Unum Group Q2 2022 Earnings Call Transcript

Quartr
Provided by Quartr
August 2, 2022

Key Takeaways

  • Unum reported Q2 2022 net income of $370.4 million ($1.83/diluted share) vs. $182.9 million ($0.89) a year ago, and achieved a record adjusted operating EPS of $1.91, up 37% Y/Y.
  • Improved COVID-related mortality (35K deaths in Q2 vs. 155K in Q1) drove group life & AD&D to return to pre-pandemic profitability after five quarterly losses.
  • Unum US group disability drove its benefit ratio down to 66.4% (from 73.8% in Q1), aided by a 25 bp hike in the discount rate and strong claim recoveries, alongside 5.1% premium growth.
  • Total premium income grew 3.3% Y/Y in Q2 (vs. 1.3% in Q1) fueled by ~5% natural growth, while new sales rose 26% in Unum US, 6% in Colonial Life, and 20% in Unum UK (local currency).
  • Capital metrics hit all-time highs with an RBC ratio of ~415%, holding company liquidity of $1.2 billion and leverage <25%, leading Unum to raise its full-year adjusted EPS growth outlook to 40–45%.
AI Generated. May Contain Errors.
Earnings Conference Call
Unum Group Q2 2022
00:00 / 00:00

There are 13 speakers on the call.

Operator

Welcome to the Unum Group Second Quarter 2022 Earnings Conference Call. My name is Daisy, and I'll be coordinating today's call. You will have the opportunity to ask a question at the end of the presentation. Call. I would now like to hand the call over to your host, Tom White, the Senior Vice President of Investor Relations at Unum Group to begin.

Operator

So Tom, please go ahead.

Speaker 1

Call. Great. Thank you, Daisy. Good morning, everyone, and welcome to the Q2 2022 earnings call for Unum. Call.

Speaker 1

One last time, our remarks today will include forward looking statements, which are statements that are not of current or historical fact. Call. 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 call and risk factors in our annual report on Form 10 ks for the fiscal year ended December 31, 2021, and are subsequently filed Form 10 Q. Our SEC filings can be found in the Investors section of our website at unum.com.

Speaker 1

Call. 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 call 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 Q2 2022 net income of $370,400,000 or $1.83 per diluted common share, an increase from 182,900,000 call for $0.89 per diluted common share in the Q2 of 2021. Net income for the Q2 of 2022 included The after tax amortization of the cost of reinsurance of $13,100,000 or $0.06 per diluted common share And a net after tax investment loss on the company's investment portfolio of $3,100,000 or $0.02 per diluted common share.

Speaker 1

Call. Net income in the Q2 of 2021 included the after tax costs related to the early retirement of debt $53,200,000 $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 $11,000,000 or $0.05 per diluted common share. The net tax expense related to a U. K. Tax rate increase of $24,200,000 or $0.12 per diluted common share The after tax amortization of the cost of reinsurance of $15,500,000 or $0.08 per diluted common share call.

Speaker 1

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 Q2 of 2022 was $386,600,000 call for $1.91 per diluted common share, an increase from $286,200,000 or 1 point $0.39 per diluted common share in the year ago quarter. Participating in this morning's conference call are Unum's President and CEO, Rick McKinney Chief Financial Officer, Steve Zabel Chief Operating Officer, Mike Simons as well as Mark Till, who heads our Unum International Business And Tim Arnold, who heads our Colonial Life and Voluntary Benefits line. And now I'll turn the call to Rick for his opening comments.

Speaker 2

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 investing growth. Pulling it together, our after tax adjusted operating income per share increased 37% from the year ago quarter call to $1.91 per diluted common share this quarter, the highest quarterly earning levels we have seen. Call. Reflecting on the first half of the year, our earnings have been on an accelerated realization of our expectations coming into the year.

Speaker 2

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 Q1. Over the last several years, we have remained disciplined in how we price and then good stewards of our 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.

Speaker 2

And as we unpack the results, you will see the multiple factors that enabled the recovery ahead of what we had envisioned coming into the year. To start, a return to higher 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 2nd quarter compared to an estimated 155,000 lives in the Q1. There is also a lower percentage impacting the age of the population that we cover.

Speaker 2

This improvement in mortality levels led to a significant increase in adjusted operating income in our Unum US Group Life and AD and D Business, with return to pre pandemic levels, following operating losses in 5 of the last 6 quarters. We are in a much better place today, but it bears watching and it has not gone away completely. In addition, the current business environment has proven to be beneficial to many segments. High employment levels and rising wages have continued to generate higher levels of what we term natural growth. That is the incremental premium we realized from rising payrolls at our insured customers, which is now running at almost 5%.

Speaker 2

This rate is nearly double that of the benefit we are realizing prior to the onset of the pandemic. With this tailwind, which primarily impacts our group lines, call. We realized year over year growth in premium income of 3.5% in our core business segments on a constant currency basis. The 2nd quarter performance compares to growth of 1.9% in the 1st quarter, also measured on a year over year basis. In addition to this look from favorable employment conditions, we were quite pleased with the level of new sales we recorded in the 2nd quarter, with increases of 26% for Unum US, 6% for Colonial Life and 20% for Unum UK on a local currency basis.

Speaker 2

In addition to favorable employment and wage growth, today's higher interest rates are also benefiting the company in multiple ways. New money yields continue to rise in the Q2, and we are now seeing the yields on many of our investment portfolios that Bakar product lines begin to stabilize after many years of persistent declines. Also in the Q2, we raised the discount rate for new long term disability Playman curls for the first time in many years as a result of higher new money yields and healthy interest margins in that block. This change was a contributor to the strong financial performance for group disability this quarter and will be a modest bid against call to our pricing actions for LTD going forward. And finally, higher interest rates and the projection of continued higher interest rates are helpful to the long term funding needs call for the long term care close block.

Speaker 2

In addition to the significant improvement we saw in our Unum US Group Life business, benefits experience in several other lines also showed good improvement. Most notably is the improvement we saw in the Unum U. S. Group disability line performance and claims recoveries in addition to the benefit from the discount rate that I just referenced. Colonial Life also recorded one of its lowest benefit ratios at 47.6 presentation this quarter with favorable claim experience across all product lines.

Speaker 2

And finally, Unum US supplemental and voluntary lines continue to produce very strong levels of operating income as it has throughout the pandemic. It's worth noting that the Unum US Supplemental and Voluntary Lines and Colonial Life, 2 lines with strong margins, solid growth and stable experience over long periods of time continue to represent almost half of our before tax adjusted operating income this quarter. These many positive operating trends that help drive our GAAP earnings improvement also help drive strong after tax adjusted statutory call, which for the Q2 increased by almost 60% over the year ago quarter. This further improved our cash flow and capital position as risk based capital for the U. S.

Speaker 2

Traditional insurance companies increased to approximately 4 15% at the end of the 2nd quarter, Unum's highest ever. Holding company liquidity remains well above our targeted levels at $1,200,000,000 and leverage dropped below 25%. This capital strength gives us increased flexibility as we look to grow our high margin core businesses, return capital to shareholders through dividends and share repurchases call and fund the needs of the long term care block. In summary, I'm very pleased with our performance in the Q2 and the flexibility it creates for us as we move forward. Risks from the pandemic are still very real, and there is growing concern over the direction of economic growth.

Speaker 2

However, I believe it's a testament to the strength of our business call. We are in such a favorable position today from an earnings and capital perspective after navigating through the pandemic over the last 2 years. Call. Now I'll ask Steve to cover the details of the Q2 results. Steve?

Speaker 3

Great. Thank you, Rick, and good morning, everyone. As Rick outlined for you, the Q2 was an exceptionally good one for the company call. 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. Call.

Speaker 3

As I cover our Q2 results, I will primarily focus on an analysis of our Q2 results compared to the Q1 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 year 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. Call. First, as you are aware, there was a significant decline in COVID related mortality in the U.

Speaker 3

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 Q1. 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 our long term care block as benefits experience more closely aligned with pre pandemic levels of experience, especially for claimant mortality. 2nd, we saw exceptionally favorable performance in our Unum US Group Disability line with a strong acceleration in premium growth and historically low benefit ratio.

Speaker 3

I'll dig into those details in just a moment, but the benefit ratio for the group disability line was favorable for both the short term disability and long term disability lines leading to overall excellent performance for this business line. 3rd, we continue to see very favorable performance for alternative investment portfolio. Our alternatives portfolio generated returns of approximately $54,000,000 which are higher than our expected average quarterly returns, exceeding both the first quarter income of $32,000,000 And the year ago second quarter of $52,000,000 Again, I'll dig into the drivers of the results in more detail in a moment. And one final trend to highlight is the favorable operating performance we experienced in our Colonial Life and supplemental and voluntary lines of business. These lines saw stable margins through the pandemic and continue to produce good top line growth, very strong earnings contribution excellent adjusted operating returns on equity exceeding 18%.

Speaker 3

With that high level setting, I'll begin my review of our operating performance call. Starting with the Unum U. S. Segment. Adjusted operating income increased sharply to $295,400,000 call in the Q2 of 2022 compared to $171,600,000 in the 1st quarter, call.

Speaker 3

Primarily driven by strong sequential quarter improvement in the Group Disability and Group Life and AD and D lines as well as continued strong levels operating income from the supplemental and voluntary lines. Within the Unum U. S. Segment, the group disability line reported an excellent quarter with adjusted operating income Increasing to $107,500,000 in the Q2 of 2022 compared to $62,600,000 in the Q1. The biggest driver of the earnings improvement was favorable benefits experience, which produced further improvement in the benefit ratio in the 2nd quarter call to 66.4 percent from 73.8 percent in the 1st quarter.

Speaker 3

This improvement was driven in large was also favorable in the Q2 as compared to our experience in the Q1. The benefit ratio was also helped by an increase of 25 basis points In the discount rate for new LTD claim and curls, a reflection of the significant increase we are seeing in new money yields. Now looking forward, we expect the group disability benefit ratio to average in the low to mid-seventy percent range for the second half of twenty twenty two, Though will likely remain volatile given the environment we are in. Results for Unum US Group Life and AD and D also showed strong improvement with adjusted operating income of $67,300,000 for the Q2 of 2022 Compared to an adjusted operating loss of $9,400,000 in the Q1. This quarter to quarter improvement was also primarily the result of an improvement in benefits experience, mostly driven by the significant decline in national COVID related mortality to an estimated 35,000 in the 2nd quarter from 155,000 in the 1st quarter.

Speaker 3

Additionally, the age demographics for mortality continued to shift away from the working age population that was more significantly impacted in the second half of twenty twenty one to the more elderly population. Call. In the Q2, 16% of the deaths were in the working age population compared to 24% in the 1st quarter and 35% in the Q4 last year. For our group life block, we estimate that COVID related mortality claims declined from an estimated 1400 claims in the 1st quarter to approximately 200 claims in the 2nd quarter. In addition, we also saw lower average benefit size call.

Speaker 3

Just over $40,000 per coin this quarter compared to slightly less than $55,000 in the first quarter as more of the impact we saw within the retiree population. We also saw favorable prior period runoff of IBNR, which reflects the faster than predicted improvement in our COVID claims experience. Finally, non COVID related mortality improved in the 2nd quarter relative to the Q1 and the AD and D line performed more favorably as well adding call to the strong improvement this quarter. Now looking ahead, assuming national COVID related mortality continues at its current levels call. And we see some moderation in the favorable volatility from non COVID mortality in the AD and D line.

Speaker 3

We would expect the benefit ratio for this line call to run-in the low to mid-seventy percent area for the second half of twenty twenty two. Moving on, adjusted operating income in the Unum U. S. Supplemental call. Continued to be very strong in the 2nd quarter at $120,600,000 compared to $118,400,000 in the 1st quarter.

Speaker 3

For the first half of twenty twenty two, these business lines generated an adjusted operating return on equity of over 18%. So looking at the 3 primary business lines. First, the individual disability recently issued block of business continue to produce excellent results with the benefit ratio slightly lower at 41.3% in the 2nd quarter compared to 42.5% in the 1st quarter. Likewise, the voluntary benefits line again reported a strong level of income with the benefit ratio stable at 40.8% call for the Q2 compared to 40.4% in the Q1, primarily reflecting continued strong performance in the Life product line. And then finally, benefits experienced in the dental and vision line was generally consistent in the 2nd quarter relative to the 1st quarter with a benefit ratio of 72.9% compared to 73.4%.

Speaker 3

Again, the supplemental and voluntary lines continue to perform very well and are generating strong levels of operating income for the company, which we do anticipate to moderate slightly in the second half of the year. Looking now at premium trends and drivers, we are very pleased to see momentum for Unum U. S. Accelerate further with growth in premium income 3.3% in the 2nd quarter on a year over year basis compared to the 1.3% increase we saw in the 1st quarter. Growth was especially strong in the group disability line with year over year growth of 5.1% in the 2nd quarter Compared to growth of 1.9% in the Q1.

Speaker 3

Sales growth from Unum US was very encouraging with growth of 20 5.6% year over year in the 2nd quarter and 16.2% for the first half of twenty twenty two. Sales growth trends in the 2nd quarter were broad based with strong results in the employee benefits lines, individual disability and voluntary benefits And also by market size with favorable results in both the core and large case markets. Overall, we remain pleased with persistency trends this quarter, which showed some variation by line of business, but for our total group block was slightly higher at 89.9% for the first half of twenty twenty two. The contribution from natural growth continues to accelerate for us and was approximately 5% year over year as we benefit from strong employment levels in the U. S.

Speaker 3

As well as higher wage levels. So taken together with all these factors combined, Unum U. S. Premium income for the Q2 of 2022 has recovered 2 pre pandemic levels and is now actually 3.3% higher than it was in the Q2 of 2020. Call.

Speaker 3

Then moving to the Unum International segment, adjusted operating income for the 2nd quarter declined slightly to $24,900,000 Compared to $27,200,000 in the Q1. The weaker dollar to pound exchange rate was the primary driver of the decline. Adjusted operating income for the Unum UK business was steady in the 2nd quarter at £19,300,000 compared to £19,200,000 in the Q1. The reported benefit ratio for Unum UK was 89.7% in the 2nd quarter, which compares to 80.7% in the Q1. The high levels of inflation in the U.

Speaker 3

K. During the Q2 did distort the reported benefit ratio, But adjusting for this impact, the underlying benefits experienced in the quarter was somewhat mixed. The benefits experienced in the group disability line was impacted quarter compared to the Q1. For Unipolent, adjusted operating income was slightly lower, though overall results remain consistent with our presentation for this business. Premium income for our international business segment declined on a year over year basis in dollars, But continue to show strong growth in local currency.

Speaker 3

Unum UK generated premium growth of 8.6% on a year over year basis in the 2nd quarter And our Poland operations produced growth of 15.4%. Both businesses continued to generate strong year over year sales growth in the 2nd quarter With Unum UK up 20.3 percent and Unum Poland up 19.8% in local currency and persistency remains steady. Next, results for Colonial Life this quarter were among the best on record with adjusted operating income of $101,100,000 compared to $90,100,000 in the Q1. We continue to see favorable experience in the ANH product lines, namely the cancer and critical illness products, As well as improved experience in the lifeline, which together produced an improvement in the benefits ratio to 47.6% in the 2nd quarter compared to 49.3% in the Q1. We anticipate the benefit ratio will trend in the 48% to 50% range call for the remainder of 2022.

Speaker 3

We are pleased to see a continuation in the improving trend in premium growth for Colonial Life, Which increased 1.9% on a year over year basis compared to 1% year over year increase recognized in the Q1. Driving this improving trend is the rebound we have seen in new sales over the past several quarters as well as generally stable to higher persistency. Call. For the Q2, sales for Colonial Life increased 6.4% compared to the year ago 2nd quarter And have increased 10.4% for the first half of the year. Persistency for Colonial Life was 78.6% for the first half compared to 78.3 percent for the first half of twenty twenty one.

Speaker 3

As we have indicated previously, it will take a call. Couple of years to return to pre pandemic levels of premium growth in the Colonial Life segment. However, we do feel very good with the progress we are making to build back premium income to pre pandemic levels for this business, which this quarter are only 2.5% below the Q2 of 2020. In the Closed Block segment, adjusted operating income excluding the amortization The cost of reinsurance related to the Closed Block individual disability reinsurance transaction was $79,300,000 in the 2nd quarter Compared to $94,100,000 in the Q1. This decline largely reflects the more normal benefits experience we saw in the long term care block as the effect of higher climate mortality was diminished in line with broader COVID trends.

Speaker 3

The adjusted operating loss ratio for LTC was 85.9 percent in the 2nd quarter compared to 70.2% in the 1st quarter as there was no excess claimant mortality this quarter after running about 10% higher than our seasonally adjusted expectations in the Q1. This level of performance for LTC is consistent with our long term expectations. For the Cloverbloc individual disability line, the interest adjusted loss ratio increased slightly to 79.5% in the 2nd quarter compared to 78.7% in the 1st quarter, but remain within our long term expectations. Miscellaneous investment income in the Closed Block increased in the 2nd quarter compared to the Q1 by approximately $17,000,000 call with higher returns on the alternative investment portfolio more than offsetting a reduction in bond call premiums. Call.

Speaker 3

So then wrapping up my commentary on the quarter's financial results, the adjusted operating loss in the corporate segment was $36,900,000 for the 2nd quarter Compared to $40,400,000 in the Q1 with higher net investment income and more favorable operating expenses. Going forward, we anticipate quarterly losses in this segment to be more consistent with our Q1 results. Moving now to investments and net investment income, we continue to see a much better environment for new money yields given the rise in interest rates and the widening in corporate bond spreads so far this year. The new money yield for the 2nd quarter was approximately 4.8% portfolio yields for most of our product lines begin to stabilize after many years of decline, as new money yields are currently exceeding the portfolio yields. Miscellaneous investment income increased in the 2nd quarter to $57,000,000 compared to $41,000,000 in the 1st quarter.

Speaker 3

We continue to see strong above average returns from our alternative investments portfolio, which produced returns of $54,000,000 call in the Q2 and $32,000,000 in the Q1. It is worth highlighting that second quarter returns benefited from about $17,000,000 from year end 2021 statements due to a lag in reporting final audited financial statements from those partnerships. Looking at this quarter's performance, returns from the real asset category performed very well in the 2nd quarter as did our credit funds with floating rate investments benefiting from rising rates this quarter. A portion of our miscellaneous investment income from traditional bond calls did decline in the quarter Relative to the Q1 and thus far in 2022 is running well below the unusually high volume of bond calls we experienced in 2021. This is consistent with our expectations and while it does pressure net investment income in the short run, maintaining those higher yielding securities call for longer periods of time is beneficial to our portfolio yields.

Speaker 3

Our current run rate expectation for quarterly income from alternatives Is in the $20,000,000 to $25,000,000 range and our current estimate is that the 3rd and the 4th quarter returns We'll be slightly below that expected average run rate. Moving now to capital. The financial strength of the company continues to build and remains in excellent shape, giving us significant financial flexibility. The weighted average risk based capital ratio for our traditional U. S.

Speaker 3

Insurance companies Improve to approximately 415 percent and holding company liquidity was $1,200,000,000 at the end of the second quarter. Both of these metrics are well above our targeted levels. In addition, leverage trended lower and ended the quarter at 24 0.7%. These strong capital metrics are driven by the strong improvement we are seeing in our statutory earnings results thus far this year. Statutory after tax operating income was $281,300,000 for the 2nd quarter, sharp increase from the Q2 of 2021 of $177,500,000 For the first half of twenty twenty two, our statutory earnings totaled $481,800,000 and have exceeded first half twenty twenty one by $168,000,000 Looking at capital deployment in the second quarter, we repurchased $45,000,000 of our shares this quarter $95,000,000 for the first half of the year and we do continue to anticipate repurchasing approximately $200,000,000

Speaker 4

for the

Speaker 3

full year. Capital contributions in the Fairwind subsidiary were $135,000,000 in the second quarter and for the first half of twenty twenty two now total three $50,000,000 With favorable performance in the LTC block and the rise in interest rates this quarter, We are trending favorably within the range of full year capital contributions to Fairwind of $550,000,000 to $650,000,000 that we guided to at our investor meeting. One final comment to make regarding capital is to highlight announcement that we made yesterday afternoon that we have issued a redemption notice for the $350,000,000 notes due to mature in 2024. We intend to fund that redemption with the proceeds of a new 5 year bank term loan facility, which we also signed yesterday afternoon. The pricing on the loan facility is very attractive relative to current market spreads and we are able to effectively extend the maturity by 3 years.

Speaker 3

I'll then wrap up with a comment on our outlook for the year. As a reminder, at our outlook meeting in February, we initially set our expectation for growth in after tax adjusted operating income per share in a range of 4% to 7% for 2022. We raised our outlook to an expectation for growth in the range of 15% to 20% following our Q1 earnings report. With our strong performance in the second quarter and our improved outlook for the second half of twenty twenty two relative to our original expectations, call. We are again increasing our outlook for growth in 2022 to a range of 40% to 45% off of our adjusted after tax operating income per share in 2021 of $4.35 At our Investor Meeting in February, we also provided a longer term outlook for after tax adjusted operating income per share to increase within a range of 45% to 55% in 2024 off of our 2021 earnings per share of $4.35 since we will be moving to the new LVTI accounting basis beginning with the Q1 of 2023, we will not be updating this 3 year view under the current GAAP reporting standards.

Speaker 3

However, we believe that upside to our original growth expectation has developed call as well as the benefits to our business from higher interest rates, rising wages and strong employment conditions. We intend to provide 2021 2022 recasted results on the new LVTI basis call in the Q1 of 2023 and transition our outlook expectations to the new accounting basis also in the Q1. Call. Now I'll turn the call back to Rick for his closing comments and look forward to your questions.

Speaker 2

Great. Thank you, Steve, for that summary of our 2nd quarter results. Call. The quarter was an outstanding one, and we are 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're 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.

Speaker 2

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 call 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 his growing family, including grandchildren. Matt Royal, our current Chief Risk Officer, will be our new Head of Investor Relations.

Speaker 2

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 and A session.

Operator

Call. Call. Our first question is from Alex Scott from Goldman Sachs. Alex, your line is open. Please go ahead.

Speaker 5

Hi. How are you guys? Good morning. 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.

Speaker 5

Call. And we'd 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.

Speaker 2

Thanks, Alex. I'll just hit on an overall, like we've mentioned in our results, They have moved a little bit faster given a 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 in Natural growth, we think of that 2% to 2.5% range of what that looks like.

Speaker 2

So the levels that we're seeing now, we just don't count on and we really I'll factor those in as we look out over the next several years. 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, 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 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 Couple of other places to think about is if the world does get choppier.

Speaker 2

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 2 other places you might see it is in our investment portfolio.

Speaker 2

So the team's done a really good job of going through the portfolio, taking a look at where things could 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 are 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, couple of percentage points of the portfolio came down.

Speaker 2

Call.

Speaker 4

And then

Speaker 2

the other place when things get a little choppy, I think we get the question often about what happens in the long term disability world. Mike, you have some comments on that. We've seen recessions in the past and maybe some thoughts on that. Yes. Thanks, Rick.

Speaker 6

It's something we've managed through multiple times. If you think back to 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.

Speaker 6

As you see it coming, call. It's generally 2 to 4 quarters before that incident starts to come through. And I would say that gives us an opportunity to think about call into the business through a pricing and underwriting point of view. And then most importantly, just make sure that we're prepared from a claims management kind of you make sure that those clinical, vocational And disability specialists are well prepared. So in general, not something that we're looking to see happen, but should that occur, we are very well prepared.

Speaker 2

I'll go ahead and summarize it, Alex. I think it's discussion. The discussion is more what happens on our recessionary front. I think we feel good about it. We've showed that we got through a very difficult time of the pandemic And are in good shape.

Speaker 2

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.

Speaker 5

Call. 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, I mean hopefully that same level won't necessarily be needed going forward. We shall see, I guess.

Speaker 5

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?

Speaker 2

It's a good question, Allison. I think in this environment where labor market is tight as we look at it, we think about expenses more broadly. We always have In terms of managing a good productivity in the company as we grow, I think we were challenged a little bit going 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 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.

Speaker 2

Our Talent means a lot to us and making sure that we're competitive on that front is equally as important. Maybe Steve, you can talk a little bit about we talked a little bit at Investor Day about how we see this

Speaker 3

call today. 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 They're concentrated in our group disability line.

Speaker 3

It's very labor intensive in that line. And so Mike, maybe talk a little bit about what we're doing to invest Yes, specifically in group disability. Yes.

Speaker 6

I think you feel most acutely in that group disability line because it is where we're most intently serving clients, as Rick mentioned. So Alex, to your point, as COVID 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 in 6 to 9 months. It is a tight labor market.

Speaker 6

We're quite selective in terms of we bring Intuit 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 leave Comes online, but those are expenses we're incurring from an investment point of view. So in a reasonable spot, I want to make sure we take care of our people. They are the ones that are taking care of our customers, but I would expect a downward trend as some of those technology investments come online and that hopefully sustain that improvement.

Speaker 5

Thank you.

Operator

Agenda. It's from Ryan Krueger from KBW. Ryan, your line is open. Please go ahead.

Speaker 3

Hi, thanks. Good morning and 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 The normal fully or is there any headwinds embedded in that still related to the environment? Yes, Ryan, this is Steve.

Speaker 3

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 3 main areas that we think that, that will go back to a normal run rate. 1 is just in our group disability benefits experience. Message in my comments.

Speaker 3

We think that will be more in the low to mid-seventy percent 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 The run out of our IBNR at the end of the Q1, we do think we'll have some ongoing impact from just COVID claims coming through maybe $10,000,000 a quarter. So that will be coming through the latter half of the year. And then with our alternative investment portfolio.

Speaker 3

We obviously had a very good quarter at $54,000,000 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 We're going to have more of regressing to a norm. It comes out to about $1.40 to 1.45 quarter probably for the remainder of the year. If you take that back to pre pandemic, that's about where our jumping point our jumping off point was In 2019 2020.

Speaker 3

So we feel like we're back to pretty much the earnings power that we have there and then we're able to grow off of that. I did mention in my comments, we're going to be on different accounting basis going into next year. So not really given any guidance beyond 2022, but obviously feel really good about how we think we're going to end the year and be able to go into the future. Great, thanks. That's helpful.

Speaker 3

And then on long term care, Could you give an update on any more thoughts you've had on potential ways you could hedge interest rates, as you've been evaluating that? Yes. Thanks for the question. I would take it in 2 pieces because we really have 2 blocks 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 fair win.

Speaker 3

We are on a premium deficiency reserve construct there. And then we have our 1st unit block, which is more on Q2. And I am happy to announce we actually did make a move in the 2nd quarter on that block. We did execute on $164,000,000 of notional hedge in our 1st 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 5 years.

Speaker 3

And we locked it in at different rates, but on average, it's about 3.35% for the 30 year. So we really feel good call. 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 reserve by the end of the year and also be able to take 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.

Speaker 3

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 liabilities and fair when we have to work through that. And just the collateral requirements on that block are going to be much greater. So call.

Speaker 3

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. Great. Thanks a lot.

Speaker 5

Call. Thanks

Operator

Ryan. Thank you. Our next question is from Erik Bass from Autonomous Research. To Eric. Your line is open.

Operator

Please go ahead.

Speaker 7

Hi. Thank you. 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 premium growth trajectory going forward.

Speaker 6

Yes, sure. Maybe I can jump in and take that one. Eric, it's Mike. Call. And like Rick highlighted, I think it's a combination of factors that are fueling that premium growth coming in.

Speaker 6

It's 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 brands here in the U. S. Colonial Life up nicely, international up very nicely on local currency So we're finding our value proposition is winning in terms of new clients and adding benefits into existing clients. And maybe in a minute, I'll flip it over to Tim to talk a little bit about what's happening in Voluntary, Colonial Life and then Top Market International.

Speaker 6

Let's say circling back to the group business, you take that kind of sales growth, combine it with good strong consistency. The natural growth coming through is probably a tick or 2 higher than we might have expected. And then we talked about it at the outlook meeting, just continued sort of balanced rate increases to the renewal programs and those continue to track well against our expectations. So call. Everything showing a little bit of upside for us in the combination.

Speaker 6

It's finding ourselves in the over 3% growth in the top line, probably 6 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 Mark, it's Tim, maybe you'll comment on I'm sorry.

Speaker 8

Yes. Thanks, Mike. You hit it well. I think the biggest surprise has been maintaining persistency through the pandemic in a way that's helped us have premium levels that really held up well Through the pandemic, we have also seen improvements in agent productivity over the last couple of years, which has helped along the Colonial Life side. We're making we're continuing to make nice investments cross the BB businesses, both Colonial Life and Unum that are spurring some additional growth.

Speaker 8

Recently, we're very encouraged call. The momentum we're beginning to see building on the UNMVP side in both the small, mid and large case markets. So Appreciate the question. Pleased with the progress we're making, and we think that there's still plenty of opportunity out there.

Speaker 4

Mike?

Speaker 9

Yes. Thank you. So sales growth in both Poland and the U. K. At 20%, premium growth in the U.

Speaker 9

K. At 8.5 and in Poland at 15% and persistency slightly higher. I would point to a few things. In the U. K, I would say that we've addressed some of our service levels.

Speaker 9

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 contributing to a good view on sales persistency and premium growth over time.

Speaker 6

So, Eric, hopefully that gives you a sense across markets. There's a lot of things going well, some good optimism in the team. I'd just call. I'll be saying, and I mentioned it just a second ago when we talk about expenses. We're fully staffed in our claims areas.

Speaker 6

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 effectives, we are ready to onboard substantial number of new clients.

Speaker 7

Great. Thanks, Mike. And I guess the second question I had is your RBC ratio, as you mentioned, The highest it's ever been and that's even after factoring in the impact of new C1 charges. It seems like free cash flow is also normalizing more quickly than you'd expected. So does this change your view at all kind of about the level of annual capital deployment you can support near term?

Speaker 7

Or any difference in how you think about priorities of deploying that.

Speaker 2

Yes. Thanks, Eric, for the question. I mean, the capital deployment picture, It's getting clear. You mentioned that the strong capital generation has been tremendous. The statutory earnings we saw, as we mentioned in the first half of the year, Returning to levels that we experienced prior to the pandemic.

Speaker 2

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 2nd 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 core business and grow the way that Mike talked about on the premium side.

Speaker 2

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 call to enhance the overall offerings that we've got out there and then the continued deployment that we see across 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.

Speaker 3

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 bring in the whole PDR discussion into this a bit. I think important points.

Speaker 3

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 2030 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 have reduced the PDR to about $1,800,000,000 and we'd love That's where we end up.

Speaker 3

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 2 the stakeholders that are out there as far as moving forward With given the PDR or permitted practice behind this and also having, I'd say, a moderate level of capital deployed back to our shareholders.

Speaker 7

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

Speaker 3

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 Stay at the levels that they are, that would be something that we definitely want to contemplate doing.

Speaker 7

Call. Got it. Thank you.

Operator

Thank you. Our next question is from Jimmy Bhullar from JPMorgan. Me. Your line is open. Please go ahead.

Speaker 4

Hey, good morning. So just a question on your margins overall, Especially in the disability business, they've been better than expected better than I think most of their peers have had. So wondering how much of the improvement is just 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.

Speaker 6

Yes, Jamie, it's Mike. I can take that question. And I'd start by kind of agreeing with the premise that it is a very favorable loss ratio. I'd say underpinning that is 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.

Speaker 6

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 Q1, 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 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.

Speaker 6

I'll talk a little bit about it, but again, a one timer 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, not quite to the rate that we had here in Q2. So you 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, but it seems likely we'll be reverting back to those low 70%

Speaker 4

range. Okay. And then on with the changes in taxes in the UK In the business, how does how should we think about your overall expected tax rate for 2020, please?

Speaker 3

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 had enacted a new tax rate, taking the tax rate from 19% to 25%.

Speaker 3

The tax rate was not effective though Until next year, I believe it's Q1 of next year or maybe early Q2 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.

Speaker 3

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%.

Speaker 3

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 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.

Speaker 3

But that dynamic caused a little bit of volatility just in the quarter.

Speaker 8

And then going forward, do

Speaker 4

you think the Tax rate overall for the company will go up a little bit higher than 20% just based on the or commensurate to the contribution of the UK business The overall results. It might be

Speaker 3

a tick, but it won't be much just the relative taxable income in the U. K. Versus our U. S. Operations.

Speaker 4

Yes. Okay. All right. And the other way

Speaker 3

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 about right now.

Speaker 4

Got it. Okay. Thank you.

Speaker 6

Call. Thanks, Kevin.

Operator

Thank you. Our next question is from Tom Gallagher from Evercore. Tom, your line is open. Please go ahead.

Speaker 10

Thanks, and best of luck to Tom White from me as well. Just a quick one on capital management, potential risk transfer call 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 2 years for anything to come to fruition. Is that still the expectation?

Speaker 10

Or has the timing on that changed at all?

Speaker 2

Yes, Tom. I think it's hard to predict. To predict M and 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.

Speaker 2

So I really can't give you a better time frame, a couple of years when they take. We'd like it to be earlier, but could it be later? It's one of those things. M and 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.

Speaker 10

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

Speaker 6

Call. 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, and this is specific to the quarter, and that's Yes, very favorable.

Speaker 6

STD incident last quarter, by that elimination period is kind of 90, 180 days kind of coming through here In the Q2. So that's what's driving incidence favorability. On the recovery front, again, we've We've seen an improving recovery trend. And while I think jump a bit ahead, I would sort of attribute that to just some favorable volatility here in quarter. But as we sort of look at our guidance for the second half of the year, like I said, I expect that recoveries will remain elevated, just not at the current level.

Speaker 6

So to really put that to the strength of the benefits team, the return to work, the success that we've had, some investments on the clinical front, the percentage of claims that are going and getting touched by clinicians is up and has been going up over the last several quarters. So a combination of things is going to give us conference on that front.

Speaker 10

Okay. Thanks. 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 of what you think all of this means for pricing?

Speaker 6

Sure. Yes, it's a great question, Tom. And yes, I can actually characterize it reasonably well. Think about most of our clients I have multiple Unum benefits. And so we're going to think about the aggregate level of price action that we take across product lines, Yes, the interest rate environment, some favorability from an LTV risk and recovery point of view, those things are certainly favorable.

Speaker 6

Those will mitigate some increases that we need To flip through, when you think about, like you heard, sightings of the life insurance experience that we've had and just staying ahead The inflationary pressure on expense to make sure as we increase wages and benefits for our people to make sure that we keep them with our customers. We need to make sure we're accurately sort of reflecting that. Our fee based businesses, that's been something we talked about pretty consistently and needing to make sure that the expenses we're incurring to take care of leave claims and SO, SEB claims are reflected in pricing. So call. As always, we sort of seek to make it a pretty balanced approach, but we'll need to continue to put a bit of rate into the market.

Speaker 6

It will be softened 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 with expectations is pretty optimistic.

Speaker 10

Okay. Thanks.

Operator

Thank you. Call. Our next question is from Suneet Kamath from Jefferies. Suneet, please go ahead. Your line is open.

Speaker 11

Thanks. Good morning. And thanks to Tom for all the help over the many years. My question again back on group disability. If I go back to the outlook presentation, I think you guys guided to mid to low 70% range call for 2023 2024.

Speaker 11

It feels like you're going to get there second half. So as we think about kind of the longer term, Is there reason to be confident that we could push kind of lower than that as we move into 2023 2024 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?

Speaker 6

Yes, Cindy, it's Mike. And As we've just talked about, sort of reverting into those low 70%, you think about kind of where we were pre pandemic, coming down pretty consistently into that low 70 range. We feel like that's 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.

Speaker 6

And we started to see that Group Disability segment really start growth again in terms of the top line. We're encouraged with the pipeline. We're encouraged with the investments that we've made In new total lease 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 feeling a loss ratio in the low 70s is a good spot for us to be in.

Speaker 11

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?

Speaker 3

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 recasts for earnings. There's probably 3 or 4 major things and you might be 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, some shorter.

Speaker 3

Run off 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 establish Our new claims at a different rate, we'll be at a 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.

Speaker 3

If you go back To our original disclosure on the onetwenty one impact of adoption, it was in that $6,500,000,000 to $7,000,000,000 range. If we take 6.30 rates and push them back to 1onetwenty 1 and recast that, that number is more in the $2,000,000,000 to $2,500,000,000 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 really 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 feel great About the cash generation from the firm and just how we feel about growth for the business.

Speaker 11

Makes sense. Just one last quick numbers one. Can you just give us the split in LTC reserves between sort of First Unum and then the PSET and Fairwind?

Speaker 3

Yes. Just rough numbers, and this is kind of by reserve probably. First Unum is about 80% of the business. New York is about 15%. And then and did I get that backwards?

Speaker 3

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 PLA, our Tennessee company.

Speaker 11

Got it. Thanks for the answers.

Speaker 3

Yes. Thank you.

Operator

Thank you. Call. Our last question today is from Tracy Banghuigui from Barclays. Tracy, your line is open. Please go ahead.

Speaker 12

Call. Thank you. Good morning. Based on your neric acid efficacy testing, you said you'd be able to take a dividend out of First Unum. Could you size up what that may look like?

Speaker 12

And I also believe First Unum is a sister company, it's not stacked. So can I assume that will go up to the HoldCo?

Speaker 3

Yes, Tracy, this is Steve. You are correct. It's sister company, so it doesn't have to pass through a holding company. It will go to direct to group. Call.

Speaker 3

And then it'll be obviously, we need to get the work done at year end and see where rates end up, but we anticipate a dividend pretty consistent with what we saw last year. I think it was in the $40,000,000 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.

Speaker 3

And we think probably $40,000,000 is about the right place for this year, but we'll see how year end plays out.

Speaker 12

Okay. Got it. Also want to follow-up on our earlier discussion on fairwind hedging. I get that your collateral needs is a consideration of rates go up substantially higher from here. But what about hedging specific portion of Fairwind.

Speaker 3

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 is there more of a macro hedge we 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. Call. Got it.

Speaker 4

Thank you. Thanks, Tracy.

Operator

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

Speaker 2

Great. Thanks, Daisy. I just want to thank everybody for joining us this morning. Good quarter. Certainly want to get out there and talk to all of you.

Speaker 2

In the coming weeks, we'll see you at upcoming conferences and investor events. And I do want to wrap the call today We're thanking Tom White for his years of service and 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.

Speaker 2

Thanks, everyone.

Powered by Quartr