even when margins show volatility and are pressured in certain quarters. Altogether, these factors produced after-tax adjusted operating earnings of $322.3 million for the quarter, or $1.92 per share, and $1.4 billion or $8.13 per share for the year. These GAAP earnings translated to full-year after-tax statutory earnings of $1.1 billion, which exclude the impact of reinsurance transactions. This result was below our expectation of $1.3 billion to $1.6 billion coming into the year and largely reflects the lower than expected margins experienced in our GAAP results. However, our overall capital generation model still provided immense levels of capital optionality, enabling us to execute against our capital deployment priorities. Consistent with our priority of continued organic investment and capabilities, the full-year adjusted operating expense ratio finished in line with expectations. Outside of organic investments, we executed two small transactions for our core business, closed our first long-term care risk transfer transaction, and returned approximately $1.3 billion to shareholders through share repurchases and dividends. Our capital generation and strong excess position enabled this high level of capital flexibility in 2025, allowing for a wide range of capital uses which will continue into 2026. I will now briefly review our 2025 results by segment, provide updates on the Closed Block strategy, and then shift to our 2026 outlook. In Unum US, before-tax adjusted operating income was $289.7 million in the fourth quarter, 13.1% less than the prior year quarter, and full-year adjusted operating income decreased 11.6% from 2024 to $1.3 billion. In group disability, adjusted operating income was $102.3 million in the fourth quarter and $479.8 million for the full year, a decline of 22.8% from 2024. This year-over-year decline represents a normalization of our group disability benefit ratio after a historically low benefit ratio of 59% in 2024. This normalization paired with volatility throughout the year led to a group disability benefit ratio of 64.2% in the fourth quarter and 62.4% for the full year. Reported full-year premium of $3.1 billion was nearly flat. Adjusting for the runoff of our stop-loss business, premium increased nearly 3%. For Group Life and AD&D, fourth-quarter adjusted operating income increased 11.1% to $91.9 million, and full-year adjusted operating income decreased 7.3% to $319.4 million. Favorable levels of mortality counts led to a benefit ratio of 64.8% in the fourth quarter and 67.5% for the full year. Full-year premium increased 4.9% to $2.1 billion due to favorable sales, while persistency remained strong. In our supplemental and voluntary lines, adjusted operating income declined 8.2% to $95.5 million in the fourth quarter and was flat at $472.7 million for the full year. Fourth-quarter results were impacted by higher benefits experienced across all product lines. Excluding the impact of reinsurance, premium growth was strong, growing approximately 5.5% for the full year. Moving to Unum International, underlying earnings in the fourth quarter declined 11.7% to $33.2 million from the prior year and declined 3.5% to $152.3 million for the full year, driven mainly by unfavorable claims experience in UK group disability. Healthy sales and persistency bolstered double-digit top-line growth as fourth-quarter premiums grew 11.5% to $283.9 million and full-year premium increased 10% to $1.1 billion. In Colonial, adjusted operating earnings declined 7.2% in the fourth quarter to $113.9 million and for the full year declined 0.7% to $463.6 million. Like claim count volatility and higher expenses due to sales growth, led to lower margins in the fourth quarter. The benefit ratio of 48.3% in the quarter and 48.1% for the full year were elevated over 2024 but in line with our outlook. Fourth-quarter sales increased 10% to $203.9 million, the largest amount of quarterly sales since 2019. Full-year sales increased 5.3% to $560.3 million, one of our largest years ever. Additionally, favorable persistency also benefited top-line growth with full-year premium increasing 3.1% to $1.8 billion. The Corporate segment produced a loss of $51.1 million in the quarter as staffing and IT costs were elevated. For the full year, the segment produced a loss of $171.6 million compared to the full-year loss of $191.2 million in 2024. Moving now to the Closed Block segment, adjusted operating income was $21.1 million in the fourth quarter and $63.5 million for the full year, in line with the guidance provided in the third quarter. Regarding LTC fourth-quarter performance, claim counts were in line with our expectations and the net premium ratio decreased slightly to 97.5% from 97.6% sequentially. Finally, our alternative investment portfolio, which largely backs the long-term care block, generated $25.9 million in income translating to an annualized return of 7.6%. This marked the strongest yield achieved in 2025 and reflects positive momentum compared to the full-year yield of 6.4%. Since inception, our diversified alternative portfolio has produced returns in line with our long-term expectation of 8% to 10%. I will now move to our Closed Block strategy. As Richard Paul McKenney mentioned, we have made significant progress over time reshaping our closed block. On this journey, we have established a track record for executing on prudent risk management actions such as seeking actuarially justified premium rate increases and maturing our interest rate hedging program. On top of these successes, we further advanced our strategy in 2025 through three notable achievements. First, the reduction of $4 billion of LTC reserves through the execution of our risk transfer transaction with Fortitude Re and our internal funds withheld reinsurance transaction. Second, the removal of our morbidity and mortality improvement assumptions derisking our assumption set and increasing predictability of the block. Lastly, the discontinuation of new employee coverage on existing group long-term care cases, which was effective February 1 of this year, resulting in the entirety of the block being in full runoff. To conclude, we are pleased with our actions in 2025 to derisk the block and continue to work toward our stated objectives of fully mitigating this risk. These actions continue to reinforce our expectation that we will no longer need to contribute capital to support LTC reserves, a view first established in 2023. Before moving on from the closed block and diving into the Outlook, one change I want to call out as we enter 2026 is a change in our go-forward presentation of adjusted operating income. Beginning with first-quarter results in 2026, we will exclude Closed Block earnings from our adjusted operating earnings measurements. Going forward in our disclosure, you will see a special item that encompasses the entirety of Closed Block earnings. As such, adjusted operating earnings will now be presented as the combination of our core businesses and our corporate segment. This change aligns with the actions we took in 2025 to reduce the footprint of our legacy closed blocks and provide sharper focus on the core business. As we continue to shrink the footprint of the closed block, we view the potential for increased earnings volatility that would otherwise distort our reported results. One recent example of this increased volatility in recent years is when we experienced GLTC case terminations which drove GAAP losses. While this outcome is positive for the block longer term, the GAAP earnings impacts may present a different result. In conjunction with this change, we also took the opportunity to holistically consider and adjust for two related impacts. First, we will no longer present non-contemporaneous reinsurance and the cost or gain of reinsurance as a special separate item. The related non-closed block amortized reinsurance gain and impact of non-contemporaneous reinsurance will move to segment operating results above the line, which impacts our individual disability line of business. Second, as part of this broader evaluation, we considered our methodology for allocating GAAP excess equity across our reporting segments. The result of this was a decrease in the allocated closed block equity and a corresponding increase in the ongoing operations. A function of our view that adjusted operating results are no longer supported by the closed block. Therefore, the corporate-owned excess should be represented in our reported results. Ultimately, this will drive higher investment income across our other reporting segments starting in the first quarter. Putting all this together, our 2026 adjusted EPS growth will be presented off of a redefined 2025 base of $7.93, which excludes closed block results and related items. For additional detail, we have added a slide in the appendix that illustrates the bridge from historically reported to our newly defined basis. Turning to the ongoing monitoring of the Closed Block, we have refreshed our disclosure as you can see here. We introduced these metrics during our fourth quarter 2023 earnings call to highlight the most relevant indicators of closed block health and performance. Given the change in presentation of closed block earnings, which was formerly used to help assess claim trends in the period, we would note that the MPR paired with the remeasurement line better captures near-term claims experience. When considering our view of no additional capital required for the block, our protection metric serves as a way to assess loss absorption capacity. This quarter, we took the opportunity to revise the presentation of this metric to fully be on a pretax basis aligning the treatment of both excess capital and reserve margins. Ultimately, these four metrics provide a comprehensive outlook of the block. As such, going forward, we will continue to provide details on a periodic basis. I will close by affirming that none of these reporting changes impacts our commitment to our strategy of reducing the footprint and capital demands of the closed block. Moving to the outlook for our core operations, I will start with our view of business growth and earnings power and discuss how that translates to capital generation. The key themes of our 2026 outlook are strong top-line growth, stabilizing margins, and robust capital return levels. Top-line results are expected to grow more in line with our long-term expectations and above what we achieved in 2025. While core sales in 2025 were lighter than anticipated, persistency was better than expected. As we enter 2026, we believe we can benefit from both strong sales growth and persistency in our core businesses. From a margin perspective, group disability was a main part of our story in 2025 as it normalized from historically high levels of margins in 2024. While volatile in 2025, we believe that we will still see a stabilizing benefit ratio of 62% to 64% in 2026, which still provides a very strong return on equity of greater than 25%. Combining these trends with our capital position and plans to repurchase approximately $1 billion of shares in 2026, we expect adjusted after-tax operating earnings per share in the range of $8.6 to $8.9 for full year 2026, representing growth of approximately 8% to 12% over our redefined 2025 result of $7.93 per share. I will now turn to our expectations for top-line growth, returns, and underwriting margins across our core businesses. Starting with Unum US, we expect premium growth to be between 4% to 6%. As Richard Paul McKenney mentioned, we will see continued tailwinds to our premium growth as a result of the success of our digital platforms. To quantify the impacts, I would note that for customers that utilize our HR Connect platform, we see close ratios that are roughly double when HR Connect is part of the experience and persistency at levels 2% to 4% higher than non-HR Connect customers. The benefit ratio outlook is relatively consistent from what we achieved in 2025 for group life and AD&D, but grading up slightly for group disability, which we expect to be in a range of 62% to 64%. Preliminary first-quarter indicators are broadly consistent with our assumptions and supportive of this outlook. Notably, through our financial planning process, clarity on the long-term benefit ratio outlook has emerged. As a result, we do not expect the group disability benefit ratio ultimately to be greater than 65% when considering normal volatility. This result translates to a robust ROE in the mid-20s. Underlying this future steady state is the expectation that our underlying claim trends are sustainable and that the move to a longer-term target is primarily influenced by expected pricing dynamics, which contributed a little under one percentage point to the ratio increase in 2025. Lastly, with the change I mentioned earlier to individual disabilities' amortization of the deferred gain, we now expect supplemental and voluntary earnings to be in the $120 million to $130 million range per quarter, including an expected benefit ratio range of 48% to 50%. Altogether for Unum US, these results drive healthy expected ROEs this year in line with the 22.6% we experienced in 2025. I will shift now to Colonial where our outlook for top-line growth and underwriting margins is quite consistent with 2025 results. Strong persistency and our building sales momentum will enable top-line growth to continue in the 2.2% to 4% range. When paired with consistently strong margins, ROEs will continue in the high teens range reflecting our benefit ratio expectation of 48% to 50%. Then in international, a high level of top-line growth continues after 10% growth in 2025. While 2025 saw margins contract below our expectations, we do expect the benefit ratio to return to a range of 70% to 72% in 2026. This will result in earnings power for the International segment in the low $40 million range quarterly delivering high teen ROEs. Adding it all up for the total company, this translates to healthy premium growth in the 4% to 7% range, in line with our long-term expectations, attractive ROEs, and after-tax adjusted operating earnings per share in the range of $8.6 to $8.9 representing growth of approximately 8% to 12% with momentum building throughout the year. Consideration for the quarterly pattern of earnings reflects the realities of the seasonality of higher expenses in the first quarter along with the growth of our in-force block and impact of capital management throughout the year. Finally, included in this outlook is our expectation that the corporate segment will reduce quarterly losses consistent with the fourth quarter's result of approximately $50 million and our adjusted operating expense ratio for the full year will be 22%. Executing against this outlook will position the company very strongly in 2026. Turning to capital, the strong returns our business provides enable high levels of free cash flow conversion. Capital generation in 2026 is expected to be in the $1.4 to $1.6 billion range when considering our statutory earnings of $1.2 to $1.4 billion, international dividends of $100 million to $125 million, and other service fees of $75 to $100 million. After considering debt service of approximately $200 million, this leads to free cash flow generation of $1.2 to $1.4 billion. For deployment back to our shareholders, our 2026 plans remain consistent with 2025. We expect to repurchase approximately $1 billion of stock and grow our common dividend per share by 10%, deploying approximately $300 million. Combined, this brings expected capital deployment to shareholders to approximately 100% of the free cash flow we generate, a target we now expect to achieve for a second straight year. Finally, I will finish with our expectations for capital flexibility at the end of 2026. We expect capital levels to continue to be robust and well above levels needed to support our current ratings. As such, our outlook includes a risk-based capital in our traditional subsidiaries to be 400% to 425%, holding company liquidity to be $2 billion to $2.5 billion, and ample leverage capacity under 25%. While current metrics are well above these requirements, to remain an A-rated company with our rating agencies, we will ensure a prudent approach to capital management. As such, we do not plan for immediate changes to our capital position but rather will gradually manage metrics down over time. To wrap up my prepared remarks, we are happy with the progress we made in 2025. While earnings ended the year below expectations, there were plenty of bright spots to be encouraged by, including strong top-line growth in our core business, significant capital return to our shareholders, and many actions taken to reduce our LTC risk and exposure, including our first external long-term care reinsurance transaction. All these items position us well as we enter 2026. We remain optimistic for the year and ready to execute against our plans to continue to deliver on our promises to our customers, create a desired workplace for our employees, and deliver industry-leading margins for our shareholders. I will now turn it over to Richard Paul McKenney for his closing comments before we go to your questions.

Thank you, Steven Andrew Zabel. I would like to wrap up today's comments by stepping back and reflecting on what our company has delivered over the last decade. Strong and consistent top-line growth has translated into value creation. This has been possible with a very resilient business model and a team that has bought into our purpose. Core operations premium has grown at a 4% compound annual growth rate to $10 billion even through the disruption of the pandemic. Additionally, book value per share, excluding AOCI, compounded at 8% to over $78 per share, doubling where it was ten years ago. These through-the-cycle results demonstrate the impact of disciplined growth, strong risk management, and consistent execution over time. It reflects the essence of our purpose-driven strategy: serve more employees, deepen our relationships with employers and brokers, and consistently convert that growth into premiums, earnings, and long-term value creation. We now like to take time to take your questions. I will turn it back to J. Matthew Royal for the Q&A session.

In the question and answer session, if you would like to ask a question at this time, simply press star followed by the number one on your keypad. Again, please limit to one question and one follow-up. We will pause for a brief moment to compile the Q&A roster. Our first question comes from the line of Wilma Jackson Burdis with Raymond James. Wilma, please go ahead.

Hey, good morning. Can you give us a little more detail on the drivers of the group's disability loss ratio and the outlook in 2026? What gives you the confidence for the result to stay strong this year? Thanks.

Wilma, thanks for the question. I think Christopher Wallace Pyne will start. Let's talk a little about the market and what we are seeing out there as we think about this year, how we executed next year, and then maybe back to Steven Andrew Zabel to some of the underlying dynamics. Getting a little deeper than what he had in his prepared remarks. Christopher Wallace Pyne?

Yeah. Thanks, Richard Paul McKenney. Thanks, Wilma, for the question. Right now, we continue to experience a marketplace that is receptive to the type of problems that we have made investments in around lead management, connecting to the human capital management platforms of choice. The conversations are really centered around what we can do to help HR teams run more effectively, more efficiently, help their companies thrive. Obviously, price across the bundle, whether it is group insurance, supplemental health, whatever it might be, there is discussion around striking good deals, but we feel it is a very favorable environment to go at. With our pricing discipline, about capabilities, talk about the problems we are solving, understand that prospect really well. Again, that could be a prospect on the new side or one of our current customers, and really show them how we can be a key partner going forward. It gives us a lot of confidence in the discussion around price, and that is why we think we can drive those loss ratios into the future. Yeah. And then, Wilma, I will talk a little bit about just what we saw in the quarter and how we are thinking about the outlook and just the projection. More of a multiyear basis. First of all, it is normal to see some quarter-to-quarter volatility. We were actually really pleased with how the full year turned out. We had an overall annual loss ratio of just over 62% for the year. ROE greater than 20%. For the year, we feel pretty good. It was pretty consistent with our expectations coming into the year. In the quarter, what we did see, though, were a couple of things. First of all, I would start with recovery rates that we saw were still consistent with really what we have seen throughout the year and what our expectations would be. It is just the number of people that we can get back to work has been in our expectations. What happened specifically, I would say, in the fourth quarter, one, the size of recoveries of those recoveries were about 5% lower than maybe what our expectations would have been. It was really just the mix of those people that did recover and go back to work. The other thing that was very different, and this is similar to our group LifeBlock where we saw very low mortality, in the working world, we saw lower mortality counts for our LTD claimant block. Just to size that up, they were a little over 10% lower than what we would have expected for the quarter and what we have seen really for the year. That was a bit of an anomaly that we think is just quarterly volatility. Then we step back and we think about going forward. We are obviously getting the question a lot just around our thoughts on the longer-term benefit ratio and group disability. Our thinking here is for the near term, including 2026, we think that benefit ratio will operate in the 62% to 64% range. We do think that it will gradually over the next few cycles glide up to that 65% range. We think that will probably be kind of the max. We will still have quarter-to-quarter volatility there. What I will tell you is the confidence in that path is really that we feel great about claims performance. We continue to think that that is very sustainable. Going to have quarter-to-quarter volatility, but we do think that risk management is going to be consistent. We also think, though, that there is an active pricing dynamic, and Christopher Wallace Pyne did mention that whether it is new pricing coming in on new cases or just how we manage the in-force block, that it is going to continue to impact how we think about benefit ratios going forward. We are trying to give a little bit more guidance. What I will tell you is that is what our planning assumptions would indicate as we just run the planning process going forward. We will have to see ultimately how pricing strategy does play out. Christopher Wallace Pyne said it, what we are seeing in the market has not really changed our thinking generally on the performance of this block, but we do know that there will be price adjustments as we go through the next few years. I just step back and say, longer term, the economics are great on this block. Start going to have margins in the mid-teens supporting the 25% plus ROE on this block of business. I am very happy about it. Knew the market was looking for maybe a little bit more clarity about the longer-term trajectory. Wanted to give a little bit more on that as part of the earnings call.

Thank you. Very helpful. Absolutely love the decision to move closed block below the line, and looking forward to not discussing those quarterly fluctuations with you in the future. Could you give us a little bit of color on how you view the 2026 EPS outlook on an apples-to-apples basis? It looked favorable compared to my prior expectations, but it is a little bit tough to compare given the reporting change. Thanks.

Yeah. I think, generally, it comes down to a few things. One is we do think we are going to be able to start growing top-line growth at a higher rate. You will see that with our expectation. We grew about 4.5% in '25. We do think that will pick up as we are going into '26 across all of our core businesses. We do think we are just going to generate more core business premium margin. Then we are also looking at just better ratio levels and by and large other than some of the dynamics that I discussed, we think those will be pretty consistent as we go into next year. Going to continue to have very disciplined expense management and really think about what kind of technical capabilities and innovation we can bring to make sure that we are doing the right thing around expense management. Then there is obviously a fair amount of capital deployment that builds into that outlook. When you bring all those things in, we feel good about an 8% to 12% EPS growth rate given the new definition of how we are thinking about adjusted operating earnings. Great. Thank you. Thanks, Wilma.

Our next question comes from the line of Alex Scott with Barclays. Alex, please go ahead.

Hey, good morning. I just wanted to follow up on the decision to move the definition of operating earnings. It does not change anything economically, and we will still be able to analyze some of the LTC below the line. What I thought was interesting about it is it does seem to be an extension of this being prepared for life after LTC. You took the charge, aligned it more hopefully with where reinsurers are at. You have closed the block. Now you have made a decision to move it into below the line or whatever. It would potentially make a deal look a lot cleaner as you complete it. I am just wondering is that the right read on this? What are you seeing in the reinsurance market that is maybe motivating you to do some of these things? Do you potentially have the opportunity to do a bigger piece of the block, or will it need to just continue to be bite-size?

Thanks, Alex. It is Richard Paul McKenney. Just to take it through, I think you captured it well, as we have been actively working on this block of business for many years, but certainly over the last several, it has been a steady drumbeat of things that we are doing to really put LTC behind us. Many things you talked about in terms of improving the profitability around that block with the rate increases, the work that we did to put capital behind it to make the statement that we are not putting any more capital into this business. Then as you talk about, 2025 was a pivotal year in terms of doing our first reinsurance transaction, doing an internal reinsurance transaction, all the things that we talked about coming out of the third quarter with the group life, I am sorry, with the group LTC, etcetera. So very steady things that we are doing. This move is, I think, part of that. The last piece to talk about is what is next. It is something we have been talking about pretty consistently is we want to continue to take the opportunity to get out of this block of business, to do so through reinsurance. Be active in the markets around that. You asked, does this make us do anything different? Not really. I think that we are still on the same path of how we are going to look at different parts of the block of business that we want to look at reinsurance to use are still in active discussions. We have been in active discussions for a period of time. We will continue talking to counterparties about what are the ways to take this out. You asked about the sizing of a transaction. Those are all on the table in terms of things that we can look at continue to work through this. I think you captured it well. This is something we have not stopped on because we have changed the reporting. How does the reporting look? Does not mean we are changing anything about our activity around the strategic management of the block, including all the things we have done previously. We are going to stay on that. That is a key part of our overall strategies. Continue to put LTC behind us.

Got it. That is helpful. Next one I wanted to ask is on artificial intelligence. We are getting a lot of questions from investors around this, and related to group benefits, a lot of it is around your client base and if they have layoffs and so forth. I would be interested if you could comment at all about the types of industries you are exposed to, if you have done any work or put any thought behind how relatively more or less exposed you are and maybe even just broader thoughts on risk and opportunities related to AI.

Yeah. No. Thanks, Alex. We are continually monitoring what is happening in the macroeconomic conditions when you think about it. I think we have also talked about our book of business and what we see from a natural growth, which is the increase in that we see in payrolls and wages and how that fits into our overall block of business. I think this is part of that question that we look at. The awareness that we have and the balance we have across the portfolio of different types of industries that we are actually covering. Different types of workers that we are covering, I think is very well balanced across the piece. When we think about the potential labor impacts that AI can bring to the markets, when we look at that business mix that we have today, we think it is early. Our performance has remained consistent across the industries. Our book is well diversified. Diversified and so that helps mitigate localized or specific sector shifts that you might see over time. I think that, you know, this is kind of a common phraseology, but history does suggest that these advancements will reshape the nature of work rather than reduce it or eliminate it, and so certain roles may diminish. New functions will emerge. All those pieces, and we will be there to take care of those individuals at that time. What we look at. I think it is very early on that front. The last thing I would say too is, you know, our mix by type of work or one of the things that we talk about is protecting people is not for any one particular level in the organization. Our mix is probably sixty-forty. White collar, blue collar. We are going to make sure we are taking care of different people at different times. It is a fair question, but I think it is very early, it is one we are definitely on top of.

Thank you.

Our next question comes from the line of Suneet Kamath with Jefferies. Suneet, please go ahead.

Yes, thanks. Just wanted to follow up on the LTC. You kind of answered the question, Richard Paul McKenney, in terms of what you guys are doing. What are you seeing in the marketplace? Are there more counterparties that are looking for this type of exposure? I mean, we have seen a couple deals. I am just trying to figure out, like, how much interest is there in these types of liabilities. Thanks.

Yeah. I take you back to some of the commentary made coming out of the transaction. Clearly, when we did this transaction early last year, we saw more interest coming up from different types of counterparties. That could be people that are interested in the morbidity aspects of the book, people that are very interested in the asset side of the book of business. That definitely picked up over that period of time. We see it ebb and flow continually, but there still is a lot of interest out there continually. We just watch the markets. As I say, having active conversation with multiple people, and we will continue to do that. It does tend to ebb and flow. We manage this over the longer term. I do not want people to think that there is anything imminent on that front. There still is interest certainly on the asset side, but on the morbidity risk side as well.

Okay. Then I guess on the capital, I fully appreciate 100% capital return based on what you are generating. To your point, it still leaves you with a sizable excess holding cash holding company cash position and RBC well above target. I know you want to manage this down over time, but I guess what is the time frame that we should be thinking about in terms of getting to those target RBC and holdco liquidity levels? Thanks.

Yeah. Sure, Suneet. I think when you think about the you have to go back to what our uses are and potential uses of deployment. First of all, grow the business. We can put more capital into growing the core franchise. That is what we are going to do first and foremost. Acquisitions, we will do so on a certainly a disciplined basis, thinking about how we put capital to work there. Those are two things that we would like to put it to work on. As you have seen over time, our capital has been in a very strong position. I would not put a time frame around it. We are going to address this as we look at plans every year. We kind of gave you our 2026 plan that we have today. As we look at future years, we will do the same. We feel very good about the position that we are in today, about how much we are deploying back to shareholders, at the same time sitting on a very robust capital base.

Our next question comes from the line of Jamminder Singh Bhullar with JPMorgan. Jamminder Singh Bhullar, please go ahead.

Hey. Good morning. Maybe first, if you could just comment on what you are seeing in terms of competition in the market and it seems like everybody has had very good margins in disability, recently, some of the companies have mentioned that they are seeing some price reductions, but the one one twenty-six renewals. Just talk about what you have seen.

Yeah. Jamminder Singh Bhullar, thanks. It is Christopher Wallace Pyne. I would start with traditional competitive continues. There is no question there is real interest in this business. It is a great business as Richard Paul McKenney and Steven Andrew Zabel have described. We really feel great about the strategy that we have deployed to operate well in that market. I do not think it is abnormal competition. I do not see abnormal kind of drops in the market that cause you to change your approach. We are going to go back to our disciplined pricing approach, understanding risk. We know that with the capabilities we have built we can be much more intentional about the companies that we promote our products to. Because they will respond really well and they are ready to take advantage of things like modern lead management on modern system, you know, where they have made an investment in a platform that is important to them, we can show them how we can make that decision even smarter. Then, you know, wrap it with a bundle of, you know, the best financial protection products out there that do really well for their employees. That is a nice kind of combination. Our team has been running this play for several years. We get better at it. The investment and capabilities gets deeper. It just deemphasizes that price comp part of the conversation. To your point, we are aware that people have healthy businesses and we stand prepared to compete both on new business and on renewals. We are seeing success. I might point out the second half of the year was really our strongest, you know, from a sales persistency perspective. We feel really good going into 2026.

Okay. Then on your comments on margins sustaining guess, in the 60s, I think if you look longer-term disability generally been a pretty good business. Even prior to COVID. In those days, it used to be a 70% plus loss benefits ratio business for most companies with still very good returns. I think you and most other companies were surprised as post-COVID, the margins improved as much as they have. Now they are starting to somewhat normalize. What gives what is different about the business, now versus that would not cause margins to maybe go back to what they used to be? Why does it just settle in the mid-sixties? Why should not it go in the seventies? Because that still is a fear that could return in the context of this industry.

Yeah. This is Steven Andrew Zabel. What I would tell you is it was not COVID that necessarily created a step change, you know, in the margins that we have in this business. The biggest driver improvement in our book of business is around the rate that we can get people back to work. Recover. We did specific things. We increased our over that period of time in several areas. We think that that improvement is sustainable and is not something that just happened, you know, during a kind of an unusual time during COVID. We have seen that stabilize over the last couple of years, and we definitely think that is achievable going forward. We continue to have very steady incidence rates. As Christopher Wallace Pyne mentioned, I mean, the pricing continues to be very reasonable there. We will run kind of our normal process that we do every year as we go through our new pricing a renewal process, but that is something that we have been doing for years. I do not view there as being pressure that we revert back to something that was, you know, pre-COVID because we have actually taken actions during that time and feel that we have very sustainable performance. Within our operational areas to maintain it. Yeah. That is why we feel confident that kind of the new norm for us will be somewhere in that mid-sixties range. What we see right now in our projections, that that benefit ratio would not go above 65% other than, you know, maybe some quarter-to-quarter volatility. Yeah. Jamminder Singh Bhullar, it is Christopher Wallace Pyne. I might add you have been doing this a long time. I know, I remember the days when the table stakes to get in on an RFP were jeez, can you meet the provisions of the contract? Whether you are a high-quality carrier or person who knew or entered, that was mark you had to achieve. It was a little bit easier to make sure you had filed the right provisions and they could enter the IRP and what sometimes into more of a price competition. The world has changed a lot. We went through COVID. That was just what was going on in the world. As a business, all the elements that Steven Andrew Zabel mentioned are foundationally changed the way we can execute for sure. Then you layer in a new set of table stakes around, are you welcome to come into this RFP? Can you do the lead services that are required? Do you have the tech connection to make it work? Are you able to run the enrollment solutions that are required by the customer? So that sophisticated customer who knows what they are looking for, that is who we are targeting, and we are able to provide a more modern set of solutions that make it much more difficult to just enter and make it a commodity sale.

Yeah. I think you and some of some of your peers, not all of them, they are generally ahead in terms of lead management and capabilities. It just seems like everybody else is investing in that too. The question is whether it gets completed away down the road or not. Guess we will see.

Well said. We look forward to that. Challenge because these things are you know, they are real. When you are thinking about leave for sure is very definable. But technological connections if they do not show up the way they are promised, that realized pretty quickly and we feel good about what we are experiencing. I will leave it at that.

Thank you.

Your next question comes from the line of John Barnidge with Piper Sandler. John, please go ahead.

Thank you for the opportunity, and good morning. My first question is on the investment portfolio. Can you talk about exposure to software in the investment portfolio that exists? After moving Yep. Maybe the closed block below the line because I know there are some alternatives. That go through that. Thanks.

Yep. Great. Thanks, John. Yeah. This is Steven Andrew Zabel. We feel really good about our position. I will size it up a little bit and then let you know how we are feeling. We have less than a percent in our bond portfolio. What I would tell you, it is in our investment-grade bond portfolio, very well managed. They are integrated software providers. They tend to have a more stable, you know, credit profile and business profile. Really no leverage loan type of structures in our portfolio. We have pretty vanilla invest in some of the really large integrated software providers. If you look at our alternative assets portfolio, that is right around 0.5% maybe in that portfolio. Again, the types of investments we are making there, we feel really good about it. Obviously, we are going to monitor this. It obviously is on our watch list. What I will tell you is we feel good about how we are positioned and kind of the part of the broader software allocation where we really play, we feel good about.

Thank you. My follow-up question is on the international business. It looks like there were some unfavorable claims resolutions and higher incidents in the group long-term disability product line. Can you maybe talk about that? That sounds like maybe some frequency and, I do not know, severity. Love to hear more.

John. Maybe we will turn to Mark Till to just talk about the market of what we are seeing in the UK and then back to Steven Andrew Zabel to talk about the specifics that you asked. Mark Till?

Yeah. Thank you, Richard Paul McKenney. The UK market at the moment is generally pretty buoyant as a place to do business. As you can see that in our top-line growth in the business, premium income up 8% for the year. There has been a little bit more volatility in the claims incident at the moment, which Steven Andrew Zabel can talk a bit about. We have got several government initiatives at the moment that are designed to try and improve the general health of the workforce. We have got something called keep Britain working that is coming. These things should be positive for our business more generally, but maybe, Steven Andrew Zabel, you want to talk about the claims.

Yeah. Sure. Absolutely, John. The current quarter was one of the more challenging quarters that we have seen for a while. The international segment is performing actually very strong over the last few years, I would say. So been a very good business. Great top-line growth with very stable margins. This quarter, we saw a couple of things. One, we saw a higher number of just new disability claims and really no concentration from a geography or industry or anything like that. We did see a tick up in just the counts of our disability claims. We also saw something similar to what we saw in the US. Where some unfavorable volatility in just the size of the claims we terminated. We were pretty happy with the counts of those that recovered and got people back to work. It was just lower size than maybe what we would have expected. I just pull back in over the longer term and across really all the product lines in international we do expect the UK to contribute to the international benefit ratio being in the low seventies. Feel great about the business. Very cash generative, and, you know, we had kind of a tough quarter. We will just have to see how that plays out as we get into 2026.

Thank you.

Thanks, John.

Our next question comes from the line of Thomas George Gallagher with Evercore ISI. Thomas George Gallagher, please go ahead.

Thanks. First question is how much of your alternatives portfolio will be put into this discontinued operations? After the earnings change and how much is going to remain in the closed in the open block still reported as operating earnings. Then I guess a related question, would another risk transfer deal Richard Paul McKenney be an event that may cause you to reevaluate your excess capital deployment plans or no? Is that not something that you think would be on the table?

Yeah, Thomas George Gallagher. It is Steven Andrew Zabel. I will take the easy one. It is pretty straightforward. The vast well, first of all, let me clarify. We are not putting the closed block in the discontinued operations. That is kind of a specific accounting designation. We are, in essence, taking those operations and just excluding them from our definition of adjusted operating earnings. It is settled, it is a difference. Yeah, that basically, the entire portfolio back the long-term care block. We have some other legacy, but it is de minimis. That is the way to think about it is the earnings that come off of our alternative investment portfolio will now be below the line.

The second part of your question, Thomas George Gallagher, was around the excess capital that we have and LTC transactions. It is hard to tell until you have a in front of you. We were very happy about the really little capital impact that the first transaction had to us. We are going to have to see when we get closer to the finish line on that. We are not holding back capital specifically for that type of event. I think we are managing our capital well. The thing that Steven Andrew Zabel mentioned in the comments we still have a lot of leverage capacity as well. We have got firepower to do both. I would say we also want to be clear that as we remove this legacy exposure, we want to ensure that these transactions are focused on that our shareholders will also view them that being in the best interest of the company. We want to make sure we are doing things that are smart overall for the long term. We clearly have a bias to removing this legacy, but we are going to do so in a shareholder-friendly way. I want to make sure people understand that, you know, we are going to be very thoughtful about any transactions we might do in the future.

Thanks for that. Then just my follow-up is, I guess, one of the big concerns that I hear from investors is they see every other day you get a big layoff announcement from another company. You know, at least the perception is that this is going to translate into disability claims. That there is a strong correlation. I guess so my related question is, when look at the broad or number of corporate announcements, for layoffs, have you seen any increasing claims in those clients that you have? Is that something that you have looked into? And then maybe could you also comment on whether actually is a real correlation when you have looked at your own claims experience in periods of higher unemployment.

Yeah. I think it is a good question, Thomas George Gallagher. We talked to Alex Scott's question a little bit about just the overall employment base. When you think of disability particularly, I understand that these are for people that have a condition where they cannot work. When we look at it, sometimes in a recessionary environment, you will see an increase in submitted claims. People are, you know, out of work and they are looking for it, but we only pay on that are truly valid claims. We might see higher submitted, but we generally see maybe very, very different very, very small change you see in the paid claims. We would expect to see that in this type of environment. We might see a little bit higher submitted. We have not to date, so a lot of these announcements are just coming out, and they are announcements. We have not seen that come through our book at all to date. Over time, we are going to be very good about paying claims of people that are truly valid, and so we just do not expect necessarily to see that come up.

Well, thank you all for letting the call run so long and giving me an opportunity. Appreciate it. There are a couple of companies that have some issues in medical stop-loss. One of them said that they have seen a rise in cancer among young people that that is causing some of those issues. Are you seeing anything in that sort of cohort and experience that is causing you to make any changes in how you price disability or group life business?

Yeah, Joshua Shanker. It is Richard Paul McKenney. Let me try that. We are familiar with the stop-loss business. We exited that business going back a couple of years ago. What we have heard similar things, you know, we monitor across the board in terms of what we are seeing in the working lifetime. I would say that the particular that diagnosis in the US, you know, we have not seen a big change in terms of younger mortality coming from specifically cancer diagnosis. Understand ours is mortality within the working lifetime, so as you see trends within that, you are not expecting much in the way of mortality over that working lifetime, particularly at younger ages, so it is something we would watch but nothing has really stuck out to us that would be coming through in our group life block. As you saw, we have got very good live free good life re group life results really over the course of the year.

Your next question comes from the line of Wesley Collin Carmichael with Wells Fargo. Wesley Collin Carmichael, please go ahead.

Good morning. Thanks. I had a question on group disability, but maybe from a little bit of a different angle. I know everybody focuses on the benefit ratio. If I go back a couple of years to the outlook from 2023, I remember there was a slide on efficiency and investments you were making that I think you showed the expense ratio peaking in 2023 and declining post that. I know you continue to invest in this business and lead management, etcetera. Just curious if we go forward, is there a point where you think expenses can kind of inflect and we can get some operating leverage in the segment?

Yeah. I appreciate the question, Wesley Collin Carmichael. It is something that you have heard throughout the conversation today about the amount of investment that we are making. We have continued to see great opportunities. We have continued to invest. We did, your 2023, as you talked about that, we saw that inflection point somewhere in that range. I think it has moved out a little bit, but what we are expecting as we look 2026 is you will see our operating expense ratio come down. That is inclusive of a lot of investment, but also good productivity that we are going to see coming out of our teams and across the business. We do think there is operating expense leverage that we will see in the coming years, but you are right, it is because of the investment that we have been making that has delayed that a little bit.

Yeah. What I would add is, you know, we always are driving productivity within the organization, and there are times that we decide to invest back in either within you know, back into our people to support our operations or also our technology. Yeah, we would expect going forward, maybe not, you know, immediately in '26, but over time, we would see that stabilize and then go down over time as I think we will see that productivity really overwhelm the investments that we are making back into the organization.

Great. That is helpful. Thank you. Just maybe a follow-up on LTC and premium rate increases. I just wanted to see if there is any real update on how the program is progressing. I know there was a pretty sizable request that was put in for 2023, but just wanted to see how that was performing and any other updates on that.

Yeah. We feel really good about that program. Really coming in closing out the year, we just expanded the program back in the latter half of last year when we made our assumption update. Around our best estimate assumptions. We have launched that additional expansion. Along the way, we are at about 15% achievement approval for kind of the expanded program. We feel good about it. I would say the regulatory environment continues to be very open to this discussion. Similar to what I have kind of commented on in the past, it has turned into kind of an administrative process just working with the states and getting them what they need to support the request that we put in. Generally speaking, that has been a pretty stable environment for us, and we continue to make really good strides. I think Richard Paul McKenney mentioned it. We topped $5 billion of value as far as what we have been able to achieve really over a decade plus with those programs and have a really good team that is working with regulators to be able to get those approved.

Gotcha. Thank you. Can you provide any numbers? Like, what percent of your total disability business is and what kind of growth rate you are seeing?

Yeah. You know, I think that it is probably best to just look at our very large book of disability business and say, the way it has flowed in and again, we have seen all the way back to New York and Massachusetts, through the most recent quarter. There are quarters where it is in the numbers. It does flow through. We like to think about it as just something we can manage by absorbing it into the business.

That concludes our question and answer session. I will now turn the call back over to Richard Paul McKenney for closing remarks. Richard Paul McKenney?

Great. Thank you. We do thank everybody for taking the time today this morning. We will be out in a series of events where we will be able to answer more questions, any follow-ups. Certainly, the team will be here to do that. We will be out as early as Monday actually to talk to you. We do appreciate you joining us today, and that does conclude the call.

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