Unum Gr Q3 2026 Earnings Call Transcript

Unum Gr (NYSE:UNM) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Unum Group reported third-quarter after-tax adjusted operating earnings of $2.20 per share, which included $0.33 from favorable notable items, but fell short of earnings expectations due to elevated disability claim submissions in the US and UK.

Core operations premium grew nearly 5% on a constant currency basis, with growth across Unum US, International, and Colonial Life. Overall sales declined year-over-year but remain up 4% year-to-date.

The company continues to implement pricing actions to address the elevated disability claims, particularly in behavioral health, while also finalizing a significant LTC reinsurance transaction that reduces LTC statutory reserves by approximately 40%.

The company repurchased approximately $200 million of shares in the third quarter, bringing year-to-date repurchases to approximately $800 million. It aims to return $1.3 billion to shareholders through dividends and share repurchases for the year.

Despite these challenges, management remains confident in its diversified business model, strong capital generation and robust capital position. The company expects to finish 2026 with $1.5 billion to $2 billion of holding company cash.

Full Transcript

Jordan (Operator)

Thank you for standing by. My name is Jordan and I’ll be your conference operator today. At this time I’d like to welcome everyone to the Unum Group third quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you’d like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you’d like to withdraw your question, press star one again.

I would now like to turn the call over to Matt Royal, Investor Relations. Please go ahead.

Matt Royal (Investor Relations)

Thank you and good morning. Welcome to Unum Group’s third quarter 2026 earnings call. Today’s call may include forward-looking statements and actual results may differ materially and we are not obligated to update any of these statements. Please refer to our earnings release and our periodic filings with the SEC for a description of factors that could cause actual results to differ from expected results. Yesterday afternoon, Unum released our earnings results and financial supplement for the third quarter of 2026.

Materials are available on the Investors section of our website. This quarter’s reported results for our core operating segments include the effects of our annual reserve assumption review and refinements which we refer to as notable items. These items are recognized in the quarter; however, they reflect experience and changes in expectations spanning multiple periods. Therefore, we will discuss benefit ratios excluding these items to provide a more comparable view of quarterly benefits experience. Also as a reminder, references made today to core operations, sales and premium, including Unum International, are presented on a constant currency basis for improved comparability.

Participating in this morning’s conference call are Unum’s President and CEO Rick McKinney and Chief Financial Officer Steve Zabel. Following the remarks from Rick and Steve, additional members of management will participate in Q&A, including Chris Pine who leads our group benefits business, Mark Till, who oversees Unum International, and Steve Jones, President of Colonial Life. Now let me turn the call over to Rick.

Rick McKinney (President and Chief Executive Officer)

Thank you, Matt, and good morning everyone. Thank you for joining us today as we report our third quarter results. It is a quarter where we saw many positives in growth and portfolio management but ultimately fell short of our earnings expectations. This was driven by elevated disability claim submissions in the US and UK. We’ll unpack the drivers and the actions we’re taking and we will continue to closely monitor and act on this important business.

Many of our strategic initiatives remain on track and our experience discipline, the breadth of our franchise and our ability to reprice give us confidence that we can manage through a range of environments. Looking more broadly at the quarter, after-tax adjusted operating earnings were $2.20 per share. This result includes $0.33 of favorable notable items, primarily from our annual reserve assumption review. Outside of group insurance, earnings results across the rest of the franchise were solid, with good results in Colonial Life and in our supplemental and voluntary lines of business. These results demonstrate the balance and earnings power of the broader franchise, but they were not enough to overcome the disability headwinds.

From an overall returns perspective, the core business is still returning a high ROE. From a top-line perspective, our underlying growth drivers remain solid. Core operations premium grew nearly 5% on a constant currency basis with growth across Unum, US International and Colonial Life, and customer retention in our US group businesses remains strong. Overall sales declined year over year against a very strong performance in the third quarter of 2025, but remain up 4% year to date.

Our strategy and purpose center on helping employers solve workforce challenges while supporting employees at important moments in their lives. This is as relevant as ever as employers are managing a dynamic workforce environment, balancing growth, productivity, talent development and employee well-being. Our investments in connectivity, leave solutions and customer experience are helping employers address these challenges while strengthening our relationships and competitive position.

We continue to believe strongly in the business model with our group franchise as the key to delivering broader solutions to employers and their employees. So let me take a moment to dig into the challenges and the results we saw this quarter. The disability claims dynamics in US Group Insurance and International warrant different tactical responses based on the experience in each business, but ultimately it is addressed by some form of pricing action. In US Group Insurance, the entire group portfolio of disability products saw higher submitted claims, which was the primary driver of the elevated benefit experience.

This was particularly pronounced in long-term disability, but similar to last quarter, we also saw elevated short-term disability and paid family and medical leave experience. On long-term disability, we are evaluating a rapid increase in submitted claims and have not concluded that it represents a sustained change in underlying claims experience. What we’ve seen so far has been concentrated in behavioral health claims, where submission levels have fluctuated with external conditions in prior periods.

In the meantime, and as we always do, we will continue to make pricing changes on a customer-by-customer basis where we have seen poor performance. In PFML, as we noted previously, the industry experience is still developing but utilization has been higher than we originally priced. We see the PFML experience as more rapidly addressable as the pricing structure generally does not include multi-year rate guarantees. This allows us to incorporate emerging experience in new pricing for both new business and renewals, and we are implementing double-digit rate increases.

In International, UK Group Income Protection experience remained elevated, driven by a higher number of large claims and increased overall submitted claims. Last quarter we noted that we are already taking actions to address this and have done so through adjustments to new business pricing, the phased implementation of higher pricing at renewal, disciplined underwriting and expense actions. Some of these actions are already reflected in our expense performance.

While the pricing actions will take longer to work through the block, we remain confident in the franchise, its market position and the expertise of our team, and we have seen steadily rising performance in our other lines of business in the UK. Importantly, what we are seeing across all disability lines is not being driven by changes in the competitive environment or in how we adjudicate claims. It is being driven by more people submitting claims. We have an experienced benefits team that combines deep technical expertise with empathy for the people we serve. That expertise and judgment have served us well over time and give us confidence as we position the business for continued success.

We will take the action necessary to address the pressures we’ve seen in our disability lines and we remain well positioned over the longer term. While this was a challenging quarter, it is also a quarter that demonstrated the importance of our diversified business model. Certain products, segments or geographies will experience pressure from time to time, but the breadth of the portfolio provides balance and supports attractive returns over the long term.

Moving to the Closed Block, I am pleased to announce that yesterday we formally closed our latest LTC reinsurance transaction with Fortitude Re. This is another important milestone in reducing our LTC exposure. Together with our prior transaction, this represents a cumulative reduction in our LTC statutory reserves of approximately 40%, another important step in reducing risk and improving the profile of the business that remains. In addition, we continue to pursue organic actions across the retained block.

In the third quarter, close to another 5% of group cases closed and we achieved more than $100 million of rate increase approvals. The annual assumption update resulted in a negligible change in reserves for the block, and significant protections remain in place at our Fairwood entity. Our LTC position is in a very different place than it was just 18 months ago. Turning to capital, we repurchased approximately $200 million of shares in the third quarter, bringing year-to-date repurchases to approximately $800 million. For the year, we have returned more than $1 billion in share repurchases and common stock dividends and we remain on track to return approximately $1.3 billion to shareholders for the year. Our capital position remains strong and we continue to expect to finish 2026 with $1.5 billion to $2 billion of holding company cash and an RBC between 400% and 425%.

When you look at the overall franchise, there are clear bright spots. Premium growth is steady, year to date sales remain positive, US Group persistency is attractive and capital deployment remains on plan. We also continue to make meaningful progress de-risking the closed block. While we saw elevated benefits experience in group insurance and international, we are monitoring and responding to the specific dynamics in each business and will continue to adjust our approach as the experience develops.

At the same time, we continue to see evidence across our business that the investments we made in our people, technology and processes are resonating with customers. We believe we have a clear path to value creation through continued execution of our plan and we are confident in the strength of the franchise, the durability of our capital generation and our ability to create long-term value. And with that, let me turn it over to Steve.

Steve Zabel (Executive Vice President and CFO)

Great. Thank you, Rick, and good morning, everyone. As Rick described, third quarter after-tax adjusted operating earnings per share were $2.20 per share, including a $0.33 contribution from notable items, compared with $2.81 last year, which included a $0.75 contribution from notable items. From a top-line perspective, results sustain the positive trends we’ve seen all year, and we are well positioned to meet our 4 to 7% full-year outlook. We continue to see strong levels of persistency in our U.S. group businesses, which increased nearly 2 points year over year and helped drive core operations premium to increase 4.7%.

Our annual reserve assumption review completed in the third quarter resulted in an overall net decrease in reserves of $28.7 million pre-tax across our product lines, including the closed block, compared to a net increase in reserves of $478.5 million in the prior year. In our core businesses, the impact of the assumption review was favorable, with reserve releases totaling $83.7 million pre-tax. This compares to the pre-tax decrease in reserves in our core businesses of $162 million, and the reserve assumption update in the closed block drove a $55 million increase in reserves reflecting higher incidence and lower mortality expectations, partially offset by favorability from the continuing rate increase program. The vast majority of this reserve strengthening was ceded as part of the reinsurance transaction that closed yesterday, with only $9.5 million remaining in the retained block.

Then moving to segment results: Unum US adjusted operating income was $315.3 million, including $51 million in notable items. Apart from these items, earnings were lower year over year, reflecting the dynamics noted in Group Disability and Group Life, partially offset by solid performance in Supplemental and Voluntary. Group Disability adjusted operating earnings of $94.8 million declined from the prior year and included $28.6 million in notable items.

Excluding these items, the benefit ratio was 70.6% compared with 61.3% a year ago. This quarter’s results reflect Long-Term Disability (LTD) submissions that were higher than our expectations with approximately 5 points of pressure and elevated Short-Term Disability, including PFML, with approximately 2 points of pressure. While the trend in PFML was largely expected, the increase in LTD submissions was not. As Rick mentioned, we are not ready to conclude if these trends will continue, but we would call out a few considerations around them.

First, the related impacts of higher LTD incidence across Group Disability and Group Life and AD&D emerged in the third quarter rather than throughout the year. Second, the increase we’ve seen is in claim submissions, which do not necessarily translate into paid claims. Most notably, the behavioral health claims driving the increase in LTD tend to rise along with certain other claim types during periods of labor market uncertainty. All things considered, we remain cautious about the increase in submissions this quarter and are prepared to take further corrective action if these trends persist.

At the same time, we continue to see favorable underlying recovery trends which have supported our strong results over the last few years, and we are confident in a long-term benefit ratio of around 65% for our Group Disability business. The increase in disability submissions also had a related impact on Group Life. Group Life and AD&D adjusted operating income was $78.2 million, including $5 million of notable items. The benefit ratio was 69.7%, excluding the notable items, with nearly 3 points driven by waiver-of-premium experience where premiums are waived while a Group Life insured is on a disability claim. Beyond this related impact from disability claim submissions, underlying life incidence continues to reflect the favorable mortality trends we’ve experienced recently.

Together, when excluding notable items, total Group Benefits generated a benefit ratio of 70.3%. While this result is higher than our expectations, nearly 8 points of it was attributable to the impacts across Group Disability and Life related to submitted LTD incidence and PFML, which we are actively managing and repricing. Our Unum US supplemental and voluntary lines generated adjusted operating income of $142.3 million, which includes $17.4 million of notable items. Apart from these items, underlying results were squarely within our outlook range with a benefit ratio of 49%, driven by favorable claims experience in Individual Disability and Dental.

In wrapping up the discussion on Unum US, premium and sales were within our outlook range. Unum US premium grew 5.2%, supported by strong sales in prior periods and healthy persistency in our group product lines. Third quarter sales declined 8.5%, mainly on lower group large case sales. The third quarter is typically our smallest sales quarter, and year-to-date sales have grown 8.6%. International adjusted operating income was $0.2 million, which included $27.3 million of notable items. Excluding the notable items, the benefit ratio was 76.9% compared with 71.3% in the prior year, driven primarily by the UK product lines. Unum UK reported a loss of £1.4 million, including approximately £18.6 million of notable items. Without these items, the UK benefit ratio was 80.5% compared with 73.8% a year ago, driven by a higher number of submitted claims in Group Income Protection.

Regarding premium growth, UK premium grew 3.5% and Poland premium grew 10%. As we discussed in the second quarter, we are taking thoughtful pricing and underwriting actions to restore the business to its target profitability. While these actions will affect near-term sales and persistency, they will ultimately position the business for long-term success. Colonial Life adjusted operating income was $169.4 million, including $42.5 million of notable items. After adjusting for those items, earnings were also higher year over year. Driving these improved earnings, the benefit ratio excluding notable items was 47% compared to 48.2% a year ago, driven primarily by lower cancer claims. This is a continuation of the strong benefit trends that Colonial has exhibited all year. In addition to the strong margin trends, Colonial’s top line also continues to exhibit strength and growing momentum.

Sales in the quarter increased 6.4%, bringing year-to-date sales growth to 4.7%, which compares to 2.8% a year ago. With this, premium grew 3% and is positioned to meet its full-year premium growth outlook of 2 to 4% with year-to-date premium growth of 3.2%. Finally, the Corporate segment produced an adjusted operating loss of $45.7 million and was within our expectation of a loss in the mid- to upper-$40 million range. Before turning to the closed block, I’d like to address our full-year outlook. We have revised our definition of after-tax adjusted operating income based on discussions with the staff of the Securities and Exchange Commission during an ongoing comment letter process regarding our use of non-GAAP financial measures. The revision does not impact our GAAP net income. As a result, our full-year 2026 after-tax adjusted operating earnings per share will now reflect the impact of our annual assumption review.

Incorporating the annual assumption review and refinements, our results through the first three quarters, and our fourth quarter expectations for the core segments, we now expect full-year 2026 after-tax adjusted operating earnings per share of $8.30 to $8.50, which includes approximately $0.33 from notable items. I’ll now turn to the closed block. As Rick mentioned, we have successfully closed our second external LTC reinsurance transaction, ceding $3.8 billion of statutory reserves to Fortitude Re at a 12% net cost relative to our best estimate reserves. This cost is consistent with our previous transaction and reflects the economic benefits we realized from the transaction, including the required capital release and tax benefits. Through the transaction we have meaningfully reduced exposure to LTC reserves and materially improved the risk profile of the remaining LTC block.

Paired with the first transaction last year, we have reduced our LTC exposure by over 40%. The upfront loss associated with the transaction will be amortized and reported within the closed block GAAP results, consistent with prior transactions. With the transaction now closed, we expect increasing amounts of non-contemporaneous reinsurance impacts reflecting the ongoing recognition of earnings associated with the reinsurance transactions completed in prior periods rather than current-period operating performance. The earnings impacts from both the amortization of upfront costs and non-contemporaneous reinsurance impacts are expected to be approximately $30 to $40 million per quarter.

Combining that with our prior closed block reinsurance transactions, the total impact from these items is expected to be approximately $90 to $100 million per quarter initially and then will gradually decline over time. Our third quarter GAAP result includes an impairment loss of $744 million on assets identified for transfer in the transaction, reflecting the difference between their amortized cost and fair value. This impairment and the other GAAP impacts associated with the transaction were contemplated in our original evaluation and at signing and do not change the overall transaction economics that we described at announcement, which remain intact through closing.

Outside of the transaction, closed block earnings remain volatile, largely reflecting employers continuing to terminate group LTC coverage. In the third quarter, approximately 150 employers made this choice and closed their cases; this year alone these terminations have reduced our group LTC case exposure by 14%. The net premium ratio increased 30 basis points sequentially from the second quarter to 98.1%, with most of the increase driven by group case terminations.

Other key indicators that we monitor for the health of the block remain solid. Fair wind protection stands at approximately $2 billion. Following the closing of the LTC reinsurance transaction, we have now achieved over 25% of our current rate increase program, with over $100 million of GPV approved this quarter. The alternative investment portfolio that primarily supports LTC generated an annualized yield of 10.1%, above our long-term expectation of 8 to 10%.

I’ll end by covering our robust capital position. Holding company liquidity stood at $1.4 billion and traditional RBC at 485%. We remain on track to end the year within our full-year outlook of 400 to 425% RBC and $1.5 to $2.0 billion of holding company liquidity. Our robust capital position is supported by statutory after-tax operating income of $298.7 million in the third quarter. When adjusting for the effects of preparations for the reinsurance transaction, our year-end capital expectations remain unchanged.

We continue to expect to finish the year within our stated ranges for both RBC and holding company liquidity, and we are generating capital as expected from our strong businesses. Finally, during the third quarter we repurchased approximately $200 million of stock; paired with our common stock dividend, capital return to shareholders was approximately $280 million in the quarter, bringing our year-to-date deployment to over $1 billion. This positions us well to end the year at our goal of returning $1.3 billion to shareholders through dividends and share repurchases.

I will now turn it back to Rick for his closing comments before we move to your questions.

Rick McKinney (President and Chief Executive Officer)

Thank you, Steve. This quarter’s earnings shortfall does not diminish our confidence in the underlying franchise. With growth, persistency, and capital generation intact, monitoring and understanding the increase in U.S. Disability claim submissions remains a priority and emerging experience will guide where and how we respond. We continue to strengthen the profile of the closed block through completed reinsurance transactions and ongoing actions across the retained business.

Overall, we remain confident in our business and our ability to create long-term value. And with that, let me turn the call over to Jordan. We’re ready for your questions.

Jordan (Operator)

As a reminder, if you’d like to ask a question, simply press star followed by the number one on your telephone keypad. Your first question comes from the line of Ryan Krueger from KBW. Your line is live.

Ryan Krueger (Analyst at KBW)

Thanks. Good morning. I have, I guess, a multi-part question on the LTD incidence. Hoping to get more details on when it started. Has it continued through October? You know, is there a concentration in any particular industries or job types? And then can you just give any more detail on the behavioral health component of all this? Is that the vast majority of the 500 basis point adverse impact, or are there other things going on as well?

Rick McKinney (President and Chief Executive Officer)

Thanks. Good, thanks for the multipart question there, Ryan. You know, we do need to step back a little bit and look at the strength of the franchise overall. Strong business built on serving customers well and delivering products and capabilities for employers and their employees. You know, we have managed through periods of elevated submissions before and the circumstances are never exactly the same, but we have a deep understanding of this business and the capabilities to respond as conditions evolve, and we are a company of discipline, and so you will hear more as we go through that and we can start to unpack.

You have a multi-part question, a lot of dimensions to it, and I’ll turn it over to Steve to start to do that.

Steve Zabel (Executive Vice President and CFO)

Yeah, great. Thanks, Rick. And yeah, as we described earlier, third quarter we did see a sharp increase in submitted long-term disability claims. I think it’s good to ground a little bit on just what our reserving process looks like. And when a claim is submitted, we set up the reserve based on historical experience of the probability of what type of claim it is, the probability that it will actually go to payment, and then we go through an adjudication process on that claim and when we prove that it is valid, we pay it and we adjust the reserve accordingly if that’s appropriate to do so.

I’ll take us back to the beginning of the year. We originally had an outlook coming into the year for our benefit ratio of 62 to 64%. And in the first two quarters we did see pressure in our short-term disability and PFML business that drove about 2 percentage points of pressure on the loss ratio with some other puts and takes. But what we did see also was recoveries continued in LTD at the rate that we would have expected. We saw a little bit of volatility in incidence there, but really nothing that was beyond our expectation.

Then we come into the third quarter and we saw the following. First of all, STD and PFML experience was really consistent with the first two quarters and it did pressure earnings by about the same 2 percentage points. Our pricing strategy to address is already in motion and that is out there with our clients already. That’s mostly annual renewable business, so work is underway there. What we saw that was different was our long-term disability claim submissions created about another 5% of additional pressure on the loss ratio.

And just to size it up a little bit, that’s approximately a 10% increase in submitted claims above what our expectations would have been for the period. This increase was focused on behavioral health type claims and that’s really a subset of claim types that we’ve seen that may fluctuate when you have different market uncertainties out there, whether it’s economic or labor related. What we’ve seen in prior cycles, we’ve seen an increase in environmentally sensitive claim type submissions. That doesn’t necessarily translate to an increase in paid claims ultimately, but we have to monitor that, we have to take it through the adjudication process and that’ll take some time, which Chris can talk about. What we have seen though is really pretty decent stability in the employment levels within our in-force block. And I think that would mirror what you’re seeing out there in the environment just around unemployment.

And so we’re thoughtful about that but we really continue to see pretty good strength in the labor markets. What I would say is every cycle can be different. You know, historically when we’ve seen this type of spike, it does resolve over time but it’s unclear what that’s going to look like this time and we’re just going to have to monitor it. The other thing that I’ll hit on, Ryan, that you asked is just about the trend and I’ll just ground a little bit. With every quarter we can see interperiod volatility. So not every month looks the same and so incidence can bounce around a little bit on this. I guess what I’d say is year to date through second quarter submissions were pretty much right at our expectations. So this was definitely a third quarter change in the volumes. The other, I think, dimension on this is LTD claims volumes, they’re much lower than some of our more high-volume claims like short-term disability.

So they can be a little bit volatile. So what I would say is during the quarter, in third quarter, we saw this elevated size of claims. As we go into the fourth quarter, it will be volatile there too. What I’ll say, what we’ve seen so far, it hasn’t reverted to lower levels. But I’d also say it’s very early in the quarter and we have seen these types of claims have a lot of volatility within a quarter. So we’ll just have to see how the quarter plays out and then we’ll evaluate it.

But maybe I’ll turn it over to Chris to talk about the actions we’re taking and more broadly how you think about the process of adjudicating these types of claims and what that looks from a business process perspective.

Chris

Yeah, thanks, Ryan. And then to build on Rick and Steve’s comments, you know, when you think about our response, it really does call on things we do very well and have done for a long time. One is, you know, we’ve got know-how around claims management, we’ve got a very thoughtful process around price, and we have those long-term relationships with customers where they understand, you know, the combination of services we provide for them and the need to make sure we’re setting fair and stable prices over time.

So when experience emerges, you know, like it did with STD and PFML, we’re very clear with the data, we’re very upfront with it as we have been already this year. And, you know, we will be talking about the long-term disability experience and what we’re seeing inside of the claim operation, which is important. We have some very deeply specialized teams—think doctors and nurses—in addition to, you know, other members of the claims organization who have real expertise in these areas. Behavioral health is something that’s been a reality of our business for a long time and we’re very well staffed to make sure that we can go through the process that is appropriate for these claims. It takes expertise to work them through and you’ve got to, you know, it’s very important to us that we don’t shortcut those processes.

We do all the work relative to restriction and limitation evaluation, conducting the appropriate medical research, giving guidance toward return-to-work possibilities. The contracts do have limitations on how long behavioral health claims are paid, but we’re working them well in advance of that. So think about that as part of the durable model that we’ve used and we’re deploying today. And then to Steve’s point, we do think ahead toward the pricing element. What will we do for pricing? This experience gets feathered into the renewal cycle immediately and we take it through. Majority of our block is up for renewal every year, so we’ll be talking, you know, to customers—we are in market talking to customers today—and we will continue to do that. And again, you know, this is all part of the combination of things we do very well, combining claims management and appropriate go-forward pricing actions.

I think you did ask, part of your question was around are we seeing any specific industry or segment of the business, and I would step back and say this is, you know, more broad based rather than coming from any one direct area and, you know, we’re going to approach it with a broad view, looking to move the meter forward. Thank you.

Jordan (Operator)

Your next question comes from the line of Alex Scott from Barclays. Your line is live.

Alex Scott (Analyst at Barclays)

Hey, thanks for taking the question. I wanted to see if you could talk about just the dynamic with, you know, the elevated benefit ratio, you know, paid family medical leave’s in there as well, you know, contributing some to that. And I just want to understand as this potentially continues but paid family medical leave begins to get maybe a little bit of relief quicker from pricing, you know, what does that cause the benefit ratio to do as we get into 2027?

If you could just help walk me through that a little bit and the timing would be helpful.

Steve Zabel (Executive Vice President and CFO)

Yeah, Alex, this is Steve. Maybe I’ll just kind of talk about the math a little bit and how we’re thinking about that and then maybe Chris can hit on just pricing strategies. You’re right. We’ve seen about a 2% elevation in benefit ratio throughout the year for the first three quarters around PFML and STD. The majority of that’s—vast majority of that’s—annual renewable. So if you think about just an annual pricing cycle, our expectation is that we would get that business back to our expected pricing levels within that period.

So that’s much more shorter-term actions that we can take. And so that’ll feather in as we get into 2027 throughout the year as we go through the renewal cycles. But maybe talk more about just how we think the market pricing.

Chris

Yeah. Thanks, Steve. Good morning, Alex. There’s no question—very data-driven PFML/STD type of renewals where you have highly credible loss ratios to show customers. They’ve seen the utilization in their own population, so they’re not shocked when we’re coming in showing, you know, the need for rate adjustment. Generally speaking, double digit is kind of how we’ve been reflecting it and we’ve been in those conversations, you know, with significant parts of the business already this year with 1:1 renewals and beyond.

So, you know, you’re exactly right. That plays through fairly quickly and we’ll be working that on a continued basis. Long-term disability, again, this is the third quarter—this new experience is added into the experience review. We use a broader, slightly broader kind of window for experience because of credibility on lower-frequency type of products. We do try and reflect what the emerging experience is doing because I think that’s the most important relative to how we set price going forward. And customers want to know where it’s headed. Ultimately the goal is, you know, stable pricing, very transparent for, you know, customers where experience matters.

For any time we have, you know, customers where we’re talking about PFML, short-term disability, other leave services, you know, the depth of the relationship and what we do for them, it makes it so it is a true partnership where we want to get the price right as a coordinated effort between our customers and us. And they’re very receptive to these discussions.

Alex Scott (Analyst at Barclays)

Got it. That’s all helpful. As a follow-up question, I wanted to ask on capital deployment and just, you know, to what degree, you know, all of this is going to potentially impact the redeployment of capital into things like buybacks. And then, you know, maybe also if you could comment just around, you know, your strategic options more broadly in the way you’re thinking about the business.

Steve Zabel (Executive Vice President and CFO)

Yeah. So when you think about the capital generation, capital deployment, as we’ve said for a long time, we’ve had a good strong capital generation model that continues, you saw that even in this quarter, continued strong capital generation. And so that gives us flexibility to what we’re doing. As we’ve talked about utilization of that capital, I think we’ve been very consistent in terms of, you know, what we want to do is put it back into our business, growing the business and this kind of growth rates that we’ve seen.

How can we continue those with the right investments in our business? That can come organically, it can come inorganically too, with some capabilities that we have out there. And then ultimately, you know, what we’ve done over the course of this year, we kind of set in the range of redeploying capital to shareholders at about the level of which we’re generating. And so this year, 1.3 billion still very much intact. And as we look to the future, we’ll have to look at what our overall capital plans are. But we think that’s still a good mode for our shareholders to sit with a good excess capital position we have today and then return back which we’re earning in the future.

And I think that will continue. Alex, I think you had a question. I think we’re on our fourth question with Alex. So we got to make sure we get through the queue here a little faster. I think Alex as well, strategically, how we continue to think about it is our strategy is very much intact and so we’re not distracted, although we’re focused on it, but we’re not distracted by a quarter’s event. We know how to run this business. We like this business very much.

How it’s placed, how it’s positioned, our ability to reprice is a real plus and we’ll manage through that period of time. But our strategic priorities remain the same.

Alex Scott (Analyst at Barclays)

Thank you.

Jordan (Operator)

Your next question comes from the line of Tom Gallagher from Evercore ISI. Your line is live.

Tom Gallagher (Analyst at Evercore ISI)

Good morning. First question is, so the 70.6 loss ratio you guys have emphasized, that’s based on claim submissions, not necessarily claim payments. How did—help us think through what does that practically mean? So you’ve seen, I think, a 10% surge in submitted claims. Does it take a while to work through the inventory to determine, you know, what’s a claim that gets approved? Do you initially put up a pick just based on submissions and then it needs to season—like what does this 70.6% mean?

I guess, is it also a reasonable estimate for what will be approved, or is there still some uncertainty in that relative to the 70.6?

Steve Zabel (Executive Vice President and CFO)

Yeah, Tom, and Steve—I’ll talk to you just about how the reserving methodology works and then maybe Chris can hit just on kind of timing of adjudication and how long that takes to work its way through too. So when we get a claim submission, we mark it up, we have diagnoses, different things that are attributes of the claim itself. And so we’ll set up the reserve initially based upon those factors as well as probability that it will go to pay. So we do take that into account, what we think the probability that it’ll ultimately pay when we set up the reserve to begin with.

Now that is an estimate based on historical experience and the actual kind of acceptance of that claim can differ over time. And, you know, what we’ve seen historically—and this isn’t a forward-looking statement—but what we’ve seen historically when we have surges like this for these types of claims is sometimes the acceptance of those claims are a little bit lower and not as many of them may go to paid. But we have to see—every situation, every cycle is going to be different.

And so we’ll just have to see how that plays out. And then Chris, maybe you can just hit on kind of timing and what the cycle looks like.

Chris

Yeah. Good morning, Tom. Yeah, I think it’s important to think about—maybe I’ll just break it apart between short-term disability and long-term disability frequency. On short-term disability, claims are paid relatively quickly. Decisions are made with the information that we need and we proceed and manage the claim. Long-term disability slows down a bit. And I think it’s important to note when we get a claim in—volumes are significantly lower—there are multiple layers of discussion.

Again, using specialized medical, are you getting appropriate care? Are we talking to the right type of doctor? Do we really understand the ongoing restrictions and limitations? Which means you have to understand the occupation that the person’s doing, what they’re required to do, what the options are. And we measure that more in weeks than in days and hours. And so that’s an ongoing process and we certainly want to, you know, move expeditiously, but we want to make sure we do our full review. And I think that’s very important. We’ve got a very strong history of making sure that we communicate well with claimants, we communicate very well with their medical team, we understand what their employer’s needs are and the occupation. And then we arrive at a claim at the right time. And that’s, you know, I think the process we’re in right now.

Tom Gallagher (Analyst at Evercore ISI)

Gotcha. And then, Steve, you said you’ve seen in the past when it’s economically sensitive claims like this that there has been somewhat of a lower approval rate. Is that what the 70.6% contemplates? Like, are you assuming a lower approval rate on this 10% increase? Are you assuming a normal—and then there could be, you know, I don’t want to—I’m not trying to ask are you going to have favorable development on these. But I just want to understand what’s in that 70.6 number.

Does that contemplate the historic—when you see a surge, you have had lower approval rates? Is that in that number already?

Steve Zabel (Executive Vice President and CFO)

Yeah, Tom, I’ll just answer that factually because you’re right, I don’t want to give any kind of guidance how this is necessarily going to play out, but we do use just kind of our normal acceptance rate that you would see during normal levels of submissions.

Tom Gallagher (Analyst at Evercore ISI)

Got it. So you’ve not assumed, you know, we’ll call it favorability at all on the lower acceptance rates on this particular moment.

Steve Zabel (Executive Vice President and CFO)

That’s right.

Tom Gallagher (Analyst at Evercore ISI)

Okay, thank you.

Jordan (Operator)

Your next question comes from the line of Joel Hurwitz from Dowling and Partners. Your line is live.

Joel Hurwitz (Analyst at Dowling & Partners)

Hey, good morning. Just a quick follow-up on Tom’s question, I guess. Is there any early color on how the rate of these submitted claims moving to paid compares to your expectations?

Steve Zabel (Executive Vice President and CFO)

Yeah, it’s probably premature to give any sort of guidance on that. Like Chris said, it takes time to work this through the system. We’ll know more as we get into the fourth quarter.

Joel Hurwitz (Analyst at Dowling & Partners)

Okay. And then I guess at this time, are you able to contemplate the spike in LTD claims in pricing for 1/1/27, or do you still anticipate that renewals will reflect some of the rate concessions that you’ve talked about in the past?

Chris

Yeah, Joel, thanks. And it’s a good point. If I were to step back and say that, you know, we have had some very favorable group disability years and you’ve seen—and we’ve communicated—that, you know, there has been appropriate rate reduction if experience was really good for customers and we’ve shared that. That’s actually a great setup for kind of where we are today, where we can go back to customers and say new experience dictates a new pricing action and we have the credibility to go and get those rates.

That in combination with the work we do—we’re talking to customers all the time. I’ve touched on the fact that short-term disability and PFML discussions have been happening very directly and that’s been happening all year. Long-term disability is always part of that conversation. We generally have a bundle of products. Larger cases—there is a timing where larger cases for 1/1 negotiations did start earlier in the year and, you know, we still kind of communicate all the way through with them.

Smaller cases are still in discussion right now. So that end of the block is still being kind of negotiated. So that’s open for, you know, kind of current experience. And I will say just maybe as an addendum that there is always a significant majority of our block that is outside of rate guarantee. So we’ll be actively working that through as effective dates come up beyond 1/1. So it’s not like 1/1’s A and nothing else is in play.

Joel Hurwitz (Analyst at Dowling & Partners)

Got it. Thank you.

Chris

Thanks, Joel.

Jordan (Operator)

Your next question comes from the line of Mike Ward from UBS. Your line is live.

Mike Ward (Analyst at UBS)

Thanks. Good morning. I guess I just wanted to dig in a little bit. Is there any sort of demographic or firm-level kind of layer we can think about it through? Like, are you seeing the long-term disability claim submissions at tech firms, or is it younger employees facing burnout? I’m just hoping you can help us understand it on the ground a little bit better.

Chris

Yeah. Mike, it’s Chris. We are, you know, of course we’re keen into all the different ways we cut the block and segments. And I think it’s appropriate to say at this point, you know, any differences between size, segment, or industry or region are subtle enough that they really aren’t telling. And I think right now we’re approaching it as there’s claim activity in the market. Let’s do our job and kind of keep focused on the elements that require claims management and the other elements that require pricing.

Mike Ward (Analyst at UBS)

Okay. And then on the strategic interest sort of topic, just to flip it around a little bit—so, you know, there’s growing discussion across the market around pent-up M&A across the sector. And, you know, Unum Gr I think is pretty clearly that much cleaner because of all of your efforts. But I do think, you know, a lot of people are sort of curious if this thought process makes sense and if we should include Unum Gr in this debate, and so curious if you can opine on that and if you have had any credible strategic inbound interest.

Rick McKinney (President and Chief Executive Officer)

Yeah, I think, Mike, I just would very clearly say we would not speculate on anything like that. I would say that when we think about running our business, this is about growing the franchise, generating good returns, and making sure that we’re building the value for our shareholders across the board. At the same time, we’re also a company and our board of directors—we run the company well. Discipline that goes right along with corporate governance and everything that we do that we’ve been known for.

We continue to pursue those paths. But that’s as much as I’d say about that. This is about us—this conversation today is about us building a really good, or continuing to develop a really good, franchise.

Jordan (Operator)

Thanks, Rick. Your next question comes from the line of Wes Carmichael from Wells Fargo. Your line is live.

Wes Carmichael (Analyst at Wells Fargo)

Hey, thanks. Good morning, Steve. I think in your prepared remarks you mentioned that you’re confident in the long-term benefit ratio for group disability in the 65% range. Sounds like there’s going to be some pricing action taken, but also, you know, there’s some near-term elevated claims. So I’m just wondering how long you think it takes back to get around to that 65%.

Steve Zabel (Executive Vice President and CFO)

Yeah, you know, there’s a couple different paths that this goes down. I would say, you know, the spike that we’ve seen right now in claim submissions, we don’t know how quickly that’s going to resolve. You know, we’ve seen different cycles in the past and just different timeliness of how those surges, you know, might come and then abate. So we have to see how that plays out. And that will influence obviously the performance of the block, what that looks like.

But then also from a pricing perspective. You know, I think Chris hit on it. We’re able to get after this fairly quickly. And so when we talk about 65% loss ratio, we still do feel confident, like we think that that’s the right level underwriting margin for the franchise that we have and that will be our pricing strategy to hit those levels. You know, the timing of how that plays through, we’re after it now. Chris mentioned we have a lot of renewals that we’re able to go after on an annual basis.

We will do that as appropriate. And so, you know, we would hope to do that in the medium term, but we’ll just have to see how the experience plays out. Just what the timing of that may be, whether it’s kind of resolution of the spike or it’s pricing or it’s a combination of both. Yeah, again, it will depend on what the new submissions look like and it is directly related to when we get a submission in for long-term disability. And we also have a group life policy. We do immediately, in essence, waive premiums for that period of time that they’re on disability. And we set up a reserve for that of what the expected death benefit may be on that. And that can be both from integrated policies where we have the group disability coverage.

It can also be where they may have that coverage somewhere else and we’re notified of that. And so what we find is it flows relatively consistent with the flow of the submissions themselves. And, you know, we did see that a little bit when we saw the trends historically with our claim terminations increasing over time where during that period of time it wasn’t as acute, but we were releasing waiver premium on life at the same time. And if you go back and check some of the comments that we’ve made, we have referred to that as well. So it works both ways.

Jordan (Operator)

Your next question comes from the line of Sunit Kamath from Jefferies. Your line is live.

Sunit Kamath (Analyst at Jefferies)

Thanks. Good morning. At the risk of being the devil’s advocate here, I just wanted to ask a question around timing. Why wouldn’t this, if this claims trend stays the way it is, why wouldn’t it take years to fix? And the reason I ask is because when the benefit ratios were actually lower, you know, you guys were saying, well, we can hang on to this extra margin for a while because it takes a while for the business to reprice because it doesn’t always come up for renewal.

And all of those things, which I think were positive. But now that we’re on the other side of this, it sort of seems like you’re telling a story where you can fix it, you know, relatively quickly. And so I just want to make sure I’m not misunderstanding that and just curious about your comments there.

Rick McKinney (President and Chief Executive Officer)

Yes. Let me just start and say when we were talking about, you know, the margin that we were getting and how we’re able to hang onto it, I mean, part of that was actually the competitive dynamics and the capabilities we deliver to our customers. And so we said from that perspective, relative to the rest of the competition, we feel like we can hang on to it. This is a very different dynamic. And so what we’re dealing with here as it’s increased is a customer-driven submit.

It’s not competitive dynamics, it’s not our ability to adjudicate the claims or knowledge about these customers. And that’s why it’s different. And so the pricing process here is different as well as we continue to reflect that. And Chris, maybe you can talk a little bit about that in terms of how we can increase price differently than when we talked about before.

Chris

Yes, good morning, Sunit. There’s no question that if I were to go back to that price stability desire for most of our customers, as you reflect on some of the good experience we had, and we would talk about kind of bringing rate down appropriately, the pressure on the way down is such that you don’t have to go right to rock bottom because the desire is that they hold a more consistent kind of outlook going forward. So our discussions are, you know, here’s where it’s running.

It’s running really well. We think the prudent thing would be to take a little bit off the top for you, but not go all the way down. So that would have been the, you know, kind of maintain those strong margins for a period of time and hopefully give employers the stability they need. On the flip though, we do have now, you know, experience data that says that the price needs to be different, and we will go and reflect back to a place where this is what we need. And we’re doing a lot of services for you. We’re providing great cover, we’re providing the right level of long-term disability as well as some of the things we’re doing around leave services and connecting them. But this is the price we need to run that and that’s part of the discussion and negotiation to get the right levels of pricing going forward.

So they do operate a little bit differently depending on the circumstance.

Sunit Kamath (Analyst at Jefferies)

Got it. That makes sense. Thanks for that. And then my second question, or maybe it’s more of a comment on this whole long-term 65 benefit ratio thing. I don’t know how helpful it is to have that out there because when you first gave it, I think you said it was going to take a couple of years to get there and I think it took a couple quarters and now we’re well above it without a real sense of when we could get back there. And as I’ve talked to investors about that, I think providing ranges as opposed to this line in the sand, given that there is uncertainty in this business, might be a better way to go.

But that’s just my initial thought when I heard that comment in your prepared remarks. I don’t know if you want to comment on that or not, but I just wanted to mention it.

Steve Zabel (Executive Vice President and CFO)

Yeah, I can. I mean, clearly, Sunit, when we came into the year we did think that was very consistent with what we saw in the experience and very consistent with what our pricing strategy was. So we did know, as Chris said, that we were going to have to give some price back. And so we thought that that was a very reasonable target to set and where we wanted to run the business. What’s happened this year with some of the claim submission dynamics, it was obviously unforeseen, and so we still feel committed that that’s the right place to run the business over the long term.

But we’re going to have to, you know, we’re going to have to roll up our sleeves and take some action for us to get to that point. And we’re prepared to do that.

Sunit Kamath (Analyst at Jefferies)

Okay, thanks.

Jordan (Operator)

The next question comes from the line of Maxwell Richard from Truist. Your line is live.

Maxwell Richard (Analyst at Truist)

Thank you. Good morning. I’m calling in for Mark Hughes. Is any part of the higher incidence in the UK being driven by similar behavioral health-type claims that you’re seeing in the US? I know you called out the group income protection, but any similar dynamic in the UK?

Rick McKinney (President and Chief Executive Officer)

Mark, you want to take that?

Mark Till

I didn’t quite hear the first part. Was it about—

Rick McKinney (President and Chief Executive Officer)

Yeah, so the question was: are there similar dynamics around behavioral health that we’re seeing in the UK as well? So maybe just talk about the dynamics that you are seeing in the UK.

Mark Till

Yes, sorry, the word expense at the beginning, that was why I was just slightly— You’re entirely right. Behavioral health has been the biggest increase in claim submission in the UK, so on that basis we have a similar profile. But also we have been having this for probably a little bit longer than the US business, so we’ve been able to see as that works through the claims funnel and into admitted claims, and actually not that many of behavioral health claims in the UK turn into admitted claims.

But it is a different environment in the UK than it is in the US.