Good day and welcome to the Unum Group Fourth Quarter 2016 Earnings Conference Call. Today's conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to Senior Vice President, Investor Relations, Mr. Tom White. Please go ahead, sir.

Great. Thank you, Jim. Good morning, everyone and welcome to the fourth quarter 2016 earnings conference call for Unum. Our remarks today will include forward-looking statements, which are statements that are not of current or historical fact. As a result, actual results might differ materially from results suggested by these forward-looking statements. Information concerning factors that could cause results to differ appears in our filings with the Securities and Exchange Commission and also located in the sections titled Cautionary Statement Regarding Forward-Looking Statements and Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and our subsequently filed quarterly reports on Form 10-Q. Our SEC filings can be found in the Investor section of our website. I'll remind you that the statements in today's call speak only as of the date they are made and we undertake no obligation to publicly update or revise any forward-looking statements. Also, a presentation of the most directly comparable GAAP measures and reconciliations of any non-GAAP financial measures included in today's presentation, can be found in our statistical supplement, also on our website in the Investor section. Participating in this morning's conference call are Unum's President and CEO, Rick McKenney, CFO, Jack McGarry as well as the CEOs of our business segments, Mike Simonds for Unum US, Peter O'Donnell for Unum UK and Tim Arnold for Colonial Life. And now, I'll turn the call over to Rick for his opening comments.

Great. Thank you, Tom and good morning, everyone. Our fourth quarter was another excellent quarter for Unum, capping off a very good year. On the quarter, after-tax operating income per share increased over 5% to $1 per share and bringing our full year 2016 operating income per share to $3.92, which is a record for our company. This represents an increase of just under 8% over full year 2015, which was also above the upper end of our original outlook range of growth of 3% to 6%. This performance was broad based and driven primarily by solid premium growth, especially in Unum US and Colonial Life. There was also a very strong operational performance across all of our business lines. I remain very encouraged by our ability to deliver these results in an environment of still relatively low interest rates and more recently, a weaker British pound. I am equally encouraged by our company's potential to generate even stronger results, as the economy improves and potentially as interest rates move higher. As we discussed with you at our outlook meeting in December, I believe the primary reason we are delivering these strong results and doing so on a consistent basis is that we are well positioned strategically in the Employee Benefits market. We excel at the fundamentals of our business in three primary areas; distribution and relationship management, pricing and risk selection and claims processing and management. You will see this expertise come through in the premium growth we are generating in our core businesses, while also maintaining very attractive profit margins. The reason is that as we pursue this growth, we do so in a disciplined way. Jack will cover this in each of our business lines in his comments in a moment, but let me first provide a…

Thank you, Rick and good morning, everyone. Rick provided a high level overview of our fourth quarter results. And now, I want to provide a more in-depth view of the themes we’re seeing in our business. First, it was an outstanding quarter for Unum overall. Our tax operating income per share of $1 is an increase of 5.3% over last year. We achieved these results, despite the 33% tax rate in the fourth quarter, which was driven in part by the sharp rise in interest rates in the UK. Our before-tax operating income increased 7.6% to 346.9 million, the strongest rate of growth we've experienced in many years. As in prior quarters, we continue to be pleased with the strong balance between the operational performance drivers of our EPS growth and the capital management drivers. Leading the growth in before-tax operating income was our flagship Unum US segment, which produced record operating income for the fourth quarter of 240.1 million, an increase of 12.1% over last year. While each of our Unum US business lines performed well, group disability had an outstanding quarter with before-tax operating income of 89.5 million, an increase of over 35%. The earnings growth was driven by a sharp improvement in the benefit ratio from 81.7% in the fourth quarter of 2015 to 77.7% in the current quarter. The current benefit ratio includes a 50 basis point reduction in the discount rate for new claim incurrals and is consistent with the 76% to 79% range that we communicated at the December investor meeting. The improvements in the group disability benefit ratio that we've seen throughout the year continue to be driven by favorable incidence trends in the cumulative benefit of rate increases on renewals over the past several quarters. Group disability premium income growth was 3.7%…

Thank you, Jack. We'll now move to your questions and as I conclude our prepared remarks, I want to reiterate how pleased we are with our overall results for the fourth quarter and full-year 2016. I'm encouraged by the positive momentum we have going into 2017 which will serve us well as we manage through the year. So let me now ask the operator to begin the question-and-answer session.

[Operator Instructions] We'll take our first question from Jimmy Bhullar from J.P. Morgan.

I have two questions. First on the US business, if you could just discuss the operating environment and whether you are starting to see a benefit from wage inflation and hiring in your numbers. And also just how pricing trends were as you went through renewal season for the past year? And then secondly on UK, how susceptible do you think your business is to Brexit and the like potential workforce reduction at some of the large financial services companies, whether you’ve seen it already or are you expecting that and how much is it - of that is baked into your guidance for ’17?

Thank you, Jimmy. Let Mike start with the view on the US market.

Thanks and good morning Jimmy. So, two parts to your question I'd say, we continue to see a nice gradual increase to the tailwind of natural growth that shows up just straight directly into premium on the employer funded business and it shows up in our voluntary plans as well where we had really strong re-enrollment results for the fall and headed into 2017. I think in terms of the market, to the second part of your question, first and foremost for us is the ability to renew our existing client base and we saw persistency just north of 90% in the group lines again. And we’re able to hit our pricing targets through the renewal cycle, so we feel very good about that. Encouraged to see little over 8% sales growth as well, now a good chunk of that came from existing client sales both cross-selling and enrollment. But the very smallest end of the market, small case group insurance we actually saw an increase year-over-year on new client sales those are the shortest sales cycle clients and so that's probably the most current view. And as we mentioned at the outlook meeting, this is the first year in a few where we're not going in with new business price increases on the group side. So reasonably optimistic that we've got a rational marketplace out there probably tempered just a bit by the mid market which remains quite competitive.

Probably maybe we'll go over to Tim Arnold at Colonial Life to hear his view on the market as well.

Thanks Rick, we're encouraged by the growth we're seeing in the small case market especially, the employment growth and the wage inflation also helps us when we go back out to reenroll an existing client. We have employees who are earning more and maintain more income protection and more protection through some of our other products as well. So we're optimistic about the environment.

And you’re second question was on UK Brexit, Peter O'Donnell, do you want to hit on both what we're seeing today and then how we're thinking about that going into ’17.

Yeah, thanks for the question, so in terms of what we've seen in 2016 is basically a slight slowdown. So you've seen in our premium numbers that we had very strong sales, we also saw very strong persistency, but wage growth was relatively weak as was employment growth and we think that business investment is sort of damp at the moment and people are being cautious about the future. What we haven't seen is a significant exodus and what I'd say is that's quite unlikely moving large parts of complicated financial services to the EU is incredibly complex and high risk you know. So if you move from our derivatives trading, it's hugely complicated to manage and regulate. And the city of London remains a good place to do business. What we are hearing from some of our clients is they may set up some offshore sites where they will move some jobs but relatively low at the moment to enable them to sort of continue trading in Europe, but we're not seeing any indication of any mass exodus at the moment. So I think in our outlook what we factored in was really a continuation of what we saw in 2016. We think wage growth will remain slow even with inflation going up and we also think that people will be cautious about business investment until we’re clear on the exact Brexit implications.

And financial services as a percentage of your premium base in the market, is it, I think it's about 20%, 25%.

Yeah, it’s around 20%, but it's spread across a lot of non-investment banks, so we would have a lot of the retail banks that will be very UK oriented. So it’s not quite as significant as that when you sort of look at what's truly affected. And you think about industries exporters, they were also exposed you’re going to do well because of weak sterling. The tech sector stay well over here, so we got a pretty balanced portfolio really.

Moving on, we'll take our next question from Mark Hughes from SunTrust.

Could you talk about the Starmount acquisition just thinking about how the sales would be distributed over the four quarters, it's obviously making a nice contribution, dental and vision there. I think you did a 10 million in new sales in the quarter. How should we think about that number for next year in terms of overall sales and how would it be distributed through the year.

Yeah Mark, we appreciate the question, we're very excited to have Starmount as part of the fold and how that fit strategically with us. And I'm sure they’re listening in, many of our new employees there, so we certainly welcome them. Mike you want to talk about our outlook and how we see the business overall?

Yeah, good morning Mark, delighted to talk about Starmount. So the way I think about it is what you see in the fourth quarter is the Starmount branded and Starmount distributed results. We are now in the market as of the first of January with Unum branded dental and vision products and so I would expect that the sales would ramp up through the course of the year as we bring it out to initially about half of the 50 states and begin to bring Unum sales people and client managers to bear on the portfolio. The seasonality of the business will track with our group insurance more broadly, so you'll see in general fourth quarter being our strongest sales quarter which is another reason why it will ramp up as we go through the year.

And then the - when we think about the sales outlook for Colonial, double digit growth for the full year kind of high-single digits in the fourth quarter when you look at the kind of your recruiting, your pipeline let's say, how do you think we should look at 2017.

Tim?

Yeah, thanks Mark. We are optimistic about 2017, the leading indicator is that we evaluate for ourselves progress are all turning favorably, the recruiting that we experienced in 2016 was strong and above our internal plans. The growth in our sales offices was also very strong. Growth and sales measures are very strong and we continue to see great opportunity in the marketplace.

I would add that we’re actually making investments in the expansion of our footprint in the Colonial Life salesforce and are very encouraged by recent success there and we’ll continue to do that in 2017 and beyond.

Moving on, we’ll take our next question from Seth Weiss from Bank of America.

Just wanted to follow up on the reinsurance transaction and supplemental involuntary. And sorry if I missed this in the prepared commentary that $25 million impact on premium offset on the expense line, should we expect that to be ongoing or is that just something unique to this quarter.

I would expect it to be ongoing that's the seated premium. The benefit in expense piece that offset is ceding commissions as well as some risk sharing. So I would look at that as affecting those lines at that level but having no material impact on really the operating income of the line and just improving the capital efficiency.

And if we think about your topline guidance that was given for 2017, should we just adjust that down accordingly or was that contemplated the reinsurance transaction when you gave that guidance.

That would have been in there.

[Operator Instructions] Moving on, we’ll take our next question from Sean Dargan from Wells Fargo Securities.

At the December Investor Day, Jack mentioned the possibility of basically paying another party to come up with a LTC solution and you did build the cash balance at the holding company. I'm just wondering if you've gotten any closer, have you have any more insight about what type of appetite there might be from traditional or nontraditional counterparties?

Jack you want to hit on that?

It is a complex thing with long-term care. I would say we're not imminent in terms of having a solution. The rise in interest rates certainly helps the bid ask spread and that you know so we continue to be active in the market we continue to talk to people we continue to work with our regulators. It’s clearly something we've focused a lot of attention on, but I wouldn't say that anything imminent.

And to add to that Sean, you also talked about the increasing cash position and capital build up that we have and I wouldn't equate those two, but Jack maybe you want to talk about our capital generation where it is today and how we're thinking about it?

So we feel really good about our year-end capital position based on extremely strong statutory earnings that we had in 2016 which will drive 2017 dividends. We expect that position to continue to build. As we look at our capital position I’d say our uses for it have remained very consistent that’s continuing to invest in our core businesses. We’ll continue to look at the M&A market for our opportunities. We continue look at our dividends and support our dividends and continue to maintain our payout ratios. And then finally we look at share repurchase. Our stock price is run up, but we will tend to be very consistent and predictable in our share repurchase and capital plans. We're not going to overreact to current stock prices. Actually we still feel that at $46 a share that our stock is a good investment and that we will put money into. And we will be building cash this year and would expect to build cash into the future as well. We will be looking very closely at what to do about it. There's a lot of unanswered questions out there on interest rates, tax reform, the economic environment, but as we get more clarity about where those things are going to land and take stock of where we are, expect we will be communicating more in the future about our capital plans.

[Operator Instructions] Moving on, we’ll take our next question from Ken Billingsley from Compass Point.

I had questions, one on the investment portfolio looking at the balance sheet. Total investments from third quarter and fourth quarter were down about 2 billion, looks like reserves were off, were down 1.5 billion and then the AICO adjustment was 500 million. Was this related to the reserve, I’m sorry the reinsurance transaction or could you just explain to me what the moving parts were?

That had more to do mark to market basis in the balance sheet with the rising interest rates we saw in the third quarter. Reserves were down but the market value of assets were down a commensurate amount.

But not a connection between something that happened from a reserve?

No, it’s nothing in the underlying performance of the business or the reserve level.

Or the reinsurance [indiscernible].

From a book value perspective things were pretty consistent.

And my next question, having - I’d just you guys to look back to 2013, I'm just trying to get an idea of what you think ACA reform may have on the impact of sales and persistency and looking back at 2013, I guess that was the year before the mandate went into place. There was a decline at Unum US and Colonial Life and nearly every segment for sales and persistency. Now it bounced back in 2014. Was this a distraction for customers as they were focused on what was going on with ACA and could we see that in the future as reform is in place and they have to focus on how it's going to back their business maybe less focused on employee benefits.

Thanks Ken. We'll start with Mike and then we’ll go over going to Colonial Life.

Ken, you have an excellent memory, 2013, we absolutely did see markets freeze up a bit as employers and their advisors tried to sort through the implications of ACA, a small tweak to the commentary though, it was a slowdown in sales, persistency was actually strong through the period because business didn't tend to move. As we look into 2017, you are right, there is uncertainty around the administration and the future of the Affordable Care Act. It’s something that we're watching really closely. I'd say though on balance, we're quite optimistic that we won't see a slowdown like we did back in 2013. It seems more unlikely given the fact that we will be unwinding requirements versus putting new complex requirements in place. So in that regard it's likely to be less disruptive. And I say in general as you’re unwinding, employers are slow to make broad-based benefits changes unless they're compelled to by new regulations. So I can see a more conducive environment than we saw back in 2013. Now Tim, I don't know if you got a view on Colonial Life.

I agree with that Mike, the slowdown on Colonial Life sales in the third quarter of 2013 was also amplified by the fact that we were making a number of changes in our distribution system and leadership which have helped us become more effective but created a little bit of a slowdown in that same period when ACA was being implemented. So like Mike, we are pretty optimistic that any changes at this point would be less impactful. The need for America's workers to have the kinds of benefits that we offer has never been greater. We've talked to you guys before about the 30% of American households have no life insurance and significant under-insurance and disability increasing medical deductibles which all play in our favor as we think about the marketplace.

And at this time that will conclude today's question-and-answer session. I’d like to turn it back over to our speakers for any additional or closing remarks.

Thank you. We appreciate the questions this morning. I think that it’s a little bit reflective that we had a very straightforward and very positive quarter which was a great wrap to the year. So we thank you for all for taking the time to join us this morning. We also look forward to seeing many of you in the coming weeks. We're going to be quite active out in the market at various investor events over the next several weeks and look forward to telling you our story in greater detail as we do that. So I appreciate the time and we'll talk to you soon. Operator, that now completes the fourth quarter 2016 earnings call.

Thank you. And as they said, everyone that will conclude today's conference. We thank everyone for their participation.