Good morning, everyone. I'm Jay Gelb. I'm the Senior Insurance Equity Analyst here at Barclays, it's my great pleasure to have with us this morning Rick McKenney from Unum. Rick is President and CEO of the company. Unum is the leading provider of group disability benefits in the U.S. and among the largest providers of voluntary benefits. Unum has been able to generate consistent EPS growth and return excess capital to shareholders. With that, Rick, thanks very much for joining us today.
Good to be here, Jay.
Unum's results have been strong year-to-date. What are you most encouraged about, where do you think Unum still has some work to do?
Sure. I think you're absolutely right. It's been a very good start to the year. Our first six-month results were better than we anticipated coming into the year. In fact, at the end of our second quarter reporting period, we actually increased our outlook from a range of 3%-6%, moving it up to 5%-8%. We do expect that to persist. The areas that have done better in the first six months is we've just seen good core fundamentals coming throughout our business. The environment really hasn't changed that much. I think the economy is still in a sloggy type mode. The interest rates, clearly, although looking, we were more optimistic at the beginning of the year, have retraced their steps. Overall, the employment picture is mixed. I'll talk about each of those.
I think that really the results are good operating fundamentals within the business. That ranges from our teams on the front line continuing to see good premium growth, retaining our business persistency levels very good. When you look at this, the core underwriting results, very happy with that. I don't want to leave out expense management, another piece of that equation where overall, just good operating management has allowed us to out-perform in the first half, and we see that continuing into the second half of the year.
That's great.
You talk about areas to work on. We're a company that is humble in that we're always working on new things and we see the potential for protecting more people across the U.S. and the U.K. as a great one. We're just out there trying to get more people covered under these protections that they and their families need. I think that's going to be a never-ending journey, but we're happy with the progress that we've made.
Okay. Excellent. That's a great way to think about it. Can you provide your perspective on how Unum would benefit if the U.S. employment market improved, also take into account the situation on wage inflation?
Sure. When you think about our business, there's two things that naturally aid our business. I talked about the top line and the premiums that we have out there. We're trying to add new customers all the time. There's also the reality that we are at the workplace. It's solely where our distribution is. As the workplace adds new jobs, those are new coverages, new people that are now covered by our products. At the same time, as their wages go up, their premiums go up, and their coverage goes up commensurate with their overall salary levels. What we've seen over the last several years is actually we've seen that employment picture get better.
You've seen it in the unemployment rolls, although I'll tell you the increases that we've seen have not been as quick, what we've seen in some of the unemployment numbers, because we are about people, about job creation, about people having jobs, as opposed to initially the unemployed and how those rolls are changing. On the wage inflation side, we really haven't seen very much. You've seen some mixed numbers across the U.S. economy. For us and the people that we insure at the workplace, generally full-time workers, really have not seen the levels of wage increases here in the U.S. particularly. The U.K., I should mention that as well. The employment picture there and the overall economy, I think Brexit has had an impact in terms of what we see there.
It's a smaller piece of our enterprise, but although they have the same dynamics at the workplace that we do here in the U.S., their economy is still looking out to the future and what Brexit's going to mean. We've seen that slow our growth. It hasn't gone in reverse, but it certainly has slowed the growth expectations we had of our U.K. business over the last year as we've gone into that, and still more to come on that front.
Excellent. As you mentioned at the outset, Lincoln is one of the few companies I'm aware of in the life insurance industry to have raised its EPS growth guidance after announcing strong first half results.
I'm not really sure that Lincoln did that. That was our last speaker. You meant Unum?
It's been a long day already. Unum. Under which conditions could there be additional upside for EPS growth for Unum?
Yeah. When we look at a 5%-8% growth rate for this year in the environment we're in, we feel pretty good about that.
Right.
We're still dealing with the headwinds of interest rate pressure. Our $50 billion portfolio still has pressure that we see overall, continuing to see our premiums grow 5%, we're looking at underlying fundamentals being very good. Returning capital to shareholders, which is also helping that equation. We feel pretty good about 5%-8%. What's going to make that go better? Those things reverse those things. Interest rates have got to move from here. It's not something we predicate our business model on, but it has been a pressure for a number of years now. Until that pressure abates, it's going to be hard for us to push beyond that 5%-8% growth rate.
Okay. Into 2018 as well?
We really haven't given 2018 guidance, I think if you looked over the last several years, we've seen kind of the same dynamic in our business, good premium growth, interest rate pressure, and then capital management. That's been kind of a similar equation if you look to the last several years. When we get towards the end of the year at Investor Day, we'll lay out what our trajectory for 2018 looks like.
Okay. Let's discuss the headwind on earnings from low interest rates. It seems to come primarily in two areas. First, the downward pressure on the discount rate used on the ongoing business, and then on the drag on the long-term care closed block, if you can discuss both those.
Probably put it in three buckets, really. You have the discount rate changes in our disability business. We've done that over a period of time. We brought that discount rate pretty steadily over the last several years. Even at the end of last year, we decreased our discount rate 50 basis points. We've seen the headwind from that. We feel okay where that is from the disability perspective. The long-term care is one that we looked at and we're pretty vocal about over time, that we're looking at trajectory, the long-term trajectory of interest rates. We have, if you go back 2011 timeframe, we did increase reserves as a result of that. Again, we did that in 2014, at that point in time, we laid out a path that said we expected rates would continue at their current levels.
You can kind of think 5% and 5.5% on 30-year credit, right? This is not the 10-year treasury, 30-year credit. We've seen that actually, we've outperformed kind of that 5% bogey we talked about over the last several years, and we see that after a couple more years reverting up to a longer term norm. I'll call it a norm, but just a longer term average. I think it's really that projection which changes that. There is still pressure in that line, although it's something we think we can manage over a longer period of time. In that business particularly, we're taking actually price increases on that business, which offsets some of that pressure and other things that we see. We're managing that business over a period of time. I take that in kind of a different bucket.
I don't think we feel any better or worse given these latest moves in interest rates about that. This is a longer-term trajectory that we're thinking about. The last piece of pressure is just in the overall surplus portfolio. As we've seen that over a number of years, every time we're investing, we're having to invest that lower, and that's been a drag. We've incorporated all of that into a good, growing, fundamental business and offsetting that pressure. I think we've done a pretty good job of that over the last several years to continue to see EPS growing despite that headwind. That's how we look to the future. That pressure from interest rates, as much as I don't want to see it, does abate over time as the whole portfolio normalizes.
It's something that we'd like to see interest rates go up from here, certainly.
Of course. Right. With regard to the long-term care closed block, I think sometimes there's some misperceptions in terms of if there were another charge, the impact to GAAP results as opposed to statutory. Maybe you could help explain that.
Sure. Maybe a little bit is, we have two bases that we look at. One is the capital base behind the line, which is our statutory results. That's prescribed reserving levels that we have out there. That has always been in a good position. Even through those two left to reserve charges, we did not have to increase our statutory reserves as a result of that. On the U.S. GAAP basis, it's our best estimate. We're actually taking our best estimate, and the last two times we've done it, we've changed our estimate of what the future would look like based on the current environment, and that's something to look at. That's one that we will continue to look at.
However, if we do have to, and we laid this out at our Investor day last year, if we would have to increase our reserves on a GAAP basis, we wouldn't necessarily have to increase them on a statutory basis, nor do we actually think we would. It's not a capital impact. It's much more of a GAAP book value impact. Overall, we don't have to bring more capital as a result of that. That's speculative. I don't want people to think that that's in the cards or an expectation. It's something that we want people to know, that if we get to that point where we have to increase reserves, it'll be a GAAP event, not a capital event.
If there were a charge and it doesn't affect statutory reserves, that there would essentially be no impact on share buybacks or dividend increases.
Yeah. There's no impact on capital. We have all the same choices what to do with that capital. We, over the last several years, have been buying back a fair number of shares, but it just leaves our capital plans intact, whether that's paying higher dividends, buying back shares, or equally as importantly, most importantly, that we want to plow back into the core business, which is a high returning, good growth, good protection business that we have. That's number one. Number two would be acquisitions and where we think we could put that to work in a good strategic outlay of our capital. Obviously, as we're generating a fair bit of capital every year, share repurchase has been something we've done and we'll continue to do.
I want to come back to each of those.
Sure.
Just so we all understand, what would potentially need to happen from a rate standpoint for Unum to take another GAAP reserve charge maybe in 2017 or 2018?
Yeah, I think if you go beyond 2017, it's really that outlook. Something would have to happen secularly in the industry that we think rates will continue to stay at their low levels for a long period of time. It is that outlook as opposed to what's the spot rate today and what we're investing at today. Because we've gone through, even in the last five years, we've gone through cycles of investing that have been harder and easier relative to 30-year credit. We have a team that's out there investing in those cycles, and they've done a very good job of timing when's a good time to put money to work. As I said, they've outperformed. If they can continue to outperform, and that's our expectation, there's no impact.
Now, I think we're very clear to say that there is pressure given where rates are today, where credit spreads are today, that even our team, as good as they are going to have a hard time finding the right investments to continue to support what we have out there today. Those are decisions that we're constantly making, updating, and changing that outlook. I think we've been pretty clear as to what all those pieces are. Once again, that's just a change, that best estimate GAAP reserve, no impact in terms of what we see on the capital side.
Okay. I promise, last question on long-term care. What's the potential to exit this block over?
It's something we think about a lot because this is a business that is very unlike the rest of our company. I contrast it with what we do in the rest of the company. We're at the workplace providing basic protections to 35 million customers. We're known in the industry. We do it very well. We've got our legacy, our closed block of individual long-term care and some group long-term care we have out there. It's just very different where we are. Those are all benefits that'll be paid long after people have left the workforce. You have to contrast those two. In and of that says this is not a business we should be part of. It's also got the challenges that we just referenced. It's not like our other businesses and how we have to manage them on a daily basis.
It's one that we want to get out of. Our challenge today is that there are no buyers or very few buyers, and certainly buyers and sellers are not meeting in terms of what they see from a price perspective, whether that's a complete buy or even the reinsurance markets are difficult in this business for some of these blocks. It's something we work at often and stay close to the market because it is a block that we would like to be out of over the last several years because it just doesn't fit with the rest of the enterprise. Easier said than done, but it's something that we will continue to strive to do.
Of course. Okay. Let's turn to the U.S. Group Disability as well as the supplemental and voluntary insurance businesses. Can you give us some perspective on the competitive environment in those main ongoing businesses, pricing, persistency trends, for example?
Sure. Yeah, when we talk about competitiveness, oftentimes it ends up being the large case market because those are kind of marquee, larger employer bases that have a lot of competition around them. I tell you, in that space, we don't have as many outliers as we may have had in the past, although pricing is challenging and competition is fierce, I think in our business, the challenge you have is when you have those outliers that chase a piece of business for whatever reason, we're just not going to compete on those type of businesses. We're not really seeing that right now. We're seeing kind of a generally good competitive market in that.
When you get to the other pieces of business that you mentioned, kind of the medium case, when I say medium case, you're talking about 500 people or to 2,000 employees and even under that, we're still very competitive. That's going to be much more about how we were able to compete one by one. Very competitive, but we're doing well. You've seen our sales are looking reasonably good. A little bit tougher first quarter, but the trend was good in the second quarter. I think the best part about all of it is our persistency levels or those people that choose to stay with us and don't take it to a different carrier, has been very high. Over the last several years, very high. Even this year, first half of the year, very good persistency.
We chalk that up to a more stable market because you don't have people chasing it. More importantly, we talk about our own team, making sure we're serving our customers well and making sure, given the price point that employers are having to deal with, there's no reason for them to take it somewhere else because they know they're getting the best service in the industry, that they're getting the best capabilities, best product set, and that's true across disability, life insurance, and the voluntary benefits business.
Okay. What does that mean for prospective margins in this business and the return profile? They seem pretty good.
They're very good. I think if you look at our margins relative to our peers, they're even better. I think that that's an important thing that we hold on to in this business. If you manage the business very well, you can generate a good return while serving your customers very well. We want to make sure that we're doing that on a stable, consistent basis. It's something you have to work very hard to do to maintain those high margin levels. What we won't do is sacrifice margin levels to chase the growth because we've seen that in the past and many of our peers have seen that. That's a very challenging environment. If you're chasing that growth, you'll end up underpricing business and you'll end up in a rework loop that we don't want to be part of.
Of course. How are the trends same or different for Colonial Life? Maybe you can just take a step back and explain how that business is different from-
Yeah, sure. We didn't talk much about Colonial. Colonial is a fantastic franchise under the Unum Group umbrella. The team there has been growing premiums at a rapid rate. Sales have been good. They've grown the size of that sales force. The difference there, to highlight it, is all still trying to serve people at the workplace. In our Unum US business, it's oftentimes through brokers. It's actually all the time through brokers, can range in scale from all sizes across. It'll be a different sale. The Colonial Life side is much more on the smaller case side, may or may not use a broker as part of that process. The key thing there is that we're actually in control of the process about bringing people to the table, helping to enroll them using technology-enabled ways. That's a purely voluntary business.
You can think about these products as simpler, lower price points that consumers are seeing, really a great product to serve needs for people that really they can't get served anywhere else. Those are basic life policies, accident policies, critical illness policies that they really can't get served anywhere else. It's been a fantastic business, a good margin business. Tim Arnold and the team in Columbia, South Carolina, that run that business have done a great job of keeping it on a consistent growth path that we still see tremendous opportunities for them to continue to grow.
Okay. Attractive margins as well, right?
Attractive margins. I think it is that growth, getting to people at their places of work all across the U.S., we see that as the ability to expand our sales force just in terms of numbers, but also in terms of geographies, making sure that we can reach them all across America.
Okay. How does that business differ from Aflac's product set?
Without comparing too much to one of our competitors, it's quite similar. I think the model is similar in terms of how we go to market. They very much have a similar product set that we take out. I'm sure they'd say they were very different, and we'll say we're very different, but I think the basic model for the people in the room is similar in how we go to market. We like to think we differentiate ourselves in terms of relationships with those employers, so it's broader than just a product sale. We're looking to solidify the relationship we have with the decision-maker at that small business.
I think that that's where we hang our hat. I think the product set itself is similar. Not the same, but similar.
Okay. The Unum's U.K. business is smaller, and quite different compared to what's in the U.S. Can you talk a little bit about some of the challenges that business has faced, what they've done to turn that around?
Sure. The U.K. business is actually similar to the U.S. business and similar to the large case business in the U.S. It's a broker distribution at the workplace, 100%. Disability or there they call it group income protection, in terms of the type of product we serve and serves the numbers in the workforce. Penetration rates in the U.K. are much different than they are in the U.S. Here in the U.S., you'd see 30%-40% of the people being covered in the U.S. In the U.K., that's more like 10%-15%. The opportunity to protect more people in the U.K. is there. I think there's still changing perceptions around how much the government will provide in the U.K. with regards to if you do become disabled. The reality doesn't equal the perception at the moment, we're looking for that to shift.
The team has done a good job there. We're the leader in the group income protection in the U.K. Like I said, the business model looks actually quite similar to what we have in the U.S., and we can actually use some of the expertise we have on both sides of the fence. We actually import some very good practices they have in the U.K. as well to our business. I think that's a good, strong position that we have. The U.K. right now is challenged with Brexit, it's more the unknown of Brexit as opposed to anything particular to Brexit. Even before the vote happened a year ago, we started to see employment, and that's what we're caring about, is bringing new people to the workforce slowing.
Certainly after Brexit, we've seen very little in the way of hiring in the U.K., nothing in the way of wage inflation as that works its way through the process. For us, it's disappointing mostly in that we were actually seeing a good growth trajectory. The team is doing a good job of getting in front of more customers over there, we've seen that abate where we are today. So we're watching how that's going to play out. We see that very much as a slowdown in the trajectory of our growth. They also had some more difficult results in the first half of the year. We can't correlate that to Brexit, but certainly when those two things are happening at the same time, we're keeping a strong watch on our U.K. business.
Small piece of the enterprise, one we really like, high margin business, great market share that they have over there, and one that we want to grow when things settle themselves out in the U.K. It's a market we'll continue to invest in. We actually bought a dental business in the U.K. to add that product to the portfolio suite. Doing very well, growing very nicely, and that acquisition has turned out very well for us. Investing in the U.K. is something that we'll also continue to be interested in.
Excellent. Let's turn the discussion to Unum's capital position and the strategy around the return of capital. Unum has talked about a risk-based capital ratio in the 390%-400% range for 2017. Now, that's lower than many others in the life insurance industry, but I feel that's driven more by Unum's business mix. Can you expand a little bit more on that?
Sure. I think you're exactly right. It's more about business mix. I think when we've talked about our stated goals around capital, it's more 350%-375% even. So we're running in excess of that today. It is purely business mix. You kind of have to put it on two fronts. One is on the LTC side, as you talked about, and we're keeping plenty of capital there, but the rest of the business could actually afford a much lower RBC than is out there today, even at stated goal. So when you blend the two together, the 350%-375% is fine relative to our ratings levels and our expectations of running the business. We see even at 400% that we've been running at for a number of years, that's an excess position that we could bring down for the right opportunity.
That leads nicely into the M&A discussion. What are your thoughts there?
Yeah, M&A is something that we looked at. As I said, we first and foremost put it back into our core business, the capital we can, grow it as quickly as we can in a responsible way. The second is through acquisition. Acquisition comes for us on a couple of fronts. One is expansion. I mentioned that in the employer suite of products that they deliver, we pretty much are full today. We filled that out about, I guess it's just over a year ago, with an acquisition here in the U.S. where we now have a dental business. When you think of everything that's distributed at the workplace, not the healthcare and not the savings products, we want to be doing everything else to help serve that employer. We actually bought a dental business. It's growing nicely.
We just celebrated our one year past the acquisition, and they're on track to deliver and even exceeding the expectations we had set out for them. We did the same in the U.K. about two years ago, bought a dental business there to expand out the product set. Once again, doing very well, growing faster than we expected it would. We think that helps build out our overall product set. Once you do those two things, there's a few things left to do. We announced a couple of months ago, we're getting into the medical stop loss business in the U.S. That's a business that we'll do so in a very risk-managed way using reinsurance partners and underwriting partners there. It helps to serve the employer, although it's a product set that's probably different than many of our other products sets because it's not a consumer-driven product.
It's much more to help the employer. We still think it's a good thing that we can bring to the workforce to help that employer, to help that human resources manager to build out their overall portfolio. Once you get past that, it's fairly limited in terms of the numbers of things you can do to expand the portfolio. You have two choices. One is to actually look at consolidating acquisitions, and we would look at consolidating acquisitions, but we are realistic to know that those consolidating acquisitions have to be synergy driven as opposed to one that can be driven off of growth. Those are hard to do in today's market. Properties are fairly well bid. The second is probably geographic expansion. We think about other places.
How can we develop another U.K. business through partnership, through greenfield, less likely, and more likely through M&A? We think of other geographies around the world which we could actually start up and move our business along. Very similar to how the U.K. was done, if you go back a couple of decades to now being a great franchise we have in the U.K. All interesting, hard to do. There's not a plethora of properties out there to look at, but we certainly are spanning the globe looking for those type of things that we can do.
For the consolidation deals, would you consider those opportunities primarily to be bolt-on or perhaps something larger?
Well, I guess I'd call them consolidating deals we'll weave into the fold. It is nothing I look at more as our dental business as a bolt-on type business, right?
Right.
We brought that into leveraging our distribution, leveraging our knowledge. It's been a great business. The consolidating acquisitions that I'm referring to are much more, they do our exact same business today. We get a little bit of scale, maybe a little bit of distribution. The main driver in doing that deal would be that you can scale it up relative to where that business is today. That would be that type of thing.
All right. You talked about excess on-balance sheet capital. My guess is there's also be some potential debt capacity as well. Would the company ever consider issuing shares for a deal? Could it be large enough?
When I talked about the M&A set that we're looking, I don't think so, because it's just not going to be that type of deal that we would do or be of a size and scale that would get us outside of that realm. You've got to go back very quickly to the strategy.
Right
Say we don't see that deal today. We don't want to preclude anything.
Certainly, in the context I just set out for our M&A, the types of things we're looking at, that would not be necessary.
Okay.
You mentioned the RBC levels. I'd also highlight that our holding company, our cash levels, because our statutory earnings, just our core earnings, have been building up faster than we've been redeploying the capital, particularly over the last several years. We're sitting now pushing up over $700 million of cash to holding company with a needs level that we like to maintain of around $300 million. We have the firepower we need to do what we want. You mentioned debt capacity. We think we can do whatever we need to in an M&A market within our balance sheet.
Okay.
Expanding our balance sheet, but not to the tune that you talked about.
All right. If deals occur, we'd probably expect them to be pretty quickly accretive based on that.
If they are those consolidating type acquisitions, absolutely.
Okay. The company's been on track to achieve its $400 million share buyback target in 2017. In what type of scenario could there be upside given all the things you've mentioned?
It goes back to going through our capital deployment. It's something we have to look at very hard, and I think Jack McGarry mentioned on the last call, it's something we're going to have to explore with investors here as we get to December, I think, 2017. We're kind of running on that track. Not that we can't change it because we do have that excess capital. It's probably something as we look forward, how we may want to change or look at the trajectory that we have, and that's exploring all those options. In the wake of not having the right M&A deal for us, in the wake of not being able to grow faster than we are, and by the way, we're growing 5% premium levels, which is pretty good growth in our business today. We're happy with that.
The way the capital is building up, we're going to have to make other choices because it's not our goal to build up a tremendous amount of capital on the balance sheet for something else. We think we see our environment very well, and so we want to figure out how we can work with investors, but yet maintain enough to do that. That balancing act will be something we'll deal with in the December timeframe.
Sounds great, Rick. Why don't we go to the audience response system? The first question for the audience response system is, if you currently don't own shares of Unum or happen to be underweight, what would cause you to change your mind? We can start the countdown. The options are faster top-line growth, greater margin improvement, more aggressive buybacks, higher interest rates, reduced risk from the long-term care closed block, or a lower valuation. The response from the audience, 40%, the highest saying reduced risk from the long-term care closed block, and just behind that, higher interest rates. Can't really control higher interest rates. I think we've kind of already touched base on the long-term care closed block, and even with that drag, I mean, the company's ability to still generate strong returns on equity is evident.
Yeah.
Anything else you'd like to add to that?
I would just highlight, I think that we very much agree with folks on number 5, reducing that risk from long-term care closed block is something that our management team is very focused on. We completely agree on that.
It is interesting.
Higher interest rates, I'm with you on that one, too, I'm not sure that's an action item in there.
It's interesting, too, that only 10% said a lower valuation. The company's multiples expanded pretty nicely over time.
Yeah.
It's good.
No, I appreciate the feedback. It's good.
Next question, please. My return on equity expectation for Unum's overall business over the next several years is. We can start the countdown. In the first half, by the way, it was 11.4%, first half of 2017. Okay. The responses are coming in. Just over 40% saying an expectation of 11% to 12%. A third saying between 10%, 11%. I don't know. Feels a little low to me. What do you think?
Seems a little bit low. You put on there we're at 11.4 today, we'll continue to work on it, I think that we obviously strive for the far right-hand side of that page to figure out how we can continue to expand our ROE. I think there is some recognition that the closed block is a suppressant on the overall growth of the ROE. The ROE expansion is tough for us. There's no question about that. I think it's something that we'll continue to work on. This one very much lines up with the last question that says, if we can do something with the closed block, it will change this ROE expression.
Well, even if Unum can maintain its current ROE, it feels like there's some upside to sentiment there.
Yes.
Next question, please. My confidence level that Unum can exit its long-term care closed block. Tough question to answer, we've got smart investors here. A third saying neutral. People are really putting themselves out there. Okay. A third saying low and 20% saying very low. I'd say overall-
Pessimism on that one.
Yeah.
I think that the dimension that you don't have on here is time. I think that if you bring that in closer to now, I think we've said, and I just said earlier, that it's difficult, but time will help fix that, and I think as we work through that, get more data, markets change, more understanding of what's going on in the long-term care business, action around the industry, I think actually those percentages should move to the left-hand side.
Okay. Where do you think rates would need to be in order for there to be a transaction, perhaps more likely?
Yeah. Interest rates aren't the barrier. Interest rates, they certainly will help a lot to get a transaction done. Interest rates are quantifiable, and so we can bid and ask interest rates on a pretty close range. Everyone will have a view, but pretty close range given what's going on in the markets. The challenge is more just the understanding of the underlying business and buyers and sellers being able to meet on that front, just the underlying terms of the business. That's probably the bigger challenge. That doesn't go away immediately. I can tell you that the understanding of the industry has gone up tremendously over the last several years, and that will continue. People will get smarter, people will get more data. I think as you start to clear those hurdles, that's when transactions get done.
Remind us what Unum's margin trends have been in the closed block.
Margin trends?
Just earning trends flat. There's two pieces to our closed block.
It makes money, right?
Well, actually, the underlying business itself is breakeven, we went into loss recognition of the business. It's breakeven. The money that it earns is really the earnings on surplus behind it.
Okay.
We took that recognition a number of years ago, back in 2011, that this was going to be a breakeven business. Now, we're changing the dynamics of that, trying to return it to its profitability through raising premiums along the way. I think that's where we'll expand the margins in the long-term care business. It's from a very low level to something that's actually more reasonable for investors. Once again, that's an interim process. It's not a business that we want to continue to be in.
Okay. Next question, please. Which should Unum pursue more of? Let me start the countdown, whether that's organic growth, acquisitions, share buybacks, dividend increases, or none of the above. The responses for that question are somewhat balanced. A third saying more organic growth, a third saying none of these, and share buybacks getting the next largest response at around 20%.
Yeah, I'm most interested in none of the above.
What else is out there?
Generally, investors don't ask you to do something, but I think that maybe there's some commentary around making sure we have plenty of capital to do what we need to from a structuring perspective, speculating a little bit. I do think the organic growth is something we're most focused on, is how do we continue to protect more people across this country and the U.K. Also the share buybacks. We do have excess capital that we're looking at, and so I could understand how people might say that as well, and that's something we'll address with investors as we get towards the latter half of this year.
Great. Do we have one more question for the audience response system? I think that was the last one. I'm sorry. We do have one more.
I know it says Hartford, but we could pretend like it's us.
That gives you my limit. Two screw-ups on my end per presentation.
Who else can we bring in? No, that's fine.
Let's see if the audience has any questions. Question right here, please. Please wait for the mic.
Certainly, every industry gets asked questions about big data, I'll just ask you one if that's okay.
Sure.
Certainly been a lot of discussion in the benefits around companies using data to figure out which benefits their employees are actually using, and even discussion around using that data to try to allow employees to customize what they're actually paying for in the menu of options. Love to hear if you see that going on in your industry. Does that cause you some threats? Does that create opportunities? How you think about that.
Well, I think it actually is a tremendous opportunity when you bring that together because oftentimes, as employers are structuring some of those choices, it's an education process with their employees. The more that we can do to educate the workforce that they need our type of benefits. I'm speaking about disability or other protection or voluntary benefits. The better off we as a company are, the better off the consumer is. I'll give you some basic facts that one in four people in their working lives will become disabled greater than six months. People don't know that. That's why I think it's something that we have to get that word out, that it could happen to you, and it's insurance. Most people understand the need for life insurance, whether they choose to do it or not.
When you get into disability or you get into voluntary benefits, that education is critical. That's where big data can really help to bring us to that consumer so that at their point of decision where they have to sign up for it, and we're talking about a plan where the employer is not providing. We still have a lot of employers today that are providing these benefits to their employees. When it's an employee choice, that education process To bring them to a consumer like you should own X, Y, and Z, gets them to that point of decision that they may not today, because they may not understand the risks, they may not know that these voluntary products are ones that will serve them and their families well.
I think big data and education around that comes back and actually does help us a lot, because I think the fundamental is people need these products. The more education, the more research an employer does as they're offering that, will point them in more direction to actually offer these. Not that they necessarily have to pay for them, and that's the big thing, the perception of employers. They don't have to pay for them. They just have to provide the opportunity for their employees to be covered. These can all be paid for 100% by their employees. Just providing that opportunity has real benefits to the employer to talk about them offering benefits to the workforce. It's a good question. We think about it all the time.
Just when you talk about geographic expansion, how do you think about the risk of entering geographies when sometimes people trip up when they go outside the market?
Yeah. I think you are talking about global expansion as we look at that. There are 2 types of geographic expansion we are thinking about in the company. One is Colonial Life, which is U.S. global expansion or U.S. geographic expansion. That one is straightforward. Hopefully, that is not the one you are talking about because we are moving quickly. We think we understand the risks around the country. Global expansion is one we are careful about. I should mention that our company has had operations in a handful of countries around the world at different points in its legacy. We had operations in Canada, in the Netherlands, South America. We have been there before. In the earlier part of the 2000s, those investments were brought back in, given some of the other things the company was working on.
We know how to do this, but it will be where we do so in a very well risk-managed way. This is not an exercise to get out and just expand geographically for the sake of it. It would have to be a very clear strategic view. It would have to be done most likely through acquisition as opposed to building something greenfield, and we are very cognizant of some of the risks it would take. Although I would not call us someone that operates on a broad geographic, a global geographic footprint, our operations in the U.K. give us a sense of what can be some of the differences you have between different geographies, regulators, et cetera. That we are, I think, fairly wise to those types of decisions. I appreciate the question.
Final questions?
Yeah. Given that small businesses seem to drive a disproportionate share of employment growth today, I am just wondering, are there any different underlying trends in terms of the number of those types of employers that offer disability or other voluntary benefits as compared to the larger group employers?
Yeah. What we see, it depends very much on the employer type as well. As a small company forms, is it much more of a white collar type business? Is it a manufacturing operation? What is it? You can't generalize too much. Certainly all small businesses today see the ability to offer benefits to their employees as being important, particularly to the thing I was talking about earlier. They don't have to pay for it. If you're a small business owner and you want your employees to be covered, we'll come in and do that work for you. I think that's a trend that we've seen. For us, it's getting more education out there, getting more feet on the street, and we think that that's a good part of our growth.
Small businesses are a key part of our franchise that we have today, and we see that continuing.
Excellent. With that, please thank me in joining Rick McKenney from Unum.
Thanks, everybody.