Good to have with us today Rick McKenney, who is Unum's President and CEO, and also Tom White, Head of Investor Relations. Unum is a leading provider of group disability and voluntary benefits. Unum has also been able to generate consistent EPS growth and return excess capital to shareholders. I'll turn it over to Rick for some opening remarks, and then we'll do a fireside chat. Rick?
Great. Thanks, Jay, and good morning, everyone. Thanks for coming here in the room and those on the webcast. Just a couple of quick remarks. Certainly want to get into just the fireside chat that we will engage in here in a minute. Just as you look at the company, Unum Group continues to do very well. The fundamentals are very strong in the business. First six months of the year, we've seen good growth across the board. The second quarter, in fact, saw some of our best growth rates as defined by our premium, our top line doing well. Margins have continued to be strong. We actually are quite pleased with how our core operations are doing. We spent more time talking about our closed block in recent times, and I think that that has had a dampening effect.
We're working hard to make sure that we don't let that overshadow what is an incredibly good business in a good market, good growth environment, that we think we're running well, and certainly helping our customers as they go through at the workplace, navigating the change that they see there. We're happy with how the year has gone so far from operations, and we look to continue that as we look towards the second half of the year.
That's great, Rick. Thanks very much. As you mentioned, Unum's fundamental performance in the first half of 2019 has been excellent and also consistent with the company's outlook. Now that we're well into the third quarter, what are you most encouraged about, and where do you think the company might still have some more work to do?
What I'm most encouraged about is really the first half of the year and the continued trend that we see in engaging with employers and solving their needs and seeing that as a growth opportunity for us. If you take that across the different parts of the company and the core operations and what we consider our large cases, the large employers we have out there, bringing benefits to them and having a differentiated value proposition has allowed us to grow with them. We're very happy about how we've been able to help them and their employees through some of the changes in traditional means around disability. More importantly, we're growing in voluntary benefits and even the services we bring to them over time.
As you go into the smaller cases, continuing to have that very stable standard operating mechanism, pricing stability that we bring to the market so that people are protecting themselves as they go through a period of change out there. As we look to voluntary benefits, as I mentioned in the large case, continuing to do extremely well. These are simpler products that we bring to market that can serve a different population, and we're very happy with the uptake of that as people take on themselves to protect themselves and their families at a time of need. You go to the U.K. The U.K. is doing well in a difficult environment. It's one where some of the dislocation we've seen in the market there has been more of an impediment to growth.
I think the core operations we have there still continuing to do very well. With the addition of Poland, we see good operations in our global operations. Back here in the U.S., I think some of the things that we will talk about, I'm sure, more are challenges around the interest rate environment. I think I want to take people through how that really plays out for us. Interest rates being low are challenging for the financial services sector at large. For us, it does have some impacts, but there's also a vast majority of our business which is not interest rate sensitive. Getting out and being able to talk about some of those dynamics with people to understand that the depths of our company, how that impacts us, I think is equally as important.
Excellent. I look forward to diving into a lot of those factors. Let's discuss the favorable trends in Unum's business. We'll get to long-term care, I want to talk about the favorable trends. What do you view as Unum's greatest growth opportunities, right? What's going to move the needle the most for the company?
Yeah. It's those things I talked about that are going well year to date are still those same growth trends. It's a core operation that just will continue to grow. Part of the things that are fueling that are, one is the connectivity that we continue to solidify with the employers and ultimately their employees. It continues to be a good growth opportunity. It's what we do well. We're recognized in the industry as being a leader on that front, and we still see that as being a good core growth opportunity at good margins and returns and seeing that grow. It's just growing from the core. Voluntary Benefits has been one that we've been growing in significantly over the last many years. We still see that as an opportunity as the population shifts to want more of those type of benefits.
Employers see those as a good value proposition to bring to their employees. We still see that as good growth opportunity. Although I would mention there is more competition there because what we see as growth opportunity, more people are playing into. We see those trends as being probably the best, and then we'll always look to deploy capital in a way where we can attack other opportunities, whether it's investing in technology or even acquisitions like we did in Poland a year ago, have turned out to be a very good deployment of capital that we've seen.
Excellent. Okay. Let's turn to Unum's U.S. segment, that's products marketed through employers. How is the broad environment shaping up there, including trends in pricing, persistency, sales growth, and margins?
The first half of the year has been tremendous in terms of growth. I think actually the whole industry has done reasonably well. I'd attribute some of that to the fact that there's rational pricing out there today. You don't always see that. We haven't always seen rational pricing across the industry. We see it in a pretty good range today that allows us to really bring forth our value proposition, where you're not being undercut so much by price, and we win very well on that front in the industry. Pricing is in a pretty good spot. I would reflect with the move down in interest rates. It's something we'll have to look at like we always have to make sure we're taking price where we need to offset that to maintain our high level of margins.
We feel pretty good about the pricing environment overall and the competitiveness of that. We've also seen a consolidation in the market, which I think is helpful. Back to the pricing point. As we see less competitors out there across the spectrum, we're able to compete very well in that space, and that's been good. As I mentioned, in voluntary benefits, pricing is not so much the issue. It's making sure you have the right proposition to bring out there, and we have been a leader in that space for many years, and we'll look to maintain that position. Competition there is. There are more people looking at that business, so we need to make sure that it is recognized, the value that we bring, the longevity we've had in that line of business continues to shine through.
Okay. You did mention interest rate sensitivity. With the recent drop in interest rates, especially in the third quarter, what are the potential implications of that on Unum's assumed long-term discount rate?
Let me step back on interest rates, so I talk about it across the enterprise, because there are a couple of areas to focus on, which we'll do, but also to mention that over half of our business today, and I say that from an overall income, is not interest rate exposed. I mentioned the voluntary benefit product lines. These are simpler products that are actually quite short term in nature, and so they don't have the same interest rate sensitivity you might see in other parts of the life insurance sector. Over half of our business actually is insulated. Not 100%, because you have the overall portfolio yield, but more insulated from interest rates.
When you go down through the rest of the portfolio, in long-term disability particularly, it's one we've been managing over a long period of time, maintaining a good margin between our discount rate and that which we were earning. We've been able to do that. That runs at about a 70-basis-point margin that we have today. With the move down interest rates, it's something we'll have to look at. The key thing there on that business is, as we bring down, if we choose to bring down our discount rates, we're able to price for it. That price will come through, maybe not immediately, but it certainly will come through over time. I would not bake in anything relative to overall returns in that business in a down interest rate environment.
It's a question of how fast we can take that through. We'll give more insight into that as we get into the fourth quarter. It's not that material in terms of an earnings perspective because we have been managing those margins well for a long period of time.
Okay. Has the company given any sensitivity around discount rates?
We have. If we reduce discount rates, I'll caution that because it really doesn't mean that flows directly through. It's going to be potentially offset in prices as well and just overall returns. 25-basis point drop in the discount rate is about $12 million a year. Once again, as we've done that in the past, we've been able to offset that with pricing, and that's why you see today a much different interest rate environment even before this downturn than we would have seen five years ago. Yet our margins and our returns are as high, if not higher, than they've ever been.
Right. Of course. Obviously, $12 million within the scope of the entire company, from my perspective, it seems immaterial. In the Unum US unit, fourth quarter is seasonally the largest for sales volume. Can you explain that? How does your pipeline look going into the fourth quarter?
The fourth quarter is a big quarter for us. That's because of all the business that we'll be generating coming in in the first of the year, the one-one starts that many large companies go through. We work that pipeline throughout the year. It's not something that happens in the last few days of the fourth quarter. It's something that is consistent throughout the year, making sure as we work with larger cases, we do that. Other parts of our business, there is a fourth quarter push as we go through. That's just kind of the natural cycle of things in our voluntary benefits. It's the largest quarter, et cetera.
I wouldn't give any outlook necessarily for the fourth quarter, just to say our value proposition, as we've seen throughout the year to date, even going back into last year, has been very well received in the market today. We see not only good sales growth that we saw certainly in the second quarter, but even our persistency is as high as it's ever been at 90+%. The premium growth, which is really what matters at the top line, has been very strong in the company. Last quarter, across all of our core businesses, was 7%. That's a number we have not seen in many, many years. Things are coming together. The growth line looks good in the company. I'd like to see that continue.
A strong employment market, I'm sure, is a boost, too.
Strong employment market has kind of come in. We've been sitting at a similar employment rate for a while. I think we were a little bit of the industry, meaning the type of employees we serve, was a little bit of a lag to the employment growth that we saw coming out of the earlier part of the decade. We've seen that now as employment has been good at the people that we insure. I think of people who are full-time employees at companies that really value benefits. That's actually gone well. What we've started to see is wage inflation coming in, which is something that has been talked about for several years. We haven't seen it. We're starting to see that now.
If you think about the types of people that value our benefits and bring those to the employees, that makes sense, that they're in a competitive environment for talent as well. Benefits can be part of that competition.
Okay. That benefit of wage inflation, how does that translate into improved financial performance for Unum?
Yeah. It's straight high margin premium growth. If you think about a person that got a raise and they're being covered for a certain amount of life insurance, as an example, they're now covered for a higher amount of life insurance. That's more premium. Effectively, we didn't have any cost to put that on the books.
Right.
That's a high margin increase in premium that we'll see.
That's great.
It's good for us.
Okay, good. What are the prospects in new growth areas like dental and vision insurance in the U.S.?
Dental has been a great acquisition that we did, both in the U.S. and in the U.K. over the last several years. Really, it's something that just leverages our core capabilities today as we go out to customers, giving them the full basket of solutions to help protect their employees. Dental and vision were a part of that. It's something we really didn't offer going back 10 years ago. We worked with a partner until about three years ago. Acquiring our own company is a great just extension of what we do well today. We're very happy about the dental business that we're putting on, and we see good growth ahead of that as people take on that full package of solutions to protect their employees across the spectrum of life, disability, voluntary benefits, and dental is equally a part of that package.
Okay, excellent. Unum's Colonial Life unit, which markets its products directly to consumers, is among the company's largest businesses. Could you discuss the trends in Colonial Life sales and margins, and whether you expect modest earnings growth to continue?
Yeah. Colonial Life is a tremendous franchise selling voluntary benefits at the workplace entirely. We have a good collection of agents, a very large group that's out there marketing directly to employers to get through to their employees on individual market. It's one that has grown well over the last several years. We've seen good margins in that business for many, many years. We see that as a continued good growth opportunity. We saw premiums in the second quarter grow at about 6%. Sales, for the first time, were lower, we're focused on that. I think it continues to be a great franchise and growing premiums at 6%, in that type of range, at those type of margins continues to turn that into the great franchise that we think it's been for a long time, and watching that scale up is good to see.
Fantastic. Have you seen a recovery in agent recruiting since the end of the second quarter in Colonial Life, which could result in a return to sales growth maybe in the second half of this year?
Yeah, it really doesn't happen that quickly, these things trend over time with agents because it's not just about the number of agents you bring in, it's the productivity of those agents. Those can lag a little bit as people come up to speed, build their book, et cetera. I think we feel good about that. It's something we're focused on. It is harder to recruit in a full employment market, as we're out there in all those good dynamics that help the rest of our business. That's one area where it is a little bit more challenging, the team is focused on that, and we feel good like we have the right infrastructure, the scale, and really can bring products to market, that it's a compelling opportunity for people to join us in the sales force.
Okay. Any other factors we should keep in mind that might help show recovery in sales growth in Colonial Life as we're looking ahead?
I think that's one, like I say, underlying factor that will trend over time. It's really how do we get out there, feet on the street, and telling the people what they need to be. It's access to employees that need those products. I mean, you just have to get in front of these employees. They need those products. They're not getting them anywhere else.
If you can sit around with them at a lunch table and sell those, that's the business that we're in. It's about getting out there and feet on the street, I think is probably the most important. Of course, what fuels that over time will also be the size of the sales force, the number of people that are out on the street.
Okay. We've already touched base on it somewhat in terms of the international operations, which is primarily in the United Kingdom and also the recent expansion into Poland for Unum. What do you envision is the growth and earnings potential for the international business?
It's hard to tell right now, given where we are from a Brexit perspective. Like I say, Brexit is not a challenge, per se, to our business.
Right.
We're still protecting employers and their employees in the U.K. in the same way. We don't have cross-border operations out of that, so a lot of the noise that you hear is not related to us. It's about the size of the economy, how that grows, which to date has done pretty well in the U.K. I think there's a lot of questions and noise out there of what can happen. To date, it's been good, and it's a business that we certainly think can be good for us, growing well, high returns. The question is how fast can it grow when employers who still see the noise that's going on in the market may not be willing to bring benefits to their employees at this point in time.
So far so good, but it's something we continue to watch about what the growth opportunity there will be there. Not anything deteriorating, certainly just on the growth side.
Okay. Why do you view Poland as an attractive market for expansion?
We think Poland is a great opportunity. We were really happy to engage with our team there. Unum Poland has really hit the ground running as well. When we look at our screens around the world, we want to go to places that do things similar that we do, where we can add value and do that. Poland is one of those opportunities that has a group business. Often, it runs similarly to the U.S. in terms of how the corporate construct works and how they think of their employees and that relationship, so it's actually similar. That has been on our list for some time. The opportunity came, and we're very happy with the acquisition we made there and the growth rate and the opportunity that we see there. Although small today, this is one of those that we think over time will be a great opportunity.
Okay. Unfortunately, it's time to switch to long-term care.
Okay.
I feel this is a
I appreciate you letting us get out our message on our core business, which is fantastic.
In my mind, that's really what should be driving things, and I really think that the market doesn't have a full understanding of how well Unum is on top of the LTC risk. Let's talk about it. It's been a year since Unum announced its most recent reserve charge for legacy long-term care liabilities. I think it'd be helpful if you could provide some background on what caused the LTC charge a year ago. The question I often get from investors is, given elements around other companies, do investors need to brace for future charges in the years ahead?
Probably most instructive to look back over the last 10 years. We've been out of that business. 10 years ago, we stopped selling the business and have increased reserves when we saw the need to do so. That need is when we look over time and we look out into the future and what our assumptions look like, how they trend with what we have today, and how we see those happening over time. The first time we took a charge was around interest rates. I mean, back in 2011 when we did that, the rates had come down pretty dramatically from 2010 and saw the need to increase rates there. Similar would've been in 2014. Rates were continuing to come down, and we needed to look at those assumptions. We did that again.
In the last year, it's looking at many of the other assumptions that we have out there, which by the way include assumptions around things that may not be going the way you expected, but also things that have been positive, such as rate increases and how we incorporate-
Price increases
Price increases to consumers. We have the ability to increase prices there, recognize some of those positive trends as well. As we did that, from what we saw earlier in the year, we took the opportunity not just to increase reserves, which we did, but also to give a lot more disclosure to the market around what are all the attributes that we're looking at, what are the data trends that we have seen that inform those decisions. I think that was helpful and instructive out there, we have to just keep coming back to that because we're looking at a trend line over a long period of time. We're taking those trends forward and to be disclosed to the folks around what we see as the trends, I think continues to be very important. We did that last year.
We're a year past that. I think we've talked about it and we're going to talk about it every quarter, but I think it's important to look at those trends over a period of time. We've tried to, although we will certainly have it out there and disclose it, we want to talk about what are the yearly trends that we see, because this will take place over a longer period of time. Then it's how do those trends look to us in the future? It's not the spot, it's not what happened today. It's about how do we see those trends transpire in the future. I think we're a company that talks to you about how we're thinking about it.
If you've been with us for the last 10 years, you would've seen, we talk pretty openly at investor days and quarterly calls about how we're thinking about it. That's where I would set around, you'll hear from us in terms of how we're feeling about it in a year after the reserve increases. There's been some changes in the market, but we feel pretty similarly about the business that we did a year ago.
Right. Okay. With regard, interest rates have plunged in the third quarter. Maybe you can talk a little bit about that assumed investment return rate-
Yep
How well you've been doing relative to that aspect and other things. I just want to kind of reiterate that question, too. It's like, what is the potential for future charges down the road?
Yep. When you think about, interest rates, particularly, which is one of the factors environmentally which has changed in the last year, you have to go back to where we were and what our assumptions are. You can go back, it's out there in public disclosure. Here's our chart about our expectations over a period of time. Our current expectations were to achieve an all-in rate across all of our asset classes we invested in of 5.5%. The first year we saw greater than that. We actually exceeded that rate, talked about every quarter. We exceeded it in every quarter that we had out there. When we look to the future, what is our ability to do that? As rates have come down, we'll have to look at that. We'll talk about it at the end of the third quarter where we are.
I don't think from a longer-term projection perspective, we've changed too much given this downturn in rates. We're going to have to look at how we would adjust that if we see it over a longer period of time.
Right.
It's not a mark-to-market type of thing. We're looking at where we are and what's our long term, what's our best estimate of where interest rates are going to go over a longer period of time. We're reflective. We look at where rates are today, certainly, but we've got to weave that into our overall profile.
Okay. What other factors do you use to quantify reserve adequacy in the LTC block, and how are those tracking relative to your expectation? I would think factors like the interest-adjusted loss ratio would be one of those.
Yeah. I'd say the three things that we'll talk about, we do talk about every quarter, which give a sense is, one, interest rates, which we talked about. How do we actually invest relative to our new money rate? We've talked about that on a quarterly basis, although the longer-term trend is what matters. We will talk about that.
You've been achieving that.
We've been achieving it. We've been achieving it every quarter. The question is, will you next quarter? We really can't say that until we get to that point. Rates are lower, but we're going to have to see because we're not just investing in market rates. We're investing in a bond by bond, asset by asset, and that's why we've been higher than a 5.5% rate looking backwards. We'll see where we are going forwards, and we'll talk about that when we get there. The second piece is talking about price increases. We have the ability to raise price increases. When we did our reserve increase last year, we built into those assumptions that we would achieve another present value, $1.4 billion of rate increases. We've been very successful on that front in a very short period of time.
Almost half or just over half of that has been achieved in the first year. We don't necessarily expect that that's the pace, but we're very happy with we're on track for what those assumptions look like. The last piece you mentioned is our interest-adjusted loss ratio and where that is and how that's trending. Once again, you could see quarterly volatility. In fact, we saw quarterly volatility down earlier in the fourth quarter last year. You'll see a little bit of volatility, but if that maintains a long-term average range in that 85%-90% range, then that works fine. We'll talk about that on quarterly, but we're trying to get that conversation more, let's look at a four-quarter rolling average because that's what really matters is how that trends over time as opposed to any intra-quarter volatility that you might see.
Those are the big factors to watch a year later. If you look at those things, I think pricing has gone better. Interest-adjusted loss ratios are kind of right in the range. Interest rates are lower, but I wouldn't rule out that all of a sudden that that's going to change. We'll see what happens in the third quarter. We're not changing how we invest and the types of things that we invest in, and that blended yield that we've seen over time, including investment-grade securities, some high yield, some alternative assets have blended up over that level. We'll put that right out there in terms of where we land in the third quarter, which will be indicative in this environment where they are. I wouldn't want to get ahead of those actual results.
Okay, fair enough. You did mention rate increases on the legacy LTC policies. Do you expect state regulators to continue to approve rate increases, or alternatively allow policyholders to swap into curtailed coverage for no or a smaller increase?
Yeah. No, I do. Just to give a little bit more on that is, one is when we go out and talk to regulators and talk to it state by state, we talk about the price increases that are justified and work with them so that they can understand that and bring through to the consumer, ultimately, a rate increase that makes sense. We've been doing that for many, many years now. I would say overall in the environment, there's a better recognition across all states. We have actually gotten approvals in all states for price increases. There's good recognition about the need to do that in a consumer-friendly way, which, as you mentioned, includes reduction of benefits that we'd have out there. It's not just increasing the dollars or premium.
It's also reducing and adjusting benefit features as another way to do the same thing. We think that conversation has been healthy, good, and I think that, like we said, because we've been successful in all states, all states are listening. They recognize the need, and we think the environment continues to be conducive to do that in an appropriate way. I want to say that it's important that they be justified, and it's up to us to make sure that working with the state regulator, they are justified, and we feel good about the assumption we've got in our reserve assumptions today.
Good. Okay. Over the course of the summer, GE, which has gotten a lot of unwanted attention for its legacy exposure, had kind of another round of attention or a spotlight put on that issue. My sense is that Unum's long-term care exposure poses significantly less risk to Unum than GE's does. If I'm right, what factors would you point to in comparing these LTC blocks?
Yeah, I probably wouldn't compare them, I'd just talk about our block.
Okay.
When you think about our block of business, one, I'll split it into two major pieces and many subcomponents of that. You've got the individual business, which was written, which is similar to what other people did. Now, we underwrote that business. It was internal to us. Our salespeople sold it as we went through. So that looks similar to many others, it's important to note that we underwrote each one of those policies out there. So that business is older. It slowed selling in the mid-2000s, will continue to run, that's an older block, it looks relatively similar to many other blocks that you see out there across primary carriers, the people that are actually writing the business, working with the consumer. The other piece is our group Disability business, which is quite different, not only in-
Group LTC?
Group LTC. I'm sorry, guys. I said group disability. Group LTC, which actually is sold at the employer. The employer, in most cases, greater than half of the cases actually, provides it to their employees. It's not something that the employee is actually signing up for. It's actually being given across the pool like you'd see in most group-type policies. That's one thing in how it's out there and underwritten is on more on a group basis. Then when you get to the actual policies themselves, they're much more truncated in their features. There's less inflation, some riders and assumptions they have in there. The benefit periods are shorter, much shorter than you'd see in an individual policy. Just the overall structure of it is different.
We think that although it's there and something we need to manage closely, the structure of that is actually quite different. We think because of all those risk capitations at the ultimate claimant level, we think that business will perform better over time.
Okay. Any other factors to keep in mind, like age of the cohorts or?
Like I said, the individual's going to be older, similar to what you'd see out there because these people were underwriting it. The group policies are younger only because when they started the policy, they were given to them by their employer in the worksite. You have people in their 30s that actually would be given one of these policies. We don't know whether they'll keep it or whether they'll ultimately lapse it over time, but it's just a very different construct. I think that's the one dynamic that we have that we think is different over time.
From Unum's perspective, it's better to have a younger cohort, right?
I'm not sure. I think I'd lean more on the policy features is probably where it's very different. Where it's younger. There's a couple of things that happen when it's younger. One is you have more time to take price increases if it's not proving out the way you expected. Also it's those end features in terms of how much is a lifetime benefit coverage. How much of it, or I should say such a small percentage of it is lifetime benefit, very little of it with inflation riders. It changes the dynamic of the policy over time.
Okay. Some investors have said to me that Unum's current valuation is already pricing in the need for an equity capital raise due to LTC, which I find very hard to believe. What's your response to the potential need for Unum to need to raise capital or even slow the pace of the buybacks or dividend increases?
I think that's way off at the other end. I think when you talk about we're a company that continues to generate a tremendous amount of capital, and we've returned that to shareholders, and we'll continue to do that. I talked about the core franchise we have is generating tremendous amounts of capital every year. We've done that and increased our dividend. We've been able to make acquisitions, and at the same time buy back stock. We'll continue to look to do that because we think it's an important way to return our capital to shareholders. I wouldn't go to any of the speculation you're talking about. We're running a different playbook. We think that we feel good about our ability to generate capital, return that to shareholders ultimately, or use it for other growth needs.
Okay. I'm glad you're able to dissuade people of that view. What are the prospects for Unum to eventually be able to economically exit its legacy LTC exposure by partnering with investors or reinsurers, or perhaps the closed individual disability insurance block?
On the LTC side, there have been transactions that have happened in the marketplace. It's something we'll look at. We obviously avail ourselves of all opportunities to do that. I would not set a threshold that is imminent that something will happen. I think it's still a difficult market for buyers and sellers, and the gap between buyers and sellers is still quite wide. Maybe even wider more in recent times given the move in interest rates. I wouldn't say that that's the opportunity. I think if you look at our individual disability block, that's a very stable block. It's important to reiterate to our investors that our closed block has two pieces. When you see it in our financials, there's two pieces to it, very big chunks. One is our LTC block, which we've talked exhaustively about.
The other half of it, or 40% of it, is our individual disability block, which has been closed now for the last 13 years. We securitized that, and it runs in a very stable nature. Because of its stability, it does provide opportunities to look at and evaluate whether there's options there as well. We're looking across our closed block. It's closed for a reason. We'd like to actually unload that in an economical way, one that is shareholder friendly. We got to make sure that the buyers and sellers and the risk mitigation works, but those are things that we're looking at all the time.
Great. Okay. We touched on it briefly. M&A opportunity for additional bolt-on acquisitions or perhaps larger deals. What's your interest level?
Our interest level is high across a series of things. I would say that the hurdle rate has gone up as our shares have become cheaper. That's certainly a compelling opportunity to buy that. We've, over the last several years, added things that helped our portfolio where it is today. We don't need, after the addition of our dental business, we've got the full portfolio here in the U.S. particularly around employee benefits that we've got. Feel very good about where that is, where we will continue to acquire services. We acquired a company named LeaveLogic to help fill in some of the services we have out there. We'll continue to look to do those type of acquisitions. Then internationally, we acquired Poland. We'll continue to look at the markets that make sense for us to continue to expand the footprint. We have that opportunity.
I think we've shown over the last several years the ability and the desire to continue to build out the portfolio.
Okay, great. Last thing before we get to the audience response system. Could you discuss expense savings or productivity improvement opportunities while still investing for growth? Seems to be a major theme we're hearing from.
Yeah
a lot of insurers.
Yeah. Our expense productivity is the one we've been consistent on. In our business, we think about that as the expense ratio. It's front and center of what we do is as you think about our overall margins, what our expense ratio looks like in managing that lower over time, given as we've scaled up. I think it's something we've been consistent on over time, but it's something we always look at. We're a company that wants to be as efficient as possible, at the same time investing our dollars for our growth opportunities. We've been able to do that with some of our digital and technology spend, some of our relationships that we've built out over time, and some of our new platforms we've been able to build out as well.
It's a good balance, but I would say expense management has been part of the company kind of consistently over the last 10 years.
Okay, great. Let's go to the audience response system. The first question for the audience is, we can start the clock, if you don't currently own shares of Unum, what would cause you to change your mind? We've got a number of options here, including faster top-line growth, margin improvement, more aggressive share buybacks, higher rates. The feedback from the audience. Oh, 85% or so saying reduced risk from the LTC block.
I share their view that this is something we want to work on. The other one that got a response is higher interest rates. We like that one, too. I think it's one that we'll continue to work on that. Hopefully, people understand that this is something we are evaluating consistently. It's not a business that we're invested in. We've had it in a closed situation for the last 10 years. Ultimately continue to reduce the risk in that block is paramount to what we want to get done. Once again, to remove what's been an overshadowing of a tremendous core business.
Right.
That's on our list as well.
It's probably worth pointing out that your new CFO was previously, right up until having this job, was in charge of the closed block.
He was the CEO of our closed block at the time.
Right.
He comes into the CFO seat with great knowledge of that block of business and maintains that same focus, which is we want to reduce this risk over time.
Next question, please. This is for the audience. The return on equity, your return on equity expectation for Unum's overall business over the next several years. We can start the clock. In the first half, the operating ROE for the entire business was 13%, let's see where investors come out on this. Interesting. 90% saying 11%-12%, relative to 13% in the first half. What do you think about that?
I don't know. These are opinions that are in the audience. I think that if you look at the 12%, go back over a period of time, we've been right around there. We're very happy with our 13% that we've seen right now. I think operating in that range with a very high returning core business, and it's stable. Lower return closed block balances you out somewhere right around that. We're happy with where we are today. We're really happy with the first half, and we'll strive to continue at those levels.
In that 12%-13% range.
Yep.
Essentially what that means is even though interest rates have gone down in the third quarter, that, like you said, half your business is not even sensitive to rates.
That's right. As we look out to next year's plans, we'll have to take that into account.
Okay.
We'll roll out that in great detail in December as we go through our investor day process.
Okay. Next question please. What should Unum pursue more of? We can start the clock, whether that be organic growth, acquisitions, share buybacks, and dividend increases. The feedback here is primarily focused on organic growth, 60%, and to a much lesser extent, acquisitions. Sounds pretty consistent with what you've been saying, Greg.
It's very consistent when you look at the choices you have there. That's how we think about it. It is first and foremost putting our capital into the organic growth. Growing a great business, high returning business on the organic side would certainly be our focus day in and day out. Second would be acquisitions, like you put up here, the second choice was acquisitions. We want to look at those when they make sense, how they fill out our overall portfolio, and we've done that over the last several years. I'd probably then say making sure that on the dividend increases, I might elevate that just at our consistent level. You've seen kind of double-digit dividend increases, and we've been very consistent on that for a period of time. Share buybacks has been part of the mix overall.
With the capital generation that we have in the business, we'd expect to continue to see that at a good pace as well.
Right. It appears that the company has actually de-leveraged somewhat. Just had a recent announcement around that. I'm wondering if, given the current valuation, that annual pace of around $400 million of buybacks couldn't be stair-stepped up given it would just be so accretive. What do you think?
Yeah, no. I think consistency has been critical for us. As you looked at our pace of buying back shares, I think we continue to see it at similar levels. I wouldn't want to create something. You mentioned the recent transaction we did. We were happy with a recent transaction we did. Issuance of 30-year paper and restructuring and tendering for some of our later dated bonds and things like that. We think that that was also a good move as we look at the overall balance sheet of the company.
Right. That was done at very attractive rates.
Good rates. We issued 30 years at right around 4.5%.
That's amazing. Clearly the credit markets really believe-
There was good demand. We were happy with the transaction overall. There was good demand as well.
Okay. That's great. Well, please join me in thanking Rick McKenney and Tom White from Unum.