Unum Group Q1 2022 Earnings Call Transcript

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Provided by Quartr
May 6, 2022

Key Takeaways

  • Q1 earnings beat expectations with net income of $253.5 million ($1.25/share) and adjusted operating income of $277.3 million ($1.36/share), leading the company to raise its 2022 operating EPS growth outlook to 15 – 20%.
  • Benefit ratios improved across key lines: Group Disability fell to 73.8%, Group Life & AD&D declined by ~10 points, the LTC interest-adjusted loss ratio dropped to 70%, and Colonial Life recorded its lowest benefit ratio in some time at 49%.
  • Premium income momentum continued with 1.7% year-over-year growth in core segments (vs. 1.2% in 2021) and robust new business sales gains of 7% in Unum US, 15% in Colonial Life, 55% in the UK and 35% in Poland.
  • Favorable macro trends—including declining COVID mortality among working-age lives, full employment boosting wage growth, and 10-year Treasury rates up ~140 bps—have accelerated premium growth and enhanced new money yields.
  • The balance sheet remains strong with a ~400% risk-based capital ratio, $1.3 billion of holding company liquidity and 25% leverage (the lowest since 2014), supporting $200 million in annual share buybacks and potential dividend increases.
AI Generated. May Contain Errors.
Earnings Conference Call
Unum Group Q1 2022
00:00 / 00:00

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Operator

Hello, and welcome to Unum Group First Quarter 2022 Earnings Conference Call. My name is Elliot, and I'll be coordinating your call today. If you would like to register a question during the presentation, you may do so by pressing star followed by one on your telephone keypad. I would now like to hand over to our host, Tom White, Senior Vice President of Investor Relations. Please go ahead.

Tom White
Tom White
SVP of Investor Relations at Unum

Great. Thank you, Elliot. Good morning, everyone, and welcome to the first quarter 2022 earnings conference call for Unum. Our remarks today will include forward-looking statements, which are statements that are not of current or historical fact. As a result, actual results might differ materially from results suggested by these forward-looking statements. Information concerning factors that could cause results to differ appears in our filings with the Securities and Exchange Commission and are also located in the sections titled Cautionary Statement regarding Forward-Looking Statements and Risk Factors in our annual report on Form 10-K for the fiscal year ended December 31, 2021. Our SEC filings can be found in the Investors section of our website at unum.com. I remind you that the statements in today's call speak only as of the date they are made, and we undertake no obligation to publicly update or revise any forward-looking statements.

Tom White
Tom White
SVP of Investor Relations at Unum

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, also in the Investors section. Yesterday afternoon, Unum reported first quarter 2022 net income of $253.5 million or $1.25 per diluted common share, an increase from the $153 million or $0.75 per diluted common share in the first quarter of 2021. Net income for the first quarter of 2022 included the after-tax amortization of the cost of reinsurance of $13.2 million or $0.06 per diluted common share and an after-tax investment loss on the company's investment portfolio of $10.6 million or $0.05 per diluted common share.

Tom White
Tom White
SVP of Investor Relations at Unum

Net income in the first quarter of 2021 included the net after-tax loss from the second phase of the closed block individual disability reinsurance transaction of $56.7 million or 27 cents per diluted common share. Also, the after-tax amortization of the cost of reinsurance of $15.8 million or 8 cents per diluted common share, and a net after-tax investment gain on the company's investment portfolio, excluding the net realized investment gain associated with the reinsurance transaction of $13.5 million or 6 cents per diluted common share.

Tom White
Tom White
SVP of Investor Relations at Unum

Excluding these items, after-tax adjusted operating income in the first quarter of 2022 was $277.3 million or $1.36 per diluted common share, an increase from the $212 million or $1.04 per diluted common share in the year ago quarter. Participating in this morning's conference call are Unum's President and CEO, Rick McKenney, Chief Financial Officer, Steve Zabel, Chief Operating Officer, Mike Simonds, as well as Mark Till, who heads our Unum International business. Tim Arnold, the head of our Colonial Life and Voluntary Benefits business, is away with his family attending his son's graduation from law school this morning, which is a very exciting and proud moment for the Arnold family. Now I'll turn the call over to Rick for his opening comments.

Rick McKenney
Rick McKenney
President and CEO at Unum

Great. Thank you, Tom, and good morning, everyone. Yeah, we do appreciate you joining us this morning. Let me start by saying our first quarter results were an outstanding start to the year. We saw dramatic shifts in the environment throughout the quarter, which have been very favorable to our business. Since we've last talked to you, we have seen COVID mortality levels come down consistently. Of the estimated 153,000 COVID deaths in the U.S. population in the first quarter, fewer than 30,000 were reported in March. There was also a notable change in the demographic impacts by the Omicron variant relative to what we saw last year. Additionally, we have seen positive impacts from the current inflationary environment, seeing the 10-year Treasury move up nearly 140 basis points since the start of the year.

Rick McKenney
Rick McKenney
President and CEO at Unum

These are welcome developments and helped our recovery accelerate faster than we anticipated. As a result, we saw first quarter after-tax operating earnings at $1.36 per share, which was up 31% over the previous year. There was broad-based solid performance on both the top and bottom line. Taking that into account, we now look to an expected operating EPS growth rate for the year of 15%-20%, up from the 4%-7% previously expected. To set the broader context of how we stand in the current environment, the three elements most being discussed in the financial markets are all on a positive trend for us. First is how COVID has lessened and shifted its age demographic.

Rick McKenney
Rick McKenney
President and CEO at Unum

It is not making the same headlines, but COVID-driven mortality is still one we need to monitor as our life lines look to get back to pre-COVID claim levels. The second is the full employment and inflationary environment we're operating in. For employers, there is pressure to increase wages as they look to find workers in a very unique time. This creates top-line growth for us as these workers look to protect their higher levels of income. Third are interest rates, which play very positively for our new investments backing our product lines, both in our ongoing core business lines and new cash flows coming into our closed block.

Rick McKenney
Rick McKenney
President and CEO at Unum

Before getting further into the results, I do want to take a moment to reflect on how our purpose of helping the working world thrive throughout life's moments continues to guide all that we do. As the effects of COVID continue to lessen, our employees have stepped up in new ways, and I would like to highlight our colleagues in Poland who have shown uncommon resilience as they continue to demonstrate compassion, outreach, and support to the growing Ukrainian refugee crisis. The situation remains heartbreaking, but we take the utmost pride in our team's caring spirit in this time of need. Turning to our operating trends for the quarter, there are a few areas I'd like to highlight. First, we're pleased with the growth in premium income that is emerging in our core business segments.

Rick McKenney
Rick McKenney
President and CEO at Unum

In the first quarter, we recorded 1.7% growth year-over-year in premium income from our core business segments combined. This compares to a growth of 1.2% for all of 2021. For the rest of 2022, we are anticipating growth to accelerate so that we are at just over 2% for the full year, and we are well on track to accomplish that. Adding to our confidence is a solid start to the year for new sales. With year-over-year increases of 7% in Unum U.S. in total and 15% for Colonial Life, as well as 55% for Unum U.K. and 35% for Unum Poland in their local currencies. Persistency levels were solid across the company, and we are making good progress with our renewal plans as we look to continue to prudently implement targeted rate increases.

Rick McKenney
Rick McKenney
President and CEO at Unum

Second, benefits experience was generally positive as we look at our benefit ratios for the first quarter compared to the fourth quarter of 2021. The Unum U.S. group disability line showed substantial improvement at 73.8% for the first quarter as our claim recoveries in long-term disability were very strong and short-term disability results improved sequentially. The Unum U.S. group life and AD&D line showed significant improvement as well, declining approximately 10 points from the prior quarter as the age demographics shifted, lessening the mortality impact for working age individuals. Also related to that age shift, with COVID-related mortality impacting the elderly population more significantly this quarter, we saw the LTC interest-adjusted loss ratio decline by 12 points to 70% in the first quarter.

Rick McKenney
Rick McKenney
President and CEO at Unum

Finally, I'd highlight the improved benefits experience in Colonial Life, which generated its lowest benefit ratio in some time at 49% in the first quarter. A third operating trend I'd highlight from the first quarter was on expenses. At our outlook meeting earlier this year, we indicated that we expected to see increased pressure on expenses this year as we managed through increased people costs, pandemic-related costs, and a normalizing environment. We still see this emerging later in the year. The reality is our teams have done an excellent job of managing through these pressures so far in 2022 as we have been working hard to fill open positions. Each of our core business segments reported an improved operating expense ratio in the first quarter compared to the fourth quarter.

Rick McKenney
Rick McKenney
President and CEO at Unum

We don't believe that these pressures have gone away as we will continue to invest in several major initiatives to connect with customers, to improve our efficiencies, and to catch up on staffing. I am pleased with the discipline we have shown in managing expenses in this inflationary environment. In addition to these strong operating trends, the current business environment remains very favorable for us. Rising interest rates and narrowing corporate credit spreads so far this year have been very beneficial in new money yields. In addition, it is particularly beneficial to the LTC line. To the extent rates remain at current levels, it would strengthen our ability to fully fund the premium deficiency reserve for long-term care ahead of the original schedule.

Rick McKenney
Rick McKenney
President and CEO at Unum

Rising wages and strong levels of employment across the economy also provide a tailwind for us to top-line growth as the natural growth created by these forces helps drive growth in the premium income for many of our business lines. Looking at our capital position, just as we showed strong GAAP earnings this quarter, our statutory results were also quite favorable, increasing by over $60 million on a year-over-year basis to $200 million for the first quarter of 2022. This helped drive the risk-based capital ratio for our traditional U.S.-based insurance companies to approximately 400%.

Rick McKenney
Rick McKenney
President and CEO at Unum

Holding company liquidity at approximately $1.3 billion, leverage at 25%, which is the lowest level we've seen since 2014, and with our contingent capital structure in place, we are in great shape with our capital position to execute the deployment priorities we outlined at our recent investor meeting, including the ability to fund the LTC premium deficiency reserve by the end of 2024, repurchasing $200 million of our shares annually, as well as increasing shareholder dividends, which we will discuss when our board meets later this month for our annual shareholders meeting. In summary, I am very pleased with our performance in the first quarter and the optimism it creates as we move forward. Now I'll ask Steve to cover the details of the first quarter results. Steve?

Steve Zabel
Steve Zabel
CFO at Unum

Great. Thank you, Rick, and good morning, everyone. As Rick outlined for you, the first quarter was a very strong quarter for the company as we benefited from both a favorable shift in the COVID-related trends this quarter and strong operating performance in many parts of our business. As I cover our first quarter results, I will primarily focus on a discussion of our first quarter results relative to the fourth quarter of 2021, which will allow us to demonstrate how the company's business lines have been progressing through the pandemic. To start and to provide some broader context on the quarter, there were two significant shifts in the COVID trends this quarter that had important impacts on our first quarter results.

Steve Zabel
Steve Zabel
CFO at Unum

First, COVID-related mortality increased in the U.S. in the first quarter of 2022 compared to the fourth quarter of 2021 and was also higher than our estimate coming into the year. Additionally, the shift in the age demographics of the mortality back to a greater relative impact on the elderly population and less on the working age population had important implications on our business. If you recall, for most of 2020 and the early months of 2021, COVID-related mortality impacted the elderly population more so than the working age population. In the second half of 2021, the age demographic shifted and COVID-related mortality showed an increased level of impact amongst the working age population, and less so among the elderly population. In the first quarter of 2022, the age demographic shifted back and was more consistent with what the U.S. experienced in 2020.

Steve Zabel
Steve Zabel
CFO at Unum

That is, less impact among the working age population and more in the elderly population. This shift is significant to our business, and it drove lower mortality experience in our group life block, which primarily covers working-aged individuals. This is evident both in terms of the percentage of the national COVID-related mortality that we see in our book and the average benefit size. In addition, the higher mortality among the elderly population resulted in higher mortality in the claimant block for our long-term care business, which drove a lower interest-adjusted loss ratio in the first quarter of 2022. The second trend we saw was a rapid decline in COVID infection rates and hospitalization rates through the first quarter. This had a favorable impact on our short-term disability results, which helped drive the improvement we saw in our Unum U.S. Group Disability Benefit Ratio this quarter.

Steve Zabel
Steve Zabel
CFO at Unum

I'll dig into these two trends more deeply as I discuss the performance of these lines, but the age demographics of our mortality and the declining infection rates were important factors in our first quarter results. I'll begin my review of our operating performance with the Unum U.S. segment. Adjusted operating income showed a sharp increase to $171.6 million in the first quarter of 2022, compared to $81.4 million in the fourth quarter of 2021, primarily driven by strong sequential quarter improvement in the group disability and group life and AD&D lines, as well as continued high levels of operating income from the supplemental and voluntary lines.

Steve Zabel
Steve Zabel
CFO at Unum

Within the Unum U.S. segment, the group disability line reported a strong rebound in adjusted operating income to $62.6 million in the first quarter from $34.1 million in the fourth quarter. The biggest driver of the earnings improvement was the benefit ratio for group disability, which improved in the first quarter to 73.8% compared to 78.3% for the fourth quarter of 2021. This improvement was driven in large part by strong performance in the long-term disability line as claim recoveries were very favorable. Additionally, new claim incidents for LTD declined on a sequential quarter basis, though this was offset somewhat by higher average claim size. As I mentioned previously, results in the short-term disability line also improved relative to the fourth quarter.

Steve Zabel
Steve Zabel
CFO at Unum

Looking forward, we expect the group disability benefit ratio to average in the mid-70% area, consistent with the range we provided at our Outlook meeting. Adjusted operating income for Unum U.S. Group Life and AD&D also showed strong improvement with an operating loss of $9.4 million in the first quarter compared to a loss of $71.7 million in the fourth quarter. This quarter-to-quarter improvement was primarily the result of an improvement in the benefit ratio, mostly driven by the shift in the age demographics of the COVID-related mortality, which I described earlier. In the fourth quarter of 2021, COVID-related mortality in the U.S. population was an estimated 127,000, with approximately 35% of those deaths among the working age population.

Steve Zabel
Steve Zabel
CFO at Unum

In the first quarter of 2022, while the mortality count increased to approximately 153,000, the impact to the working age population declined to approximately 24%. For our group life block, we estimate the COVID-related mortality claims declined from an estimated 1,725 claims in the fourth quarter to an estimated 1,400 claims in the first quarter. Accordingly, our results reflect a lessening in our exposure to the national mortality count to slightly less than 1% of the reported national figures in the first quarter compared to approximately 1.4% in the fourth quarter and 2% in the third quarter of last year. Looking back to 2020, we saw a similar exposure to national mortality count of about 1% when the age demographics were generally similar.

Steve Zabel
Steve Zabel
CFO at Unum

In addition, we also saw a lower average benefit size, which declined to slightly less than $55,000 in the first quarter compared to around $65,000 in the fourth quarter of last year. Finally, non-COVID-related mortality did not materially impact results in the first quarter relative to the experience of the fourth quarter. Over the course of the pandemic, the count in age demographics of COVID-related mortality has heavily influenced our group life results. In our plans, we have assumed that national mortality related to COVID will decline significantly in the second quarter and remain at lower levels for the balance of 2022. For the second quarter, we could see the group life and AD&D benefit ratio decline further to around 80%.

Steve Zabel
Steve Zabel
CFO at Unum

However, these measures have historically been very difficult to predict, so we suggest that you follow the national trends as a basis for your projections and estimates. Now, looking at the Unum U.S. supplemental and voluntary lines, earnings remained at very healthy levels with adjusted operating income of $118.4 million in the first quarter compared to $119 million in the fourth quarter. Looking at the three primary business lines, first, we remain very pleased with the performance of the individual disability recently issued block of business, which has generated strong results throughout the pandemic. The benefit ratio was slightly higher on a sequential quarter basis, but remained well within the experience we have seen over the past two years.

Steve Zabel
Steve Zabel
CFO at Unum

Likewise, the voluntary benefits line reported a strong level of income as well, with the benefit ratio declining slightly on a sequential quarter basis. Primarily reflecting strong performance across the A&H and disability products. Finally, utilization in the dental and vision line increased relative to the fourth quarter, and the average cost per procedure was also somewhat higher, leading to an increase in the benefit ratio for that line on a sequential quarter basis. All in all, though, the supplemental and voluntary lines continue to perform very well and remain a strong income generator for us. Looking at premium trends and drivers, we were pleased to see additional momentum building for Unum U.S. with growth in premium income of 1.3% in the first quarter on a year-over-year basis. For full year 2021, premium income for Unum U.S. increased by 1% compared to 2020.

Steve Zabel
Steve Zabel
CFO at Unum

Looking at the group disability line, growth in premium income is closely tracking our outlook, increasing 1.9% on a year-over-year basis, with increasing levels of natural growth as we benefit from high employment levels and rising wages, solid sales, and persistency trends in careful management of our renewal programs. Sales growth for Unum U.S. was encouraging, with growth of 6.8% year-over-year, as growth in the group lines and individual disability offset softer sales in voluntary benefits. Overall, we are pleased with persistency trends this quarter, which showed some variation by line of business, but our total group block was stable at 89.6% in the first quarter.

Steve Zabel
Steve Zabel
CFO at Unum

Natural growth continues to develop as a tailwind for us, increasing 3.5%-4% year-over-year as we continue to benefit from strong employment levels in the U.S. as well as higher wage levels, particularly in our core market segment. Finally, we have been encouraged by the progress we are seeing with our pricing strategy, particularly in the large employer group, disability group, life and services market where pricing action is appropriate. Moving to the international, Unum International segment, we had another very good quarter with adjusted operating income for the first quarter of $27.2 million in line with the $27.1 million reported in the fourth quarter.

Steve Zabel
Steve Zabel
CFO at Unum

The primary driver of our international segment results is our Unum U.K. business, which generated adjusted operating income of GBP 19.2 million in the first quarter compared to GBP 18.7 million in the fourth quarter. The reported benefit ratio for Unum U.K. was 80.7% in the first quarter compared to 81.4% in the fourth quarter. As we have outlined in the past, inflationary trends in the U.K. will impact our reported benefit ratio and can mask the underlying claims experience we are seeing. For the first quarter, excluding the impact of inflation, our overall benefits experience was slightly unfavorable compared to the fourth quarter, with favorable experience in group life offset by unfavorable experience in the group disability line.

Steve Zabel
Steve Zabel
CFO at Unum

All in all, we are pleased to see the Unum U.K. results continue to improve towards the GBP 20 million per quarter goal. Similarly, benefits experience in Unum Poland trended slightly higher on a sequential quarter basis, though adjusted operating income was generally consistent, quarter-over-quarter. The year-over-year premium growth in our international business segment was very strong this quarter, increasing 7.7% on a year-over-year basis in dollars. On a local currency basis to neutralize the impact from changes in exchange rates, Unum U.K. generated growth of 11% year-over-year, the strongest rate of growth in Unum U.K. in several years, driven by strong persistency, improving sales trends, and the continued successful placement of rate increases on our in-force block. Sales in Unum U.K. were very strong in the first quarter, increasing 55% over the year ago quarter.

Steve Zabel
Steve Zabel
CFO at Unum

Unum Poland generated sales growth of 35% in local currency, a continuation of the strong growth trends this business has been producing. Next, results for Colonial Life were also very strong, with adjusted operating income of $90.1 million in the first quarter compared to $80 million in the fourth quarter. One of the primary drivers of these results was an improvement in the benefit ratio in the first quarter to 49.3% compared to 52.5% in the fourth quarter. This was largely driven by very favorable experience in the cancer and critical illness line, as well as improved performance in the accident, sickness, and disability line.

Steve Zabel
Steve Zabel
CFO at Unum

We are pleased to see a continuation in the improving trend in premium growth for Colonial Life, which increased 1% on a year-over-year basis after declining 1.3% in full year 2021. Driving this improving trend in premium is the rebound we have seen in new sales over the past four quarters and generally stable persistency. For the first quarter, sales for Colonial Life increased 15.3% compared to the year ago first quarter, following an increase of 16.1% for the full year 2021. Persistency for Colonial Life was 78.7% for the first quarter compared to 78.4% for the year ago quarter.

Steve Zabel
Steve Zabel
CFO at Unum

It will take a couple of years to return to pre-pandemic levels of premium growth in the Colonial Life segment, but we are encouraged that the level of absolute quarterly premium income has recovered for Colonial to pre-pandemic levels. In the Closed Block segment, adjusted operating income excluding the amortization of cost of reinsurance related to the Closed Block individual disability reinsurance transaction was $94.1 million in the first quarter compared to $76.7 million in the fourth quarter. The increase in the segment earnings was largely driven by higher earnings in the long-term care line as a result of favorable benefits experience.

Steve Zabel
Steve Zabel
CFO at Unum

The interest-adjusted loss ratio for LTC declined to 70.2% in the first quarter from 82.2% in the fourth quarter, primarily driven by a higher claimant mortality, which was approximately 10% higher than we expected on a seasonally adjusted basis by claim count and by favorable new claim incidence. For the closed block individual disability line, the interest-adjusted loss ratio increased to 78.7% in the first quarter compared to 75.4% in the fourth quarter, but remained within our long-term expectations. Healthy levels of miscellaneous investment income continued to contribute to the strong adjusted operating income we have seen in the closed block segment over the past several quarters. In the past two quarters, however, we have seen some moderation in the contribution compared to the recent peak levels we were experiencing in 2021.

Steve Zabel
Steve Zabel
CFO at Unum

More specifically, total miscellaneous investment income in the closed block declined by approximately $4 million in the first quarter compared to the fourth quarter. As a reminder, we saw a reduction of approximately $10 million in total miscellaneous investment income from the third quarter to the fourth quarter, driven primarily by a lower level of bond calls. The current level of miscellaneous investment income remains well above what we expect to generate on an ongoing basis as the returns from our alternative investment portfolio continue to outperform our long-term expectations. Wrapping up my commentary on the quarter's financial results, the adjusted operating loss in the corporate segment was $40.4 million in the first quarter and $45.1 million in the fourth quarter. Going forward, we anticipate quarterly losses in this segment to be consistent with this quarter's results.

Steve Zabel
Steve Zabel
CFO at Unum

Moving now to investments in net investment income, we are seeing a much better environment for new money yield opportunities given the rise in interest rates and widening in corporate bond spreads so far this year. In the first quarter, our new money purchases exceeded our fourth quarter purchases by 110 basis points. While current new money yields remain below our portfolio yields, the gap has narrowed significantly so far in 2022. Miscellaneous investment income in the first quarter for the company overall totaled $41 million, and this compares to approximately $58 million in the fourth quarter and was below what we saw in 2021. Miscellaneous investment income from bond calls declined by about $10 million on a sequential quarter basis, with most of the decline impacting net investment income in our core business lines.

Steve Zabel
Steve Zabel
CFO at Unum

We expect income from bond calls to remain below the elevated levels we experienced in 2020 and 2021 as higher interest rates reduces the economic incentive for many companies to refinance their outstanding debt. While this will likely have a negative impact on current net investment income, it will help support the current portfolio yields as we retain the higher yielding securities in the portfolio. Income from our alternative investments portfolio remained well above our long-term expectations, but declined to $32.4 million in the first quarter compared to $39.4 million in the fourth quarter. Our current run rate expectation for quarterly income from alternatives is in the low $20 million range. Our current results show continued strong outperformance from the portfolio.

Steve Zabel
Steve Zabel
CFO at Unum

The closed block segment continues to be the primary beneficiary of the favorable performance in our alternatives portfolio. For full year 2022, we expect total miscellaneous income to run below the very strong results generated in 2021. Moving now to capital, the financial position of the company continues to be in excellent shape, providing a significant financial flexibility. The weighted average risk-based capital ratio for our traditional U.S. insurance companies improved to approximately 400%, and holding company liquidity was $1.3 billion at the end of the first quarter, both well above our targeted levels. In addition, leverage has again trended lower, and ended the quarter at 25.1%.

Steve Zabel
Steve Zabel
CFO at Unum

Statutory after-tax operating income was $200.5 million for the first quarter, which is a sharp improvement from the first quarter of 2021, which was $136.7 million. Similar to our strong GAAP performance, statutory results benefited from improved results in Group Life, Group Disability, Colonial Life, and LTC. Looking at capital deployment in the first quarter, we executed a $50 million accelerated share agreement and continued to anticipate repurchasing approximately $200 million of our shares for the full year. Capital contributions in the Fairwind subsidiary were $215 million in the quarter.

Steve Zabel
Steve Zabel
CFO at Unum

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 million-$650 million that we guided to at our investor meeting. Wrapping up with a comment on our outlook for the year, we initially set our expectation for growth in after-tax adjusted operating income per share in a range of 4%-7% for 2022. We are raising our outlook to an expectation for growth in the range of 15%-20%. This improvement reflects our strong performance in the first quarter and our expectations for additional upside to our original outlook for the balance of the year, which will be really focused in the second quarter of 2022.

Steve Zabel
Steve Zabel
CFO at Unum

At our investor meeting in February, we also provided an outlook for after-tax adjusted operating income per share to increase within a range of 45%-55% by 2024 or 2021 earnings per share of $4.35. We are not at this time changing that outlook. Now I'll turn the call back to Rick for his closing comments, and I look forward to your questions.

Rick McKenney
Rick McKenney
President and CEO at Unum

Great. Thanks, Steve. I'll just wrap up by reiterating we're very pleased with the performance of the company as we continue to deliver for our customers throughout the pandemic. We believe we are very well positioned in today's business environment and remain very encouraged with our outlook going forward. Team's here to respond to your questions, so I'll ask the operator to begin the question and answer session.

Operator

Thank you. For our Q&A, if you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally, and we ask you please limit yourself to one question and one follow-up. Our first question today comes from Erik Bass from Autonomous Research. Your line is open.

Erik Bass
U.S. Director of Research at Autonomous Research

Hi. Thank you. Since the time of your outlook call, interest rates are up significantly, and based on your disclosure, this should materially reduce the outstanding long-term care PDR balance. Does this change your thinking at all about the cadence at which you plan to fund the remaining deficiency, and would you consider hedging interest rates to lock in either some or all of the benefit?

Steve Zabel
Steve Zabel
CFO at Unum

Erik, this is Steve Zabel. I can take that one. I think there's a couple things to think about. I go back to the Investor Day conversation that we had about the premium deficiency reserve. I think there's 2 things to keep in mind. One is just how the interest rate assumption works for the premium deficiency reserve. It's based on a trailing 3-year average. Although we're really encouraged with where rates have gone early in this year, we do still have a little bit of, you know, past interest rates that we need to work through in just the construct of that calculation as we saw the 2021 and 2020 prevailing rates in there. So that's one dimension of it. The other is we do amortize that in over a period of time.

Steve Zabel
Steve Zabel
CFO at Unum

Originally it was a seven-year period of time, and that amortization will decrease a little bit the current period impact of any reduction in the overall PDR. As we sit here today, we're very encouraged about where rates go. We obviously want those to continue and even potentially go up. I'll say the contribution or the impact on our 2022 capital deployment plan will be somewhat modest because of those two dimensions. We'll just see how this plays out over the year, where we end up at our year-end calculation. We'll calibrate our Fairwind contributions at that point, and then we'll think about go-forward capital deployment opportunities. On the hedging front, that's definitely something that we're looking at. You know, we're continuing to evaluate our hedging strategy.

Steve Zabel
Steve Zabel
CFO at Unum

I do agree with you, that where rates are now, it makes that look more attractive. We have not executed on anything to date this year, but it is something that we are looking at.

Erik Bass
U.S. Director of Research at Autonomous Research

Great. Thank you. If you could just provide maybe a little bit more detail on what assumptions are embedded in your EPS guidance range for both additional COVID deaths and variable investment income over the course of the year.

Steve Zabel
Steve Zabel
CFO at Unum

Let me start with the variable and alternative investment income. Probably where I would start there is we have a little bit over $1 billion portfolio, and our expected yield on that is between 8% and 10%. You kind of do the math on that. That's $80 million-$100 million annually of income, which breaks down to about $20 million-$25 million per quarter. That is what we would expect for the remainder of the year, somewhere in that range, in the low $20 million range. As we've seen, that can be, you know, fairly volatile, we'll just have to see how that plays out quarter by quarter.

Steve Zabel
Steve Zabel
CFO at Unum

When you just think about the general pattern for 2022, we've obviously locked in the first quarter results that we've seen. We believe that second quarter is gonna be an improvement from what we originally had in our expectations. Probably the simple math to do for the remaining three quarters is somewhere in the $1.25 per quarter range. I think that's pretty, you know, consistent with what our expectations previously were for the third and fourth quarter, but would be an increase to what we had originally thought the second quarter might be. That's probably a pretty good range to calibrate to.

Erik Bass
U.S. Director of Research at Autonomous Research

Great. Thank you.

Steve Zabel
Steve Zabel
CFO at Unum

Thanks, Erik.

Operator

Our next question comes from Alex Scott from Goldman Sachs. Please go ahead.

Alex Scott
Alex Scott
Equity Research Analyst at Goldman Sachs

Hi. Good morning. I just wanted to follow up on the response on the hedging consideration. You know, I know you mentioned you know, the backward-looking sort of rolling aspect of the way the rates work and the actual premium deficiency calculation. I mean, is that an issue or a hurdle with potentially putting on a hedge, or do you think you know, the powers that be might be receptive to the idea that you know, this would be a pretty significant risk management action that I think would be very beneficial? Would they you know, work with you to maybe change that practice to help you align something with the economics and you know, allow us to you know, significantly change our view of the cost of equity of your company?

Steve Zabel
Steve Zabel
CFO at Unum

Yeah. I would say it's not a hurdle. It's obviously something that we'll work through with our regulator. I do agree with you that they will view that as a very positive from a risk management perspective, and I think they'll be very willing to work with us and incorporate that sort of risk management into how we think about, you know, forward-looking interest rates. That is part of, though, as we're going through and evaluating how we might approach a hedging strategy, you know, that we will work through with our regulator.

Steve Zabel
Steve Zabel
CFO at Unum

Yeah. I think what's important, Alex, is it's important to look at the premium deficiency reserve. This is about how we manage the book of business, right? So the construct of how it gets measured is not something we'd hedge. We're looking at hedging and the risk management for the overall book of business that the construct will take care of itself over a period of time. So any hedges that we look at are about an overall risk management of interest rate risk around our long-term care business. Got it. Then maybe just high level, as we think through some of the group benefits businesses, any update on thinking and just in terms of premiums and, you know, you've got some tailwinds between the labor market, inflation, some of the rate you're taking.

Alex Scott
Alex Scott
Equity Research Analyst at Goldman Sachs

You know, any update, you know, now that we've gotten through the first quarter on just, you know, what

Steve Zabel
Steve Zabel
CFO at Unum

You know what the combined impact of those things will look like as we progress through the year?

Mike Simonds
Mike Simonds
COO at Unum Group

Yeah, Alex, it's Mike. Thanks for the question. We are really pleased with the start that we've gotten off to here in the first quarter sales up for Unum U.S., as Rick was highlighting by 7% Colonial Life 15% Unum International, and maybe I'll flip it to Mark in just a second to talk about the market over there where we've seen the market grow and our position in that market improve, which is a good story overall. As we continue to see those sales improve and come up in relation to the block, paired with strong persistency, and as you said, some tailwind on natural growth, we would expect to see our overall top line earned premium growth continue to move up sequentially as we work through 2022.

Mike Simonds
Mike Simonds
COO at Unum Group

You know, we talked a little bit about it last quarter and out at the outlook meeting. We do see a need to gradually increase rates as we talked about, probably most pronounced in the fee-based businesses. Those are where we've seen that increase in complexity in serving our clients, you know, with state municipal, corporate, and federal level leaves integrated with disability. That's also given the nature of a fee-based business where wage pressures are most acute, so we wanna stay a little bit ahead of that. Placement of rates for that all important January 1 date were right in line with expectations. We're in the midst of another, again, sort of moderate single digit type program on the insurance side, a little bit higher on the fee-based side for one of 2023.

Mike Simonds
Mike Simonds
COO at Unum Group

It's too early to say, but you know, at this point, feeling like the client relationships we've got and the strength of our distributions kinda allow us to deliver that renewal program pretty successfully. As I look across the brands, the products and the segments in the U.S., we've certainly got a long way to go here in 2022, but encouraged by the start that we've got on the U.S. side. Maybe Mark, you've got a couple thoughts on international.

Mark Till
Mark Till
Head of International Business at Unum Group

Yes, Mike. Thanks. I mean, I think Poland and U.K. are both good markets. Poland has been a double-digit growth market for some little while. Actually, the U.K. market has definitely been improving. I think it's reflecting increased demand for employee benefits after the value through the pandemic has been proven quite clearly. I think we have been working hard to improve our value proposition for the brokers, for the employers, and for the employees. We are therefore very pleased with the sales results, which are up 47% across the two businesses. We have also been actively seeking selective price management opportunities at renewal, and it is therefore pleasing to see that with even those price management opportunities, we've seen an improving persistency rate in the U.K. and have remained at about 98% in Poland.

Mark Till
Mark Till
Head of International Business at Unum Group

I think if I look at the quarter-over-quarter growth we saw in the U.K., it was high, reflecting a good quarter. Although I hope that we continue to have good quarters, at the moment, we aren't fundamentally resetting our expectations here.

Alex Scott
Alex Scott
Equity Research Analyst at Goldman Sachs

Thanks for the responses.

Mike Simonds
Mike Simonds
COO at Unum Group

Thanks, Alex.

Operator

Our next question comes from Tracy Benguigui from Barclays. Your line is open.

Tracy Benguigui
Tracy Benguigui
Director and Head of Insurance Equity Research at Barclays

Good morning. Thank you for referring to the PDR balances at your February outlook day Slide 23. Just based on my understanding, I think you shared the 10-year treasury illustration for simplicity. Really, since LTC risk is so long-duration, you're also using your formula, the 20- and 30-year treasury tenor. You footnoted an assumption of a 50 basis point spread between the 10 and the 20/30. With the yield curve flattening, even inverting, any thoughts on the sensitivity of those 20-, 30-year tenors?

Steve Zabel
Steve Zabel
CFO at Unum

Yeah. Tracy, this is Steve Zabel. Sorry, I stole your thunder. I caught that in your writeup, you know, addressing the dynamics of how the PDR works, and I think that's a really good call-out. Yeah, we are heavily weighted to the 20- and 30-year in that portfolio. So you're right. We use the 10-year as a guideline, but it is very important where the 30-year ends up. So I think that's a good comparison to make to where we are kind of in the current market. The other thing that I would say is, you know, we do have allocation to an alternative asset class of investments that also backs LTC. But I think a good indicator is where the 20, 30 is.

Steve Zabel
Steve Zabel
CFO at Unum

Although, obviously, the 10/30 spread isn't at the 50 basis points, I would say we feel good about where the 30 actually is on an absolute basis.

Tracy Benguigui
Tracy Benguigui
Director and Head of Insurance Equity Research at Barclays

Right. 'Cause in a way it becomes a moot point if you just land there on its own, even if the shape.

Steve Zabel
Steve Zabel
CFO at Unum

Right

Tracy Benguigui
Tracy Benguigui
Director and Head of Insurance Equity Research at Barclays

of that curve might not look as steep as what you would apply.

Steve Zabel
Steve Zabel
CFO at Unum

Yeah.

Tracy Benguigui
Tracy Benguigui
Director and Head of Insurance Equity Research at Barclays

Okay.

Steve Zabel
Steve Zabel
CFO at Unum

Ex-exactly.

Tracy Benguigui
Tracy Benguigui
Director and Head of Insurance Equity Research at Barclays

On your updated 2022 outlook guidance, to be sure you're simply accelerating the timeframe, you're seeing normalization of pre-pandemic trends based on the first quarter results and what you're seeing so far in the second quarter. I mean, you basically say yourself you're gonna still land at that 45%-55% EPS growth from 2021 to 2024. Just the shape to get there might look more level, versus what you were thinking back in February. It might have been a steeper increase in 2023. I just wanna make sure I'm thinking about that the right way. Also, it doesn't sound like you updated in your 2022 outlook, a contemplation of higher interest rates.

Tracy Benguigui
Tracy Benguigui
Director and Head of Insurance Equity Research at Barclays

Is it fair to say the higher interest rates is more of a capital consideration for Unum and really will take a long time to impact earnings?

Steve Zabel
Steve Zabel
CFO at Unum

Yeah, Tracy Benguigui, this is Steve Zabel. A lot in there. Let me kind of address each individually. You are right on how we're thinking about the 2022 forecast. It is really just an acceleration. If you go back to our Investor Day, we had several contributions to the longer term EPS growth for the company, and one of the largest was just recovery from the pandemic. For that component, I would say yes, it's an acceleration back to kind of a normalized core benefit ratio in many of our lines. We also, though, had other contributors to that, whether it's expense efficiencies, it's growth, it's renewal and rate increases or it's capital management that also factored in to that longer-term 2024 expectation. Those still hold. We still feel very good about those other contributing factors.

Steve Zabel
Steve Zabel
CFO at Unum

I think that's the right way to think about it. As far as rates go, you're right. I would say we have not really incorporated much upside into our outlook right now for where rates are. I think there's two places that you know could show up. One would be around capital management and the implications for the premium deficiency reserve. As I mentioned earlier, though, the 2022 impact probably is not going to be all that significant. It will set us up, though, as we move through subsequent years if rates stay where they are, for maybe you know more oversized implications to our capital deployment plan.

Steve Zabel
Steve Zabel
CFO at Unum

The other thing that I would say is just on closed block, because we do put so much money to work within the year, that could be potential upside to the closed block earnings. But again, we just want to see how that plays out over the year. I would say in a lot of our other lines, any upside to interest rates would be something that we would just probably incorporate into our thinking about pricing and really how that might play out versus actual upside to our earnings.

Tracy Benguigui
Tracy Benguigui
Director and Head of Insurance Equity Research at Barclays

Got it. Thank you.

Steve Zabel
Steve Zabel
CFO at Unum

Thanks, Tracy.

Operator

Our next question comes from Tom Gallagher from Evercore. Please go ahead.

Tom Gallagher
Tom Gallagher
Senior Managing Director at Evercore ISI

Good morning. Just a few questions on long-term care. If you do end up locking in some interest rate hedges, would you see that having a material influence on the pricing that you might get on a potential risk transfer deal? Is that part of the reason that you'd be contemplating it?

Steve Zabel
Steve Zabel
CFO at Unum

Yeah, I would say that there is some potential there. It would depend on the buyer and how the buyer views their own investment strategy versus our investment strategy. That's something we just have to work through, you know, how we settled the initial transaction. I do think, though, obviously higher interest rates are favorable to a deal overall, and that's obviously something that we're looking at. It would kind of depend on the buyer and how they would view that as a risk management versus just their own investment strategy.

Tom Gallagher
Tom Gallagher
Senior Managing Director at Evercore ISI

I guess my follow-up is when you think about, and I realize you've indicated that a potential deal would take a while just given how much actuarial work and the like is required. Given what's happened in interest rates, any sense of bid-ask spread, whether you think the pricing would have improved meaningfully just given how much higher interest rates are today? If so, if it has narrowed, I would imagine then putting on rate hedges would make sense. Or do you feel like you'd still need rates to go higher to see a continued narrowing where it would become attractive from a pricing standpoint?

Steve Zabel
Steve Zabel
CFO at Unum

Yeah, Tom, I would say, you know, we have a lot of work still to do on any type of transaction. There's really nothing imminent. Again, rising rates are going to be a positive from a buyer's perspective, what they're able to get in the market. But that's something that we'd have to just work through the actual construct of a transaction to just see, you know, how meaningfully that would impact a buyer's view of the block.

Tom Gallagher
Tom Gallagher
Senior Managing Director at Evercore ISI

Got you. Then just one final question. When you, if you were to strip out the favorable mortality experience from the LTC benefit ratio, where would you say you're trending right now? It sounds like there's still favorable claims trends, but is it very close to normal? Is it still somewhat favorable relative to historic averages? And then I guess relatedly, if we get through a favorable 2022, it's going to be three years of favorable LTC results. And the related question is, any sense that the regulators are changing the way they're thinking about approving rate increases following three years of potential favorability here?

Steve Zabel
Steve Zabel
CFO at Unum

Yeah, I would say in the quarter, we, as we mentioned, had higher than anticipated mortality. We also had pretty favorable claims incidence. We do still think that, you know, during a kind of pandemic, even if it's light pandemic for the remainder of the year, somewhere in that 80%, below 80% loss ratio probably makes sense. But over time, when we get back to a more, you know, I guess, stable COVID environment and it even abates more, you know, we do think we'll be back up in that 85%-90% range. But we'll just have to see how it plays out and whether there's any longer-term behavioral changes within the block.

Steve Zabel
Steve Zabel
CFO at Unum

Now, when it comes to how we think about long-term assumptions and also how our regulator thinks about long-term assumptions, COVID is viewed as an anomaly. So far, we really haven't had much debate on either side, whether we should take a more favorable view when we look at things like the premium deficiency reserve itself. Or on the other side, how regulators might view our rate increase requests. We haven't really incorporated some of the more acute claimant mortality that we've seen into either of those analyses, and I think the regulators are very supportive of that approach.

Tom Gallagher
Tom Gallagher
Senior Managing Director at Evercore ISI

Okay, great. Thanks.

Steve Zabel
Steve Zabel
CFO at Unum

Thanks, Tom.

Operator

Our next question comes from Ryan Krueger from KBW. Please go ahead.

Ryan Krueger
Ryan Krueger
Equity Research Analyst at KBW

Hey, good morning. Can you touch on the level of new money rates that you're getting at this point and how that compares to your portfolio yields?

Steve Zabel
Steve Zabel
CFO at Unum

Yeah. Ryan, we haven't really, you know, disclosed a lot around what our new money rate is on a quarter-to-quarter basis and try to stay away from that. I'll tell you, we are really encouraged if you just look at where prevailing rates are. They've gone up about 140 basis points from the beginning of the year. Clearly, we're closing the gap between new money yields and our portfolio rate, but they are still below the portfolio rate. You know, feel good about it, very encouraged about it, but, you know, we don't disclose that on a quarter-to-quarter basis.

Ryan Krueger
Ryan Krueger
Equity Research Analyst at KBW

Got it. In the outlook call, you talked about some pressure on premium growth in the large employer market. I saw that your sales were actually pretty good there this quarter. I was just hoping for an update there, and if the pressure on premium was more related to some potential persistency impacts, or if you had also expected lower sales than you kind of achieved in the first quarter there.

Mike Simonds
Mike Simonds
COO at Unum Group

Yeah, Ryan, it's Mike. Like you said, encouraging first quarter. I would say a lot, in fact, nearly all of the growth in the first quarter was sales with existing clients, and it's not typically our biggest sales quarter in the year in that large case market. We're right now in the middle of that large case selling season, and that'll go for the next, you know, 90 days or so. What we were talking about at the outlook meeting was that's the part of the group insurance market in the U.S. that we are seeing as most competitive. As we kind of lean into those rate increases we were talking about earlier, particularly around fee-based and short-term disability businesses, you know, we had a bit more of a cautious outlook there.

Mike Simonds
Mike Simonds
COO at Unum Group

You know, we'll see how the year plays out. I do feel good about the fact that both disability risk and interest rates have been better here in the first quarter than our expectations. That may give us a little bit more flexibility there. You know, as you've come to expect from us, we're going to be pretty long term in terms of our outlook around pricing growth, trade-offs. Looking forward to updating you in the quarters to come on how this year is materializing. Feel very, very good about the value proposition we've got in the market, our ability to connect into our clients' HR platforms, what we've been able to do on the lead front. We'll see how it plays out.

Ryan Krueger
Ryan Krueger
Equity Research Analyst at KBW

All right. Thank you.

Mike Simonds
Mike Simonds
COO at Unum Group

Thanks, Ryan.

Operator

Our next question comes from Suneet Kamath from Jefferies. Your line is open.

Suneet Kamath
Suneet Kamath
Senior Research Analyst at Jefferies

Great. Thank you. Just overall at a high level on group sales, I mean, we're seeing strength, you know, pretty much across the board for all the companies that have reported so far. My sense is it's not, you know, a lot of competition, that a lot of it is sales to existing customers. The thought is that most of the players are behaving and acting rationally. Just wanna make sure that that's consistent with what you guys are seeing in terms of the competitive environment.

Mike Simonds
Mike Simonds
COO at Unum Group

Yeah, Suneet, it's Mike. I think that is broadly pretty consistent. That large case end of the market is where we see it most acutely competitive. I think your read actually is right. We've seen pretty much across the board folks other carriers looking to retain their client first and foremost. That's certainly our lean and orientation as well. The degree of rate underwriting competitiveness, that's gonna oscillate a bit year to year. I'd say we're in a period right now which is sort of solidly average in terms of what we're seeing on pricing.

Suneet Kamath
Suneet Kamath
Senior Research Analyst at Jefferies

Okay. Got it. Then the other thing that struck me was Colonial. Unfortunately, Tom's not there to brag about the quarter, but the persistency improved. And I note that one of your large competitors is seeing the opposite impact, where the more mobile job market is leading to lower persistency. Just curious if that dynamic is affecting you guys as well, and it's just being offset by something or where the improvement is coming from.

Mike Simonds
Mike Simonds
COO at Unum Group

Yeah. Really pleased to see persistency. You know, that is our primary focus, is making sure we're doing a good job for clients. It's at a great spot at 79%, and that's a really solid foundation for premium growth. Then you layer in the 15% growth in new sales. As that sales level continues to move up sequentially and gets to the right spot relative to the in-force block, the overall earned premium will start to click in. It's good to be back in the black from that point of view. Pretty broad-based success for Colonial Life in the new business markets in the direct small end of the market, really good growth, great growth with existing clients, good growth in the public sector.

Mike Simonds
Mike Simonds
COO at Unum Group

All the places that we're trying to hit with our Colonial Life brand and distribution, it's clicking for us. You can rest assured, Sunny, Tim's pretty happy about it as well, so.

Suneet Kamath
Suneet Kamath
Senior Research Analyst at Jefferies

Yeah, I would imagine. Thanks.

Operator

Our next question comes from Jimmy Bhullar from JPMorgan. Your line is open.

Jimmy Bhullar
Jimmy Bhullar
Equity Research Analyst at JPMorgan

Hi, good morning. So most of my questions were answered, but I just wanted to see if you could discuss a little bit more detail on what's going on, what's been going on in the long-term care segment in terms of strong results over the last few quarters. Maybe if you could be a little bit more specific on this quarter in terms of how much of a benefit you saw from lower incidence and then on mortality versus what you would have seen maybe pre-pandemic. I'm assuming obviously mortality will trend whatever happens with COVID, but do you think incidence patterns might have changed given the pandemic and maybe people's reluctance to visit nursing homes or other factors?

Steve Zabel
Steve Zabel
CFO at Unum

Yeah, Jimmy Bhullar, this is Steve Zabel. Yeah, I'll just kind of go back and just lay out the trends that we've seen through the pandemic in long-term care, and then just how, you know, that might project forward a little bit. As you recall, very early on, 2020, second quarter, you know, where everything hit more acutely, we saw claimant mortality up to like 30% by count above what our seasonal expectations are. As I mentioned about our life experience, group life experience, it's early on in the pandemic, very focused on the elderly population and therefore very focused on, you know, those people that we insure would have been long-term care.

Steve Zabel
Steve Zabel
CFO at Unum

You saw that kind of come down in the 50%-15%-10% range down to 5%, and then really through the Delta variant kind of in the fall, you started to see that mortality almost get back to our expectations on a seasonally adjusted basis. What we have seen in the first quarter is that tick back up, where by count, claimant mortality is about 10% above what our expectations would have been. On an incidence front, we saw you know very low incidence early on in the pandemic, the first quarter for sure, maybe the first couple quarters. We saw that moderate fairly quickly, where people that were eligible for claim did move forward and request claim and be put on claim. You saw that pretty consistently through the pandemic.

Steve Zabel
Steve Zabel
CFO at Unum

I would say on a run rate basis, we believe that'll be, you know, pretty consistent with pre-pandemic activity. I think the first quarter is just a bit of an anomaly where we saw just some very, very good performance. As you know, this block can be pretty volatile, so I'm not anticipating that to continue. I would say for the first quarter, we were probably about 10 percentage points better on the loss ratio than maybe what we would have expected. Again, I would say that is driven by both just normal volatility and claims incidents as well as the higher claimant mortality that we're attributing to COVID. Again, I think going forward, probably for the remainder of the year, the 80% feels about right.

Steve Zabel
Steve Zabel
CFO at Unum

Beyond that, we would expect to get back to kind of a more normalized expected loss ratio.

Jimmy Bhullar
Jimmy Bhullar
Equity Research Analyst at JPMorgan

Okay. Then if I think about your guidance, obviously there's a lot of uncertainty and lots of moving parts. Given the results in the first quarter, it would seem like you're going to hit the top end of the guidance even without any changes in expectations that the Street had in terms of future earnings. It seems like the guidance is overly conservative. Do you agree with that, or are there other things that might be headwinds, like in future quarters that people might not be seeing?

Rick McKenney
Rick McKenney
President and CEO at Unum

Yeah, Jimmy Bhullar, it's Rick McKenney. I would just say when you look at our first quarter performance, very happy with that. We look out over the course of the year, we increased our outlook just given what we were seeing in the first quarter. We expect second quarter to be a little bit better and normalize over the second half of the year. If you go back to our outlook in the second half of the year, we were expecting that to be pretty consistent with what we thought, going into the year. I you know, we put out a range to give you our kind of best view. It's going to be volatile. We'll have to see how it plays out, but we still think that's a pretty good range.

Jimmy Bhullar
Jimmy Bhullar
Equity Research Analyst at JPMorgan

Okay. Thank you.

Operator

Our next question comes from Mark Hughes from Truist. Your line is open.

Mark Hughes
Mark Hughes
Director at Truist

Yeah. Thank you. Good morning. On the top line at Unum U.S., you've got a lot of tailwinds, it seems like the natural growth, pricing, good sales. You talked about 2% growth for the full year. As you exit the year and get into 2023, any sense you can give us of what the top line might shape up to be with these kind of tailwinds?

Mike Simonds
Mike Simonds
COO at Unum Group

Yeah, Mark, it's Mike. I guess I'd answer it in two ways. One is pre-pandemic for those businesses, we really like that sort of 4%-6% or 7% growth. I don't see any reason to expect that we can't get back to that. The exact timing for, you know, when the current sort of 2% run rate climbs all the way back up into that range, I can't tell you with a great deal of certainty. A lot of like you said, a lot of reasons for optimism, really strong persistency, effectively placing rate increases, seeing new sales growth, another good jobs report this morning, all kind of pointing towards continued you know, building momentum on the top line over the coming quarters.

Mark Hughes
Mark Hughes
Director at Truist

Thank you.

Mike Simonds
Mike Simonds
COO at Unum Group

Yep.

Operator

Our next question comes from Josh Shanker from Bank of America. Your line is open.

Josh Shanker
Josh Shanker
U.S. Insurance Equity Research Analyst at Bank of America

Yeah, thank you for fitting me in. I want to talk about you have a lot of protections against inflation in the long-term care book with you know caps and caps on the CAGR of the benefits. Can you talk about the percentage of claimants who are maximizing their daily benefits, and does that change from where it was at the beginning of the pandemic?

Steve Zabel
Steve Zabel
CFO at Unum

Yeah, this is Steve. Probably the best way to answer that is just to kind of ground back on what our block of business looks like from the standpoint of indemnity versus reimbursement. Our block is about 98% indemnity. Just as a refresher on that, if someone is claim eligible and receives services on a daily basis, it's a contractual benefit that's hardwired into the contract that we pay them. Very small, 2% of our block is reimbursement where we're actually reimbursing for actual expenses. I'd say that variable is really just de minimis on our block, and is not something that we, you know, really need to worry about inflation within the services provided themselves because the benefit amount inflates at whatever the contractual rate is.

Steve Zabel
Steve Zabel
CFO at Unum

That does not vary. That's set additionally.

Josh Shanker
Josh Shanker
U.S. Insurance Equity Research Analyst at Bank of America

Okay. Yep. How is face-to-face interactions in Colonial Life comparing with where you were in February of 2020?

Steve Zabel
Steve Zabel
CFO at Unum

Sorry, can you just repeat?

Steve Zabel
Steve Zabel
CFO at Unum

Face-to-face Colonial Life.

Mike Simonds
Mike Simonds
COO at Unum Group

Oh, yeah. Good.

Mike Simonds
Mike Simonds
COO at Unum Group

Yeah, how

Mike Simonds
Mike Simonds
COO at Unum Group

Yeah. I mean, I think. Yeah, I got it. I appreciate it. It varies a bit as the pandemic rears its head. In general, what I'd say is you hit a really good balance point where it is the continued both prospecting at the employer level and delivery of enrollment services on a face-to-face business, increasingly augmented by the digital capabilities that we've invested in the Colonial Life brand. Think of that as everything from being able to 100% digitally enroll through chat, through video, just really meeting the consumer where their preferences are from an education and communication point of view. We're actually really encouraged about the acceleration towards digital that occurred through the pandemic in terms of the ability for us to increase agent productivity.

Mike Simonds
Mike Simonds
COO at Unum Group

We saw really strong delivery on a productivity basis out of our new agents. Also, our reach into the market and getting to places that geographically otherwise might be quite challenging for us.

Josh Shanker
Josh Shanker
U.S. Insurance Equity Research Analyst at Bank of America

Thank you very much.

Steve Zabel
Steve Zabel
CFO at Unum

Thanks, Josh.

Operator

Our final question comes from Josh Esterov from Credit Suisse. Your line is open.

Josh Esterov
Josh Esterov
Head of Insurance at Credit Suisse

Hello, good morning. Thanks for taking the time. I just wanted to follow up on the PDR funding question from a few minutes ago, make sure my head is in the right place. I'm cognizant of the look-back period that plays into PDR funding.

Josh Esterov
Josh Esterov
Head of Insurance at Credit Suisse

Hypothetically, if rates were to stay the same or at least they don't decline over the next year or two, and that you do ultimately make that $550 million-$650 million contribution of Fairwind that you previously guided to, then at the end of the day, does that mean there's somewhere less than, you know, roughly $500 million in total PDR funding that you would need to do by the end of 2026 or 2024, whatever cadence or timeline you choose?

Steve Zabel
Steve Zabel
CFO at Unum

Yeah, this is Steve. I'll take that. The math becomes a little complicated and we need to make sure we're talking about, you know, apples to apples. When you think about the PDR itself and the sensitivities that we've given, that's on a before-tax basis. When you look at capital contributions, those are gonna be more driven by an after-tax recognition of the PDR. The other thing to think about there is we do also have ongoing funding requirements outside of the PDR for Fairwind. If you go back and you look historically, that was about $150 million a year, give or take, in any one year. You know, those will continue at some level over time, regardless of the timing of recognizing the PDR.

Steve Zabel
Steve Zabel
CFO at Unum

I would just step back and say, you know, we still feel very good about the 5.50-6.50 for this year. As I mentioned, rates aren't really gonna impact all that much the requirement for this year. If rates do continue at the level they are, specifically the 20- and 30-year, you know, you can kind of see on the sensitivities that we provided what ultimately as we work through the next two, three, four years, ultimately that PDR could be under those scenarios. Obviously that would impact how we think about capital deployment and the speed at which, you know, we can recognize the entire PDR. It's still a little too early to call that.

Steve Zabel
Steve Zabel
CFO at Unum

We're very, very encouraged by where rates have gone over the last, you know, 60, 90, 120 days.

Josh Esterov
Josh Esterov
Head of Insurance at Credit Suisse

Understood. Appreciate the call. Thank you very much.

Steve Zabel
Steve Zabel
CFO at Unum

Thanks, Josh. Thank you.

Operator

We have no further questions. I'm going to hand back to Rick McKenney for closing remarks.

Rick McKenney
Rick McKenney
President and CEO at Unum

Great. I want to thank everybody for taking the time to join us this morning. This will complete our call for first quarter 2022. We do look forward to seeing many of you in upcoming conferences and investor events, and also welcome shareholders to join us for our annual meeting in three weeks. With that, we'll end the call. Thank you very much.

Operator

Today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.

Executives
    • Mike Simonds
      Mike Simonds
      COO
    • Mark Till
      Mark Till
      Head of International Business
Analysts
    • Tom White
      SVP of Investor Relations at Unum
    • Rick McKenney
      President and CEO at Unum
    • Steve Zabel
      CFO at Unum
    • Erik Bass
      U.S. Director of Research at Autonomous Research
    • Alex Scott
      Equity Research Analyst at Goldman Sachs
    • Tracy Benguigui
      Director and Head of Insurance Equity Research at Barclays
    • Tom Gallagher
      Senior Managing Director at Evercore ISI
    • Ryan Krueger
      Equity Research Analyst at KBW
    • Suneet Kamath
      Senior Research Analyst at Jefferies
    • Jimmy Bhullar
      Equity Research Analyst at JPMorgan
    • Mark Hughes
      Director at Truist
    • Josh Shanker
      U.S. Insurance Equity Research Analyst at Bank of America
    • Josh Esterov
      Head of Insurance at Credit Suisse
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