We're right on the time, I'll go ahead and begin kicking things off here. Probably get a few more stragglers, we always do. We're pleased to have Jack McGarry from Unum Corporation. People who have been around the industry a long time, Jack probably doesn't need a tremendous amount of introduction. I know last night when I was looking through the bio material, it's like I needed to get a snack about halfway through reading his bio because you've been like everything at Unum Corporation, like going back to He started during the Reagan administration. Not to date you, but it's like you don't often see that. I'm reading this and it's like, man, he did this and then he did that. It's like, there's probably no jobs left that you haven't done.
Like a Johnny Cash song. I've been everywhere.
Yeah, exactly. You've been everywhere, man. You've been everywhere. At any rate, CFO currently, has been around the shop for a long time, so probably knows the answers to all of your questions and hopefully a few of mine. I'm going to just start off, just get things warmed up a little bit. Maybe as you think back on 2018, kind of a tumultuous year for Unum, kind of a tumultuous year for the sector overall. When you think back on the year, what were some of the high points? What were some of the low points? Just maybe to kind of frame the discussion on some of the things that have happened recently.
I think it was a tumultuous year, it was kind of a barbell for us. Clearly long-term care, and I'm sure we'll talk about that in a bit, was on the low side. On the high side, our dental business, we bought Starmount back in 2016. We opened it up to half of our U.S. sales force in 2017. We bought them, they were about $150 million business when we bought them in terms of in-force premium. We sold $100 million last year of dental business. That's been a great add to our portfolio. That was split between Unum U.S. and Colonial Life. The adoption on both sides has gone tremendously well. We're not done yet. We expect significant increases in dental sales next year as well. That, one of the highlights and a great start for that acquisition. Our core businesses.
It was a tough sales environment on the U.S. side, but we had great persistency. We had strong sales and persistency in Colonial Life. Mid-single-digit top-line growth at an 18% ROE, that's a good business. You get 18% ROE in the insurance business-
Absolutely
Have solid top-line growth. Those would be on the high side. I'd say one of the things I felt really good about Unum as a company was the resilience we displayed in 2018. If you remember, there was a tax bill signed into law on December 21st.
I think I saw that in the news, yeah.
Yeah. 10 days later, we were closing the books under that new tax bill, with huge repercussions in terms of deferred tax assets and deferred tax liabilities, how those worked. We needed to close the books in January. You needed to get a plan together for the rest of the year and adopt your outlook to the new tax laws. On the heels of that, you had RBC factor changes and what was going to happen there. As soon as they happened, there was a big work through with the rating agencies as well on how they were going to interpret it, the factor changes. The amount of turmoil during the year, you throw long-term care on top of that, was pretty remarkable in both the industry as well as our company. I think we-
Hopefully a really nice Christmas party for the accounting and finance staff, I guess.
Yes.
Sounds like a lot of long hours to get all that implemented.
A deep breath in, very hopeful that 2019 will be a little quieter.
It ought to hopefully be the fun part of the curve. Okay. That's a good place to start. You mentioned the U.S. business. I know everybody wants to talk about long-term care, but let's talk about the good news before we talk about the more difficult news.
Yep.
The U.S. business had a good year last year, good growth. Economy certainly a nice tailwind. Can you just talk a little bit about kind of the competitive situation, how you're positioned product-wise, where you see the opportunities, those kind of things?
Starting with the competitive situation, I'd say it's particularly on the group side, it's a very competitive market. Although we like to talk about it as being a rationally competitive market. There's a tight grouping of quotes today. There's not a single carrier who's way below everybody else that's driving a lot of business out to bid. It seems to be rational. As a result of that, the incumbent's the odds-on favorite
Okay
in any out-to-bid situation. We struggled to get some sales growth in 2018 on the Unum US side. We had 2% better persistency on the Unum US side in 2018 than we did in 2017. As a result of that, our growth trajectory, we were mid-single digit Top line growth, which was kind of where we expected
Right
to be, we hit our growth targets. Retaining business is way more profitable than writing new business, because you know exactly what the risks are. There's no acquisition cost
Right
associated with retaining the business and keeping it on your books. It is a little disappointing on the sales side, but good growth overall because of good persistency. I think it's reflective of that tight, competitive market that incumbents in. I'm sure we're not the only ones in the industry-
Well, thinking about-
having good persistency.
Thinking about that, just from the competitive standpoint, you described an environment where the incumbents have the edge, which is good news for you. You guys have a good market share and-
It's good news for a lot of us.
Sure. I guess the question I was getting to is, so when you win, since it doesn't sound like people are winning by just low-balling the price and
Yep
chips fall where they may. When you win, why do you win? What's been your edge when you get to be the winner?
When we get to be the winner, it's our offering. It's the breadth of the products that we offer. It's the fact that we can combine voluntary products with the true group offerings that helps. You think of us as, and it's less so now, but traditionally a disability company.
Right.
When you're sitting down with a large case customer talking about disability, you spend about five minutes on the long-term disability, and you spend the rest of the two hours on short-term disability and family leave management. It's leave management and short-term disability service that carries the day, and we have great service there. Very reliable, very trusted, and we've made progress there as well. We bought LeaveLogic
Right. I know Leave Management's been a big
during 2018. That's a great add-on to our leave management services. Another thing we did on the technical side, we developed what we call HR Connect. We implemented Workday at Unum as a company in 2016. Soon after that implementation, we started working with Workday to see if we could do some partnership to connect with their platform. We introduced that in 2018, where if you have a leave and you are a Workday customer and have leave management with Unum, that leave can be administered right in Workday. The employee starts the leave process on their Workday screen, notifications to the manager and the employer come back and forth through Workday. It gets automatically tied to the absent tallying in Workday, and that's been a game changer. On the large cases that we quoted that were Workday customers in 2018, I went an 80% close ratio.
I could see where that would be a big win. It's seamless, and that's what the employees like to see. They don't have to go to five different websites to get their things sorted out.
Yep.
They probably have a corporate intranet that helps them with their HR questions and answers, and load that on there. Boom, the next thing you know, the claim has started, and before too long, hopefully they have their money. Anyway, that's good. Let's go to the question that everybody wants to ask about before I throw it open to the audience. Otherwise, we'll just get five questions on the same thing. Long-term care, it was obviously the news du jour for the first 270 jours, where are we on that now? We know you took the charge. You gave us a lot of great information about the sensitivities, the assumptions, and all of that. It was terrific. Applause for being out there on the disclosure. I think that's great. Where are we now? What are we worried about? Is anybody still worried?
Talk about the state of play.
Well, based on the questions I get, people still have some concerns. It hasn't gone away. It has calmed down remarkably. GE just set the market on its head last January, that was the environment in which our results were posted. It's the environment in which our charge took place. I breathed a deep sigh of relief when, as I'm sure a lot of people did, when GE came out with their first quarter results and there wasn't another big reserve charge behind them. Listened to the GE teach-in-
Yeah, did as well
The other day, nothing particularly remarkable about that. I think things have calmed. We feel really good about where we did. We did a tremendous amount of work, not only coming up with our new reserve assumption set, but I think also put a lot of thought into how we communicated it. I think we have set the bar for disclosure in the long-term care business. We are the only company that I've seen out there that has actually given you insight into how our assumptions align relative to our underlying experience, and we do it assumption by assumption. We feel good about that. Really what drove that is the fact that if we didn't provide the information around how we were actually performing, people were reading across to us from what other people were saying.
Right
About how they performed. That read across was inevitably much worse than the actual facts were.
Yes.
We feel good about having it out there. People can understand what our assumptions are based on. Out of the gate, first two quarters, we're at the low end of our loss ratio range, so we feel good about that. It's just good to not only have that out there, have it off to a good start, but also have it being delivered in what is a much calmer environment than we started in.
I would definitely agree. I had an investor one time tell me when companies have these kinds of issues and they don't really disclose all of the related useful information, it's either because they don't know or they don't care. Neither of those reflect kindly on you. You guys gave us a fair amount of data to work with, the chips will fall how they may in the future. There's still miles to go before it's all good and right. That's not the way I mean to say that. Before the whole situation kind of works its way through the system.
Yes.
One of the key variables, I guess, still out there is the rate approval. That's probably one of the most sensitive variables. Maybe just a quick update on how that's going so far and the outlook for this coming year.
It's going great so far. We set the assumption in the middle of September. We assumed we'd get $1.4 billion of present value of future rate increases underlying that assumption. We've already achieved over $500 million of that. We got a very significant rate increase approval from the state of California. That went a big part to achieving that. You don't even really need to file some, just use states on the group side-
Right
That gave us a good boost as well. We've actually had our first real state approval we got the other day on the group side. It wasn't a big state, but it's a start. We feel great about our rate increase assumptions where it was $1.4 to start. It's under $900 million now. We think the environment still continues to be favorable for rate increases. If you get an environment in the insurance industry where California, Florida, New York, and Texas are all aligned in providing things to insurance companies, that's a pretty good state of affairs if you ask me.
It may be the only time in history that that's happened. That's probably like one of those, the triple eclipses or something. It's about like that.
We continue to be optimistic. That's not the place we worry the most about.
Okay.
Interest rates continue to be a factor.
Definitely.
We would have loved to have seen them higher than they are.
Yeah. Those are always the two, I guess there's three, really.
There's three, the morbidity.
The morbidity being the third.
Yeah.
Only one of which you have full control over, and even there it's subject to the regulators, right?
Yep.
Let me go out to the audience, see if anybody out here has any questions. I can certainly go all day, but maybe somebody out here has something that they've been thinking about that they want to get out. All right, I'll keep going. You had mentioned in your opening comments, you had some brief comments on the U.K. Maybe you can talk about that business in a little more detail. We talked about the U.S., so maybe talk through what's happening in the U.K., how are the drivers there relative to the U.S.? Any worries about Brexit and just kind of the general landscape there?
Yeah. When I woke up this morning, there were some signs of life in terms of a deal may happen. By the time I got here at 11:20, that was pretty much dead.
That's why they sell so many newspapers in that country.
Yes. It's a volatile situation. What I would say is first and foremost, our U.K. business is U.K. centric. Everyone we cover in the U.K. is a U.K. citizen, so we don't have passporting issues.
Right.
We're not going to lose coverage for European citizens when and if Brexit happens. That's positive. Brexit has been affecting us and the U.K. economy for a while now. It's not a surprise. People have seen it coming. We've seen it affect our growth in the U.K. Things have been pretty stagnant. We've seen it affect experience in the U.K. We saw a rise over the past couple of years in incidents in the U.K. I think that's a part of as U.K. businesses position themselves for what they see coming. There hasn't been a lot of investment in the U.K. We've also reacted to that. It's an industry-wide phenomenon. We weren't the only ones who saw a rise in interest rate. We've been able to place some significant rate increases to help battle that.
Good persistency on those because others in the industry are also pursuing rate increases on their block. It's not a great situation by any stretch of the imagination.
Is it less competitive there, more competitive, about the same relative to the U.S.? Is it the same competitors for that matter?
No, it's not the same competitors. It's a tight. There's five major competitors on the group risk side in the U.K. versus 25 in the U.S.
That's better
smaller group. It's a specialty line. We are probably the standalone group risk writer in the U.K. All of the other ones, there's Aviva, Legal & General, and some others that it tends to be a small part of what they do.
Right.
They're mostly asset management, wealth management driven companies.
Okay.
With that, it's competitive, but it's probably not as competitive as the U.S. is. It's similar in terms of from what we've seen in others. The odds-on favorite in any bidding situation is the incumbent carrier.
Yeah. I mean, the profitability's been pretty good.
Yeah. Yes.
the growth hasn't been entirely there.
Yeah.
the bottom line for many people, that's where it counts anyway. if you can pull the same across with this no premium growth, that's.
Yeah
it's all.
No, you get a 15% return on equity in kind of the worst of circumstances.
Right. Any questions here, or I can keep going? Anybody? All right. As long as we're kind of working our way down the financial supplement, let's talk about Colonial Life. Probably the one where amongst all your units, we're the ones you're forecasting the best earnings growth rate. I'm sure the dental has a lot to do with that. Maybe just talk about the state of play there and what's happening.
I love to talk about Colonial Life. It is our fastest growing kind of before-tax operating income line of business. It's our fastest growing top line line of business as well. Colonial Life saw a 7% top-line premium growth in 2018. We saw 8% sales growth. We've seen kind of that 8%-10% sales growth for a couple of years running within Colonial Life. It's also our least interest-sensitive product.
Okay.
It doesn't face some of the headwinds that maybe the group lines do because of the role interest rates play in disabled life reserves. It is remarkable results growing at 7% top line, has a 18+% ROE currently, and a lot of things. If you look at our traditional group businesses, and you'd usually think in a growing economy, you would see tailwinds of growth in the group side. We didn't see that over the last eight years to the extent you would expect, because a lot of the job growth was service related, it was hourly employees, it was part-time work. Even a lot of the wage growth was minimum wage growth as opposed to.
Right
kind of salaried. We're seeing some tailwinds from wage inflation and kind of salaried growth. It gave a big boost to the voluntary benefits business because you could insure service workers, you can insure part-time workers, hourly workers. That was a boost that helped that growth. Healthcare has helped that growth as there's been a move among employers to kind of consumer driven healthcare, more high deductible plans that opens up a gap in coverage that we have products to fill, like hospital indemnity, accident coverage, critical illness. Both of those things have built a pretty healthy market for the voluntary business. We've seen growth on both the large end in Unum US and small to midsize market in Colonial Life and expect that to continue over the next couple of years.
This is my own opinion. There's probably studies that back some of this up. I do get the impression that the workforce is evolving. It used to be that benefits were back in the union days where unions had more control. Benefits were everything. Wage was important. It was all about the benefits. We went through a stretch of time where it was really more about the wage. People wanted the money. I feel like we're moving back towards a period where the benefits are starting to get back into the mix as being a differentiator. If I'm considering work between two places.
Yeah
A lot of times it'll be the benefits program that carries the day if I'm hopefully a valued worker. It doesn't come up for me very often. Maybe for some of these people in the crowd.
I do think that's right. When you get into tight labor markets, that's when benefits begin to expand. It's been a long time since you've seen the expansion of benefits. In fact, they've kind of gone the way of pension plans.
We're moving from a defined benefit kind of pension plan to more of a defined contribution where you offer access to the benefits, but employers aren't necessarily paying for them. I think as we see a tighter labor market, and if anyone is out hiring people, you understand just how tight the labor market is getting. I think you're going to see a reemergence of benefits as an attraction and retention element.
Yeah. It certainly should help the Colonial business. Not that it needs a whole lot of help.
Yeah
Every little bit adds. Anything else from the crowd? No? No. Okay. I'll keep going. International. You've added Poland Pramerica.
Yep.
Can you say the Polish word?
No.
I can't either. I thought about taking a go at it, and I said, "You know?
No.
I'm going to see if he can do it. If he can't do it, then it'll be Unum Poland.
One thing when the language isn't the same, when the alphabet isn't even the same, is where I draw the line.
Maybe talk about that, and then just again, build on that from the context of how you think about expansion outside of the U.S. and the U.K. We've got Poland now. What made that interesting? Are there other markets that could have the same appeal?
A couple of things there. What made Poland interesting? First of all, it was vastly cheaper than U.S. properties.
Okay.
There was a lot of acquisition and merger activity in the U.S. All of that was at 2-plus times book.
Right.
This property was a good size, where it was easily consumable. You weren't going out on an edge. The price was much more reasonable relative to our return requirements than some of the U.S. properties appeared to us. It keeps a foothold in Europe on the heels of Brexit, it still gives us an avenue to continue to expand in Europe. We like the Polish market. I don't know if people are at all familiar with Poland, but Poland has a big emerging kind of higher middle class professional workforce. As a company, we actually have outsourced some of our actuarial work to a Polish firm with great results. More and more companies are not sending transaction work over to Poland. They're sending actual professional work over. It's got a highly educated workforce. We found that beneficial.
The company we bought was kind of 60/40 between kind of individual wealth management driven life insurance on one side, but 40% of it was group insurance. It was group life that was distributed through the employers. Interestingly enough, a lot of that group life had riders on it that covered things like critical illness, accident coverage.
Okay
hospital indemnity. That group life was a chassis that had a lot of the voluntary benefits that we currently offer in the U.S. on it as well. We found that really interesting and would like over time to expand
Right
that within Poland. We'll continue to look for opportunities on the continent with those types of things where we're not on a European conquest. We're not on Axis or Allies or D-Day yet.
We need like a big giant map and start punching the pins in.
We like some of those markets. We want to be positioned to the extent Europe, if it does move more toward distribution through the workforce. A lot of it's bancassurance these days.
Sure.
We'd like to be there as the workforce distribution emerges.
Okay. I think we have time for one more, if anybody has any. I'll close with kind of a last thought. It's probably longer than we have time to go into in a lot of detail, but just the technology platform and so forth. We've seen in some of the big bank mergers how that's been an important feature. How is Unum positioned from a technology standpoint? Obviously, this is something that you've been investing in a lot over the years.
Yep. I think we're well positioned relative to the industry.
Right.
We're not cutting edge by any stretch of the imagination.
To some extent, it's the race of the dinosaurs.
Yeah. I mentioned HR Connect.
Yeah.
We're looking to expand that with other HRIS providers. We're looking to look at what we can do down market with that, with some of the HCM software. We recently introduced an agent mobile app.
Okay
for our Colonial Life agents, which we have 10,000 independent agents across the company. Does lead generation for them, scheduling and mapping, customer relationship management. It allows us to be.
Keep those guys working then.
It's going to make them more efficient out there.
Yeah
in being able to call on more customers, which is what we want. We feel good about the progress we're making. Generally, a focus that combines both improving the customer experience as well as cost efficiencies. As a result of the success in implementing that, we've been kind of self-funding.
Right
a lot of those investments, a piece of that has shown up in our earnings. If you look at our expense ratios over time, they've been.
Gradually improving. Yeah.
Coming down pretty steadily.
Yep, gradual improvement. I think that's all we have time for today. Please join me in thanking Jack and the Unum team for coming out to the conference today, and hopefully some of you have some sessions with these guys later on today. Thanks very much.