Good morning, everyone. Good to see you today. My name is Tom White, Head of Investor Relations, and welcome to our 2018 Outlook Meeting for Unum. We appreciate all of you who have joined us here this morning in N.Y., and also those who are joining via the webcast. Got to start with this one. Our remarks at today's meeting will include forward-looking statements, which are statements that are not of current or historical fact. As a result, actual results might differ materially from results suggested by these forward-looking statements. Information concerning factors that could cause results to differ appears in our filings with the Securities and Exchange Commission. I'll remind you that statements in today's meeting speak only as of the date we are making them, and we undertake no obligation to publicly update or revise any forward-looking statement.
A presentation of the most directly comparable GAAP measures and reconciliations of any non-GAAP financial measures included in our presentation today can be found in the presentation materials. Our discussion today will follow a flow similar to our previous meetings. We'll begin with our President and CEO, Rick McKenney, who will go over corporate overview for the company strategy. Jack McGarry, our CFO, will provide a financial overview and outline our expectations for 2018, followed by the strategic overviews of our four operating segments by their respective presidents. We'll hold a Q&A session after all of our prepared remarks. Now I'd like to turn the meeting over to Rick. Rick.
Thank you, Tom. Good morning to everyone here in N.Y., as well as good morning to those, or good afternoon, even, to those of you on the webcast. We're really excited to have you here today to take you through what's been a very good year in 2017, and also take you into 2018 and beyond. Our thoughts, the areas we're focused on to make sure that the consistency we've seen over the previous years will continue into the future. Just a quick overview of the company. Those of you on the webcast, I see many familiar faces here in N.Y., certainly want to remind people of who we are, what we're known for, and what we strive to do. First is that we are the leading provider of ancillary benefits in the workplace.
We have been so for a long time, continue to do that. We'll talk about the strengths that comes from that, as well as our ability to continue to grow in these markets. We've seen some really good trends this year as well, which I think we'll talk about in 2017 and 2018, both in terms of the core operations of the company, as well as what we see in our capital base. I think the thing that I'd want to leave you with is something we take pride in, is that we are a disciplined and consistent operator. We see our business of serving customers at difficult times in their lives as a real mission, something critical to who we are, and making sure that we're disciplined to serve them in the best way we know how continues to be very important for the company.
Quick overview of 2017, just in review. I think if you went back to this meeting last year, we had a range of 3%-5% from an EPS perspective of growth that we were expecting. Middle of the year, with some good trends that we had seen, actually upped that to 5%-8% in our current outlook, and it was at the end of the third quarter as well, as it will be at the top end of that range. We'll get through the end of the year, I think, in very good place from an earnings perspective. Our teams are still working hard, making sure we're out there signing new clients, as well as enrolling people through the end of the year. We feel good about how our premium and sales growth has looked in 2017.
One of the things that drove some of those good results this year is we did see, with all the hard work that's happened over a number of years, working closely with our customers to raise rates in the disability space, particularly in a low interest rate environment, we're seeing some of those benefits come through as we've been happy with the results we've seen there. Michael will talk a little bit about that. One of our things that we've been focused on, one of the more challenging areas has been the U.K. with Brexit. I think we went into this, if you went back a year ago, not really knowing exactly how it would impact our business. It was going to be one of the economy. We've seen that. We've seen a slowing in the economy for those that we serve in the U.K.
Peter will talk about that. We've also seen a little bit of a challenge from a loss perspective. Nothing material. Still a great returning business. Peter will talk about that more, but it has been challenging. The Closed Block, what we could say about that is it's been stable. You'll see volatility quarter to quarter. Steve Zabel will take you into some more details there. The ability of the block there to be stable overall from an earnings perspective, I think, has been good in 2017, and we'll take you into some of our views in 2018 as well. On the capital front, given those good results, we've been generating capital a little bit faster than we thought we were going into the year. Our share repurchase plan of $400 million we'll look to execute by the end of this year.
Dividends are up 15%. I think that was probably a little bit faster increase in dividends than we thought, given some of those good returns. A capital position in excess of 400%. The takeaway there is capital generation and deployment in 2017 will meet or exceed our expectations, and Jack will take you through that. Interesting next slide to go through the economy today with the Fed meeting currently. I'm not going to give you much more insight than you'll read in their papers. I'll leave you with a couple of points of the environment we see going into 2018. One is the unemployment rate is low. When you look at that, it's about job creation and our ability to grow as the workforce grows.
In that labor market today, what we haven't seen, which we hope to see, is some wage inflation, because that does come straight through to our top line from overall wage inflation. The other piece, when you look to the labor force, is as the shifting labor force moves from a baby boom generation towards a Millennial generation, and that shift happens, where we're positioned, I think, is critical from a voluntary benefits perspective and what we see overall. I think the macroeconomic environment is going to be very good for us. We'll see what the Fed does today and actually into 2018. We've been dealing in a low interest rate environment. We're focused more on the 10-year and the 30-year than we are on what the Fed does with short-term rates.
I think that an increasing rate environment will be one that could be good for us in 2018, although we really haven't baked much of that into our financial forecast. 2018, the bottom line will be 4%-7% growth that we're seeing going into the year. As I said, the top line's still good. We'll hear more about that today. Very mid-single-digits type premium growth, which I think is the most important when you look at the overall top line. Sales, coming off a very strong year in 2017, will actually still be very good off of a much higher base. Margins continuing to be very good. With the reminder that our interest rate headwinds are still real, and we'll talk a little bit about that, but our margins continue to be very good in the business.
We're cautious about the U.K., so we'll talk about that. The team's executing very well, but we're looking at the dynamics that are happening in the U.K. as a result of Brexit. Peter will touch on that a little bit more. The capital side, still very consistent. Steady. We're still looking at putting it right back into our core business, share repurchase, dividends, and M&A as well. You've seen us do a couple of smaller deals over the last couple of years. We'll still look to M&A to be a way to continue to grow capabilities to be able to serve our customer base. It's hard to not put a bullet point at the end about tax reform. Could be a positive. I think we are expecting that thus far.
Everything we've seen, the ink is not dry, obviously, going there, Jack will talk a little bit more about the tax picture for us, but it's one that I think you would expect to be positive given we're a 31%-32% payer, and I think that's our expectation as well as we come out of that. Just to give you the overall snapshot of the company, I've put on the left-hand side of this slide a little bit different view of how we shake out. This is not our segment view that you see normally that we'll put, and we're not changing our segments to be very clear. What you will see is if you think of our company on the supplementary and voluntary side, once again, I said this is a growing part of the market.
When gaps form, which I'll show you in a second, we continue to see a very positive, what we're able to do overall. When you look at that, almost half the business coming through voluntary benefits and a combination of what we have in Unum US with our brokerage markets and then Colonial Life both through brokerage and an agency force. We think that allows us to serve all customers in all parts of the market, and particularly as we talk about the baby boom generation moving more towards the millennial generation, the needs that are forming. I'll touch on that again in a second. To give you a different view of our company than we historically show up. I'd also mention that disability, which we are very much known for, is still a core underpinning of our company. It's something we're very good at.
When you think about how we look at supplementary products, how we look at our Unum UK business, all these segments do have some kind of underlying view towards disability, which we're experts at, known for, I think it underpins a lot of what we do. Right-hand side of the page gives you a sense of just the sheer scale of the company. Those of you in the room that have a printed version have an aspirational typo in there. We're an $11 billion revenue company, I think that if you could please adjust that. Almost $1 billion of earnings that we have, an 11.3% ROE, and then our book value per share, which I'll show you in a few slides, growing very quickly as we continue to bring in those earnings at a very rapid rate.
Let me take a step back and talk about our markets and who we serve and what we're out there doing day in and day out. You have to look at the demographics in the U.S. and the challenges that you all hear about, but where it hits us exactly in terms of how we serve our customers. The first are the financial vulnerabilities that happen in today's, whether it's people that are living paycheck to paycheck. You'll see studies out there of half of Americans would not be able to come up with $500 for six months in the event of an emergency. These are very real numbers that hit the heartland of the country. On the right-hand side, you see 70% still lack disability protection.
When you think about somebody that's in that moment of need, unable to make the funds, if they come into disability, which in the lower left, 1 in 4 people will, it's a real challenge that we see in our country. We take a lot of pride in serving these people. Our goal is to get to more of them prior to the event to make sure we take care of themselves and their families. The newer point on the slide is the lower right-hand corner. High deductible plans are coming into healthcare plans, so it's not just about the uninsured that we're talking about. These high deductible plans provide a great opportunity because the gaps are larger.
Once again, these same families that are living paycheck to paycheck may now have a larger gap if there's an accident in their home, a sickness, those voluntary benefits will help fill in that gap. It's not just about serving the uninsured, it's about serving the insured as well as we look at the opportunity going forward. Our strategy overall is about where we play today. It is at the workplace. We think that the workplace is the best place to serve individuals. The cost scale that we get, the ability to disperse our risk profile is our choice there. Ancillary products are where we're going to play. Being at the workplace and choosing to actually be in the space which is about these ancillary products.
We just added Unum Dental to the portfolio, we have a full portfolio, Unum Stop Loss is coming on at the end of this year. We have a full portfolio to serve the ancillary needs. Not healthcare, not the savings plans, but everything else, we want to be Unum insured. Our distribution is broad reaching. We'll talk about that. You'll hear that in more depth from Mike and from Tim, as well as in the U.K. in terms of being out there for brokers, individual agents to make sure we're serving our customers across America wherever they may be working. Whether it's a small business, medium-sized business or a large business, we want to be there. The way we win overall is very simple. It's one, it's superior distribution. It's being out there.
When I say distribution, it's about relationship development, making sure that we can serve our customers consistently and across the board. That distribution has been critical for us over the last few years. I'll talk about that in a second as we continue to grow out that distribution. Service and reputation, these go without saying, but I think the reputation piece of the people that are making the decision to bring Unum benefits into the portfolio is critical. I'll give you some stats on that, but understand that people that are the decision makers in companies, whether that's the CFO, the HR director, or the business owner, want to make sure you have that reputation to serve their customers in the best way possible, that's where we excel.
Risk management and pricing, this is all about consistency, making sure that we're pricing for the risk that we're taking on. Our claims practices, because of the size and scale that we have, are best in class, getting people back to work, we're known for that today in serving those customers. Overall, very good. Underpin all that with our culture, our company culture, one of consistency, one of delivering for our customers, being very customer centric, making sure we do so in a very open and transparent way, continue to be part of the culture of the company that we think is so important and allows us to win. The four pillars that I'd underpin in terms of how we do that today cross here.
Both the market position, which I'll dimension in a second, the breadth of reach, as I mentioned, we get out to everybody across America, no matter where they work, what their demographic category may be, the quality in which we serve them, and how we're seen in the market for having leading quality and reputation for serving the customers at all stages, and then financial strength. The financial underpinnings that we have today give us the flexibility to serve those people. Jack will talk a little bit more about that in a second. Our market positions are fairly unchanged if you look at the next slide. Top five positions both in the U.S. and in the U.K. Voluntary benefits, a leading position in the typical worksite markets today, a number 2 position, although number 6 overall. Added to these market positions are ones that we're building.
I mentioned dental, both in the U.S. and in the U.K., then a Stop Loss position that we're looking to grow into here over the next several years. The most important thing is they will all be centric to the workforce, because we do think that workplace is a powerful place to distribute our products, to get to consumers at time of need, to do so where they get a good education from their employer to make sure they make the best choices for themselves. You can see that today, that's where most of the products are actually distributed. Not a change there, but certainly a shift in how people buy today to protect themselves and their families at the workplace. When you think about the company, just to mention, I threw out some financial metrics.
I'll throw out some more metrics here to talk about the size and scale of the company that we have today. Last year, we paid almost $7 billion in benefits. These are to people and to families, small checks, large checks, to make sure that the people are being taken care of when they've seen an unfortunate event, covering 35 million people today in the U.S. and in the U.K. One of the things that we're most proud of, as we get people back to work, 327,000 people that we get back to work, we're able to cover across America. When you think about greater than 180,000 companies that we're insuring today, helping people at time of need and getting out there. Our goal as a company is to get bigger, to grow that reach.
It comes through in premiums, but it also comes through in families that we're out there able to protect. To do that, you've got to have best-in-class reputation and service. You can look at the right-hand side of the page. We're very proud of this. Our teams focus on how do we not only become a leading provider, but how do we become a top-in-class profile to get out there to make sure that we're in the top-in-class to how we serve our customers, how our brokers perceive us on all the pieces that we have out there to make sure that ultimately our customers feel like they're getting a great value from the company. On the financial side, just a couple of slides to show you how we've grown over the last several years. Once again, consistency, discipline. You take it back to 2008.
Really, since the financial crisis, we've been able to grow at a very steady rate. This is about growing premium at a good rate and making sure that we're generating capital so we can redeploy. We've been able to retire a significant number of our shares. Overall, now we're starting to see the top line grow, the margins grow, and we're feeling good about how we're growing the company in the future. Book value per share. The underpinnings of the company, the book value of the company, now sitting at just under $42, still growing very consistently over a period of time. Once again, consistency, discipline, making sure that we're growing the profile as we serve folks in America and the U.K. 2018, the execution strategy we have, which actually looks very similar to what we had in 2017.
First is grow that existing business. You're going to hear from Mike and Tim and Peter today about how we're growing that existing business, all the investments that we're making there. We're also investing in operations, whether that's our digital footprint, our digital profile, and even just the underpinnings of how we're serving our customers. We're spending a lot of money, time, and resource understanding where we can improve from an operations front in a very changing world. Expanding our reach. We want to grow. You look at us over the last three years, expanding into a dental business in the U.K., then expanding into a U.S. dental business, and then the stop loss offering, which will go live here on 1/1, is something we'll continue to expand. We're also looking at different geographies.
We think there are places that have similar demographics, similar trends to what we have today, would be places we'd like to protect more people there as well. We're going to get out there and expand our reach, both from a product perspective, a geography perspective, and think about how we can serve more customers. We're really excited about 2018 and what we have. Before I wrap up, I would take you back, though. You're going to hear a lot about looking forward today and what we're executing overall, but just take a 10-year perspective. I showed you the financial numbers in terms of what we've done, but I think it's much deeper than that, than just growing EPS on a steady basis. We've also retired about 40% of our outstanding float over that period of time.
Dividends, as we've said consistently, have been important to us the last nine years. We've increased and maintained a yield consistent with the market, almost doubled the level of our dividends over that same period of time. The Closed Block, which Steve will talk about today, is a challenging block of business. I think we've managed that effectively. If you go back a decade is when we actually securitized and closed the individual disability block. Steve will dimension to you what over the last 10 years that has looked like. It takes hard work to make sure that happens. These aren't just runoffs. There's a lot of actions that need to be taken to make sure you manage them in an effective way, and I think we've been doing that consistently over the last decade.
Finally, through that period of time, we've always maintained a reasonable capital cushion so that we could pounce on opportunities when they avail themselves, whether that be in the market, whether that be in repurchasing our shares. We've been able to use that financial flexibility to the advantage of ourselves and of our shareholders, ultimately. The thing that I think is most important, which you think about the future and what we've been doing over the last 10 years, we have been building out our reputation with our distributors and our customers. You can't underestimate how powerful that is going forward. We have a price-sensitive business, there's no question about it.
If they've been watching us through this period of time when players have come into the market heavy, have pulled back out of the market, come back into the market, we've been steady and consistent. If you're a broker out there representing a company to your client, or if you're a customer who's having to talk to your employees about it, you want to see that steady and consistency nature. We've built out that reputation. It's something that we will continue. Lastly, I'd just say, we have the best talent in the business. We have built that out over a period of time.
We invest a lot in our talent, both in the depth of the expertise that our teams have and the empathy that our team has, but also in terms of making sure that we have the talent that can look to the future to build out our technology footprint, to build out what we're trying to do for expansion. Overall, it takes the best talent to make sure you're doing what you're doing. I think that our journey has been a good one we're very excited about, I think it's all about the future. Those things are underpinnings. That is history now, I think it also builds us well from a financial perspective, but more importantly, from an underlying culture and process perspective that we look very good for the future.
With that, let me turn it over to Jack McGarry to talk about our financial picture. Jack.
Thank you, Rick. Good morning, everyone. Rick called 2017 a very good year. I will confess, I'm a little bit more upbeat on it than that. I think 2017 has been a terrific year. We put out an original outlook in the 3%-6% range. During the middle of the year, we realized that we're at the upper end of that. We gave new guidance at 5%-8%. We feel now that we're going to be at or even potentially above the 5%-8% growth, which is great to see. I would mention that it has been extremely rewarding to see the work we've put in over the last 10 years, seven years during a very difficult environment, to see that work finally paying off.
What we see in terms of earnings per share growth, return on equity, the way our products are resonating in the marketplace with our customers, our products and services, and finally, to see that work reflected in the stock price as well, has been just an extremely difficult but rewarding journey. Looking at fourth quarter operating trends, we do expect our premium growth to continue much in line with where it's been. We're having a positive sales quarter, so we're very optimistic about that on the fourth quarter, particularly within the U.S. Our benefit and expense experience, we expect to continue in line with recent trends, maybe slightly above third quarter, which was a very favorable quarter but still very positive for the company. Miscellaneous investment income is looking to come in on track for the quarter.
There is going to be a little bit of noise in the quarter that I'll mention. We had some positive development in our RAS work that'll come through in the quarter. We're also in talks with settlement with Verisk on the unclaimed death benefit side. That may or may not settle, but we thought we'd give you a heads up on that. The order of magnitude of those things is in the low tens of millions. They're offsetting, the RAS development would be a positive element. The UDB settlement would clearly be on the negative side. UDB's a little bit larger than the RAS work, but I wouldn't expect a material impact on our earnings. There will be geography differences. The RAS work will show up in operating earnings.
The UDB settlement will be a special item and would show up in net income but be below the line. Overall, I would say kind of backing those two things out, we expect to be very much in line with where we've been performing and in the guidance we've given. From a capital perspective, our capital position remains very strong. Our RBC will end the year at or about the 400% mark. We continue to have very strong statutory earnings that help to support that capital position. We will make a contribution to First Unum. It'll be orders of magnitude around $100 million. That is built into our capital plan. It's pretty consistent with what we've been doing over the last few years as well, and we would expect that to continue into the future.
From our return of capital, we're going to purchase about $400 million, I think slightly over that for the full year. We did have a 15% increase in our dividend in 2017. The next chart shows our performance for 2017 by the drivers relative to the midpoint of our 3%-6% earnings per share growth range. You can see that the biggest driver of the beat this year was operating performance. I would point you to the Unum US Group Disability results. We had very favorable group life results in Unum US and favorable voluntary benefits results. We had favorable expense results across the company, which helped a lot of our lines. We continue to face interest rates pressures.
I think they're abating some, so the pressure isn't as high as it had been in the past as we've moved our portfolio and discount rates down, but it's still there. This year, interest rates were below where we started with the year, there's been some significant spread compression that's hurt us as well. We had some favorable impact from the exchange rate, the recovery of the pound during the year. We hadn't seen that in quite a while. Closed Block had favorable results driven by investment performance. Our taxes were favorable. Slightly favorable, not a big driver, but that was related to the shareholder compensation changes from a tax perspective during the year. Overall, at or above the top end of that 5%-8% range.
You look at some of the core drivers, earned premiums have been very consistently growing over time within the U.S. at about a 5% compound annual rate, a little bit slower in the U.K. That driver there is actually accelerating, certainly in the Colonial Life business, I would say Unum US has been at the top end of that range as well of late. Loss ratios have been very good. We've seen a consistent and steady decrease in the Unum US loss ratio. We would expect that to flatten out. We're not putting a significant rate into the market. We're not driving things that are going to prove that, but we're very happy with where that loss ratio is. It's generating excellent margins and excellent returns above 15% in the marketplace. Colonial Life loss ratio, steady as she goes.
It's been in that 51%-52% range over an extended period. We expect that to continue. We have seen some volatility in the Unum UK loss ratio. Brexit has been a factor in that. I would point you to that rise between 2016, 2017. We took a discount rate decrease in the U.K. that contributed a piece to that. The other thing is inflation has been higher in the U.K. since the Brexit vote, because a lot of our products are index-linked to inflation, we see an increase in the loss ratio. A lot of that's been offset by an increase in net investment income because we invest in index linked bonds to back that. Expenses have been generally favorable for the company. I would say this has been a quiet effort. We haven't announced any big program.
We haven't done big dramatic things to get there, but it's always been a focus of the company to be as efficient as we possibly can. We've been investing in our processes, in our tools to make us more efficient. We have seen that coming through. Actually, the underlying work is probably even a little bit better than this because we continue to invest in capabilities and the growth of our business. A great example of that would be our investment in expanding the Colonial Life distribution force, which Tim can talk a little bit more about when he gets up here. Finally, operating income. Our margins have been very strong. There's been a slight downward trend in Colonial Life. That's the result of very consistent risk results, very consistent expense, but some pressure on the investment portfolio due to lower interest rates.
In Unum US, the margin's actually grown with some of the favorable trends we've seen in the group disability in group lines, as well as the performance of voluntary benefits. In the U.K., you can see the pressure from interest rates, you can see the pressure from Brexit and some of the economic things that are going on over there. They have seen a decrease in their margin. It's still a 20-plus % margin in a group business, in a very high ROE business. We're going to see some pressure and some volatility as we continue to work through Brexit. Earnings per share growth has been very consistent at 6.5% over the period from 2012 through 2016. We expect 2017 to be in that 8-plus % range.
What's good to see over the last couple of years is the fact that there's been a bigger contribution from operating results, operating earnings growth, as well as capital management contributing to that growth. You'll remember 2015 was somewhat of a difficult year, particularly in the investment community. We did get a lot of capital management growth because our stock price in, I think, in February of 2015, if people recall, was around $25, compared to the $57 that we're at today. It's nice to see the operating earnings growth, and they are contributing as well as the capital management. From a capital perspective, we expect to end the year at about 400% in our risk-based capital ratios.
We expect to end the year with strong holding company cash well above one-time fixed charges and pretty consistent plus or minus with where we were at the end of the third quarter. I do want to talk a little bit about a couple of special topics before going on to look at our 2018 outlook. That's the interest rate environment, long-term care, as well as capital management. From an investment perspective, we feel very good about where our current portfolio is, as you can see, we're a fixed income investor. 85% of our investments are in investment-grade corporate bonds. We do have some investment in high yield. That's been pretty steady at about 7% plus or minus. I would also note that we're increasing our commitment to alternatives, and I'm going to talk a little bit more about that in a second.
I'd also draw your attention to the credit losses related to Moody's Index. We have outperformed the index dramatically. In fact, if you go back to 2008, 2009, and you put the Lehman default in there, that index would be significantly higher than that. I think it's really noteworthy that we outperformed. In 2008 and 2009, our credit loss performance was better than the index in 2015 and 2016. At the worst of it, we outperformed the last couple of years relative to the index, and we've been very consistent with that over a long period of time. I'm going to talk a little bit about high yield. We continue to allocate about 7% of our total invested assets toward high yield. It's worth noting that our new money tends to be higher than 7%. That's for a couple of reasons.
One, because high yield tends to be a shorter duration investment, so it has higher turnover than some of our other assets. We also actively manage our high-yield exposure, so we will trade out of kind of short-term names to get longer high-yield assets, and that contributes to some of the new money. The final note is we've had a lot of upgrades. We had almost $200 million of upgrades in our high-yield portfolio in 2016. We had about another $100 million of net upgrades in 2017. That allows us to put additional new money into the high-yield portfolio without changing the high-yield percentage in our portfolio, which we tend to manage pretty consistently. The other thing I talked about was alternative assets. Over the last 5 years, we've been increasing our commitment to alternatives.
The alternatives we invest in tend to be lower volatility, more income-generating alternatives, kind of fixed asset types of things. We're going to continue to increase that commitment over the ensuing 5 years. It's worth noting that many of the alternatives that we'd invested in historically, we had accounted for on the cost method of accounting. You'd get the income through earnings, but the unrealized market gains and losses would flow through AOCI. With recent FASB changes, that's now going to be accounted for in the equity method, which means both the income from alternatives as well as the market value changes would now flow through operating earnings. That's pretty consistent with where a lot of our competitors, I think, the businesses have been split on whether they were cost method or equity method.
That's going to introduce a little more volatility in our operating results as a result of that. We will talk specifically about that during our quarterly releases. We think that's worth it. It's a great investment to back the long-term care business. It's a long-duration investment. It provides higher yields and is well-matched to the duration of our long-term care assets, which basically have no disintermediation risk in them. A little bit about the LTD discount rate. We took a 50 basis points reduction in the discount rate last year. Our current margin is very healthy. It's at the higher end of our target range. We're very comfortable with where our current discount rate is. We won't be making a change this year going into 2018.
We do anticipate that the group disability loss ratio will continue to operate at the low end of our 76%-79% range, much as it has during 2017. From a long-term care perspective, note we've continued to exceed our new money rate assumptions for long-term care, as we have actually in every quarter since we took our last charge in 2014. Remind you that that interest rate assumption was a 5% all-in yield for four to five years and then grading to a long-term average after that. As a result of exceeding that 5% bogey, we've actually built interest margin into our reserves. The flip side of that, we have experienced a higher interest-adjusted loss ratio in long-term care. It's at the very high end over a five-year period or four-year period since we closed it. Recently, it's been running in the low 90s.
We would expect that to continue into 2018. We feel good about where our reserves are. That interest margin has helped to offset the heightened loss ratio. We will not be taking a charge in long-term care during the fourth quarter of 2017. I'd say we're still guarded about the future. Our assumption curves up in the 2018-2019 perspective. It'll be more difficult to offset higher loss ratios with excess interest rate margins as we begin to hit that curve. With that said and with those challenges, particularly around interest rates as well as spread compression. It has hurt us. We feel good about our capital position relative to long-term care. We have a billion-dollar excess of statutory reserves over GAAP reserves. We're also made great progress on rate increases, so we're basically pretty much through our rate increase assumption back in our 2014 reserves.
What that means is any additional rate increase approvals that we get or any future rate increase filings that we make can go toward offsetting some of that morbidity pressure as opposed to needing to fill in a hole that's already built into the reserve. Between our GAAP stat margin, between the dry powder we have on rate increases, we feel comfortable that we can manage through, as we have in the past, our long-term care challenges. There may be GAAP changes that would take place, but we would not expect a capital charge, certainly in the foreseeable future relative to long-term care. From a capital management perspective, this shows you the sources and uses for 2017. Strong dividends from the holding company. We had talked for a while about money previously committed to contributions to subs. That was $175 million.
We were looking at some corporate structuring, which is why we earmarked that money for contributions to the subs. As we get deeper into it turns out we're not going to be doing that restructuring, so we've just gone ahead and stopped earmarking that going forward. It actually paid the vast majority of the commitments to contributions we've made to First Unum as well as Fairwind this year. That contribution level is very consistent to the subsidiaries as it's been in the past. We would expect it to be pretty consistent going forward. With that, strong dividends from the holding company, good sources of capital. Our uses, interest expense. We increased our dividend in May of 2015. Starmount takes up a little bit of capital. It was in last year's contributions in a big way, very minimal now.
We should end up with an ending cash balance in the high 700s, approaching $800 million, which is a significant increase over where we started the year. Makes us feel very good about the free cash flow generation that the company's experiencing. 2018 expectations, we expect to continue to have strong statutory earnings driven by the underlying risk fundamentals of our businesses. We have a $200 million debt maturity coming up in May of 2018. We would expect to pay that out of holding company cash. We'll reduce our leverage. Our leverage as a result of that will be back down below 24%. Share buybacks consistent with the 2017 level.
Even though we're generating excess free cash flow, we believe given the current environment, particularly around tax reform and some of the things that are going to go on at the NAIC risk-based capital formulas and some of the uncertainty there, it makes sense to keep some dry powder in the organization. By buying down the debt, that allows us to do that. We expect capital deployment to our captives to continue at a similar level. We are exploring M&A opportunities. We did buy Starmount and NDP in the past years. We think the M&A market currently, not necessarily around big blocks of business coming to market, but some of the smaller capability things are very interesting to us right now, things we could bolt on to help supplement or complement our current businesses. We'll continue to be very active in that market.
We would like to do something there. We think the opportunity exists. That's another reason to be somewhat cautious around our return of capital in the form of share repurchases. Closing out 2017, again, it was a terrific year for the Unum. Exceptionally strong earnings during the year. We continue to be grounded in our disciplined execution from both a management perspective and a pricing perspective, continue to generate strong capital within the company and strong free cash flow. Again, as a company, we still haven't seen the rise in the interest rate environment or the spark in the economy. We would be highly leveraged to both of those, and should they begin to materialize going forward, we would expect to have even better results.
Looking at 2018, our core business lines are again expected to generate solid performance, very consistent with where we were during 2017. Good top-line growth that we're seeing, particularly within the U.S. Strong sales trends we expect to continue. Stable benefits experience and pretty stable expense ratios. Although we'll continue to seek efficiencies within our expense structure, we will be looking to continue to invest some of those expense savings into growing the capabilities within our business and growing our core operating foundation. We'll continue to see pressure from Brexit. That's a long way from solved. I think it's clearly introduced more volatility as a result that we're seeing in some of the loss ratios in the U.K. Also, you're just not going to see the economic growth that we had expected in the U.K. Continued pressure from interest rates. That pressure abates, although you still got the pressure.
It's not as big as it had been as more of our portfolio has turned over and as more of our products have been priced consistent with the current low interest rate environment. Continued pressure, in particular this credit spread compression is bringing a lot of pressure to bear, not only on us, but on the entire industry. Tax rate. We have modeled a 31%-32% tax rate in our outlook in the 4%-7% range. We hope that that's not the case. We feel very good about where the current process is. It's a long way from done, and we understand that. At least as we look at tax reform as it's currently written, we would expect to be a benefactor of that, as we should be, given that we're a 31% or 32% taxpayer today.
That's basically a 35% taxpayer in the U.S. offset by more favorable tax results in the U.K. Three ways we're looking at taxes in the current tax reform. One is on a GAAP basis, where we're very comfortable from a GAAP perspective, at least the way things are currently contemplated, that our GAAP tax rate would be very close to whatever the corporate tax rate is. That's very positive from where we are now. On a cash basis, there are some timing differences that will be introduced, a cash basis will not be as positive as the GAAP basis. Since they are timing differences, over time, our cash basis would approach the GAAP basis. That's a pretty extended period of time given some of the things that are structured in there now.
We would still expect to be positive from the cash basis given that the rate change would offset the impact of some of those timing differences. Finally, on a capital basis, we would take a hit. We would have to write down our deferred tax asset on a statutory basis. That would be a capital hit for us. We would pay that back through tax savings in the future. The payback period is in kind of that five plus or minus years. Very positive for us. Again, our fingers are crossed. It's far from a done deal, and we're going to be paying close attention to things as they move through the Senate and House. Again, operating earnings growth 4%-7%. Capital generation. I would like to remind you of our priorities relative to capital generation.
Again, our first priority is to invest in our core businesses. We've been doing that in Unum US as well as Colonial and the U.K. Our second priority is M&A. As I mentioned, we find that capability market pretty attractive. There have been some properties that have come to market as well, and we would continue to look at those. Third is to support our common stock dividend. We have increased the dividend in 2017. We would expect a similar size increase in 2018 as we look to bring our payout ratio closer to where our peers are. It's a little bit behind. Finally, we will look to pay off our debt maturity in 2018. If you look at the performance drivers for next year, a big piece of it is operating earnings in our core businesses.
That is being driven largely by premium growth, top-line growth, we get a good base there. We continue to see pressure from the investment portfolio and discount rates. That is a bit of a negative. Exchange rate will be a little positive. The other big driver will be capital management and share repurchase. Again, a pretty good balance between the operational growth drivers of our business and the capital management drivers. We continue to generate strong statutory results. We expect that to continue into 2018. We will maintain our risk-based capital ratio above 375. Our holding company cash will continue to be above one times. Because we anticipate paying off that debt maturity, we will reduce leverage by approximately 2 points in 2017, bring it actually a little bit here below the 24% range. $400 million of share repurchases will continue.
The other thing is we feel like we will be able to maintain financial strength to both deal with anything that comes out of tax reform, but also the financial strength to be an active participant in that mergers and acquisitions market. Looking at the outlook for 2018, I am not going to go into any detail here, but very good growth across all of our measures and very consistent with our recent performance. Finally, in closing comments, 4%-7% earnings per share growth. Stable margins in our core businesses. A little bit of difficulty and volatility we would expect in the U.K. to continue. Good top-line growth across the business. A little drag from interest rates, as we get deeper and deeper into the current interest cycle, that drag gets smaller and smaller over time.
We are awaiting final tax reform, but our hope is that that will be positive for us on all measures. We will continue our consistent return to policyholders. That is kind of 2017 recap, what we are looking at for the fourth quarter and a view into 2018. I am now going to introduce Mike Simonds, who will go into some more detail on the Unum US segment.
Thanks, Jack. Good morning. Happy to provide an update on the state of the Unum US business and the outlook for 2018. As you know, we are 100% focused on the employee benefits market, having top 5 share across group disability, group life insurance, voluntary benefits, and individual disability that is sold at the worksite. We are also excited about the product expansion that we have undertaken over the past 18 months in dental, vision, and the Medical Stop Loss business. I will speak about our progress in pursuing these long-term growth opportunities in just a minute. First, just to level set, for Unum US, since we were with you 1 year ago, we have seen strong sales growth across every segment and every product. Operating income has increased by just over 10%, and our return on equity has moved from a shade under 14% to a shade under 16%.
In short, the franchise is in good shape with excellent long-term prospects for growth. Central to that success has been the focus on our client. You see the first and primary element of our strategy is constantly reinventing and investing in the experience that we deliver to our employer client, and in particular, having that experience improve as the relationship with Unum expands. Second, we enjoy market-leading positions in the products and services that we're in, and we're undertaking work to expand that set of products and choices. Our leading positions present us with scale advantages, including a significant amount of client and employee consumer data. Data which we're increasingly using to build on our core competence around risk management and distribution in employee benefits. Finally, our people, and Rick referenced this.
In the case of Unum US, that's about 6,000 professionals who do nothing but focus on employee benefits and that market. I think that's particularly important, and it's a big part of our advantage. Whether we're talking about salespeople or our very best statisticians or software engineers, all they do, all they think about is employee benefits. That's really important. They don't trickle off to individual life businesses, to asset management businesses, to P&C businesses. They stay focused over the long term in employee benefits, and that keeps us close to what's happening there and helps us build expertise. That's particularly important in the employee benefits market, where there are a lot of interesting trends going on. I've just highlighted a few for you here. Let me start with what's not changing. Employers remain very committed to employee benefits.
They see it as a really important part of their value proposition here in the U.S. to attract and retain talent. That being said, they are shifting cost, as Rick highlighted. As they shift that cost, the work of providing benefits to your employees gets more complicated, and they need support with everything from education to enrollment, to handling payroll deductions, to support at claim time. Employees really need these coverages, that financial safety net. Workers in the U.S. are more vulnerable than ever. That being said, they need consumer-friendly approaches to helping them understand those choices and access those benefits. We've seen a significant increase in the size and variety of technology-enabled capabilities in employee benefits and in human capital management more broadly.
Certainly, as Jack highlighted, interest rates remain a pressure for us as new money is put to work at yields that are lower than our portfolio rate. We're now six years into gradually repricing our in-force book of business and feel like we can continue to maintain strong margins there. Finally, the employee benefits market is a competitive space. We've seen over the last several years, a lot of carriers jump into the space. We've talked about it before in this setting and others. Getting into the market in employee benefits is actually the easy part. These aren't overly complex products, so getting them filed and out there into the state, that's not challenging. What's challenging is actually building the delivery capabilities to successfully meet the needs of the distribution, the client, and the end consumer. We're continuing to invest in just those capabilities.
I've highlighted a few things on the page. We're about two years into our work implementing lean process improvement from the front to the back of our customer experience. We've increased our investment in digital and automation capabilities, all deployed through agile methodologies. Importantly, and this is pretty important, when we do design work about those experience, we start with the technology that our employers are using in their human capital management decisions. We're seeing more and more employers take advantage of cloud-based solutions to help them manage their employee base, from payroll to onboarding to benefit administration. As we've started all our design work with those decisions that employers are making in the market, it's enabled us to improve the experience when our employers use and access our products. It's also helped us drive efficiency into our business.
I've highlighted a few things to the right side of the slide. Just in the past year, we've seen the time to onboard a new employer client improve by 66%. The time it takes us to get a new product to market has improved by about a third, and we've seen our expense ratio drop by about a point and a half over the past two years. As we continue to invest in that experience, our engine is built around retaining clients and growing with them over time. You see strong employer satisfaction ratings, like Rick highlighted. That's translating into over 60% of all the new sales that we will put on the books in 2017 will come from existing employer relationships. That's a really important part of our model because that is the best type of business for us to bring on.
When it comes from an existing client relationship, it's slightly more favorably priced. It comes on at a lower acquisition cost. Most critical to us is it builds further stickiness into that relationship and lengthens the average tenure of our client. One of our biggest opportunities to grow within our existing relationships in the market is our new dental and vision products. What we have seen through our rollout in January of this year has not only validated our belief about the strength of the operation in Baton Rouge, but it's also, I think, a really good, tangible example for all of you around the power of the Unum distribution. In 2016, you can see the simple graph there.
Starmount Life, the company we acquired in August of last year, had product in 49 states and their own distribution, and quoted on just a little bit over 8,000 employer client opportunities. Year to date, in two of the four Unum regions where we've rolled out Unum Dental, we've quoted on over 40,000 employer clients. Importantly, not only are we sort of exceeding what our expectations are for dental and vision sales in those two regions, but in those two regions, representing about half the country, we're seeing a 10%-15% increase in our core group disability and life insurance opportunities. Dental is opening up markets that we weren't seeing previously.
We're really excited to roll Unum Dental out to the remaining two regions in January of 2018 as we work hard towards our goal of making this a $500 million profitable book of business by 2021. As you would expect, we're investing heavily in the people and the process in Baton Rouge. We want to make sure that we've got the capacity and the delivery model on hand ahead of the volume as it's coming in, therefore we're seeing that investment will probably play out in minimal contributions to earnings until we get to around the second half of 2019. On the heels of our introduction of dental and vision into the market, we were really excited to enter the Medical Stop Loss market in 2017.
You see on the chart here, this is a large and growing profitable market and one where we believe our capabilities around risk management, underwriting experience-based risk at the group level, as well as our existing marketplace brand and distribution relationships will enable us to scale this business rapidly over the next three years. Strategically, this product line represents not only a nice growth opportunity for us in and of itself, but it also positions us favorably in our existing business. Typically, in the market we're targeting here, say, clients with 100 employees to 2,000 employees, what we would call the mid-market, they're making decisions several months in advance on their healthcare plans before they get to things like their disability, life, dental, and voluntary benefits.
Participating in this market will open up a wealth of insight into how clients are thinking about their overall benefits portfolio earlier in the process for us, equipping our sales and client management team with the opportunity to tailor the disability to life, the voluntary benefits, and dental solutions for that mid-market client. We've got our first business sold with a 1/1/2018 effective date. We have modest plans of about $10 million in Medical Stop Loss plans sales in 2018, but we expect that we will be in good position to rapidly scale this business over the next three years. Underpinning, as I mentioned, the investment thesis in entering the Medical Stop Loss business is our capabilities around distribution and risk management.
If you think about where Unum in the U.S. is positioned around leading voluntary share, as Rick mentioned, and leading not just in a market segment, but on a very geographically diverse basis, from the smallest employers to the largest employers, that opens up all kinds of interesting data and insight, both on the consumer front as well as on the employer front. What we're getting better and better at is actually taking the insights from that data, and through our lean and agile processes, turning those insights into capabilities and improvements in operations. Using consumer data to focus our efforts of, for instance, 2,200 claims and benefits professionals, hundreds of clinical staff.
We're gleaning out of our claim block. Those 785,000 claims, how to allocate those resources in the most effective way and where they'll have the greatest impact when it comes to helping and assisting people return to work. We're using employer-level data to better enable our sales and client management team, helping to fuel our premium growth. Risk management and distribution really are central to our competitive advantage at Unum. If you've built your career at Unum, they're in your DNA, and it's exciting to see how the greater use of analytics is helping us build on those core competencies. I guess that probably is a reasonable enough place to get to summarize where we are with Unum US.
Our results have been strong and I think validate the strategy that we've put about first and foremost focusing on our client experience, expanding those relationships over time through new products and services, and then building using data and analytics, lean and agile processes on those competencies over time. Certainly, the momentum in our business that we're experiencing in 2017, as well as the continued favorable employment market that Jack referenced, those are nice tailwinds for our business as we head into 2018. Wage growth, salary growth could be another tailwind for us, but we've not seen that to date, and we don't have that built into our expectations for next year. Short term, the headwinds, continued low interest rate environment, as Jack highlighted, particularly for investment income in our group disability segment. I'd say we also expect some gradual movement back up in our voluntary benefits loss ratio.
We have experienced a very favorable year in 2017. I don't think it's anything hugely significant, but I would suspect a point or two increase more into the 45%-47% range that we would target in pricing those products. Always, we'll seek to optimize the results that we can achieve in the current environment, always staying disciplined in terms of how we bring new business on the books and execute our renewal plans. If you put all that together, we anticipate in 2018 for the Unum US business sales growth of 4%-6% over what's shaping up to be an exceptionally strong 2017. It might be worth pausing for a second and unpacking that expectation a little bit.
We do expect that our group disability and group life sales in the large employer market are going to be exceptionally strong here in 2017 as we look at our inventory. While we really like the large employer business and have achieved returns in that business consistent with our core, it's a business that comes in in a little bit of a lumpy fashion. We're actually expecting a slight decline in our large employer sales next year. Again, if the opportunity is there, we've certainly got the capacity, but thought it prudent to plan for a slight decline. If you take large employer sales out, what you'd be seeing is high single-digit growth of the remaining products and segments. Earned premium growth will be in line with this at about 4%-6%, and operating earnings will grow 1%-3% again over a very strong 2017.
For the reasons we talked about, very stable loss ratios, I'd say gradual improvement in the operating expense ratio, a little bit of a shift up in the voluntary benefits loss ratio, and again, watching the net investment income line from group disability as being slight headwinds to that number. Overall, we expect our ROE to continue to be very strong, and we'd say market leading in the 14%-16% range. Hopefully that gives you a good sense for where we are with Unum US. It's my real pleasure to introduce my counterpart here in the U.S., President of Colonial Life, Tim Arnold.
Thank you, Mike. Good morning, everyone. It's a privilege to be here with you today to talk about our perspective on 2017 at Colonial Life and also to share our outlook on 2018. I think Rick characterized 2017 as very good, Jack modified that to terrific. I'm going to go with strong for Colonial Life. I think it's another strong year. At Colonial Life, I would refer you to the pie chart on this slide, where you can see the way our sales for the year through nine months have broken down. As a reminder, our target markets are the less than 1,000 life commercial market and the public sector market. So far, through nine months of this year, we saw 10% growth in that core commercial market. Just another piece of information regarding that market. The less than 100 life market has almost six million employers.
We're the second largest pure play voluntary benefits provider serving that less than 100 life market. We have about 70,000 of those six million customers. There's tremendous opportunity in that segment. If you look at the public sector, that represents about 23% of our sales this year, and sales growth rate of 6%. What's not shown there is that 6% growth rate follows a 23% growth rate in that sector last year. Really strong results. In the large case above 1,000 life segment, we've always viewed that as a bit of an opportunistic marketplace. We don't chase share there because sometimes people in that segment don't like the value prop that we bring, and they want a product-only offering to throw into a spreadsheet. You have to be the lowest cost provider.
Oftentimes, you have to be someone who agrees to a complete self-serve enrollment system with no education for the person purchasing the benefit. It's a bit of an opportunistic marketplace for us. Last year, our sales were up 10%. This year, through the third quarter, as you see, they're down 19%, putting a little bit of pressure on our overall sales results. I would tell you that what we're seeing in the fourth quarter is very encouraging. We also have a very robust portfolio of both individual and group products, which allow us to serve each of our market segments and each of our distribution channels very effectively. We're in very strong leadership positions in a number of the products as you see there. We do have one gap in our product portfolio, and it's a gap we look forward to closing in 2018.
I'll share more with you about that in a few moments. Our strategy really is to serve America's workers and their families with affordable financial protection products at the workplace. We believe this strategy is serving us very well. Our goal is to serve 5 million of America's workers and their families by 2020. When we introduced that goal back in 2012, we were at 3.2 million. We're just north of 3.8 now, and we like our chances of achieving that goal over time. We're also very focused on providing simple, modern, and personal benefit experiences. When you put those two together and you engage your employee base and your sales team around these simple goals that talk about the social value of what we do and how we can serve people more effectively, you create really, really strong engagement.
I believe that strong engagement that we see both within our employee base and within our sales team is leading to some significant growth that we've seen over the last few years. Where we play, we talked about that a moment ago. I would like to amplify the point on sold direct to employers or through America's brokers. First of all, we define America's brokers as the local and regional players for the most part. We don't typically work with the alphabet houses. They tend to be the spreadsheet artists and the folks that are more interested in just a self-serve kind of enrollment capability. Our focus is on the local, regional, and smaller brokers, and we've had really good success with those. About two-thirds of our business, as a reminder, comes through brokers.
The other thing we do that's a bit unique is we support our distribution system. We have one system, one agency distribution system, and we support them regardless of the segment of the market they want to work in. If they want to go direct, we have support for that. If they want to work with brokers, we have a support mechanism for that. If they want to work in the public sector, we have a support mechanism for that. We support them wherever they would like to work. How we win, we'll talk about growth and distribution in a moment. On the customer experience side, we've introduced a number of capabilities over the last few years that have significantly improved our customer experience. On the claims side, as an example, we've been paying claims in one day since the year 2008.
Recently we introduced electronic claims submission, and we also introduced direct deposit. So far this year, we've paid over 62% of our claims in one day. A very strong customer experience there. We also think about customer experience more broadly than just customer service. If you think about the contact center, customer service is how quickly can you answer the phone. Customer experience is how can you make sure that people don't have to call you to ask a question that they shouldn't have to call and ask about. We interrogate our downstream capabilities to understand why people are calling and where we can make changes so that they're not required to call. Productivity, Mike mentioned Agile and Lean. We are implementing and adopting those in Colonial Life as well.
Robotics, another piece of a tool that helps us with our productivity. We'll talk a little bit more about the implication for that in a moment. Key messages. We continue to deliver strong, consistent results. Some might say boring. In this instance, I'll take boring. We are fairly consistent in the way that we deliver. In 2018, we're predicting slightly slower earnings growth. That's because of some investments we're making in the business, as you see in the next bullet point. We'll go into this in more detail. We are seeing very promising results from our recent investments in distribution expansion. Over the last two years, we've opened three new territory offices per year. We're very encouraged with what we're seeing there.
We've also provided additional support resource for the people who work in the broker segment and the people who work in the public sector segment. We're seeing very good results there as well. As Mike mentioned, we have made some significant changes in the talent, especially the senior leadership team at Colonial Life over the last few years. We continue to be very focused on talent acquisition, talent development, looking at our bench. We know all those things are critically important as we go forward. Territory expansion. We're calling this accelerated growth. We believe there's an opportunity to continue to fill the needs in what we call the white spaces throughout the country. We have decent coverage. There are places where we don't have the kind of coverage we'd like to have.
In the last two years, we've opened up offices in Oklahoma, where we did not have one before. Wisconsin, where we did not have one before. The Hudson Valley, where we were underrepresented. Northern Virginia, Central California, and Cleveland, Ohio. We're really encouraged. We believe there's an opportunity over the next two to four years, over the next foreseeable future, actually, to continue to add two to four new territories per year. We're excited about making that investment. We're also continuously working to enhance our digital capabilities, both for our consumers, for our plan administrators, and for our own agents to help them become more productive. We launched in 2017 an update to our plan administrator website to make it much more efficient and effective for our group employer customers to do business with us.
To get to 5 million by 2020, it's not all about growth. It's also about keeping the customers we have. Although Colonial Life has leading industry persistency among our peer group who report for this product line, we think we can do better. We're focused on a number of opportunities to improve the customer experience and drive enhancements and persistency. A number of them are shown here. I'll tell you about one that's not. That is in 2017, we introduced something called a conservation contact center. In the past, prior to 2017, if someone wanted to cancel their policy with us, all they had to do was call and say, "I'd like to cancel my policy." We would cancel it. To sell that same policy typically took three to five steps.
This year, we began asking if we could transfer the person to a qualified benefits professional who's licensed as an insurance agent, and we're conserving 40% of the policies where people make an initial call to cancel because we're able to remind them of the benefits of the policy. It's outstanding. We are also implementing something called alternative payment capabilities. About two-thirds of our persistency challenge results from employees who leave their employer. It's not the employer canceling. Two-thirds of the time, it's an employee going to work for someone else. When that happens, we lose that payroll deduction slot that is our funding source for that employee.
What we often find is that people want to maintain the coverage with us, especially in some of the permanent life insurance coverages where they bought it, and they'll have to pay more if they purchase at a more advanced age. We've created check draft and credit card capabilities so that we can engage those folks right away when they leave and keep them on our books with an alternative form of payment. This is the gap in our product portfolio, dental. We're proud of the results that we've been able to deliver over the last four years on the sales side, but we've done that without the industry's second leading product. We're really excited about having access to the Starmount dental product. It's going to be Colonial Life branded, an individual PPO product beginning in March of 2018.
What you heard Mike say about the way that dental product is helping them actually sell other products in their portfolio, we believe will be true for Colonial Life as well. We see that as a real door opener. In today's environment, in a competitive situation, oftentimes we will go in and replace another company's coverages, but because we don't have a competitive dental product, we have to leave that product there, giving that competitor the opportunity to come back in later on. We will be able to now have a full suite of products that fit the needs of any employer with the addition of the dental product. The other thing about dental is that on average, it has higher premium per policy than our other policies, which should help accelerate our growth rate as well. We're extremely excited about launching. We're very well prepared.
We've been working on this now for a year, and the sales team is just incredibly excited to have access to this product beginning in the second quarter. I want to talk about millennials. I've heard people say millennials don't buy insurance or financial protection products, and if they do, they buy them from a phone, and they don't want to talk to human beings. They just want to download. We're finding that's not true. Millennials are obviously a growing share of the workforce, they're a growing share of our customer base, and they're a growing share of our employee base. Eastbridge conducted a study not long ago. They are a consultant in our industry.
What they learned is that millennials often want to do research online, but when it comes time to actually purchase a financial protection product, they want to be able to talk to someone who has expertise. That's a huge advantage for us because we have 7,000 benefits counselors throughout the U.S. who can sit face-to-face with people and help them not only understand our products, but help them understand all of the products that are in their portfolio and where they may have gaps in some of those other products like health insurance, and where our products might help them fill those gaps. We're extremely encouraged. As you see on the slide here, about 35% of our sales year to date are to millennials, and we didn't force them to buy that on the phone. We're encouraged there.
We also know that the best way to serve millennials is to have more millennials inside our building and inside our sales force, helping understand the needs of millennials and how we can better serve them. As you see on this slide, over the last four years, we've grown millennial talent by over 40%, and they now represent over a third of our workforce. Millennials actually do work for 70-plus-year-old insurance companies. In summary, for 2017, we've covered a number of the results that are shown here. We feel good about the year overall. We're encouraged with the momentum we're seeing in the fourth quarter. We're very encouraged by our leading indicators. I would point you to sales from new reps are up 14% in 2017. In 2016, sales from new reps were up 37.8%. This 14% growth rate is on top of that 37.8%.
As you see, our new reps are up about 3% this year. We're seeing pretty strong improvements in the productivity of our new reps, the engagement and training of our new reps, and the success rate of our new reps. We're also very pleased with the increases we've seen in our total sales managers. In total, we've added over 140 net new sales managers in 2017. We're happy about that. You see some of the key drivers. I would touch on the risk management. When a company's growing as fast as Colonial Life's been growing over the last few years in the insurance industry, you might ask yourself, is underwriting getting a little loose? Is underwriting reaching too far? You see here that that's not been the case with us.
Our benefits ratio has been very stable over the last few years in the low 51 range. Finally, we talked about lean and agile and robotics. Those are some of the things that are helping us drive down our expense ratio while we make significant investments in accelerated growth. Our 2018 outlook is a bit lofty. We feel it's somewhat aggressive but achievable. Sales growth of 8%-12% represents 3%-4% of the expected industry average. I'm sorry, three to four times the expected industry average growth rate in 2018. We've seen some of our competitors' projections for next year. We haven't seen any this lofty so far. You might say, "Well, is it achievable?" We believe a third of this additional growth will come from that dental product we talked about.
We believe a third of the additional growth will come from the new offices that we're opening up, and we believe the other third will come from enhanced productivity and effectiveness on the part of our agents, as we've seen over the last few years. That converts to premium growth of 6%-8%. Because of those investments we're making in the business, it's going to cause the earnings growth to slow down just a touch into the 2%-4% range in 2018. We'll continue to deliver very strong return on equity in 2018 as well. Thank you. At this time, it's my privilege to turn this over to the CEO of Unum UK, Peter O'Donnell.
Thank you, Tim. We're now going to move you to the U.K. A different tone from me than perhaps my colleagues. Jack and Rick indicated that. Whilst we have in common a sort of very dynamic and turbulent political environment, the rosy tint that the U.S. business environment is feeling is not similar and consistent with what the U.K. environment is feeling. There's a lot of uncertainty in the U.K., and that is impacting our business, and I think requiring us to take a more cautious and prudent approach as we look out for certainly the short term of 2018. If we start with a very familiar chart, which both Mike and Tim have also used, you'll see there the breakdown of our product bases. What I'd point to is the significant change that we're driving in the business.
Unum Dental in the U.K., we are an established market leader. We have about one-fifth to one-quarter of the market. It's a much smaller market than the U.S., but it's also one of the fast-growing markets. Supplementary products are the fastest-growing markets in the U.K. for employee benefits. We're now nicely positioned with our addition of Unum Dental two years ago to take advantage of that. That's been very helpful as we've gone through 2017 because we've underperformed a bit on our expectations on core, where we've been putting price through as part of our strategy and our competitors have not. We've outperformed on large, where one of our competitors in particular has had digestion problems. We've been very prudent on large. Our proposition really resonates there very strongly with large clients.
As we've seen those come to market, we've been the preferred partner of choice because we have the best claims operation, the best relationships with the brokers, and we've done a bit better on the large end than we expected in 2017. Overall, feel pretty good about that. Important to our strategy, showing up how our relationships really matter and also that that supplementary side is really getting pushed. Turning to our strategy. There's no change here in our strategic direction. What we are doing is tacking to deal with market conditions somewhat. If I go to our how we win box and talk about growing our Group Income Protection, our ideal there is to grow the market for Group Income Protection and retain our market share. We're already the market leader there. We've had to be very disciplined on price, though.
We have been putting rate through because of the lower interest rates. Therefore, our competition has not moved with us. That has meant we haven't been growing as fast as we would normally as when the market returns to more norms. Normally, what happens is the market then understands that and catches up. We started to see some indication of that in 2017, but we still think there will be some ill-disciplined players out there in 2018 who will continue to write at significantly lower margins than we would expect, and in some cases, no margin at all. That is the nature of the marketplace in the U.S. and U.K. The U.S. went through this two or three years ago, and Mike talked about the return to normality. We have not seen that yet. We want to grow our life book as well.
Again, we're using data and analytics to pick where we play. In general, that tends to be around the small case market where margins tend to be a little better. Competition tends to be less intense. Looking good there. We have seen some growth in 2017, and we can expect that to continue in 2018. We're doing a lot of work on our segmentation and using new analytic tools to make sure we understand where we can write the best risk for the best margin. Then really growing those other products. Supplementary products are very attractive to us. They're fast-growing markets. They're very low capital intensiveness, and we believe we have propositions and opportunities to really drive that market growth and take a bigger market share than we have today. Strategically, things are going pretty well.
In terms of results, I would characterize it as doing well in a challenging environment. Taking the three bullets up there. First, sales, 11% up. As I said, a bit of luck on the large end, but primarily the supplementary really driving that. We had a very strong Q4 2016, I'd expect that to come back in line with guidance. We guided you to about 6%-8%, I think, last year. I think Q4 will dip off a bit from that 11%, but that's really good performance in that market that we've been facing. We've also been growing our premiums, and that's been driven by those good sales results, but also strong persistency. In spite of us putting rate into the market, we've been retaining the clients, and we're a bit ahead of expectation on that.
It's been offsetting one of the economic factors we've been facing, which is the natural growth. Both our businesses in the U.K. and the U.S. do well when we've got high wages and employers are adding lots of employees. What we've seen in 2017 is very muted wage growth and also large employers not growing their employee base. They've been quite discerning on headcount. That's been a headwind for us. That's actually pretty profitable business for us. It's more profitable than new sales. It's a better margin as they add wages and add employees. The area that's been most challenged is profits. That natural growth, as I said, tends to be a bit more profitable, so put a bit of pressure on margin.
Interest rates have impacted both NII and rather than taking out the RPI that Jack referred to, if you looked at our fixed NII, which really drives profit, that's down a bit as yields have dropped a bit. Obviously, we had the discount rate last year. We have seen some volatility on GIP new claims. We've analyzed the data on these new claims, and although there's no discernible underlying cause to illness trend or Brexit, we are factoring this into our pricing for large cases. We started doing that in 2017, and we expect that to continue. It's prudent, I'd say. This is very undeveloped sort of analysis, but I think it's the right thing to be doing. We'll probably be alone in the market on that. It's just about being that discipline, taking prudent approaches, which we believe is the best way to run this business.
The most significant issue in the U.K., though, is Brexit. How has it been affecting us? Well, we're not seeing the very pessimistic forecasts that were around the time of the vote, where people were discussing very significant job losses and a recession. That's not what the U.K. is seeing. However, we are seeing a challenging environment. It's created uncertainty for our clients, and therefore, they are holding back on investments. How we see that, as I said, is in terms of headcount. They're not putting new headcount into the U.K. Interest rates are lower for longer, and that affects us in terms of yields. I'll come back to that when I show you the chart. Wage growth is lower, and real wages are actually falling. If you saw the latest inflation for the U.K., it's just gone over 3%, and wages are lower than that.
That's creating pressure and a sort of feeling of challenge for employers and employees in that marketplace. GDP is still growing, although it is on a downward trend. These charts just really highlight that to you. You see the GDP growth sort of falling. You see wages around that 2%, 2.5%. You can see there for the 10-year is at an all-time low. The other area is the FX, where we saw it fall dramatically after Brexit. It's recovered slightly to that 130, 135 but nowhere near that 160 that we saw pre-Brexit. What have we been doing? Our response is a continuation of the plans we laid out last year. Protect margins. Rate increases for interest rate sensitive products, but also where we're seeing claims volatility accurately and start putting rates through now. Grow those profitable segments.
Primarily around the small case market, I'd say. We're looking to push harder into that small case market. We've got great relationships with a number of brokers. We believe we can sort of wrap up their businesses and make sure we get the majority of those small cases and look to optimize investment returns, as Jack referred to, making sure we're balancing risk and return in what is a very tough investment yield market. Secondly, continue to be agile to respond to a very dynamic environment. Prudent approach, tight cost control, but also invest where we think we're going to see returns both short and long term. Build on the diversification momentum. Supplementary products are doing well, and we particularly see opportunities to increase participation rates with current clients.
We've been working with them or employers as they enroll employees in both dental and our critical illness product. Therefore, we think we can increase participation rates, and that's a very good way for us to add very profitable revenue. Expand distribution. We've had good progress in getting new brokers to sell our products and building relationships with potential non-brokers who want to diversify into our areas. We're also seeing in the latter half of this year, the large brokers, Aon, Mercer, Towers Watson, Wyatt, who've been acquiring and consolidating, are also interested in this diversification. They have ambitions to cross-sell employee benefit products to the P&C small client base that they built. They are looking to work with one or two insurers and create a digital end-to-end experience. We are well-placed to benefit from their success.
Finally, we continue to tailor experience by partnering with our partners, products, and clients to ensure we understand their needs and are easy to do business with. Back one, sorry. In summary, we're well-placed to deal with the uncertain U.K. environment. 2018 will be crucial to the U.K. as the Brexit negotiations continue. The trends in 2017, we think will continue in 2018. As we return to more normal trading conditions, we will return to more normal trading conditions as political and economic certainty returns and businesses can plan ahead. We are hopeful that will happen in the second half of 2018. There are some short-term challenges. We are growing, though, taking sensible actions to protect margins, continuing to invest, and staying agile. Execution of our strategy will place us in a strong position to take advantage of the opportunities that lie ahead.
Finishing, you'll see our 2018 outlook summarized. Sales, premiums, and profits are expected to grow next year, although at a more muted rate than we would aspire to as we deal with the challenges I outlined. The ROE remains very robust at around 15%. Now I'm going to turn it over to Steve Zabel, who runs our Closed Block.
Great. Thanks, Peter. Good morning, everyone. Just go over a quick business snapshot. This hasn't changed much from last year, I'll just highlight a couple of things. To remind you, we do have two different product lines within Closed Block, our individual disability income business that we closed back in the mid-1990s. Then we also have our long-term care insurance block, which we closed in 2009 and 2011, the individual and the group side. From a reserve perspective, this is something we highlighted last year. These two blocks are in very different places. The IDI block is a very mature block. The majority of the reserve is in claim reserve now. It's at 93% now, it was 92% last year. That'll continue to evolve where, in the foreseeable future, it'll be pretty much a 100% claim reserve block.
You can think of that claim reserve as really an annuity. The major risk there is going to be mortality. Most of those people will have lifetime benefits, will be on claim until death. That's how we think about it from a risk management perspective, and we'll continue down that path. From an LTC perspective, still a very immature block. 15% of the reserve is in claim reserve at this point. That's up a tick from last year. We'll continue to see that grow, but the peak of that reserve is in the distant future. From a premium perspective, this does continue to evolve year-to-year. Right now, we're at a 58%-42% split. Last year, that would've been more around 55%-45%. The IDI block is rolling off between 8%-10% annually, and that's very consistent.
We would anticipate that to continue into the future. The LTC premium is pretty much flat at this point. We really see premium increases through our rate increase strategy being offset by just normal decrements in the block, whether it's mortality or lapses. We'd anticipate that to continue over the foreseeable future, being a fairly flat premium block to maybe just a little bit increasing. In the bottom right, before-tax operating income has really been flat the last couple of years. What we've seen is, Jack mentioned this, we've had a little bit of pressure on the loss ratio for long-term care. From an overall earnings perspective, it's been very consistent in that we've had better than anticipated investment spreads on that block. IDI is really a very consistent earnings generator.
From a return on equity, this is what you would expect for this block. We're in loss recognition for both blocks, which basically means we're going to have zero underwriting margin. What you're going to see coming through is just an after-tax yield on the investment portfolio behind the capital that we have supporting the block. Just want to remind some of the demographics about the block. Our block is a little unique in that so much of it is in the group space, so we like to show both the individual and the group LTC demographics here. As you can see, the in-force premium is split out just about 50/50, but the vast majority of the in-force lives are in the group product line. Really what's driving that is you can just see the average premium for the two.
The individual product tends to be a very healthy high-end product that has an average premium of around $2,000. It's what you might traditionally see in the market. Higher lifetime benefits on the product, much higher monthly benefits, and higher average benefit period. The group product sold in the group market, two-thirds of our product there is employer paid. That has a couple of dynamics. One is they usually come in at more of the base type of coverage, the risk is going to be much lower. The other thing is, when it's employer paid, you've got an entire employee base that's covered, which really helps with risk selection and really diversifies the risk within the group.
We do show over here on the right the loss ratio. If you go back and think about from last year's Investor Day, we've been in the high end of the range for most of the quarters, about 85%-90% range. The last quarter, it was elevated over 90%. Jack mentioned that we're probably anticipating that in the short term here to be over 90%, as we see the different types of liability assumptions play out as far as our actual experience. That has been a little bit elevated, and I'll talk about one piece of that a little bit later. From a strategy perspective, this remains unchanged. We're focused on four areas. One is the financial analysis behind the business.
Really, for this business, it tends to be a bit of a math problem, just really understanding what the business is going to do in the future, how we're going to manage capital underneath that. It's really important that we have the right analytical tools underneath it. If we recall back in 2014 when we reset our long-term care reserve assumptions, we also implemented a new first-principle reserving system. In this past year, in 2017, we were able to implement that for our IDI, our individual disability income claim reserve. It's given us a lot of insights into how that reserve will project in the future. We feel really good that it confirms our view of that block, which has been a very stable block historically, and I'll give a little bit about the IDI block in a few pages, just the stability that we have seen.
We haven't seen anything that would change our view of that block in the future. I'm going to touch on LTC rate increases in more detail on the next slide. Capital management, it's been relatively slow. Clearly, we continue to look at opportunities out in the market. We've probably spoken to a lot of people in the room at one point or another, or your firms, about different opportunities that are out there. It's very slow in the LTC market, and there's one small deal done recently. We have a fairly large block. We continue to look at the opportunities out there. We also explore the IDI block. That's another block that we would like to optimize the capital on. Right now, nothing imminent, and we'll just continue to work opportunities.
I think with rising interest rates, that might create a catalyst for more capital to come into these types of blocks. From an operational effectiveness, we don't invest a lot in these blocks, but what we do is continue to serve our customers in a way that they would expect and try to drive efficiencies into the blocks. The scale of our claims operation will grow around the long-term care block in the future. We're trying to implement things that will drive efficiency back into our operations and help scale our benefits operation going forward. Key messages. We feel really good about our rate increase strategy. We've achieved approvals between 85%-90% of what our underlying GAAP reserve assumption is that we set back at the end of 2014.
We really feel like we have a line of sight of being able to close that gap and probably even exceed the estimate that's built into our benefit reserve there. From a new money yield perspective, Jack mentioned this, we've exceeded that every quarter since we reset our assumption. We've done it not giving up our credit discipline, and I think we've definitely seen that in the results that we've seen in that portfolio. We've already touched on the elevated loss ratio. We do think we will see that going into next year, so that would be an expectation. I'm going to hit a little bit more on the Closed Block IDI performance. We don't talk about that a lot.
Long-term care really gets the headlines a lot when it comes to Closed Block, but we're pretty proud of the stability that the IDI block has shown really over the last decade. We have a graphic that really illustrates that stability. From a rate increase perspective, just to remind you, we really have four blocks. We have an individual block, a group block, and there's kind of a new generation, an old generation. We have a program where we're pursuing rate increases against three of those four blocks. One thing to note is the program that we initiated back in 2014 and started to file in 2015, that is the only program that we really have an estimate built into our GAAP reserve.
There's no estimate of any kind of future program not launched within the company, we feel like that's a prudent way to build our reserve. Over the last year since we met last, we've had some success in some larger states that historically had been fairly difficult. Massachusetts, Florida, and Hawaii was another state where we have a fairly large block. We have achieved significant increase approvals over the last year. A lot of hard work there just working with the state, but also specifically in Florida and Massachusetts. They had public hearings, which we think is actually fairly important to get the issue out there, meet with consumers, make sure that they understand what the issue is as the states go through their process to approve the rate increases. Both of those increases will come in over time, though.
That's one trend we're seeing quite a bit out there with the states, is they may approve a significant increase, they'll require us to kind of leg into it over several years. What you'll find is that phasing in will create some short-term loss ratio pressure, even though ultimately over time, that premium will begin flowing, and we have seen that a little bit in our loss ratio. One of the things built into our individual LTC increase is a landing spot where we give the option to the policyholders in lieu of the rate increase to lower their go-forward interest inflation rate from 5% to 3%. The states really like that. I think that's been a real catalyst getting approval. The policyholders have shown that they like that option, too. Our uptake on that has been over 60% as far as electing that lower benefit inflation going forward.
That varies a little bit by state, depending on the amount of the increase itself. We're very pleased with that. We think it's a good value proposition for the policyholder. It also reduces our risk, our interest rate risk going forward. We continue to participate in NAIC activities. We have a unique position where our lead regulator is in leadership at the NAIC, and specifically is the chair of the LTC Group Commission that's been set up by the NAIC to look at long-term care issues. That allows us to really have a seat at the table. I think for us, the biggest focus that's important is consistency with how regulators ask for information from carriers for rate increases, but then also how they approach approvals.
One of the things the NAIC is trying to do is to get all the states aligned with how they go through the process. That obviously will benefit carriers in the long run. On this page, Jack hit on a lot of these things, I'll just highlight a few things kind of halfway down the page, just to talk a little bit about our block also being unique in that we kind of have an opportunity if rates do go up, that our benefits are pretty much locked in contractually, so they don't inflate as inflation inflates because we have a highly indemnity concentrated block. We have about 5% of our block is in reimbursement. We're able to really gain on the upside if rates do go up, and we feel good about that.
Jack mentioned we continue to have just around a billion-dollar margin between our statutory reserve and our GAAP reserve or our best estimate. We would look to continue to monitor that, keep that about that same level going forward. A couple things. One thing that's new around the NAIC, recently, they issued some guidance around how cash flow testing or asset adequacy testing works. We actually feel pretty good about it. For us, it really memorializes the practices that we've had in the past and how we approach cash flow testing. Really a non-event for us. We think it's good for the industry, though. It gets discipline, especially to some of the smaller carriers that maybe had different practices. New York cash flow testing, that's always something that we deal with towards the end of the year.
We've gone through kind of our preliminary look. We feel good about where we are. We will strengthen consistent with what we've seen in some of the prior periods. It will be within our capital deployment plan. We do have to wait and see what spot rates look like at the end of the year, that's kind of the one caveat to see where that ends up, because we'll need to refresh that as we really finalize those levels with the state. IDI. One of the things around our IDI business back in 2007 is we set up a special purpose vehicle, and we securitized that block. Just for context, it's about 96% of that IDI block is in our Northwind structure. We securitized it with $800 million of debt originally.
The way to think about this is that debt's being repaid, both principal and interest, out of the distributable or statutory earnings of the IDI block. A good indicator of the stability of earnings is just really how that debt's paid down. As you can see by the chart on here, it's pretty much followed a nice straight line pay down and amortization over this period. We do have that debt schedule to pay out fully in 2020 or in the first part of 2021. At that point, that will free up a little bit of free capital in that structure that will not go to debt and that will be available to the holding company. We pay down about $60 million of debt a year on that.
Again, don't talk about IDI a lot, but we thought it'd be good just to get it out there. We don't talk about it because it is stable, it's consistent, and we've shown good earnings coming off of that block historically, and we anticipate that continuing into the future. In closing, feel really good about the stability of the block as we sit here today. We think 2018 earnings will be fairly consistent with what we've seen in 2017. It will continue to be a declining block over time as it runs off. We have our strategy. We're going to continue to pursue it. I think the most acute thing that we'll be working on is continually working with the states on rate increases, but over time, continue to monitor the capital markets to see any opportunities out there to optimize the capital structure of the business.
Just finally, from an outlook perspective, obviously no sales growth. From a premium perspective, really to continue on the track that we've had historically of a 2%-4% decline, that's really about a 9%-10% decline in IDI and pretty much flat in long-term care. Operating earnings growth, relatively flat, maybe growing a little bit as the capital behind long-term care grows and kicks off more investment income. We really, as I mentioned earlier, would see the operating ROE to be consistent with an after-tax yield on the capital that we put behind the block. With that, turn it over to Rick for some closing comments.
Great. Thank you, Steve. Thank you all for going through that. Our team, obviously, you can hear from them, very proud of what they've accomplished, but also looking forward to how we change the enterprise, adapt, but continue to serve customers the same way. As you look to the closing slide, hopefully you got a sense at a more detailed level about how we're driving all of these different operating trends in the company, continuing to expand on our positions, and making sure that we do so in a prudent way so that we have the capital to pursue the different avenues that we talked about today. I think we're also levered to a more positive environment. We'll see what happens here. We certainly don't depend on it.
We'd like to see rates increasing, the economy continuing to improve, some wage inflation, and employers continuing to value the benefits that we provide at the workplace. With that, let me wrap up quickly and go straight to Q&A. Can we get a microphone to Suneet, please?
Thanks, Rick. Suneet Kamath from Citi. Just on long-term care, Jack, for how long do you expect the loss ratios to remain elevated? At what point would it be into that investment margin that you talked about in terms of investing over y early or over your target?
Yeah. Under the current assumptions, we'd expect it to be elevated for a while. How quickly it eats into that margin depends on what happens with interest rates and spreads. Interest rates at their current levels with spreads at their current levels, it would be more difficult to continue to offset that pressure. Currently, the other thing is in our underlying interest rate assumption, we have the all-in interest rate moving up. If that doesn't begin to happen, that's going to put further pressure. I think I would say over the next year or so, if we don't see some movement in interest rates and spreads, that would begin to eat into that. It would become more difficult for that offset to continue, and I think we'd probably have to do something about it.
Okay. On that billion-dollar difference between stat and GAAP, is there any impact to that if we do get tax reform that's passed? I just don't know how it's calculated.
No, because it's statutory reserves versus GAAP reserves. That would be independent of taxes.
Go over here to Sean.
A couple questions about tax. If the corporate rate-
I'm sorry, Sean.
Sean Dark from Wells Fargo.
For the webcast.
Thanks. If the tax rate does go to 20%, can you give us your view of what the pro forma tax rate would be on a GAAP basis?
GAAP, it'd be just under 20, so maybe 19 and a half. It's a little bit lower rate in the U.K., so that brings the GAAP tax down there. We still have some Low-income Housing Tax Credits and some tax exempts that we would get a little bit of credit on. For all intents and purposes, it's pretty much right at the GAAP rate.
Okay. If that did come through in 2018, would you have the ability to buy back more stock? What would you do with those cash savings?
A couple things. First, that's a GAAP element. It's not cash and it's not capital. As I talked about from a GAAP perspective, you pretty much go to that rate. We actually have a deferred tax liability on a GAAP basis as opposed to an asset, so there'd be a little bit of benefit at the change. Cash and capital are different. From a cash basis, it is not as favorable because there were timing differences in reserves. There were timing differences for DAC. The DAC tax has been increased and lengthened the period it's amortized over. Cash would lag. Still be positive for us, it would lag the GAAP effect. There are capital elements that happen when the tax rate changes on a statutory basis.
From a capital perspective, we're carrying a deferred tax asset because we've paid taxes on income that's yet to show up in statutory earnings. We would have to write that asset down because it's currently built up at a 35% tax rate. It would immediately go to a 20% tax rate, so there'd be a capital impact right there that would actually strain capital. That would be paid back over a reasonable period of time. I wouldn't look at taxes as being kind of an immediate free capital element to drive share repurchase. There's some timing differences that'll take a while to work out. Very positive over the long term.
Good. That's all.
Head over to this side to Jay Gelb.
Thank you. Jay Gelb from Barclays. My first question is following The Hartford and Aetna Group Benefits announcement. What does that mean for the competitive landscape in group benefits?
Mike, you want to take that?
Yeah. Thanks, Jay. The bottom line is I don't see a material impact. It's already a pretty crowded space. As we sort of think about it, maybe short-term, long-term. In the short-term, anytime you have two sizable players come together, there's going to be disruption no matter how well executed. You've got to move clients from one operating system to another. In this case, from one product to another product. You've got to deal with capturing the expense synergies that might be inherent to the deal and the disruption to the employee base that causes. In the short-term, we'll certainly be out there and active, looking for opportunities to bring clients into perhaps a more stable situation. I'd say in the mid-to-long-term, it's probably net positive for the industry.
I'd say we probably have more capacity than we have demand when it comes to basic group disability and life insurance in the large employer market where we see those particular players in particular.
Okay. My next question is, I know it's largely unrelated, but we've seen at least one transaction announced in the Closed Block variable annuity space. The Hartford's Talcott business, Voya is rumored to be doing something similar, these are blocks of business that people thought that might not come about for some longer period of time. I'm wondering if in Unum's Closed Block business, does the ability for the market to transact in those pretty challenged classes, does that have any implications for Unum's Closed Block even though they're completely different businesses?
Yeah. I would say no immediate implications. Variable annuities have been around for a while. They didn't transact for a while. The current state of the equity markets helps those things, certainly. I think long-term care is further out. People better understand the risks inherent in annuities because it's more of an investment risk. A lot of the risk on the long-term care side lies in the liabilities, which it still takes a lot for people to get comfortable with. It's a step in the right direction. I wouldn't say it's immediate impact, but it is an example similar to what we've seen with our Closed Disability Block, that eventually Closed Blocks do tend to stabilize. They tend to get better understood, and that's when you tend to see markets open up.
Yeah. I think I would make that distinction, too. In the Closed IDI Block, as Steve said, that's come down a way as some capital is trapped in there. Other things to do there potentially, because it is very stable. Would it be a big impact? I'd call it a medium impact to do something there, that would be much more of a financial transaction than selling what looks more like a runoff annuity block every day.
Yes.
Thank you. Erik Bass with Autonomous. First, just a question to follow up on Sean's on taxes. I think, Jack, you characterized the cash taxes as a modest positive. You're also saying that on liquidity, some extra liquidity is kind of, I guess, an uncertainty buffer around tax. Is that just because of the capital implications and uncertainty of how the rating agencies will react, or is it something else?
It's the capital implications. There are a couple of those to think about. One is writing off the DTA, which is a decent-sized number for us. The second is what happens with the risk-based capital formulas. Theory would have the tax adjustment and the risk-based capital formulas come down, which would result in more risk-based capital. What is unclear, the statutory thing's crystal clear that it would happen. How rating agencies react to that or how regulators react to that is less clear. You would think overall tax reform and a lower tax rate would be credit positive, it wouldn't necessarily follow that you'd be required to rebuild that excess capital. The same thing with the risk-based capital formulas. The NAIC would need to act to change those formulas.
Whether they choose to act or not, whether it would be something that would happen all at once or graded in over time, and even if they did act, how would rating agencies respond? It just seems there's a level of uncertainty there. Again, we think it's positive overall. It just seems prudent until those things are better understood to keep some capital.
I think Jack's given you all our best views at the moment. Clearly, the ink is not dried on this one, we're going to have to see how the final regulation comes out. We'll give a better assessment, assuming that that's the case.
Thanks. Rick, I think in your opening comments, you talked about some opportunities potentially for geographic expansion.
Yep.
Just hoping you could elaborate a little bit more on the types of markets where you may see an opportunity.
Sure. I think it's something we've talked about for a number of years now. We are looking at other places. Our U.K. is a good example of a business, notwithstanding some of the troubles they have right now. It's a great business that was built up over time because the demographics of that market, or more of the structure, not necessarily the demographics of that market, were similar to ours. There are other markets like that around different parts of the world, and we're going to look at how we can continue to invest in them. Do so early so that it's something we can grow into a business like the U.K., although it'll take a couple of years. Nothing imminent, but it's something we're continually looking at other geographies to invest in. Tom Gallagher, please.
Thanks. Tom Gallagher, Evercore. First question is just on your capital position. With over $800 million of cash, it's a pretty strong level, certainly a lot stronger than you've had historically. I know you described it as better than one times coverage. I would call that a lot better.
Yes, much better
than one times coverage.
Close to two times.
Yes. I guess my question on that is, I think your historic target was something like three or $400 million in terms of minimum.
Yeah.
You're well above that. Is that just prudence ahead of tax reform, really? Do these NAIC changes? After you have visibility, would you expect to be able to get down to a much lower hold co level? Is there some reason you'd want to hold more?
Really, it's around two things. One is we know we have the debt maturity next year. That's going to be $200 million. A piece of it's earmarked toward paying down that with holding company cash. There's no compelling reason for us to need to hold over one times from a liquidity perspective. We have plenty of access to other sources of liquidity. We have a credit facility. We're members of a Federal Home Loan Bank. It's not a liquidity concern. It's nice to have cash because it's very actionable. Should an acquisition opportunity arise, that's the best currency for making those things happen quickly. It's more around really the debt maturity, the uncertainty relative to tax reform, and the capital implications of that, as well as the desire to be in a position to be able to act on an opportunity should it arise.
Next question is just on the 2021 goal of getting to $500 million in earned premium on dental and vision. If you're able to hit that, what kind of margin should we think about that business getting to? I know you mentioned, 2019, you expect it to become profitable. Will this be like a normal margin business where you're earning anything close to your other margins?
It's got a slightly different profile. For dental, actually, and vision, you're targeting profitability at sort of more in the mid-single digits on an earnings basis. The capital behind it is de minimis. The returns on equity actually will be a bit of a lift for us. We'd expect that to actually probably outperform a bit on the ROE front.
Got it. Final question. It's a billion-dollar gap between STAT and GAAP on the long-term care side. How should we be thinking about it? I know I heard your comments about the interest rate assumption and that if rates remain low, you might have to deal with that. I think in the past when you've had taken charges, you've equalized the GAAP and STAT. Would it be similar? If you look to year-end 2018, if rates stay where they are now, is it probable you'd have to take a charge based on where the loss ratio is running or not? Could it go further out than that in terms of having to do something about it?
I don't think right now we can speak to the timing because it's still a very volatile business. We have to see how 2018 unfolds. We're projecting that we would expect the loss ratio to be in the low 90s. It's been volatile enough over time that's not a given that will actually happen. I think we need to wait and see, but it is kind of the 2018, 2019 timeframe. If nothing happens, that would probably do something. I would say historically, we have not completely diminished that GAAP/STAT difference. It had been up to probably $800 million, $900 million before we took more of a $450 million after-tax charge, kind of $600 pre-tax. It has been rare that we've completely eaten up that difference.
I think we're feeling, at least right now, and again, it is extremely hard to predict how this business will unfold, that we'd be in kind of a similar boat going forward.
Just final question, and if anything did happen there, would paying down the debt maturities, is it $200 million?
Yes.
Would that get you to a good enough leverage place where you wouldn't have any pro forma leverage issues on debt to cap?
Yeah. I don't think we have pro forma leverages on debt to cap, whether we pay down that debt or not. We have temporarily been in the kind of 27%-28% range. The other year when we issued debt, we had the Starmount acquisition, we were up there. We do have excess free cash flow generation over our current needs, even at a $400 million share repurchase. Our book value continues to grow. We'd expect that to continue. Whether we pay that down or not, I don't see leverage problems.
Not a big deal. Okay. Thank you.
Yep. Good. Thanks, Sean. Come over this side now.
Humphrey Lee from Dowling & Partners. Just to follow on your opening remark regarding to new opportunities. You addressed the geographic potential expansion, but what about on the product side? What are you seeing? Looking at now you have dental and vision, I'm just trying to figure out what potential areas of interest are for Unum.
Yeah, it's a great question. I think that when you look at our overall product portfolio, particularly here in the U.S., we take geography out of it. Particularly in the U.S., we actually have pretty much the full complement of product-specific. I think the world is changing a little bit where services do matter, and how you integrate those services to the broader offering is something to look at. Without getting too much further into it, we think there's still ways to build out the portfolio without necessarily adding product A or product B. It's how do you think about the whole portfolio and serving those employers with a full product set so that they can make good decisions on behalf of their employees.
Okay. Looking in your opening remarks as well, there's a slide showing your kind of brand and capability, and most of them are at 90% or mid-90s. Just not trying to nitpick, but obviously the easy to do business with and timeliness to response is like 91%. I hear some of the investments that you're talking about for 2018 would address that. At the same time, you're looking at an industry that a lot of companies are investing into additional capabilities. I guess maybe from where you're looking at, do you think you can actually drive it up even further to create a stronger brand for Unum?
Yeah.
The investment's just more of a going to keep up with competition?
That's their view and their expectation. 91% is good, and it's meeting their expectations. We look to what does their experience look like? Mike and the team in the U.S. and in Colonial Life, we're thinking about what are people's expectations outside of the employee benefits space. 91% of where they are today probably won't be good enough when they start to compare us to the other digital experiences that we're having. That's really the benchmark that we're looking to, is not how they experienced employee benefits in the past. It's how they experience the rest of their life and making sure that we can meet customers in the same way.
Thank you.
I don't know, Mike, if you could add anything to that.
All set.
Yeah, Jimmy.
Hi, Jimmy Bhullar from J.P. Morgan. First on RBC, have you quantified the impact of a 20% tax rate on your RBC ratio?
Yeah. It'd be ballpark, ±100 points. About a third of that's the DTA change. Two-thirds of it is risk-based capital ratios. Again, the real question is how do rating agencies and others react to that?
How do you think about, obviously, the in-force return benefits from a GAAP standpoint from lower taxes? The dynamic about in-force versus new sales, most of the markets that you're in are fairly competitive, how do you think about some of the benefit of lower taxes staying with you versus being potentially competed away?
Like I said, let me start with one piece, then I'll turn it over to Mike. There are implications of taxes. First is there's going to be a capital hit for everyone because I assume everyone's in a DTA position. How companies react to that and how the world reacts to that in terms of needing to refill that bucket would be one factor. The second factor is we are a high taxpayer currently, basically paying on the margin at the 35% rate. Most of our industry is not. Our industry is much closer to a 20% rate. It is not as clear where their benefits would come and whether they would need to maintain margins in order to maintain their earnings profile in the wake of that. The third factor is just how the group business and the businesses we're in work.
I'm going to turn it over to Mike to talk a little bit about that.
Great. If the two parts are where does Unum sit relative to the rest of the market, to your question of how does it play out in a competitive pricing market? Jack hit that. The second piece is just what's the pricing reality? How does it actually play out on a transaction-by-transaction basis? Rick's slide that he had in his overview is actually pretty instructive, where about 47% of the earnings are coming through supplemental and voluntary. Those are not cases where you set rates at an employer-level basis. Those are filed in the product. In effect, if you wanted to go in and say, reflect a lower tax rate and lower pricing, you would have to actually construct a new product and take it out into 50 states and filing it.
That's true for the Colonial Life business, the voluntary segment at Unum US, the individual disability product that we actively market. There's about half where really it's kind of very long term in terms of thinking about that way. If you unpack group disability and group life insurance, think of it this, we touch about 15%-20% of our core clients, the smaller employer clients, through our renewal efforts. We touch them when they need movement up and just you've underwritten business, you look at what the experience is, you're going to go through it. It's going to take a lot. You don't actually reprice every case, every year. You're touching it slowly in that core market.
I think where the propensity might be to say as the dynamic shifted the most and the most quickly would be in that large end of the market, where typically clients are taking coverages to market every 3-5 years or so after they come out of rate guarantee. I would tell you our stance going into it is that we like where the business is priced. We don't certainly have any plans to give away margin. We think the value proposition is one that's proven and that clients are quite happy to pay with persistency rates that are 90% plus for us. I think it's going to take quite a while to play out.
To add to what Mike said, too, just to say, not everybody is where we are. If you look at our margins relative to our peers, I think some of them would use some of those benefits to help restore margins, whereas we don't have that same kind of pressure. I think the point is that it won't go out immediately. I think it would be naive to think that there doesn't bleed its way into the market in some shape or form, but we certainly don't. We think that'll take some time to happen.
On increasing allocations to alternatives, can you put some numbers around how much and what specific are you doing? Is it hedge funds, private equity? What are you looking at?
It's been gradual. We view our overall high yield and alternatives as a bucket. Over time, as we increase the investment in alternatives, there'll be some reduction in the high yield. It's not like hedge funds. It's not generally private equity type of things. It's more airline leasing, aircraft leasing, rail car leases, things of that nature.
Just lastly, on long-term care, what's the environment for getting price hikes since everybody's doing it? What's your situation in terms of where you've applied and you might be close to getting approval for price hikes and how much of an offset is that to the benefits ratio and how much of a benefit would it be to your margins?
Yeah, I'll take the environment. Probably won't get into numbers around the impact of the individual pricing initiatives. Generally, I think the environment's good. I've been going out to states for five to 10 years on this issue, it's really evolved from a lot of states not even wanting to talk about it to now they all understand that it's an issue that they need to address. I think the NAIC themselves know it's an important issue. That's why they formed groups to look specifically at long-term care and try to get consistency with how the states deal with rate increases. I think it's a fairly positive environment. For us, we're down to a couple large states. California is one where we have a pending increase there, we feel optimistic that we'll work through it with the state.
As those approvals come through, we'll see it come through with earnings. I haven't really put numbers around the values of each state because it is somewhat uncertain.
It would be a plus, it's unlikely it sort of mitigates the full impact of low interest rates and rates where it just came up, right?
I think our current estimate would say it would create some additional margin in what's in our reserve currently. It's uncertain right now because there's still some pretty big states out there.
Question.
Down front.
Josh Shanker, Deutsche Bank. Med Stop Loss market. Different carriers seem to carry from the traditional benefits marketplace. How has that evolved in that position, and why can't the traditional benefits carriers take that market away from the incumbent carriers? I know you intend to do it, but what's the sort of barriers into there, and how can we think of it from play out?
The question is, what's at the root of our confidence that we're going to be able to displace incumbents?
Why have the current leaders in that market why have they been successful given they're really not traditional benefits players for the most part? How has the market evolved the way it's evolved to this point in time?
Right.
Why haven't the benefits players come in and taken that business already?
Just very quickly, if you think about it, you can almost take the market and cut it into three pieces in terms of the competitive environment. You have the very large managed care players that are also in the Stop Loss. They bring networks to the table. You have pure, let's say, paper providers that are bringing it out through MGU channels. Then you have actually kind of similar to us, ancillary lines carriers that are growing share. That's what we've seen over the last four or five years that are thinking about leveraging their other product lines and in particular their distribution and underwriting capabilities and bringing it into a new product category.
As we looked at it, we said We build models based on what other ancillary carriers that have gotten into the space have been able to achieve using those core competencies as well. We feel like we've actually built those probably at a bigger scale and demonstrated the capability to deliver results maybe over a longer track record. We're pretty optimistic. I'd say competing successfully with ancillary carriers, I like our chances there. I do think the pure product providers, those have been giving up share. I think that is another place that we could potentially take share, where those players aren't bringing a brand and are not bringing distribution into that pretty rapidly growing market. Does that answer your question?
Perfect. Thank you.
Anyone else? Yes.
Alex Scott, Goldman Sachs. I just had one follow-up on the tax reform. The captive Fairwind, I think one of the rationales for that captive was that you get full admission of DTA. I was just wondering, if tax reform goes in before the end of the year, would it change the amount of capital that would need to be contributed just purely associated with the DTA in that? Was that part of your comments that you made about the statutory impact?
Yeah. In Fairwind, we actually held the DTA. It was a GAAP DTA. It would be impacted by the rate. Wouldn't be as impacted by net operating loss carryforward impact. It would have some impact. It would be a little more muted. We're not looking at that as necessarily materially changing the position of Fairwind.
Okay. On the, I guess since the last time you changed the assumptions on the LTC on a GAAP basis, you talked some about the interest rate assumptions. Can you just talk about how you're trending in terms of morbidity and lapse?
Okay. Can you say that again? I'm sorry.
I was just wondering if you could provide any commentary on how morbidity and lapse have trended since the last time you adjusted assumptions on a GAAP basis for long-term care.
Yeah. Actually new claim morbidity has trended favorably. We've actually seen some morbidity improvement on the top part. Lapses have had some volatility to them. We've seen some very positive periods. We've seen some very negative periods. In the long-term care business, it's often difficult to distinguish between a lapse and a death, because they just stop paying premiums and the coverage terminates. I would say overall, we feel good about our combined lapse and death assumptions. I think they've been pretty consistent, probably to the extent that we felt impact in part of the drivers of the rising loss ratio. It's probably been more around claim continuation, so on the unclaimed side. There are a lot of volatility as yet, a lot of offsetting factors as well.
Thank you.
Any other questions? Well, good. I think we've exhausted the questions here in the room in New York. We certainly appreciate your time this morning for us to take you through a detailed run of the business. We are really happy how we're going to end up 2017. Looking forward to 2018. Hopefully, all of you get a small break here as we head into the holidays and take a break from analyzing taxes, which I'm sure a lot of you will be doing. We'll be working hard at Unum, just so you know straight through the holidays as we get ready in 2018. Thanks for coming out today. We appreciate the time.