Thank you for standing by. My name is Bailey and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Unum Group Second Quarter 2023 Earnings Results and Conference Call. All lines have been placed on mute to prevent any background noise. After this speaker's remarks, there will be a question-and-answer session. [Operator Instructions] I'd now like to turn the call over to Senior Vice President of Investor Relations, Matt Royal. You may begin.

Great. Thank you, Bailey. Good morning, and welcome to the second quarter 2023 earnings call for Unum Group. Our remarks today will include forward-looking statements, which are statements that are not of current or historical fact. As a result, actual results may 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 section 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, 2022. Our SEC filings can be found in the Investors section of our website at www.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 that may be non-GAAP financial measures included in today's presentation can be found in our statistical supplement on our website in the Investors section. Unless otherwise noted, all comparisons to historical results are based on recast financials for the long duration targeted improvements accounting pronouncement, which can be found on the Investors section of our website. Further all references to Unum International sales and premium results are presented on a constant currency basis unless otherwise noted. Yesterday afternoon Unum reported second quarter 2023 net income of $392.9 million or $1.98 per diluted common share, an increase from $367.3 million or $1.81 per diluted common share in the second quarter of 2022. Net income for the second quarter of 2023 included the after tax amortization of the cost of reinsurance of $8.7 million or $0.04 per diluted common share, the after tax impact of non-contemporaneous reinsurance of $7.9 million or $0.04 per diluted common share and a net after tax investment gain on the company's investment portfolio of approximately $700,000 or a de minimis amount per diluted common share. Net income in the second quarter of 2022, included the after tax amortization of the cost of reinsurance of $10.5 million or $0.05 per diluted common share, the after tax impact of non-contemporaneous reinsurance of $7.9 million or $0.04 per diluted common share and a net after tax investment loss on the company's investment portfolio $3.1 million or $0.02 per diluted common share. Excluding these items, after-tax adjusted operating income in the second quarter of 2023 was $408.8 million or $2.06 per diluted common share, an increase from $388.8 million or $1.92 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 Simonz, as well as Mark Till, who has our Unum international business and Tim Arnold, who heads our Colonial Life and voluntary benefit lines. Rick, I'll now turn to you for your opening commentary.

Great, thank you, Matt. It's good to be with you this morning and we appreciate you all joining us. Our second quarter results are headline by a record level of quarterly operating earnings and underlying these results are also some very strong trends of a growing top line, historic levels of profitability and a continuing favorable macroeconomic environment for our business. It is evident that the employers we work with and families we protect are increasingly realizing the value of our products and services. This quarter, we deliver nearly 20% sales growth across our core operations and earned premium growth that exceeded 4%. This ongoing growth trajectory is made possible by the investments and advancements we continue to make. Differentiating ourselves through digital capabilities is solidifying deep connections with both existing and new employers and their employees who value a high quality experience and lasting relationships. Our sales results for the quarter illustrate that this approach continues to resonate with customers. Growth was strong in our group lines across the board. Unum International sales growth of over 70% as compared to last year, trending up from 47% growth last quarter. Unum US size second straight quarter of at least 20% year-over-year increases. Persistency also remain within our expectations across most lines which keeps our premiums on a solid growth path. Turning to Colonial Life, the pace of growth accelerated from the first quarter. Premiums grew just under 1% in the second quarter on track to meet our 1% to 3% expectation for the full year. Sales growth also picked up slightly and was 3.2% for the quarter. These are steady improvements off the good year ago quarter and we're encouraged by some of the early successes and key initiatives at Colonial Life that we believe will drive growth as we…

Great. Thank you, Rick, and good morning, everyone. As Rick described, the second quarter was another very good quarter for the company as we benefited from strong operating performance in many parts of our business, particularly across all of our disability lines, where trends support the upper end of our most recent full-year after-tax adjusted operating EPS outlook. Disability results in the second quarter were highlighted by strong sales and underwriting performance across the board, including benefit ratios of 59.4% for Unum US Group disability, 42.1% for individual disability, and 72.3% for Unum UK or in the mid-60s when removing inflationary impacts, all below our long-term expectations. Sales were strong across most areas of the company, with our various disability products performing very well. Consolidated sales grew 19.5% across our core operations, highlighted by 20% growth in Unum US, including 53.5% in individual disability and 70.2% for Unum International. Core operations premium grew at a healthy rate of 4.6% in the second quarter. Persistency was generally improved from first-quarter results and within our expectations; however, most lines were unfavorable relative to prior year. Let's review our quarterly operating results across the segment, beginning with Unum US. Adjusted operating income in the Unum US segment increased 17.5% to $343.1 million in the second quarter of 2023, compared to $291.9 million in the second quarter of 2022. Results finished significantly above prior year, primarily due to favorable benefits experienced, partially offset by higher operating expenses. The group disability line reported another robust quarter with adjusted operating income of $159.8 million, compared to $105.5 million in the second quarter of 2022, with the increase driven by improved incidence, a higher discount rate on new claims, and higher earned premium. These drivers contributed to an exceptional benefit ratio of 59.4% for the second quarter.…

Great. Thank you, Steve. I'd wrap up our comments by reiterating that we're in a great position halfway through the year, and the momentum it creates as we look to execute on our growth strategy. The team is here to respond to your questions. So I'll ask Bailey to begin the question-and-answer session. Bailey?

[Operator instructions] And your first question will come from Ryan Krueger with KBW. Your line is open.

Hey, thanks. Good morning. I was hoping you could talk about pricing trends that you're seeing in the industry. I think you're continuing to see very favorable group disability results. Many of your peers are also seeing pretty favorable results. Have you seen any change in the competitive environment as a result of this, or are things still pretty stable at this point?

Good. Ryan, good morning. Thank you for your question. I'll turn it over to Mike to talk about what we're seeing in the markets. Mike?

Yeah, thanks. Good morning, Ryan. And yeah, I would start by saying we're really pleased with sales results in the quarter. We have continued to be pleased with the renewal placement success that we've had. So those are sort of our best indicators of how we're meeting the market and feel good about that. It has been a good run from a group disability loss ratio point of view, and certainly some of that experience over time will flow through into renewals. Where we sit right now, it seems like the external favorable risk trends have continued. The performance of our underwriting and benefit teams remain really strong. So as Steve hit in his comment, I think that the low 60s is still a really good spot for us and our best guess at where the second half of the year will play out. And from a pricing point of view, it's always been a competitive market, but we feel like we're getting that chance to tell our story, and we feel like it's a differentiated one.

Thanks. And then a separate question on the NAIC's negative IMR proposal, do you think that would potentially allow you to increase the amount of interest rate hedging you're doing on long-term care beyond what would qualify for hedge accounting treatments given that there would be some ability to absorb a negative IMR?

Hey, Ryan, it's Steve. Yeah, I can take that one. It's an interesting question, one we think about a lot. And we have very little negative IMR right now in our portfolio. So kind of the current period or the immediate impact would be pretty de minimis to us if that negative IMR would be admitted. But we do think about moving forward just around the stat accounting for hedges. And if we were able to, in essence, take the negative marks, the realized losses on those, and put those in IMR and be able to admit that, that would be something we'd have to consider. That would be helpful to really ramp up the hedging program a little bit more. So, on the margins, we're supportive of that. It really wouldn't have kind of an immediate impact on us, though. So we continue to monitor that discussion at the NAIC.

Okay. Great. Thanks.

Your next question comes from Wes Carmichael with Wells Fargo.

Hey, good morning. On group disability, very strong loss ratio performance. But I just want to get an insight on any kind of recovery trends in the quarter. Was that incrementally beneficial from the first quarter or was, incidents really the driver there?

Yeah, thanks, Wes. It's Mike. I think actually, you're actually pretty right. Recovery trends have been strong, pretty consistent quarter-to-quarter. And again, we've continued to invest in the people in our organization and making sure that we're appropriately resourced, our benefit specialists, the clinicians, our voc teams, all kind of geared towards helping those claimants get back to work. And, that has been at a high level, and it's persisted at that high level. And then from an incident's point of view, we pretty much have seen a return all the way to pre-COVID incidence levels. So we talked a lot over the last couple of years about some of those environmentally sensitive type claims and how they had become elevated. That's been running down and continued to do so here in the second quarter.

Thanks, that's helpful. And then on the long-term care, the loss ratio did tick up, and you mentioned this in prepared remarks, but just any help on, how that's trending? Is this just normal quarterly volatility? And I think you said it's getting better in terms of incidence, but just maybe any color there would be helpful.

Yeah, Wes, this is Steve. I'll just reiterate a couple of the remarks that I made in my prepared remarks, and then maybe give a little bit more color. So we did see elevated incidents in the first quarter that did continue into the second quarter. What we also saw, though, in the first quarter was pretty elevated claimant mortality. We don't think that that was necessarily related to COVID. It was a tough flu season, I think, more broadly and so mortality was a little bit above our expectations, I would say, in the first quarter. You roll that forward to the second quarter, claimant mortality came down, closer to what we would view as our seasonal expectations, where incidents did remain elevated. Now, we did talk about the trend, and that is a trend we saw, really, the submission of claims peaked in the, I'd say, the end of the first quarter into the March period. And then we did see a gradual decline of those submission levels March to April, April to May, May to June, and then June even into July. And so I'd say, although we're not completely back to our expected level of submissions, we were optimistic about the trend. We'll have to see where the third quarter plays out. We'll continue to monitor it, but we are happy about that trend. I will just go back to and reiterate, on a 12-month trailing basis, the loss ratio is at 86.6%, which is at the lower end of our longer-term expectation. We did see that loss ratio really experience a lot of volatility over the last few years, and most of it favorable volatility. This quarter, a little bit unfavorable, but we'll just track that in the third quarter and see how it progresses.

Your next question comes from Tom Gallagher with Evercore ISI.

Good morning. Just a follow-up on long-term care. So, Steve, I heard what you said on the, I guess, the levels of paid claims. Now, I guess the level at which you saw toward the end of the quarter when you said it was returning toward normal, would that, if it kind of continues at that level, would that be then back within the range of 85 to 90, or would that be more on the upper end? Just want to get a sense for where you see it really, that trending. And is your -- when you kind of step back and say what's happening here, is your expectation that we might actually have a period of elevated long-term care claims following a period of three years’ worth of favorability, or does that not necessarily what you're expecting?

Thanks, Tom its Steve. Let me, I'll break that apart a little bit just from a perspective of giving any kind of guidance for loss ratios in the third quarter, it's really, I'd say, too early to do that, but all things being equal, we did have an elevated loss ratio in the second quarter above our range on claims experience, claims submission experience that really, so far, is not recurring in the third quarter. And it's early, it's July, but we're optimistic about that. But I'm not going to give guidance about what that loss ratio may look like yet in the third quarter. And then when I think about kind of longer-term expectations, we do take a very long view when we look at experience and just think about expectations going forward. And so, yes, we take into consideration some of the experience that we saw during the pandemic where claims submissions were low. We'll take into account what we've seen over the last six months. But we look at that all kind of together and look at what our longer-term expectations would be. So neither of those are going to completely drive our longer-term views, but we will incorporate that into our data set.

Okay, thanks. And then my follow-up is, let's say if you take a more adverse case scenario and claims remain elevated in long-term care for a while here, we'll call it mean reversion, just considering, the recency bias to that. If claims were to remain around current levels in the low 90s, what consequence would this have for Unum? Would it be a GAAP charge only? I presume just given how strong your stat reserves are, it's probably unlikely to have much of an impact there. But can you talk about in the adverse case scenario, what impact you think it would have just for contingency planning purposes here? Thanks.

Yeah, Tom, I might just step back and just take the opportunity to just talk about our reserving process and how reserve adequacy really is going to work this year. It's a little bit different than what you may have seen historically. Historically, it was very focused on reserve sufficiency with locked-in assumptions for the majority of our lines of business. And then you had LTC, which was in loss recognition. And again, we needed to look at our current best estimate and whether we felt reserves are adequate. Moving forward into LDTI, we're more on a best estimate reserve basis, which means that we're going to look across all of our product lines. We're going to look across all of our assumption sets and how those look to our experience over a longer term period. And then we'll look to see if we need to make any adjustments to those best estimates. We anticipate that occurring here in the third quarter. So we'll be able to report out on that here in the next quarter. If you drill down, though, into specifically LTC, I just go back to the remarks that I made earlier, where we will look at all the experience that we have and not necessarily have a recency bias. We'll look at it in aggregate. We'll look at what trends we're seeing. And it's probably too early to predict, kind of the outcome of that review, just given the more recent elevated claims experience that we've seen. The other thing that I'd say is we won't just look at claims submissions. We'll look at the full performance and experience of that block when we go through that review of assumptions. So I'm not able to really predict for you, Tom, necessarily. Now the other thing that I'd go to, which you brought up, is the difference between how we think about our GAAP assumption review, which again is on a best estimate basis, and how we think about our statutory reserve adequacy review. Our estimation is that by the end of this year we'll probably have close to $3 billion dollars of margin between our statutory reserve levels and what our best estimate, our current best estimate, would be for those reserves. And so we do feel like we have quite a bit of margin there. And so we'll go through the process here in the third quarter for GAAP and later in the year for our statutory reserve basis, just like we normally would do on an annual basis.

Your next question comes from Erik Bass with Autonomous Research. Q - Erik Bass Hi, thank you. Maybe we could start on just the international businesses. You've had very strong sales growth the past few quarters, particularly in the UK. So I'm curious for a little more color on what's driving that and how you see that translating into future premium growth.

Great, thanks Erik. We'll turn it over to Mark Till in the UK. Mark?

Thank you very much, Erik. Yes, we've had good growth across all of the product sets. So we have historically been very strong in the long-term disability market. We've been seeing some slightly increased growth in the life market as pricing is rationalized. And generally across the market we've been performing strongly such that we've actually had the highest sales in the group risk markets last year and expect to do so in the first half of this year. The trends remain positive. Although the economy is not growing quite as strongly, it's not affecting demand for the product set. Employers are still finding more for talent. The quality of the product that we've got is very high. We've made some big investments in value added services in particular, the employee portal help at hand, which is making a difference. And I think we feel confident about the future growth of sales in the business. Q - Erik Bass Thank you. And then if we could pivot a little bit to capital, you talked about the really strong stat earnings in the first half of the year, credit impacts have been benign. So it seems like you're trending towards the upper end of your range for both free cash flow and probably where you'd expect to end the year from an excess capital standpoint. And I know the priority for the remainder of this year is fully funding the PDR. But as we think about future capital return plans, should we really be focused on the plus in your kind of $300 million plus plan for buybacks as we think to 2024?

Yeah, thanks, Eric. I think you actually in your question, you got really hit what we're talking about, which is this earnings have been really good for six months, and we're hopeful it will stay the same. But regardless, we will be above our range if that holds from a capital generation perspective. When we think about putting it back to work, we've been very consistent talking about reinvesting in our lines. I think when we think about the returns that we're seeing, we want to make sure the investments are going right back into our core businesses, very clear strategy of how we're looking to grow and that's where our capital will go first. I think M&A is another place back on strategy, making sure that we can put money behind anything that will add to that growth capability internal to our business. And then we think about returning capital shareholders. I mentioned in my comments, we're increasing dividends 10%, which will come out this quarter, share repurchases going up by 50% to a run rate of $300 million. And you also articulated our priority 2023 is to fully fund the PDR. We're about halfway through that process to funding that. So we'll look to complete that over the course of the year. And then as you start to look out into 2024, I think we've also been clear that we're going to get all those things done this year and then as we get later in the year, towards the end of this year, beginning of next year, we'll talk about our capital redeployment plans that we have there. So we feel great. We all feel really good about where we are. We're doing the things that we've talked about, balancing funding LTC with returning capital to shareholders. And we look to be communicating more as we get towards the end of the year.

The other thing that I'd add to that, it was kind of implied in my remarks, is the overperformance of statutory earnings this year is really going to be a driver for free cash flow next year, as we're a year in arrears as far as being able to take dividends out of the operating companies and really taking that up to the holding company and then making capital deployment decisions around that capital. Q - Erik Bass Got it. That all makes sense. And as you talk about investing the business, I assume a lot of that in terms of the capital deployed and growing sales is getting reflected in the current statutory earnings. So is that what you're referring to or more investment on top of that?

Yeah, it's Mike. In addition to that, we talked a little bit about the outlook meeting, the investments in our technology, digital and analytics agenda has grown pretty substantially each year over the last four. And we would continue to look to increase those investments. So that'll be another place where we'll look to take what has been very good returns on the investments we're making in those capabilities and continue to double down there. Q - Erik Bass Got it. Thank you.

Your next question comes from Mike Ward with Citi.

Thanks, guys. Good morning. I was just wondering, you've gotten this question before, but these days, it feels just incrementally important around long-term care and, potential de-risking avenues, activity just continues to pick up, in lines that we wouldn't have thought possible just a few years ago or likely just a few years ago. So just wondering any update on that landscape?

Yeah, thanks, Mike. It's a good question. It's one that the team is focused on making sure we're prepared for risk transfer opportunities as we think about our long-term care block. As we've said multiple times, kind of the demand in the market or the availability of capital coming into that lines from third parties, it increases and decreases depending on what they're looking at. But we've been very consistent that we're looking to find the right partner to either with risk transfer on the block and even thinking about different slices of that block. So we're continuing on that path, keeping active out there in parties. I think that people that have the ability to deploy that capital know that we're very interested, and so we'll take it from there. Your point is a good one, though, that I'd reiterate about blocks that have the ability to be risk transferred. We would be beneficiaries of one of those. To remind you, three years ago, we did the same with our individual disability block, and so those markets will come to fruition. So nothing more, nothing new to relate around demand or our process, just reiterate that we are actively looking to think about risk transfer opportunities.

Thanks, Rick. And then maybe you mentioned, think about capital deployment and out years, uses of capital. If you were to turn acquisitive to any degree, any specific lines or regions that you think could make sense for Unum?

Yeah, we wouldn't want to get too specific on that. I think we've talked about capabilities. I think the most important thing to think about is we think about M&A. It's about being on strategy. When you think about the markets we participate in today, it would be about making ourselves stronger as opposed to getting into something, a new category. So that's how I think about it. It's not necessarily geography or product line dependent, but it will be on the strategy that we've articulated to you over the last several years.

Thank you, guys.

Your next question will come from Suneet Kamath with Jefferies.

Thanks, morning. I want to go back to group disability for a second. I hear you on the low 60s loss ratio, I guess, for the balance of this year. But I guess the question is, how much line of sight do you have on that as we think about rolling into 2024? What sort of glide path would you expect that that loss ratio would take?

Thanks, Sunit. It's Mike. And I appreciate the question. I think the first thing I'd say is just, you know this, but just to reiterate it is a lot, in terms of any forecast, is just going to be dependent on the external environment. So what does submitted incidents look like? How conducive an environment do we have in labor markets getting people back to work, those kinds of things that we've talked about for years. So really, I think if you sort of think about, hey, I don't have a crystal ball on those fronts, but if you were to assume, pretty consistent, you know, macro risk trends, then we sort of look at our own pricing approaches and how that might impact the loss ratio over time. Currently where we sit right now is lower than where we've been historically. And as those favorable experience patterns play through, good rules of thumb are things like, in our mid and large employer markets, about a third of those clients will go through a renewal process each year. And importantly, we use experience, usually about three years of experience in those renewals. So a year of favorability would be weighted against two years prior as well. And then in the core markets, actually a smaller percentage, so maybe 20% of those cases will go through. So I think it would be a pretty gradual change to a loss ratio driven by the favorable experience coming through. And again, I just finished where I started, which is all that also is dependent on what's happening externally. But certainly right now, it's a really good time to be in the group disability market. And as Rick said in his comments, the disability success is moving beyond just that long-term disability line. We've seen really good growth in our short-term disability and our total leave offering that's packaged with that short-term and long-term. We're starting to see really good growth in our recently issued individual disability book of business that's very often packaged with our LTDs as sales up 50% plus. And Mark talked a little bit about success we've had in LTD in the UK as well. So it's a pretty favorable outlook at this point.

Okay, makes sense. And I guess just going back to long-term care, I hear you on the -- you don't get too weighted to sort of short-term fluctuations, and that makes sense. But maybe coming at it the other way, we had some pretty interesting developments on like, Alzheimer's drugs earlier in the quarter, and just want to get a sense of how you think about those types of developments ultimately informing kind of your longer-term views of reserve adequacy and potentially even risk transfer.

Yeah, I'd say that the short answer is we will monitor it, but in the short term, it doesn't really influence our view of the future right now. We are optimistic about some of the trials that have taken place. They continue to progress, which just for society is a very, very good thing. And so we'll continue to track those, but it takes a long time for those types of drugs to make its way through all the trials that it needs to be productionalized, actually get out there in the market, and then be able to see the impact of what that may have on the types of claims that we receive around our long-term care blocks. So I would say right now it doesn't really influence our view of the longer term, but we, obviously we're very happy that some of those drugs are progressing through trials. It's a very positive thing for the industry, but also just for society.

And your final question will come from Mark Hughes with Truist Securities.

Yeah, thank you. Good morning. Did you provide a specific number for natural growth in the quarter?

Hey, Mark, it's Mike. Nothing specific, but we've talked about, trending above that 5% level, and we're continuing to see a good split between, employment growth within the client base as well as wage inflation coming through.

Understood. And then on Colonial, the benefit ratio back down this quarter, should we anticipate the fairly good results there through the balance of the year and then also sales, just kind of the latest thoughts on the sales outlook.

Yeah, I appreciate the question. I'm glad you hit sales. We're encouraged by the trends at Colonial Life. You highlighted benefit ratio, but sales as well, and maybe I'll turn it over to Tim to speak to that.

Yeah, thanks, Mike. On the benefit ratio side, we do think the first quarter was a bit of an anomaly, and we would look for results that came about in the second quarter to be sustained throughout the balance of the year overall. On the sales side, as Mike mentioned, we are very encouraged by some of the trends we're seeing, some of the leading indicators. COVID was very challenging for our business from a lot of perspectives, certainly impacted recruiting in 2021 and first half of 2022, as we shared with you all during those times. We're really encouraged for the first half of this year, new agent recruiting is up 34%, and new agent sales are up 16%. We have grown our 10/99 [ph] sales manager cohort by 10% net in the first half of the year. So very encouraged by that. We are also very encouraged by the sales coming from those new sales manager teams. A few years ago, we made a conscious decision to de-emphasize some less profitable lines of business that have lower persistency and focus more on higher quality industries, and public sector is one of those really high quality industries. For us, we saw sales up 18%, and public sector, we saw sales go up 10%. So, we're very encouraged for the first half of the year, and that follows a really strong 2022 in public sector as well. Sales that are direct to employer are up 7%. We saw really strong growth in our dental vision product in the quarter. We had a little pressure, as Steve Zabel mentioned earlier, in large case sales, and part of that is because we've been de-emphasizing those lower persistency industries, and another part of it is just a little more competitive in the large case market, so we're going to be pretty opportunistic as it relates to the opportunities in large case. So, on balance, really encouraged by the momentum that we're seeing in the market and encouraged about what we think we'll be able to do in the second half.

Appreciate that detail. Thank you.

There are no further questions at this time. I will turn it back over to Mr. Rick to close.

Great. Thank you, Bailey. Thanks, everybody, for joining us today. We'll look forward to seeing a number of you over the course of the next quarter, but appreciate your continued support, and we'll look forward to talking to you next quarter. Thank you.

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