Hello everyone and welcome to the Unum Group Second Quarter 2022 Earnings Conference Call. My name is Daisy and I'll be coordinating today's call. [Operator Instructions] I would now like to hand the call over to your host, Tom White, Senior Vice President of Investor Relations at Unum Group, to begin. So Tom, please go ahead.

Great. Thank you, Daisy. Good morning, everyone and welcome to the second quarter 2022 earnings call for Unum. The one last time, 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 are 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, 2021 and our subsequently filed Form 10-Q. Our SEC filings can be found in the Investors section of our website at unum.com. I 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. 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 on our website in the Investors section. So yesterday afternoon, Unum reported second quarter 2022 net income of $370.4 million or $1.83 per diluted common share, an increase from $182.9 million or $0.89 per diluted common share in the second quarter of 2021. Net income for the second quarter of 2022 included the after-tax amortization of the cost of reinsurance of $13.1 million or $0.06 per diluted common share and a net after-tax investment loss on the company's investment portfolio of $3.1 million or $0.02 per diluted common share. Net income in the second quarter of 2021 and included the after-tax costs related to the early retirement of debt of $53.2 million, $0.26 per diluted common share, an after-tax impairment loss on the right-of-use asset related to one of our operating leases for office space that we are no longer using of $11 million or $0.05 per diluted common share, the net tax expense related to a U.K. tax rate increase of $24.2 million or $0.12 per diluted common share, the after-tax amortization of the cost of reinsurance of $15.5 million or $0.08 per diluted common share and a net after-tax investment gain on the company's investment portfolio of $600,000 or $0.01 per diluted common share. So excluding these items, after-tax adjusted operating income in the second quarter of 2022 was $386.6 million or $1.91 per diluted common share, an increase from $286.2 million or $1.39 per diluted common share in the year ago quarter. Participating in this morning's conference call are Unum's President and CEO, Rick McKenney; Chief Financial Officer, Steve Zabel; Chief Operating Officer, Mike Simonds; as well as Mark Till, who heads our Unum International business; and Tim Arnold, who heads our Colonial Life and Voluntary benefits. And now I'll turn the call to Rick for his opening comments.

Thank you, Tom and good morning, everyone. The second quarter was an outstanding one for Unum, highlighted by accelerating growth in premium income favorable benefits experience across many of our business lines and strong capital levels that give us great flexibility to carry out our strategic initiatives and invest in growth. Pulling it together, our after-tax adjusted operating income per share increased 37% from the year ago quarter to $1.91 per diluted common share this quarter, the highest quarterly earnings levels we have seen. Reflecting on the first half of the year, our earnings have been on an accelerated realization of our expectations coming into the year. We now expect our adjusted operating earnings growth rate to be in the 40% to 45% range, much better than expected in the beginning of the year and also double the growth we expected coming out of the first quarter. Over the last several years, we have remained disciplined in how we price and been good stewards of capital. With an engaged workforce, we weathered a challenging period in the external environment. The fortitude of our team, combined with consistency in our strategic focus has allowed us to accelerate our growth path in 2022. This is an inflection point for our company. And as we unpack the results, you will see the multiple factors that enable the recovery ahead of what we had in addition coming into the year. To start, a return to higher profitability this quarter was driven by the lessening of COVID-related mortality across the U.S. population which declined to approximately 35,000 lives in the second quarter compared to an estimated 155,000 lives in the first quarter. There is also a lower percentage impacting the age of the population that we cover. This improvement in mortality levels led to a…

Great. Thank you, Rick and good morning, everyone. As Rick outlined for you, the second quarter was an exceptionally good one for the company, as we benefited from both a significant decline in the COVID-related impacts on our business this quarter and strong operating performance in many parts of our operation. As I cover our second quarter results, I will primarily focus on an analysis of our second quarter results compared to the first quarter of 2022, allowing me to describe how our business lines have been progressing through the pandemic. For items such as premium growth and sales growth, I will tend to focus more on the over year comparisons. To start, I'd like to provide some broader context on the quarter and frame up for you the primary drivers of the strong performance we saw this quarter. First, as you are aware, there was a significant decline in COVID-related mortality in the U.S. in the second quarter relative to the first quarter declining to an estimated 35,000 national deaths this quarter according to Johns Hopkins compared to approximately 155,000 deaths in the first quarter. This absolute decline, coupled with the continued shift in the age demographics of the mortality away from working-age people to the more elderly population, helped drive a significant improvement in our Unum US Group Life results. which are policies that primarily cover employees in their working years. The decline in mortality also produced a more normal result for long-term care block as benefits experience more closely aligned with pre-pandemic levels of experience, especially for claimant mortality. Second, we saw exceptionally favorable performance in our Unum US group disability line with a strong acceleration in premium growth and historically low benefit ratio. I'll dig into those details in just a moment but the benefit ratio…

Great. Thank you, Steve, for that summary of our second quarter results. The quarter was an outstanding one and we were very pleased with the performance of the company as we continue to deliver on our promises to our customers throughout the pandemic. We believe we are very well positioned in today's business environment with a strong balance sheet, strong earnings momentum and remain very encouraged with our outlook going forward. Before I open up the call to questions, I want to take a moment to acknowledge and thank Tom White. After more than 40 years of service with the company, Tom will be retiring in the next month. and this will be his last earnings call. Tom has been a stable external voice of Unum for all these years and I know that he's built exceptional relationships with all of you. We will miss him greatly as he will now have more time to work on his golf game, spend time with this growing family, including grandchildren. Matt Royal, our current Chief Risk Officer, will be our new Head of Investor Relations. Matt's unique combination of financial strategy and risk experience makes him an ideal person for this role. You will all begin to meet Matt as he and Tom work together over the next month. It is fitting that we have record results for Tom's last call. The team is here to respond to your questions. So, I'll ask Daisy to begin the Q&A session.

[Operator Instructions] Our first question is from Alex Scott from Goldman Sachs.

First one I had is just on the favorable trends you're seeing. I assume some of that has to do with the strong labor market at the moment. And I would just be interested in your perspective on sort of the run rate you gave us, what that assumes about how the labor market will be sustained in the near term? And what kind of sensitivity you'd have if things do get a little choppier here?

Yes. Thanks, Alex. I just hit on it overall. Like we've mentioned in our results, they have a little bit faster given the very strong labor market, rising wages. And so I think we've outpaced as part of that. I don't think we count on that. When you think about how we think about our business and natural growth, we think of that 2%, 2.5% range of what that looks like. So the levels that we're seeing that we just don't count on and we really don't factor those in as we look out over the next several years. And you mentioned if it gets a little bit choppier. It's worth mentioning how the people think about the company and how we think about the company in a slowing period. I think, first of all, I'd say it's a top line question in terms of growing our premium levels. We've been very happy with the recovery we've seen in our premium growing 3.5%. We want to see that get back up into the 4% to 7% premium growth range we've gotten accustomed to prior to the pandemic. We might see that slow a little bit or not maybe not accelerate as fast as we want if the environment gets a little bit slower. A couple of other places to think about if the world does get choppier. And by the way, we don't have any particular insight on that. So we don't plan our business that way. And I think our business model is quite resilient. So even if things get a little bit less robust than they are currently, we don't get too concerned about that. The two other places you might see it is in our investment portfolio. So the team has done a really good job of going through the portfolio, taking a look at where things get impacted. Just not so long ago, they were looking at what happens in a rapidly rising interest rate environment. Now they're looking at what if things slow down and what is the impact to our credits. We feel very good about that and where the portfolio is positioned. Even I'd say in the pandemic, we actually decreased our exposure to some of the high yield, a couple of percentage points of the portfolio came down. And then the other place when things a little choppier, I think we get the question often about what happens in the long-term disability world. Mike, do you have some comments on that? We've seen recessions in the past and maybe some thoughts on that.

Yes. Thanks, Rick. It's just we managed through multiple times to think the last recession should we be in a similar spot again. What we saw was a little bit of a lag. That's kind of the first point. As you see it coming. It's generally two to four quarters before that incident starts to come through. And I would say that gives us an opportunity to think about the front end of the business through a pricing and underwriting point of view. And then most importantly, just to make sure that we're prepared from a claims management and you make sure that those clinical locational indicate specialists are well are prepared. So in general, not something that we're looking to see happen. But should that occur, we are really well prepared.

I summarize it, Alex. I think it's -- the discussion is more what happens on a recessionary front. I think we feel good about it. We showed that we got through a very difficult time in the pandemic and are in good shape. We like the environment that we're in today. We hope it persists but it's hard to predict. And we feel good about where we are.

Got it. Second one I had for you is on expenses and maybe more broadly on expenses. I think in certain areas of your business, there is a lot of need to ramp up staff associated with handling claims and so forth during COVID. And I mean, hopefully, that same level won't necessarily be needed going forward. We shall see, I guess. But how do you think about that? I guess there's also obviously -- inflation is a pressure point. How does all of that sort of go into where expenses should go from here for you guys?

It's a good question, Alex. And I think in this environment, where the labor market is tight as we look at it, we think about expenses more broadly, we always have in terms of managing good productivity in the company as we grow. I think we were challenged a little bit going through the pandemic and how expenses went up just to meet the needs of our customers. It's something we needed to do and I think we responded to that. And then I think the second piece you asked about just an inflationary environment and our expenses will be commensurate with making sure we're taking good actions to be competitive in our market. Our talent means a lot to us and making sure that we're competitive on that front is equally important. Maybe, Steve, you talked a little bit about -- we talked a little bit at Investor Day about how we see this coming over the next couple of years. I think that might be helpful to quantify some of that.

Yes, Alex, it's Steve. Thanks for the question. So back in Investor Day, we did talk about some pressures to our operating expense level in the short term that we would be able to work through over time with just growth of the business as well as pricing actions. We had mentioned that we thought that our overall operating expense ratio would go up by somewhere between 125 and 175 basis points to do those things that Rick talked about, take care of our employees and invest back in the business. I would say we're probably tracking for 2022 to be at the lower end of that range but we did expect that our levels would go up during the year. Maybe a lot of those expenses are concentrated in our group disability line. It's very labor intensive in that line. And so Mike, maybe talk a little bit about what we're doing to invest specifically in group disability?

Got it. Yes. I think you feel most acutely in that for disability line because it is where we're most intently serving clients, as Rick mentioned. So Alex, to your point, as global volumes have come down here, we've seen more favorable incidents. That should put a little bit of tailwind for us in terms of operating expenses. At the same time, I would tell you, we're pretty much fully staffed for the first time into nine months. It is a tight labor market we're quite selective in terms of we agreed into on the team and we've arrived at a good spot there. And then the second piece is technology. And we continue to invest in technology. I think, again, that will represent a tailwind for us as we get into 2023 as -- technology, particularly around short-term disability and lead comes online but those are expenses we're incurring from an investment point of view. So in a reasonable spot, we want to make sure we take care of our people there, that we are taking care of our customers. But I would expect a downward trend as some of those technology investments come online and hopefully sustain that improvement in expense [ph].

Our next question is from Ryan Krueger from KBW.

Congrats to Tom. On the -- I guess, first question is on the second half guidance. I guess, would you characterize that as pretty much back to normal fully? Or is there any headwinds embedded in that still related to the environment?

Yes, Ryan, this is Steve. I can take that one and I'll take the question up a little bit and just make sure everybody is clear on the guidance that we did put out there. We are looking for the second half of the year, quarterly run rate on EPS to obviously drop below what we saw in the second quarter. There's really probably three main areas that we think that, that will go back to a normal run rate. One, is just in our group disability benefits experience. I messaged in my comments. We think that is more in the low to mid-70% range going forward. Also with our life insurance business, group life insurance business in the U.S., I mentioned in my comments as well, we did have some favorable impact of the runout of our IBNR at the end of the first quarter. We do think we'll have some ongoing impact from just COVID claims coming through, maybe $10 million a quarter. So that will be coming through the latter half of the year. And then with our alternative investment portfolio, we obviously had a very good quarter at $54 million in the second quarter. That's probably going to be in the high teens per quarter for the remainder of the year. a little bit lower than our longer-term expectations of the mid-20s. So you take that all in, you put that in there, we do think we're going to have more of regressing to a norm. It comes out to about $1.40 to about $1.45 a quarter probably for the remainder of the year. If you take that back to pre-pandemic, that's about where jumping point -- our jumping off point was in 2019, 2020. So we feel like we're back to pretty much the earnings power that we have there and then we're able grow off of that. I did mention in my comments, we're going to be on a different accounting basis going into next year. So not really given any guidance beyond '22 but obviously, we feel really good about how we think we're going to end the year and be able to go into the future.

Great. That's helpful. And then on long-term care, could you give an update on any more thoughts you've had on potential ways you could hedge into straights as you've been evaluating that?

Yes. Thanks for the question. I would take it in two pieces because we really have two blocks that we manage somewhat differently just from an interest rate perspective because of the reserving construct we're on. We have our Unum America block, about 80% of the block seated in the Fairwind. We are on a premium deficiency reserve construct there. And then we have our first Unum block which is more on a traditional asset adequacy reserve testing. And I am happy to announce we actually did make a move in the second quarter on that block. We did execute on $164 million of notional hedge in our first Unum LTC portfolio. What that does is it effectively locks in the risk-free rate on about 50% of our positive cash flows for the next five years. And we locked in at different rates but on average, it's about 3.35% for the third year. So we really feel good about being able to take that first step. It also allows us to get a little bit more certainty around our asset adequacy reserve in the New York entity. We think that will support being able to release a bit more of our cash flow testing reserves by the end of the year and also be able to take a dividend out of our New York company this year. We'll have to let the year-end process play out but we feel like that's a pretty positive outcome. If you go back to the Unum America block, it is more complex just the interaction with the PDR. It's a funds-withheld portfolio. So we basically have the assets in Unum America and the liability has been fair when we have to work through that. And just the collateral requirements on that block are going to be much greater. So I would say that's still working in process, Ryan but we're obviously evaluating it to see how best we can derisk the balance sheet which is obviously, a big part of our strategy behind our long-term care block.

Our next question is from Erik Bass from Autonomous Research.

So sales and premium growth have been trending much stronger than assumed in your original 2022 outlook. Can you just talk about what's changed since then that's driving the upside and how we should think about the premium growth trajectory going forward?

Yes, sure. Maybe I can jump in and take that one. Erik, it's Mike. And like Rick highlighted, I think it's a combination of factors that are fuelling that premium growth coming in is really across segments above what our expectations were coming into the year. And first, I would just start with sales results overall, 20% plus growth for the Unum brand here in the U.S. Colonial Life up nicely, International up very nicely on local currency basis. So we're finding our value proposition is winning in terms of new clients and adding benefits in existing clients. And maybe in a minute, I'll put it over to Tim to talk a little bit about what's happening in voluntary on your life and then market International. But say -- certainly back to the group business. So you take that kind of sales growth, combine it with good, strong persistency, the natural growth coming through probably a tick or two higher than we might have expecting. And then we talked about it at the outlook meeting, just continued sort of balanced rate increases to the renewal program has continued to track well against our expectations. So everything showing a little bit of upside for us and the combination is finding ourselves as over 3% growth in the top line, probably six months quicker than we thought and it. Bodes well for getting back into that 4% to 7% range. So we like how we're positioned here in the U.S. group market. And Tim, maybe you'll comment on [indiscernible]?

Yes. Thanks, Mike. You hit it well. I think the biggest surprise is that -- I've been saying it in persistency through the pandemic in a way that's helped us have premium levels and really held up well through the pandemic. We have also seen improvements in agent productivity over the last couple of years. We took that help on the Colonial Life side. We're making -- we're continuing to make nice investments across the VB businesses, both Colonial Life and Unum that are spurring some additional growth. And recently, we're very encouraged by the momentum we're beginning to see building on the VB side in both the small, mid and large case market. So appreciate the question. Pleased with the progress we're making and we think that there's still a plan of opportunity out there.

Yes. So source growth in both Poland and the U.K., at 20% premium growth in the U.K., at 8.5% and -- in Poland and 15% on persistency slightly higher. I would put to a few things. In the U.K., I would say that we've addressed some of our service levels. So the customer satisfaction is rising, makes the proposition more attractive. I think we've obviously had some wage inflation in the country and that obviously helps premium income. And I think we're generally at good employment levels. And I think we have a not dissimilar story in Poland as well. So those things together are contributing to a good view on sales persistency and premium growth over time.

So hopefully, that gives you a sense across markets. There's a lot of things going well. Some good optimism in the team. I'll just round it out by saying -- and I mentioned it just a second ago when we were talking about expenses, we're fully staffed in our claims area. So we're also fully staffed in our onboarding enrollment, implementation and client service areas and we are sort of anticipating continued success from a new sales point of view. So as we work through the second half and get to the important January effective we are ready to onboard a substantial number of new clients.

And I guess the second question I had is your RBC ratio, as you mentioned, is the highest of even and that's even after factoring in the impact of new C1 charges. Seems like free cash flow is also normalizing more quickly than you had expected. So does this change your view at all kind of about the level of annual capital deployment you can support near term -- or any difference in how you think about the priorities of deploying that?

Yes. Thanks, Erik, for the question. I mean, the capital deployment picture it's getting clearer. You mentioned the strong capital generation has been tremendous. The statutory earnings we saw, as we mentioned, in the first half of the year, are returning to levels that we experienced prior to the pandemic. So it puts us in a very good spot. We want to make sure that we're doing a good job of thinking about how we deploy that. You would have seen in the second quarter, we increased our dividend by 10%. That's one of those pieces that we look at. But I take you back to, we really want to put it into the core business and grow the way that Mike talked about on the premium side. So we're going to continue to invest very strongly in the business today and then think about how we can grow both on the organic front. Think about acquisitions, not too large but certainly a place that we can help to enhance the overall offerings that we've got out there. And then the continued deployment that we see across the buybacks. And Steve, you want to mention a little bit about what's changed because there are other uses that we can use now as well and thinking about where we put that money to work?

Yes. Yes. I think we still are pretty consistent in our view of wanting to balance our stakeholders between getting the premium deficiency reserve kind of behind us from a recognition perspective as well as starting to deploy buybacks to our shareholders. I'll kind of take you back to the Investor Day discussion and bringing the whole PDR discussion into this a bit. I think important points. First of all, as you know, the discount rate that we use there comes into the calculation over a trailing 3-year period. So although we're really happy with where the 20-year and 30-year treasury rates are right now, we would like to give that a little bit more time to actually work its way into the calculation. That does amortize in over time. And so 2022 contributions for that are going to be pretty consistent with what we thought coming into the year. We did give a scenario that provided a 3% 30-year treasury and that would reduce the PDR to about $1.8 billion and we would love if that's where we end up but we need to play this out a little bit longer. We do think that scenario would imply that we could fully recognize the PDR in 2024. But we also think that right now, it makes sense to balance the stakeholders that are out there as far as moving forward with, gain, in the PDR period of practice [ph] behind this. And also having, I'd say, a moderate level of capital deployed back to our shareholders.

Got it. And you said PDR in 2024, I think that was the original plan-- did anything change there?

Yes. I mean the original permitted practice or the permitted practice allows us to take until 2026. What we did discuss in our Investor Day is under certain interest rate paths and interest rate scenarios, we would have the ability to probably recognize that in the 2024 period. That would be something that if rates stays at the levels that they are, that would be something that we definitely want to contemplate doing.

Our next question is from Jimmy Bhullar from JPMorgan.

So -- and just a question on your margins overall, especially in the disability business, they've been better than expected better than I think most of the peers have had. So wondering how much of the improvement is this because of improving core trends versus maybe any reserve releases or anything else that might not sustain into the second half and into next year?

Yes, Jimmy, it's Mike. I can take that question. And I'll just start by kind of agreeing with the premise that it is a very favorable loss ratio, I'd say underpinning the really solid fundamentals. And I think that is a testament to the folks that are doing the pricing, underwriting, our field organization as well as our claims organization kind of really working together quite effectively. There are some things that showed up in the quarter to your question that we would not see repeating and sort of mitigating over time and coming back into that group disability loss ratio that Steve was talking about in sort of the low to mid-70s. The things I would point to and they're sort of in order of impact -- if you recall back to the first quarter, non-COVID-related short-term disability incidence was quite favorable for us. And we talked a little bit on the call about in all likelihood, the Omicron variant and the surge there in the early part of the year, pushing out some of the scheduled surgeries and non-COVID STD type claims. That favorable STD incident, if you think about the flow-through timing into LTD really came through in quite favorable LT [ph] incidents here in the second quarter. We would see that normalizing in line with our expectations as we work through the rest of this year and into next year. So that's one piece of it. I will talk a little bit about it. But again, a onetime in the quarter around a paid family leave premium return based on risk experience of last year, that was a little bit of a tailwind. And then LTD recoveries in the segment were quite favorable. I do expect favorability to persist. And so that is something that's built into our outlook but not quite to the rate that we had here in second quarter. So kind of take all those together and you say, over the next few quarters, it seems likely, although there's always a bit of uncertainty. It seems likely we'll be reverting back to those low 70% range.

And then, on -- with the changes in taxes in the U.K. in the business, how does -- how should we think about your overall expected tax rate for 2023?

This is Steve, Jimmy. I'll take that one. So I'll kind of take back to last year. In the U.K., the government enacted a new tax rate, take tax rate from 19% to 25%. The tax rate was not effective, though, until next year. I believe it's the first quarter of next year or maybe early second quarter of next year. When they enacted it, the GAAP accounting would have you revalue your balance sheet, in essence, your deferred tax assets and liabilities to that new effective rate. So we did that. We revalued those to 25%. What we saw in the current period was that on a tax basis, we kind of outperformed what our normal expectations would be that the U.K. tax basis for income has a market value component to it. So with the rising interest rates in the U.K. that generated a lot of taxable income. And what happens is that is taxed currently at 19% but we're releasing our deferred balances on the balance sheet at 25%. And so in essence, it creates a tax -- net tax benefit for GAAP. That dynamic could continue until we're on the same current basis as we are on the deferred basis next year. But what that did is it drove our overall tax rate down to that 16.6%. We don't believe that will continue. We think the 20% to 21% overall effective tax rate is the right place to be. But that dynamic costs a little bit of volatility just in the quarter.

And then going forward, do you think the tax rate overall for the company will go up a little bit higher than 20%, just based on -- commensurate to the contribution of the U.K. business or the overall results?

It might be a tick but it won't be much, just the relative taxable income in the U.K. versus our U.S. operations. The other way to think about it is from a timing difference perspective, we've already valued our balance sheet at 25%. So as those turn they'll turn at the same rate as what the deferreds are up at right now.

Our next question is from Tom Gallagher from Evercore.

And best of luck to Tom White from me as well. The -- just a quick one on capital management, potential risk transfer for LTC. Is that still a ways off? I think you guys have sort of indicated you're pursuing paths but it might take as long as two years for anything to come to fruition. Is that still the expectation? Or is the timing on that changed at all?

Yes, Tom, I think it's hard to predict. To predict M&A and timing is difficult. It's about making sure that we can have buyers and sellers getting together. I think we're doing the work to make sure that we're prepared for the right environment and interacting with the right counterparties but very hard to predict timing around when something can come to fruition. So I really can't give you a better time frame, a couple of years, when would it take. We'd like it to be earlier but could it be later. It's one of those things. M&A is just unpredictable on that front. But we're doing the work and we'll be prepared if the market opens up and we think it will be a good thing for the company overall.

Okay. And just back on disability for a minute. Do you have any sense for what's really driving this good submitted incidence in claim recoveries? Just what are the main drivers behind the scenes if you've done any analysis on that?

Yes. Thanks, Tom, it's Mike. I mean, I think on the incidence front for LTD, a good chunk of that was what I was talking about, this is specific to the quarter. And that's very favorable STD incidents last quarter. [Indiscernible] elimination period kind of 90, 180 [ph] days coming through the year in second quarter. So that's what's driving the incidence favorability. On the recovery front, again, we've sort of seen an improving recovery trend. And while I think jumped a bit ahead, I would sort of attribute that to some favorable volatility here in the quarter. But as we sort of looked at our guidance for the second half of the year, I said I expect that recoveries will remain elevated just not at the current level. So to really put that to the strength of the benefits team, the return to work of success that we've had some investments on the clinical front, the percentage of claims that are going and getting touched by a clinician is up and has been going up over the last several quarters. So a combination of things going to give us some confidence on that front.

Okay. And then just finally, anything on -- as we think about pricing for 2023 for renewals, I mean, on one hand, you've had enough volatility on the mortality and even the disability side. Just a couple of quarters ago, where the results were pretty bad. So -- and I think you got a little bit of rate last year. But now that you're seeing all this favorability, do you think that will start to play into pricing here and maybe flatten out, if not lead to some pricing declines or any initial indication on what you think all of this means for pricing?

Sure. Yes. It's a great question, Tom. And -- Yes, I can actually characterize it reasonably well. I think about most of our clients have multiple Unum benefits. And so we're going to think about the aggregate level of price action that we get across product lines. The interest rate environment, some favorability from an LTE risk and recovery point of view, those things are certainly favorable. Those will mitigate, some increases that we need to put through. We think about [indiscernible] citing to life insurance experience that we've had and just staying ahead of the curve there, the inflationary pressure on expense to make sure as we increase wages and benefits for our people to make sure that we keep them up front and center with our customers. We need to make sure we're accurately sort of reflecting that. On fee-based businesses, that's something we've talked about pretty consistently and needing to make sure that the expenses we're incurring to take care of leave, claims and [indiscernible] so as claims are reflected in pricing. So as always, we sort of seek to make a pretty balanced approach but we'll need to continue to put a bit of rate into the market. It will be softening just a bit on the LTD front as part of that package. And given what we've seen in terms of renewal plan to date, the persistency tracking these expectations to be pretty optimistic.

Our next question is from Suneet Kamath from Jefferies.

And thanks to Tom for all the help over the many years. My question is, again, back on group disability. If I go back to the outlook presentation, I think you guys guided to mid- to low 70% range for '23 and '24. Feels like you're going to get there second half. So as we think about kind of the longer term, is there a reason to be confident that we could push kind of lower than that as we ended '23 and '24 if the current trends that you're seeing persist? Or do you think you'll have to give up some of that in terms of pricing?

Yes, Suneet, it's Mike. And as we've just talked about sort of reverting into those low 70%. And you think about kind of where we were pre-pandemic, coming down pretty consistently into that low 70% range. We know that is a good spot to be in because recall, with that kind of a loss ratio, we're looking at an ROE that's sort of mid- to high teens. We think that's a really, really good return on a business. And we want to make sure that we're balancing pricing that's generating good strong returns with pricing that's going to enable us to grow that business. And we started to see that disability segment really start to grow again in terms of top line. We're encouraged with the pipeline. We're encouraged with the investments that we've made in new total leaves platform in new connections into winning HCM platforms. I think we just have a really good story to tell there. We want to make sure we've got fair and competitive pricing and feel like a loss ratio in the low 70s is a good spot for us to be in.

Got it. And then I guess for Steve, on LDTI, I know you're not going to give us any details but some companies have talked about sort of earnings benefit kind of going forward. Just kind of directionally, is there any color that you can give us on that front?

Yes. I'm not going to give you the directions but I'll give you the dimensions. So when we file our Form 10-Q later today, we're going to give a little bit more disclosure than we've historically given, really on two fronts. One is a little bit on just qualitative disclosure around major drivers of what we're seeing in the recast for earnings. There's probably three or four major things and you might be able to read across some of the other disclosures. Definitely different amortization periods and that's going to vary a little bit by our different product lines, some longer, shorter runoff of some margins that we have on our reserves on the balance sheet. I think that's consistent with what maybe you've heard. And then, just establishing our new claims that a different rate will be at single A rate as we establish. So those are some things we're starting to see emerge from the runoff and some of those are positive, some of those are a little negative. And then the other thing is we're going to update the disclosure on the initial impact. If you go back to our original disclosure on the 1/1/21 [ph] impact of adoption, it was in that $6.5 billion to $7 billion range. If we take 6/30 [ph] rates and push it back to 1/1/21 and recap that. That number is more in the $2 billion to $2.5 billion range. And so as you might imagine, both the movement in the risk-free rate as well as the movement in the credit spreads on a single A that's where we brought that initial impact down quite a bit. And I'll just kind of end that conversation with. I think that just proves the point that we view this accounting guidance as accounting and not economics of the business, given the volatility that you see around that mark just period-to-period. And so we still see great about the cash generation from the firm and just how we feel about growth for the business.

Makes. Just one last quick, numbers one. Can you just give us the split in LTC reserves between sort of First Unum and then the piece that's at Fairwind?

Yes. Just rough numbers and this is kind of bi-reserve [ph] probably. First Unum is 80% of the business. New York is about 15%. And then -- yes, I'm sorry, 80% in Unum America Fairwind, 15% in First Unum. And then we have a small 5% block, it's our old reimbursement business in PL&A our Tennessee company.

Our last question today is from Tracy Benguigui from Barclays.

Based on your New York asset adequacy testing, you said you'd be able to take a dividend at out of First Unum. Could you size up what that may look like? And I also believe First Unum as the sister company, is not stacked. So can I assume that will go up to the holdco?

Yes. Tracy, this is Steve. You are correct. It's a sister company, so it doesn't have to pass through holding company, they will go to -- direct to group. And then it will be -- obviously, we need to get the work done at year-end and see where rates and but we anticipate a dividend pretty consistent with what we saw last year. I think it was in the $40 million range. So I'd anticipate something pretty similar to that. As you know, how the dividend rules work around extraordinary dividends, ordinary dividends and where you can take those out, you have to kind of run the math and we think probably $40 million is about the right place for this year but we'll see how year-end plays out.

Okay. Got it. I also want to follow up on an earlier discussion on Fairwind hedging. I get that your collateral needs is a consideration if rates go up substantially higher from here but what about hedging just a portion of Fairwind?

Yes. We're looking -- we're evaluating a lot of different alternatives, whether it's matching the cash flow specific to the entire business, specific to parts of the business but also there more of a macro hedge we'd want to put in place that economically hedges it without being kind of specifically hedging cash flow. So we're looking at all those alternatives. And I think they all have their pros and cons and so we'll continue to look at that as the summer and fall plays out. Thanks, Tracy.

Thank you. This is all the questions we have today. So I'll hand back over for any closing remarks.

Great. Thanks, Daisy. I just want to thank everybody for joining us this morning. Good quarter. Certainly, we want to get out there and talk to all of you in the coming weeks. We'll see you at upcoming conferences and investor events and I do want to wrap the call today with thanking Tom White for his years of service. I'm very appreciative. Make sure to send him a note of congratulations. He's going on to do some different things. And with that, we'll wrap up the call. Thanks, everyone.

Thank you, everyone, for joining today's call. You may now disconnect your lines and have a lovely day.