All right. Well, good morning everyone, and welcome to the Unum Group 2016 Outlook Meeting. Just to know you, this is the Unum meeting, it's not the New York Mayor's meeting. We appreciate you fighting through the crowd to get to our corner of the meeting room here. We certainly want to welcome everyone here. I'll dispense with the reading of the safe harbor statement, but just to let you know that is there. In terms of the program today, very similar to what we've done in the past. You'll hear presentations from Rick McKenney and Jack McGarry, on a corporate level. The heads of our three core business segments, Mike Simonds, Peter O'Donnell, and Tim Arnold will present. Jack McGarry will come back up and cover the closed block, then our outlook for next year.
We'll have all of the Q&A at the back end of the meeting. We'll handle things that way. I'd also point out we have a handful of other corporate officers here today who will not be presenting. They will be available for the Q&A session. You see Breege Farrell, Joe Foley, Steve Mitchell, and Steven Zabel listed. Chris Pyne, over here. Chris heads up our Unum US sales efforts. Chris is in attendance and will be fair game in the Q&A session when we get to that. In terms of the agenda, we'll cover kind of quickly the financial performance, the three business segments as well, then the closed block, the investment, then the 2016 outlook. As I said, we'll close up with the Q&A at the end.
With that, let me go ahead and get things started, and I'll turn it over to our president and CEO, Rick McKenney. Rick?
Great. Thank you, Tom. Good morning, everyone. We really appreciate having you here, those that are here in the room, as well as on the webcast. I think we've got a good story to tell you about what we've accomplished in 2015, as well as how we're looking at 2016, some of the variables that we have out there, and some of the things that we're going to continue to work through over the course of the year. We look very optimistic about what's coming up in 2016. Let me start out with a quick view of who we are. What you're going to see are themes that weave their way through all of the presentations today. We have to bring you back to understand who we see ourselves as a company, what we do, how we operate, and how we think about this business.
First of all, we're a leading provider of employee benefits. It's what we do. We're at the workplace today. We think that that's a great place to continue to distribute our products, to continue to protect people across the board. One of the things that we do a great job on is actually protecting people in challenging times. Making sure that we're there as the empathetic voice, if somebody's going through something challenging. We see that in the culture of the company. It's what we do. We do it exceedingly well, and it's something we'll continue to do and use that as a value proposition to bring out there. The other thing you notice over the last several years, and we'll show you some charts on this, is being a very disciplined operator with consistent performance. It's part of what we do.
We think about that in terms of how we serve our customers, stability to our distribution, our brokers that we have out there, our different distribution agents. As an operator, it continues to be an important thing. In this market, which travels over cycles that can lengthen over time, it's important that you be that disciplined operator. I think we're well-known for that. Lastly, something that our shareholders have come to appreciate. We see ourselves as shareholder friendly. We've bought back a lot of our shares. At the same time, we've continued to increase our dividend. We think very much about being shareholder friendly and being transparent with our shareholders, and at the same time growing the company. It's not just about one or the other.
I think being able to be a consistent shareholder friendly company, at the same time growing the company, is something we want to continue to do. You'll hear a lot about the growth today, some of the things we've seen over the last year, how we see that going forward, but at the same time being shareholder friendly. It's not one or the other. We think it's both. Let me wrap up and say that Jack will give you some of the details, but we're very much on track for 2015 as we close up the year. As we look to the outlook for 2016, we actually see a little bit better environment and Jack will take you through some of the dimensions of that. 2016 actually is one we see improving for the company.
For those of you less familiar with the company, I'll take a second to take you back to the diversity that we have within the company. We are often known as a disability company and what we do, and we do that very well. I think we have diversified over the last many years to be a broader company that serves employees and then their employers at the workplace. You can see on this pie chart, if you look at the left-hand side, a group disability business that's still about 20% of the company, but actually has grown to 16% being in life and AD&D, and then importantly, 24% of the company in supplementary and voluntary benefits. That's Unum US. Mike Simonds will take you through some of that and what we see going on in the marketplace there.
You'll hear from Peter O'Donnell today on the U.K. business. It represents about 10% of the company. Great dynamics that we have there, doing what we do very well in the U.S., as well in the U.K. Tim Arnold on Colonial Life will take you through, it's almost a quarter of the company today from an earnings perspective with great potential in terms of what we do. Lastly, the closed block. We'll spend some time on that. Jack will take you through that. I want to make sure we exhaust any questions you have there, but I think it's a business which is in a good place, a good stable place from where it's been over the last several years, and Jack will take you through the details. That's the company overall.
As I mentioned, diversified, still at the workplace, but we do many different things for the employers and their employees. When we think about the company today, we launch from a very strong position, both from a distribution as well as the type of protections we provide. On the left-hand side of this chart, you can see our market leading positions. As I mentioned on the disability front, a leading position we've held over 30 years on the group and individual side, but also very strong positions in group life and voluntary benefits. Voluntary benefits is the one that is a growing market. Continues to actually see more shift from the employers paying for items and actually shifting to the employees. That's a place that we're well-positioned.
We'll talk about that today, both on the Unum US side as well as through Colonial Life which is through our agency force that we have there. Lastly, in the U.K. business, a group income protection, similar to our group disability product that we have in the U.S., a leading position, a healthy market share. Those strong market positions are important today because we still see the opportunity to grow, to protect more people at the workplace as being a key place that people will continue to derive their benefits. On the right-hand side, you can see today that from a distribution perspective, the workplace is the leading provider of actually giving people access to life products. You can see 78% of all life products are actually obtained at the workplace and 90% of disability.
The workplace, given its scale, given its diversity, given the fact that employees actually look to their employers to do vetting, to actually create a trust proposition with carriers, is something we see as the most powerful dynamic that we have from getting people to that type of product they need, the protections they need out there going forward. A little bit about the company and the culture that one of the things that we focus on very much is about thinking about how we protect people when they need it most, and a couple of statistics to show you about how we do this at scale. Last year as a company, we paid out $6.7 billion of benefits to individuals. These are individuals at a time of need, at challenging times in their lives.
I think it's important that we think about taking care of those people at that challenging time, doing so in an empathetic way and making sure that they actually see the value of the protection, because as they see that, you'll actually be able to protect more people, and we see that continuing to be part of the value proposition we have out there. The other piece is, you would see this being referred to in articles, 178,000 companies actually use these type of benefits to attract employees. When you think about the world today and a lot of discussion on how the employer dynamics are changing, there's still a lot of companies, most companies out there today that see benefits as part of the way they will attract and retain employees.
As you look to the world in an improving economy, as people are actually trying to be more competitive in how they actually attract employees, these type of benefits will continue to play. Overall, we protect 25 million people today. Importantly, got 230,000 or almost a quarter of a million people back to work. That's one of the things when you look at the group disability side is how do you not just get people and protect them, make sure you take care of them financially, how do you be their advisor? How do you actually get them back to work in a productive way in short order? That's good for us. It's good for the individual. It's good for everybody to make sure that that happens. This is actually a foundation of what we do in the company.
It underlies all that we do. With that as a carry forward, we'll talk about where the potential is. One of the things we don't talk enough about is what is the potential of the company? Where can we go? What are the different dynamics in the world today that are taking us there? One of the places is actually the small business world. Small businesses today are under-penetrated in terms of what they actually have for offerings to individuals. Oftentimes, that's not going to be a standard group policy. Oftentimes, that can be more on the voluntary front where the employer does not have to pay for that if they're in a 100-employee type business. We see that as opportunity to continue to grow in the voluntary benefit space.
Another dynamic you see is actually the movement towards high deductible health insurance plans, creating gaps for individuals as part of the deduction, and how do we actually have products that fit well in that? We'll talk about that a little bit more going forward. One of the things to highlight is actually both in the U.S. and the U.K., we have employers and employees that actually believe in our coverage, is how do we actually protect more people at the workplace? Getting them to the choice to protect themselves, to protect their families. We think that actually penetrating deeper into the employers that already have our products today is another area where we continue to grow using technology, using some of the actual dynamics of consumer behavior to actually be able to grow more and more in different employers.
The last thing I'd say, which is important about the company and our potential, is actually we are leveraged to an improving economy. You saw yesterday, Janet Yellen, after 10 years, we have raised interest rates for the first time. We don't have high expectations in terms of what that will change, but it is a sea change in terms of what's going on today. We are a company that is very levered to an improving economy, wage inflation, and you'll start to see that. We've seen a little bit on the employment front over the last several years. We still look for more from that perspective as well as wage inflation in the coming years as well. Couple of charts to actually talk to you about our financial performance.
Underlying that is the people that we protect, but I mentioned the disciplined way that we do in consistent performance. You'll see that in our earnings per share that we've grown through a very difficult environment, and I'll talk about that in a second, as well as our book value per share. In the earnings per share, you actually can see volatility behind the scenes for many companies. We've been very consistent, but what we have done consistently is grow our book value per share. That's a combination of both growing the value of the company as well as buying back some of our shares, returning that capital to our shareholders.
You'll see it about 8% in our book value per share going back to 2008, so through a very difficult environment, continuing to grow our book value per share in a very steady and consistent way. I mentioned the shareholder-friendly aspect of things. We actually almost 35% of our shares have been retired going back to 2008. It's something we've done very consistently. When our share price has been down, we've bought more. As our share price moves up, we continue to buy at a very rational, metered pace, and we'll continue to do that as we look forward. Jack will take you through some of the dynamics as we look into 2016, but we continue to believe that that's very important. That in combination with a dividend history where we've seen increasing dividend rates.
We believe increasing our dividends as we continue to grow our earnings per share continues to be part of what we see as a story and a consistent return of capital to our shareholders over time. Just a quick second, I mentioned the different businesses and different leaders. Just to take you through our company leaders over time. We as a company in the last five years have gone through a transition of many of our leadership roles. Many of the people you have here on stage you're familiar with, but I thought I'd take a second just to introduce the management team. One of the things about our business, I talked about the cycles that we go through. We have incredible depth of knowledge about our businesses that we operate in.
You combine that with a few people that we brought in, myself included, over the last 5 years, that brings in some outside perspectives, and we think we have a great team to take you forward. Our team will talk about that today, but it's a great combination of real depth as well as some new enhancements we've had to the team over time, and we look forward to this team taking forward this company as we go. Let me wrap up with just a couple of comments around what the world has been. One of the things you think about our company and those charts that I've just showed you about the ever-increasing EPS, the growing book value per share. The reality is, as you look over the last 5 years, the last 7 years, we have been in an environment extremely low interest rates.
That's not a new story. Wage inflation has been non-existent. It's actually deflated in early times and is pretty neutral today. Economic growth has been weak over the last several years you look back. Long-term care as an industry has had real challenges. In the wake of that environment, we as a company have grown, as I mentioned, book value per share 8% over time. Our capital levels have been very strong around the 400% level. You look at our ROE at 11%-12%, been very consistent, very steady through that period of time as we've generated the cash to continue to redeploy towards capital, to continue to redeploy towards growth. We've returned $4 billion of capital to our shareholders over that period of time.
The reason I tell you that is when you look forward and you look at the dynamics on the left-hand side of the page, we actually see them changing. Yesterday was an indication, and we don't know at which rate, but actually we see rates that will come up over time. We see wage inflation coming back as the economy gets a little bit better. Long-term care we'll talk about, but we see that as being a little bit more stable as we've continued to take the actions necessary to improve the dynamics of that block of business. We get pretty excited about what we have going in 2016 and into the future and what we have. I'll just wrap up by telling you about the dynamics of this business, which are so important. Our operating businesses are great businesses.
They're in good market positions, in markets that have the opportunity to grow. We do all of that with a very solid financial foundation and knowing that we have leverage in these environments to an improving economy, to rising interest rates. Although that world may change, we actually can manage very well in a very difficult rate environment. We'll talk about that, but we think in all environments we're in a good spot to continue to grow this company, continue to protect more people and take the company forward. The last slide I'd give you is actually our outlook for 2016. Jack will take you through some of the details of this.
As we've done now over the last several years, we take you through all the dimensions of what we see over the course of the next year in terms of the growth rates we see from sales, all the way through premiums, our operating margins, down to what we see from an overall earnings growth as well as capital management perspective in our ROE. It's actually something that we put out there. We've actually been very consistent operating within these ranges for a long period of time. We also highlight the normalized, as this economy improves a little bit, interest rates come up a little bit. We actually see more potential for growth ahead of you, and Jack will take you through that. Without further ado, let me turn it over to Jack McGarry to talk about 2015, 2016, and some of the dynamics. Jack?
Great. Thank you, Rick. Good morning, everyone. I want to start with just a quick overview of 2015. No surprises here. We continue to expect to finish 2015 in the lower end of our 2%-5% range that we stated compared to the 351 in 2014. Again, we're very happy with the growth trends we've seen, strong sales thus far within 2015, and strong top-line growth in premiums. Generally solid benefit experience and pretty consistent. We continue to have pressure from the interest rate environment. Hopefully, some of the moves the Fed yesterday will continue and help to relieve some of that pressure. Importantly, we see no special items happening in 2015. No reserve charges coming up, no long-term care charges. In addition, we don't see taking a change in the LTD discount rate either.
From a capital position, our risk-based capital continues to be strong, continues at the upper end of the range, and we expect that to continue throughout the year. We do expect to make a contribution to First Unum at the end of 2015. That's in the $75 million-$100 million range. That's sensitive to interest rates. It's a spot rate at the end of the year. That's the range should interest rates stay pretty close to where they are currently. The other thing I'd note is in the U.K., the U.K. got approval for the Solvency II internal model. That was a big deal. Solvency II, there were 120 carriers in the U.K. that applied for the Solvency II internal model. Only 19 of those carriers got approved. Unum UK was one of them. They also got approved for the volatility adjustment and the transitional measures.
Those help our capital position. It essentially translates into a smooth capital position from the old regime into Solvency II. Those measures last a long time. They amortize over the coming 16 years. As a result of that, the transitional measures as well as the approval of our internal model, we have a very strong capital position in the U.K. currently. Finally, we've repurchased 400 million shares. To date, we expect to remain in the market through the remainder of the year. We did do a $54 million acquisition of a dental property in the U.K., and we increased our dividend 12% in 2015. That puts our dividend payout ratio just under 20% as a company, and our dividend is spot on with the S&P 500. You guys probably get tired of this slide. I never do.
It reminds me of the consistent performance we've had over a long period of time in a very difficult environment. Actually, normally before this slide, I would give you a reconciliation of 2015 actuals year-to-date to our outlook. We skipped that today because the year-to-date results were spot on the outlook. There really wasn't much to reconcile. If you look at the reconciliation we gave you last year in the outlook, that's pretty much where our results are year-to-date. The other thing I would point you to is the 8% compound annual growth rate and book value per share. I'd note that that 8% growth rate is in the wake of two significant reserve charges in long-term care. In addition, not only have we grown book value per share like that, but we've also held a steady return on equity during that period.
From my perspective, growth in book value per share with a steady return on equity is a recipe for share appreciation in any model I've ever seen. Return on equity, again, at the 11.3% range, in that 11%-12% range that we target, we feel very good about that. Again, reiterating, we feel really good about our growth results in 2015. Unum US is actually above their range on sales. A little note of caution, the fourth quarter of 2014 was an enormous quarter. It was 25% growth over 2013, we have a very tough comparison coming up in the fourth quarter, both for Unum US as well as Colonial Life. Year-to-date, 8% sales growth. All of our businesses, including the U.K., are showing sales growth. That sales growth is translating into premium growth.
Unum US and Colonial Life are both above the high end of their range, that's been really helpful from an earnings perspective for us as well. Benefit ratios have shown improvement in almost all lines. Little different reasons for it across the group. In Unum US, we've had favorable risk results across the patch, particularly favorable risk results in the voluntary business. It's also driven by a mix of business changes. As we write more voluntary business, it becomes a bigger piece of our in-force block. It has lower loss ratios naturally, that helps to reduce those loss ratios. Colonial Life showed improvement again. Colonial Life, I'd say, is at the low end of their loss ratio range, a very favorable 2015.
We continue to expect it to operate in the 51%-53% range wouldn't be surprised if that drifted up a little bit in 2016. The U.K. had significant improvements in loss ratio since 2012. Two reasons for that. One key driver is the actions we took on the group life block in the U.K. The repricing actions, the tighter underwriting actions, significantly improved loss ratios, that's a big driver of that improvement. The other driver actually is the RPI or index-linked policies that they have in the U.K. It's reflecting very low inflation and lowering inflation in the U.K., actually some quarters with deflation, in 2015. About 50/50% improvement. Half of it is the group life actions. Half of it is the RPI actions, which get offset by lower interest rates.
Turning to our capital generation model, we're happy to say that it's still intact. We have had strong statutory income during 2015. Strong statutory income in the U.K. as well. Good capital generation. Our uses of capital are going up a little bit, though. If you'd looked at the model versus last year, we're now at a $200 million a year capital use for interest and growth. Growth is absorbing capital. As we continue to refinance some of our debt maturities and maintain our leverage ratio, our interest expense is going up a little bit. Again, generating $550 million to $650 million of free cash flow every year before dividends. We'll continue to use that for dividends, and we'll continue to look for stock repurchase, barring opportunities coming up in the mergers and acquisitions market. I'd note we started share repurchase earlier than most.
Over the past eight years, we've repurchased over a third of the company in share repurchase. I'd compare that to our peer average over the same period is under 20%. It was an early start, a consistent execution over a long period of time. Again, our dividend rate has been increasing steadily. $4 billion returned to shareholders since year-end 2007. We are currently at approximately a 400% RBC. We expect to be well within the ranges that we targeted for 2014, again, and even toward the upper end of the risk-based capital range by year-end. Risk-based capital has been very steady for a long period of time. Holding company cash, we target to be above one-time fixed charges. We're well above that currently. It is a little bit lower than where it was near 2010. A piece of that is because we have a credit facility.
We're a member of the Federal Home Loan Bank, we have other access to cash and liquidity should it come needed. I want to talk a little bit more about the interest rate pressures in LTD, since it's such a big factor for us. In first looking at our underlying experience in LTD, we've had very consistent incidence rates throughout the recovery period, and we've had significantly improved recoveries over that time. Those stable interest rates with strong recoveries have generated tremendous results. We are well above the industry average from a margin perspective in our group disability lines. We expect that to continue because of that disciplined performance. The industry actually in 2012 to 2013 showed an improvement. A piece of that is some of our competitors having fixes in their blocks from prior growth.
I would say as that blue line begins to dip down a little bit, that's the pressure you see from interest rates. I want to talk a little bit more about that in detail. We have been very effective, I believe, over the time in managing interest rate pressures, we've done that through pricing flexibility and putting additional rate in the markets. We've done it through adjusting our discount rate, we've done a good job of timing those things consistently to produce a consistent loss ratio on the business. That's helped out by the fact that we have manageable investable cash flow. Our portfolio doesn't turn over that quickly, that's also allowed us to be disciplined in our asset selection. You can't avoid the fact that new money rates have been down significantly. They've been down for a while, that continues to put pressure.
It would put pressure in two places. One is on the interest rate margin, which actually with the decreases in discount rates that we've had over time, we've maintained and actually grown our interest rate margin throughout this period. We're at the high end of that margin. We target a 60 to 90 basis point margin over time. We're at the high end, so we believe we have flexibility. We've seen spread widen. We've seen some rebound in underlying interest rates. We feel very good about where we are between our discount rate, new money rates and our margin in a comfortable position. Something that's not as clear, however, that has an impact on LTD earnings, is the fact that our reserve levels have dropped. That interest rate margin is earned on the assets backing reserves.
Those assets backing reserves have dropped because of the strong recovery rates and the stable solvency. That puts earnings pressure as well. We continue to manage that. Part of the rate that we put through into the market is driven by the interest rates, but it's also driven by that dynamic, that kind of spread portion of our business is shrinking over time. Finally, looking at closing comments, again, a good 2015, very consistent with the guidance we gave. We will continue to be focused and disciplined in our execution in the fourth quarter and going forward. Feel great about the sales momentum we've seen in 2015. Feel great about the premium growth we've seen, so that sales momentum combined with strong persistency. Would note, though, that growth takes capital. It puts a little more pressure on the capital generation model.
Our core business generates best-in-class margins and extremely strong return on equities. Again, that low interest rate environment continues to be a headwind for us. With that, I'm going to turn it over to Mike to talk in more detail about Unum US.
Thank you, Jack. Good morning. In the next couple of minutes, I just want to touch on three things. First, provide a quick snapshot on the Unum US business today and what I think is a very unique position that we have in the market. Second is to talk a little bit about that market and where we see the growth opportunities based on some of those trends in the long term, but also talk through some of the short-term pressures that we're facing and how we're navigating those. Finally, talk about our plans going forward and how we plan to leverage our position, and I think it is a unique one, take advantage of the trends that are in the market to grow the business profitably. Unum US is about a $5 billion employee benefits business. We do financial protection at the work site.
It's all we do. I think that focus has helped us develop that unique position where we've got leading market share across all of the businesses that we're in. You see the growth, and Jack highlighted some of this. You see the growth year to date across each of the operating segments. Strongest growth for us on the sales front and earn premium front continues to be in the voluntary benefits business. In aggregate, when you pair those sales up with strong persistency levels, we're growing premiums right in that 4%-7% range and consistently generating a 12%-14% operating ROE. Our focus is on maintaining that level of return and doing it in a consistent and predictable fashion as we've done over the last several years. I'd highlight two factors when we talk about our leadership position and the drivers of that position.
I'd say they're experience and scale. The experience shows up in the expertise that we've been able to build as a firm over time, over 2,500 folks in our claim operation alone, to give you a good example. We've been able to build, in a lot of cases from the ground up, expertise in our staff to deliver that superior claim experience, the predictable outcomes, the improving recovery rates that Jack highlighted. Also, the unmatched risk management expertise when it comes to underwriting and pricing the business. There is complexity to doing the business well and having the stability and consistency of the employee base and such a strong professional staff helps us and plays out that way. Scale, I would say, plays out in a number of different ways. At first, it allows us insights.
We've got a book of business and the data to understand claims across all different sectors, geographic regions, different plan designs, and leveraging that data to be able to predictably underwrite and choose risk. Also increasingly, it's data that's allowing us to understand consumer behavior. What types of employee groups, what plans are going to make sense for them, and at what rates are they likely to both participate initially and persist over time. The scale that we have in being a market leader across all the product segments really helps us sharpen our focus and improve our decision making. Having scale in the business is also critically important when it comes to investing in technology in particular.
As our business shifts from being an employer paid and a one size fits all benefits plan to being a consumer driven set of choices, that injects a lot of complexity and work into the process. Work that you can't handle on a manual basis. You need the technology to be able to service the business effectively. The scale that we've got being a market leader across these lines and increasingly putting together both the Unum and the Colonial Life brands and investing in things across those brands, I think gives us a good advantage going forward. The third element of scale that I just would highlight, and we'll hit it in just a second, is Rick highlighted our disability leadership. Over 30 years being a disability leader, which is great.
One of the advantages that it's given us is the broad footprint of employers where we have an existing relationship. You sort of see the number of LTD employers that we have out there relative to the competition. Those are primarily driven by, as you would expect, smaller employers, but all the way up into the Fortune 500, Fortune 100, we've got a strong presence. Taking that footprint and growing those relationships over time is a big part of our growth story going forward. That's Unum US at a glance. Maybe we'll just take a second and talk about some of the trends in the market. If you just take our businesses and you look at the traditional group insurance and voluntary benefits market, you see growth, but relatively modest growth at about 3%. That's gone through a pretty difficult period.
You think about the sort of sluggish growth in actual full-time jobs, the sluggish growth in real wage inflation. I think that's sort of dampened the overall market a bit. I do think there's also pressures when it comes to the profitability of the industry, Jack highlighted LTD specifically, but it goes beyond just that product where low interest rates are certainly a pressure item for the industry. I would say market pricing, we saw adjustments from a hardening, I would say, in 2013 and 2014. I'd say that's mitigated a bit as we've worked our way through 2015. I think a number of carriers have sort of feel as though they've repriced their book to where they need to reprice it. I wouldn't say that it's dramatically softened, but I wouldn't say that upward price trend is continuing.
That kind of a pricing environment is going to play into the sales outlook that we'll talk to for 2016. I think some good long term, but growth opportunities, but short term, a little bit more pressure. Underpinning the longer term growth opportunities is this voluntary benefits market. The overall cut's about 3% growth. If you carve out the voluntary piece, it's growing closer to 5%, which is great. Increasingly, benefits brokers, those are the pie charts in the middle. Your traditional employee benefits brokers are getting involved. The voluntary benefit, which might have been an add-on in years past, is a mainstream benefit today. Like Rick mentioned, as high deductible plans become more prevalent, that creates gaps for the average employee consumer, and that's where the voluntary benefits programs fit in.
If you think about it, an employer is going to want their advisor for their overall benefits strategy to think about each and every component of that strategy, and voluntary benefits is increasingly a part of that, hence the growth that we're seeing as an industry in the traditional benefits broker as a distribution for voluntary benefits. To highlight real quickly some of the gaps that we're seeing on the healthcare side Kaiser Family Foundation came out with their annual report. If you look at families that have coverage through their employer, one in five are in a high-deductible health plan that has a deductible of $6,000 or greater. You think about how the average family working in the U.S., living paycheck to paycheck with a $6,000 plus deductible.
Clearly, they're not going to be able to carry all that risk on their own personal balance sheet. That's where voluntary benefits can very often fit in, and we see that as a long-term growth opportunity. A big reason, the final pie charts that you see all the way over, why a greater and greater percentage of our business is driven by voluntary benefits. It's gone from being just a little bit over half to almost 70% of all our new sales are voluntary benefits. I think the Unum brand has long been associated with disability insurance, and disability remains important to us. Increasingly, we are a broad benefits provider with a leadership stake in voluntary benefits specifically. Given our market-leading position, given the growth opportunities that we see in the market, what's the work that we're doing to grow profitably over time?
We try to keep it pretty simple, just looking across the top of this graphic. This is a chart we use internally. We see three key ways that we can grow in a profitable way. The first is pretty simple. You offer a voluntary or employee choice sets of plans. You have some employees that choose to participate in those plans, some that choose not to. We are investing in getting smarter and better at educating consumers and getting greater percentages of those employees to participate in the plan. Second, it's that base of clients that I talked about, a good footprint that we have. We average about 2.4 products per client today. We think we can grow by cross-selling our existing client base. Increasingly, we're using collaborative partnerships in the market.
A lot of times these are product distribution and increasingly technology platforms that are helping us deliver a superior value proposition into the market. We'll talk just a little bit about that. Taking each of those just very quickly, what you see is just a pretty simple example of how we take our database and translate that into a little bit more of a personal and customized benefit recommendation to a prospective employee. Here we use employee demographic data and medical plan information to help tailor the type of choices that might make sense. We spent 2015 with a bunch of pilots in the market trying some of these different approaches. We're very encouraged by the results. We're going to be institutionalizing and scaling up these consumer-driven practices and taking them to market in 2016.
We're hoping to see and expect to see increases in participation, which will drive growth. You think about the type of growth that comes from a plan participant increase, that's really good, strong, profitable growth for us. Growth through participation. Second, it's about growing through our existing client base. You see here very strong industry-leading persistency numbers. Once we get an employer client, we tend to keep them over the long term. What we are doing with increasing effectiveness over time is once we have that client, is growing through cross-selling. You see to the right side of the chart, the percentage of our sales that are coming from existing employer-client relationships, that continues to increase over time. We continue to make investments in products and in technology and process to improve and better bundle our products over time.
We see this as a really good channel for growth. If you think about growth that's going to come from an existing client, lower acquisition cost, right? You're typically already serving that client. Number two, it comes in more favorably priced. They know us. It's less likely to be shopped aggressively. Third, it drives greater stickiness, right? The deeper the relationship that we have with that employer, the greater the likelihood that they're going to stay with us over time. Growing within existing clients is really important. The third element of the strategy is establishing partnerships with best-in-class providers in the market. You guys would've heard a lot about things like private exchanges. We're certainly involved with those. More importantly and more generally, technology is improving when it comes to benefit administration and HRIS.
The ability of use the cloud to come down market. More employers are getting access to really good, strong technology to help them manage their people processes. Our ability to plug into those providers provides a really nice opportunity for us to hit parts of the market that we haven't hit before, and do so more efficiently and effectively. It's important to note that we manage the technology that drives these connections through a center of excellence. Both Tim's business, Colonial Life, and the Unum brand in the U.S. can make those investments once and get the leverage across both brands. As we turn and look to 2016 and the outlook, what I'd say is, overall, the results that we've achieved give us a lot of confidence looking forward.
We think the strategy is a sound one, driving up participation, growing within our clients, and establishing strong partnerships. We could actually just flip right to the outlook. We're looking at 2%-4% sales growth year-over-year. If you think about what our average annual growth rate has been over the last three years, it's actually been high single digits, actually just about 10%. That, I think, is a function of the ability to write a fair number of new clients as the market hardens. I think our outlook from a pricing perspective is that as we continue to raise rates about mid-single digits, that the gap between the market and where we are has expanded just a bit.
That tempers our expectations, particularly in the group insurance line, but feel good about 2%-4% growth rate and believe that's going to be very consistent with what we see in the market overall. That paired with continued strong persistency despite the size of the renewal program, as we continue to put rate into the book, generates a very strong premium growth in the 4%-6% range, and operating earnings in the 1%-3% range. Finally, we do expect operating ROE to stay very consistent with where it's been in that 12%-14% range. In summary, we think our management philosophy of remaining very disciplined in our risk management while investing in the areas that we believe we can achieve long-term, less price sensitive growth, is paying off particularly well. With that, I will turn it over to Peter O'Donnell.
Thanks, Mike, and good morning. Rick talked about being a broader employee benefits provider for the enterprise. In 2015, the U.K. took an important step towards fulfilling that corporate goal with its acquisition of the National Dental Plan, whilst continuing to deliver on its core group risk products and building momentum for growth. I think you're going to hear a little bit about us shifting gears from the U.K. today as you go through this presentation. This sets out, as Mike did, a sort of summary of the business snapshot. In summary, if I was summarizing 2015, growing top line and bottom line whilst delivering that very strong ROE. I'll come back to the sort of capital base that Jack talked about in a minute. Just turning a bit to look at where the growth is coming from.
You'll see the pie chart on the right. We're growing our income protection book, that's primarily getting new customers to market. We're focused on growing our core group life and our critical illness product, that's about taking market share. It's a supplementary and voluntary line that I've been jealously looking at Mike and Tim's businesses for, where you will see the National Dental Plan acquisition begin to impact on in 2016. You'll start to see growth come through that supp and vol line as we look forward. We still remain very disciplined around particularly the large case life. We see that as a very competitive market. Pricing's always very tight. We see a number of our competitors come in to take sort of volume in that space, and it does continue to shrink somewhat.
That's an area that we'll continue to maintain those margins because that's where that discipline comes in. Looking at our vision, first of all, then to stand back from the business. Similar to the enterprise, we're working Britain, we're going to be at the workplace. We're going to be the first choice. Service really matters to Unum U.K., Unum US, and Colonial Life. It comes in two ways, really. In our income protection product, we have the claims experience. It's about the quality of that claims experience. You can charge a bit of a premium for that. In the more commoditized products, it's about ease of doing business with. It's about those broker relationships. Really, that first choice really matters in that space. Then the backup plan for us in the U.K. is that broader employee benefits.
It's basically selling insurance products that protect at the workplace, both employers and employees. As you can see with the National Dental Plan business, we've moved away from our core space into something different. Growth is going to come through three different areas. We see the three product areas there. Income protection. That's really about I've talked to you about this before. You have large employers who tend to have sort of income protection in place for a segment of their population, so it's about increasing participation rates. We do still see large employers as a growth area as a first time buyer as well. Often where they are closing their Defined Benefit pension schemes, this will allow us an opportunity to sell sort of large case income protection. We see one or two of those a year.
The primary focus is to get that SME market going, and that is really about distribution, and I'll come back to that in a minute. The other employee benefits is really about that core life. That is that under 1,000 lives, really under 500 lives arena around that space, where basically it is ease of doing business, simplicity, proposition really matters, and the relationship you have with the broker. Then finally, we look to add adjacency, in terms of the dental product. Also where we are trying to launch our short-term disability product into the U.K., which is a new market. Really looking at what products matter to employees and making sure we are well placed to leverage our employer relationships and employee relationships and broker relationships. Distribution is very important as well. We are very focused on getting more brokers into the marketplace.
In the U.K., you have a small segment of the total broker market that focus on group risk. A lot of them are pensions or investment providers, and we work very heavily with them to basically sell our proposition and support them in selling income protection. We also look at other distribution. Mike talked about the change in benefit providers, that is an interesting area for us. We are working with Mike and Tim on new technology to enable us to support that as well. Also in the U.K., you have got something called pension auto-enrolment. Basically every employer in the U.K., legislatively, has to put a pension in place for its employees over the next 2 years. It is rolling out to the smaller employers as we speak. Really that is making new technology go in there.
You have either platform providers or pure pension providers who might not have group risk products that we are looking to partner with as well to sort of sell our products with. Underpinning all that is a market leading customer experience, simplicity to do business with, and top talent and leadership. Finally, we have also got a significant change in the capital environment and the regulatory environment in the U.K. with Solvency II. That goes live on the first of the first, 2016, and all European insurers will have to change the way they think about capital. It will drive some different thinking around product and product innovation, I think, as we get to understand that more. Looking at the priorities for Unum UK. I talked about growing the market. We have invested in distribution, training, support.
In 2015, we have seen almost 350, or more than 350 brokers either sell a group or quote on a group risk product for the first time, or sell for a group risk product for the first time. That is really an area we are looking to build momentum on. It is helped by the fact that they have changed legislation in the U.K., something called the Retail Distribution Review, which has taken away commission from some of the investment products. They have earnings challenges. When I go and talk to the brokers in the U.K., there is a lot more interest, both in the people who are currently selling it and the new people who are coming into this marketplace. We are trying to pick up on that and support on that.
The second area is really around that technology arena where you're seeing these pension platforms and vendor providers come in, and you need a plug-and-play technology to support them. We want to be the partner of choice, whether it be to brokers who want to get into this market, brokers who are currently in this market, or new distribution that's coming into this market for the space we play in. For our GIP product, like Mike, we're also continuing to put rate through to basically support those lower investment yields. We continue to see low single-digit rates go through that to offset the interest rate environment that we see. The second area is around that core life and critical illness arena. We're in a great position in those because we have good broker relationships today.
We built the data and analytics, so we know where the profitable business is. The key for us is to be that easy partner to do business with. You need that simplicity of process. It's different than where you have something like your claims proposition, where you have a unique value. It needs to be straight-through processing. We're investing heavily in our technology to enable us to have a plug-and-play ability with the multiple providers that are in that place. Dental, I'll come back to in a minute. It's another area that we want to grow our other employee benefits. If I go to the customer experience. Through all the businesses, this is a big push for us.
We've got a good customer experience today, but to keep place with a modern working environment, you need to have a very dynamic ability to change and meet very different needs for different work environments. We're looking to simplify our products, ensure our communications are straightforward and easy to understand. In particular, we're implementing a new administration platform in 2016, which will allow us to both drive that customer experience up as well as meet the different technologies that we're having to interface with. The Solvency II environment, as I said, is a particular challenge in the European environment that you won't hear about in the U.S. environment. That was legislation that was enacted in 2009. It's been in process for about seven years. It looked to harmonize and codify basically how we look at capital across Europe in all the territories.
There were different approaches taken on that by territory and by different companies. As Jack mentioned, we are one of 19 companies that's had an internal model approved in the U.K. That's allowed us to use our data, our assumptions, to basically model our business and determine the amount of capital that is required to support our business and the surplus that we have. That's been through a rigorous challenge by the PRA, and we've also had a number of adjustments to that, the transition and volatility adjustments that have been two things that have been codified into that legislation as well to cope with the market dynamics that the new economic measures break. It puts us in a great position.
We have a model that basically reflects the way we run the business. Therefore, allows us to look at our business and optimize the amount of capital, either through product diversification, changing our product structures, looking at reinsurance, to ensure that we can optimize the capital we need to support our business and continue to deliver those great returns. The outcome was very similar to the current environment. Basically, the amount of capital we need to hold is actually pretty similar to the old environment, but the makeup is different, and therefore it will change the way insurers do business in Europe as that goes through over the next few years. Finally, last but not least, is our talent and leadership.
For all our businesses, helping our employees grow and develop the skills they need to deal with this very dynamic environment is the core aspect of our strategy. Here's some indicators just to support what's been going on in the business. The persistency, like Mike Simonds' business, we continue to focus on that customer experience. Retaining our clients is incredibly important. Having got through the repricing in 2012 and 2013, you see that persistency back about where we would like it in those long term averages above 85%, and I see that continuing. The second chart shows the momentum on the first time buyers. It is volatile. If you write a large case, clearly one quarter can see sort of significant amount of premium. Over 40% of the cases we've written on income protection at the end of September were actually first time buyers in the U.K.
We're seeing the market grow around 5%. That's what we'd look to see continue. We are looking at legislative changes as well to see whether we can give that a further acceleration. There is interest from the U.K. government in driving this into the workplace. We aren't building that into our plans. The final area is that group life close rate. This shows you the amount of quotes we close that are under 300. You can see a big tick up there. That's really about how we focus in on the segments we like that are profitable, working with the brokers that we can do business with. Then finally, making sure it's simple and easy to them. We see that maintaining as well. Now turning to that sup and vol line and that exciting new opportunity with the dental business.
Let me find my notes. Yeah. Dental is a very attractive market. It's small, but it's growing fast. You see the CAGR over there about 7.5%. That's for the total market, both individual and corporate. Actually, we think the corporate market is growing a bit faster than that 7.5%, so it's difficult to get the data. NDP is basically focused on that corporate market and has about a quarter of the market in that place. There's four main players and we're one of those. It's an indemnity offer, so basically at the workplace. It's around about 75% employee pay and 25% employer pay. It's doing very well. It's a good business. Well run, has about a 93% persistency ratio. It's been growing both top and bottom line. We see a number of opportunities for Unum to increase and accelerate that momentum.
First of all, there's our brand and our distribution. We have a better brand in the workplace and with brokers, and a broader distribution. We can take more of the growth than perhaps NDP would have got on a standalone basis. Secondly, NDP currently has 500 employers and about 150,000 employees that are signed up. Those 500 employers employ 1.5 million, and as I said, a number of those are employee pay, and there's a flex benefit window. They sign up or re-enroll in the U.S. once a year. We can get that participation rate up. We're looking to work with Mike and Tim on all the work that's been done in Unum US about how we do worksite marketing and how we get the participation rate up to get more of those 1.5 million signed up each year.
The third area is Unum UK has 10,000 employers that currently have a group risk product. Of course, NDP has only 500. We're trying to broaden that as we speak. Dental is a good business. We want to extend our coverage with other employers who are interested. It's very popular with employees. Employees think this is one of the top three things they like to buy. It's relatively cheap. It's relatively easy. Most people feel the benefits, it gives our brand a differentiation as well. Looking to cross-sell across our business for both businesses is important, and we see that as a big opportunity. Overall, I think this is going to be a great acquisition and an exciting opportunity for growth and value creation. Here's our numbers.
As you will note, I'm sure the sales growth and premium growth are actually a bit ahead of our normalized ranges. Really that extra bit is really driven by the first-year benefit of having the dental business come in. We've seen one quarter in 2015 come through. You'll actually see the full year benefits come through there. Really that extra over the normalized range comes from the added benefit, and I expect those to come back within the normalized range as we look forward over the next few years. The operating ROE is on a Solvency II basis and is very similar to what we've said in the past. Again, we see that continuing for the foreseeable future as we've now landed that capital base firmly. Finally, the operating earnings growth.
Nice tick up on this year and moving towards that normalized range, still dealing with that low interest rate environment, which means we can't quite get there yet. In summary, as I said, just shifting gears a bit, and I'll hand over to Tim.
Thank you, Peter O'Donnell. Good morning, everyone. I am Tim Arnold, President and Chief Executive Officer of Colonial Life. We will start, as everyone else did, with a quick overview of the business. Colonial Life is the number two player in the pure worksite benefits marketplace. We have a significant scale with over $1.3 billion of in-force premium. We go to market with an agency distribution system that allows us to serve employers both on a direct basis and through brokers. About two-thirds of our new sales and our in-force block is represented by brokers. A lot of versatility in the distribution model. We have a very strong presence in what we call the core market, the less than 1,000 life market space, as you see on this slide, with good growth in that segment, and especially good growth below 100 lives this year.
We also have a significant presence in the public sector. About 40% of our in-force premium is in public sector. We see that being a very rapidly growing marketplace as well. As you see on the right-hand side, we are a pretty consistent generator of earnings with strong returns year-over-year. The 2016 outlook is very favorable from our perspective. We feel very good about 2016 and the prospects for 2016. We are experiencing strong growth over the last few years. We have a lot of momentum in our field sales organization. We have a very stable benefit ratio, and that leads to very consistent earnings and cash generation. As good as we feel about the momentum we have, we feel even better about the market potential. There is significant potential in this marketplace, as Mike Simonds pointed out in his comments.
We see a growing need for employees to have access to employee paid products. When you think about the 5.8 million small businesses that Rick McKenney referenced in his comments, we know that that marketplace is significantly under-penetrated and increasingly underserved as we see brokers who typically serve that less than 50 life space exiting that space. A lot of opportunity to better serve those small employers, especially. In addition, employees inside businesses in the U.S., according to Eastbridge Consulting Group, have purchased voluntary products at about a 20% participation rate. There is a significant opportunity to improve participation rates. Among people who actually have one product, we see opportunities to cross-sell additional products. We also know that the part-time marketplace is significantly underserved, as well as the increasing gig economy workers. There is opportunity there as well.
How are we going to take advantage of this opportunity? We have four key pillars in our 2016 plan. They are shown here. They are consistent with what you heard from Mike Simonds and Peter O'Donnell. I will touch on some of the initiatives that we have underway in each of these areas. First, starting with growth. A lot of our growth plans are dependent upon our ability to grow our footprint in the U.S. marketplace. We are experiencing good success with that. We have increased the number of sales leaders we have in our field by over 12% during 2015. We feel great about that. We are achieving our rep recruiting plans. In fact, exceeding those plans. Feel very good about that. We are introducing new products at a great rate. We introduced three products in 2015. We have plans to introduce two more in 2016. We are seeing good traction on those products.
Increasing over leveraging enrollment technology, enrollment capabilities as a growth initiative as well. I'll touch on that a little bit more later. From a customer experience standpoint, a lot of work underway there with a new eClaims Initiative that will be introduced in February of 2016. We're doing a lot more with mobile technology to let our customers interact with us anytime, anywhere, on any device. We're also enhancing our web capabilities for our employer plan administrators to make it easier for them to reconcile their bills with us and conduct other transactions with us across the web. Our goal is to grow our expenses at a slower rate than we're growing revenue. In order to do that, we need productivity enhancements.
We implemented an agile methodology in 2015 that's beginning to pay dividends for us in productivity, we're also introducing a number of new tools to make our employees more productive. Speaking of employees, we know that none of this is possible without having the right talent. We've spent a lot of time over the last few years making sure that we're recruiting the right talent and then helping them grow and develop. In fact, over the last few years, the number of people at Colonial Life who are under the age of 30 has grown by 50%. We feel good about the momentum we're building with talent as well. I mentioned enrollment technology. In the past, enrollment has been a clear competitive advantage for Colonial Life.
We have over 8,000 benefits counselors in the U.S., those folks help people enroll on a one-on-one, face-to-face kind of enrollment capability. We believe that approach to enrollment is still the best way to help America's workers understand the benefits that are available to them then help them add products that we manufacture to fill gaps in their coverage. The marketplace is shifting a little bit, I'll talk with you a little bit about some of the things that we're doing to adapt. We still believe those benefits counselors are the best way for us to serve employers. We also know that some employees would prefer to interact with us through a telephonic enrollment. We have those capabilities. Some employees would prefer to interact with us on the web. We have those capabilities.
Some employees would prefer to have a chat capability, we've built that out as well. As Mike referenced earlier, these capabilities cross both brands, both the Unum US brand as well as the Colonial Life brand. In addition, we have an enrollment system named Harmony that's a real competitive advantage for us, especially in the small case market. In fact, for every $1 of Colonial Life premium that we enroll on our system, we enroll $10 of premium for other companies, typically health companies. That gives us the opportunity to sit with that employee at the point of enrollment and help them not only with their voluntary benefits, but with their health insurance benefits. It gives our benefits counselor a better understanding of where they may have gaps.
That Harmony system is still the preferred method for small employers because most of them don't have a benefits administration system. For those who do, increasingly, we need to connect with their benefits admin system. We've invested heavily in that capability, again, across companies for both the Unum US brand as well as the Colonial Life brand, for us to connect quickly and seamlessly with other employers who have benefits administration systems. In addition, some employers are saying, "We would like for you to actually put your products on our benefits administration system rather than just connecting to it." That's called hosting. We've built those capabilities as well. We can serve the needs of consumers in a number of different ways.
We can serve the needs of employers in a number of different ways that will allow us to build upon that competitive advantage we have around enrollment. What's all this mean for 2016 for us? We feel great about the marketplace opportunities. As I mentioned earlier, we believe there's strong growth in the marketplace. We feel great about our building momentum. As you see here, we believe that sales growth next year will be in the same range of the 6%-8% that we've talked about previously. That will translate, we believe, into premium growth on the high end of the range shown here, with operating earnings growth a little bit muted because of some net investment income pressure, but overall still strong earnings growth with maintaining the very strong ROEs that we've had traditionally.
With that, I'll turn it back over to Jack for a review of the closed block.
Great. Thank you, Tim. If you were here last year, you may recall that we had a separate session for the closed block last year. It feels really good to just be one of the fold this year. Taking a look at the closed block, give you an overview of what it is. It's a legacy block. It's made up of individual disability income, a closed block of that, as well as a closed long-term care block. We hit a milestone this year. The long-term care block is now bigger than the IDI block and will continue to be into the future. These blocks are in very different places. The IDI block was closed in the mid-'90s, the LTC block in 2009, 2011. If you look at the reserve makeup, it says a lot about how these two blocks are. From long-term care, we have about $9 billion in reserves.
14% of that is in the claim reserves, disabled life reserves. 86% are active life reserves. That's a young block. It's an immature block from an experience perspective, and has a long way to go. IDI is at the other extreme. 90% of the reserves in IDI are disabled life reserves. Only 10% of those reserves are active life reserves. That suggests it's a very mature block. It's aging quickly, and as it ages, the risk associated with incidents in new claims are rapidly diminishing on that block. Excuse me. If you look at our earned premium, it's about a $1.2 billion block, earns $120 million a year, and it's basically a break-even block because both of those blocks of business are in loss recognition.
I'd like to give you a little background on the demographics of the block, because it's significantly different than most of the long-term care blocks in the industry. Our block is split about 50/50 from a premium perspective between individual long-term care and group long-term care. Lives are almost 20/80. We have over 800,000 group long-term care lives in the block. We only have 158,000 individual long-term care lives, despite the fact that they generate the same premium. The reasons for that, one is the age of the block. The attained age in the individual long-term care block is 70. It's only 51 in the group block. There are still active participants in employers coming into that group long-term care block. The nature of the benefits is very different too. There's only 40% lifetime benefits in the individual block, less than 5% lifetime benefits in the group block.
Most of our group block, most of those 850,000 lives are employer-paid business. When we signed up a group for long-term care, we would generally convince a small to mid case employer to buy a very small piece of coverage, $1,000, $2,000 benefit, three-year benefit on all of their employees. Since the employers were young, it was a very low cost to do that. Then we would go in and enroll voluntary buy-up coverages above that. Most of those 800 lives are employer-paid, has different lapse experience underlying it, because a lot of people don't bring that coverage when they leave an employer. Different age experience and a very different mix of risk experience as well. You can see that in the average premium. It's almost $2,000 for individual long-term care and only $400 for group.
A very different block, much more conservative plan designs, much different dynamics in terms of who's paying for it, and a better experience underlying it. The other thing you see on this page is our interest-adjusted loss ratio. You can see it's been very volatile. That's because it is an immature block from an experience perspective. Despite that volatility, it stayed pretty much within our 85%-90% range. The other thing I'd note on this volatility is this is why we don't get very excited about one or two quarters of claims in long-term care, either on the positive side or on the downside. It's because it does have that volatility. It's going to emerge over a very long period of time. Looking at the performance since the reserve charges we took in 2014, it's been very steady. We've completed our reserve adequacy studies for 2015.
We're very comfortable with where our reserve position is currently. Interest rates continue to be a pressure. As a reminder, when we set up the reserve in 2014, we assumed a level interest rate environment for 4 to 5 years, then gradually reverting to a long-term average over the next five years. Unfortunately, the first year has been that level interest rate environment. We're hoping recent actions will begin to move up. We're very comfortable with where we are since that reserve adjustment, and feel good that we have time in our interest rate assumption for some time to come. The in-force rate increases are progressing well. We've implemented Landing Spot. We actually, last month, sent out our first wave of Landing Spot notices to policyholders. The response from that's been very positive.
We're getting a lot of elections on the Landing Spot, which is good news for us because it not only kind of effectively gives you the rate increase, but it limits the size of the liability going forward to the extent they reduce their inflation today. Mortality and morbidity are going fine. I'll talk a little bit about utilization rates. Our book is an indemnity book, so we pay the same face amount, regardless of your utilization of services as long as you actually use the service. We aren't affected by utilization rates. As a result of that, though, that's why our change in the future inflation rate from 5 to 3 is so powerful. It also means that we are more positively leveraged to an increasing interest rate environment. Increasing interest rates flow directly through to our reserve margins.
Other companies will generally have a utilization inflation rate combined with an interest rate, and as interest rates rise and inflation rises, they're going to have to adjust both. We get a more powerful uptick from interest rates and from changes in inflation riders in the policies than other carriers may. Again, more than half of our premiums are group. We're leveraged to higher interest rates. Our statutory reserves continue to exceed our GAAP reserves. We're very comfortable with our statutory margins and our capital margins. We did redomesticate Fairwind, you remember, in 2013. When we did that, we strengthened reserves to bring them up to a level consistent with U.S. accounting standards. The strategy of the closed block's the same. We're going to continue to focus on rate increases. We've made good progress with the states and expect that to continue.
We need to remain diligent about being effective and efficient in managing it. It's a very complicated business, particularly the long-term care business. We'll continue to invest in the tools and experience analysis to better understand that business. A big focus this year will be on IDI and building some of the same infrastructure behind it that we have behind the long-term care block to understand those dynamics. We stay vigilant with the capital markets. We have a strong emphasis this year, a lot of discussions. I want to note that we're focused both on the IDI block as well as the long-term care block. There's a lot of talk about long-term care. It's still immature. There's a lot of interest in the assets. There's still some trepidation about the liabilities because of the immaturity of those blocks.
I don't expect anything imminent on the long-term care side. However, if you look at our IDI block, we're holding disabled life reserves that are rapidly transitioning into life annuities. The capital requirements on life annuities are very different than disabled life reserves, and we're hopeful that may provide some opportunities in the capital markets going forward. From a sales growth perspective, there is no sales growth. There are no sales. Premiums, we expect to shrink 3%-5%, going to 4%-6% going forward, shrinking in operating earnings along with that premium, and again, a break-even ROE going forward. I'm going to march right into the investment performance, give you a quick update. I'm going to talk about asset quality and the drivers of that, as well as our interest rate management. We are a fixed income investor. We buy fixed income.
We're a buy and hold investor. 85% of our holdings are in investment-grade bonds. We are very diligent in thinking about that tight link between our investment yields and our discount rates and our liabilities. Our high yield exposure is at 8.2%. It has been very steady for several years at that mark. We target keeping it there. It may drift up or down a little bit because of either upgrades or downgrades. We look to hold it steady. In addition, over the past couple of years, we've seen things go both ways. We've had some downgrades that have led to increasing the high yield. We've had many upgrades that have brought things out of the high yield portfolio, and we continue to manage it, and that size of the portfolio dictates how much we're willing to invest in high yield over time.
This chart is the bane of my existence. It's the interest rate chart, it shows spreads. Interest rates have gone nowhere for a very long time. In fact, if you overlay these two charts and put the spread on top of the interest rate, it becomes even flatter. If we do get interest rate upticks, they've generally recently been offset by tightening of spreads and vice versa. A very steady picture. We have managed quite well within that picture, and I'm going to talk a little bit about that in a second. If you look at our portfolio, it's a highly rated portfolio. We hold vast majority of our fixed income securities in one and two-rated bonds. If you look at the high-risk side, we tend to have lower exposure in the 5 and 6 rating, that's B and below ratings.
We have very little exposure in real estate and other BA assets. The blue line for us tends to relate to our high yield exposure as well as our low income housing tax credit exposure. Done. It appeared it stopped. I can talk through it. If you turn to the next page, it shows a profile of our energy exposures. Couple things I want to say about this. If you look at that page and you go from left to right, your exposure to prices versus consumption changes. At the far left-hand side in oil services, you are highly dependent on oil prices because people don't begin drilling with low oil prices.
Our biggest holdings on our energy sector, which is about 12% of our portfolio, is in midstream. That's Pipelines in transportation, again, highly demand-driven as opposed to price-driven. We do have exposure to independent oil and gas. They are producers of oils and so they are price sensitive, but they also have assets underlying their companies. Integrated oil and gas, the prime example would be Exxon. They go across the entire gamut. Refining on the other side tends to be more of a consumption-driven element than a price-driven element.
We feel good about our portfolio. It's largely investment grade, 15% of the portfolio is below investment grade, and less than 3% of the portfolio is actually below BA rated. We feel solid. It's not that it's not under pressure given where oil prices are, but it's a quality portfolio. Talk about interest rate management. Again, it's pricing flexibility and discount rate adjustments in cash flows. The only thing I'd say about this again, is given where new money rates are and where our interest margins are today, we feel very comfortable with where our discount rate is relative to those interest margins. One of the things that's helped us maintain those interest margins is we have a very manageable level of cash flows that we're investing, particularly relative to the overall size of our portfolio. Next, I want to go quickly to our outlook.
Again, we expect to continue the favorable growth trends into 2016. We expect generally stable risk results and operating results. We continue to have pressure from interest rates. That pressure is abating a little bit, and I'll talk about that in a second. We do expect to see a higher tax rate, so tax rate in the 31%-32% range in 2016. One thing we did do during 2015 and implemented going into 2016, is we took a look at our capital allocation. This is an internal capital allocation. Doesn't affect how much capital we hold. We tried to simplify that process. We tried to make that process more consistent with NAIC risk-based capital allocations. As a result, although overall there was no change to the company, and even within major segments like Unum US, Colonial, the closed block, there were very minor changes.
One line that did get affected by that was Group Life. There was a reduction in Group Life capital. It's going to show through as a reduction in Group Life earnings going forward. It also reflects the fact that we do need to hold less capital behind Group Life. Group Life, it reduces earnings, but it significantly increases the return on equity associated with that. We think it's a better reflection of the actual performance of those businesses. Operating earnings growth for 2016 in the 4%-7% range. From a capital management perspective, we will stay steady and consistent. We expect our share repurchases in 2016 to be very much in line with where they were in 2015. We expect to have an increasing dividend going forward. Kind of give you the bridge from 2015 to 2016.
Again, 4%-6% premium growth. Pretty neutral on the operating aspects, including risk and expenses. We will feel 2%-3% pressure from interest rates again. The fact that new money rates are well below our portfolio yields and our current earnings on that portfolio. That is less pressure than we had in 2014 going into 2015 because we did not take the discount rate charge this year. That reduced that. 1%-2% of pressure on tax and other. That is the tax rate changes. We had some favorable impacts this year. The other piece of that is interest expense in corporate. As we grow as a company and maintain our leverage, our interest expenses are going up a little bit. Capital management adds back 4%-5% for overall 4%-7% growth in operating earnings.
What I would say about this is, let me go to the next slide. I will talk a little bit. We expect the capital management outlook to remain steady. We are still going to be in the 75%-400% RBC range. We will continue to hold over one-time fixed charges. Again, remain steady on our capital deployment. Looking at our outlook, I will let you in on a debate we had, whether we would use the word normalize or long-term there. We use normalize because we want to remind you that we still have interest rate pressures, and we are working through them. It is not lost on us that this is becoming normal. This is probably the last time you will see normalize in one of our slide decks. The good news is, despite this environment, we are making progress toward those overall objectives.
Last year, earnings growth per share was 2%-5%. We are going to be in the lower end of that range for the year. Next year, it is 4%-7%. We are making progress. It is taking time. We do believe that over time, we will get into that normalized range, and we believe we can get there without a change in the interest rate environment. It is going to take a little bit longer to work through because of the pressures of interest rate, but we do not need interest rates to rise to get there. We just need a little time to work through it. With that, I want to turn things back over to Rick for some closing comments.
Thanks, Jack. As we wrap up, I just want to remind you, as you have heard from each of our business leaders, I think that we have some great opportunities as a company. We operate the company very well. We are in great positions in the markets that we serve. I think one of the things as you look at is, as this world improves, the economy gets better, interest rates increase a little bit, we are well-leveraged to that. I think at the same time, if they do not, if the economy still struggles along, interest rates still stay low and challenging, we have got the opportunity to prove an ability to manage through that environment as well. We are very much focused on our markets, protecting people, and we look very much forward to taking your questions here as we go through that for the overall discussion that we will have next.
Thank you very much.
Tom.
If we could get the microphone just because we're on the webcast.
If you could wait for the microphone just so we can get everything recorded for the webcast.
Tom?
Thanks. Tom Gallagher, Credit Suisse. First question I had was for Jack on Closed Block. I hate to start it off asking a Closed Block question, and it's actually not long-term care, so that's even better. Your comment on IDI I thought was interesting, and certainly new from the standpoint of talking about, you see potential opportunities there from a capital market standpoint. Can you frame that a little bit in terms of the range of opportunities, the way we should be thinking about that? If I remember correctly, when you did an IDI Closed Block transaction several years ago, I think you already extracted a lot of capital out of it. I think it's running at around a 200% RBC now. Is there still an opportunity there? Can you flesh that out a bit?
Yeah. I'd say the opportunities are two places. One, when we did that transaction, we securitized a bunch of the capital with non-recourse debt. That was like an $850 million securitization deal. That's down to about $400 million now. It's half gone over the years. We've paid it back. We'd like to think that potentially there are opportunities to re-up, maybe not through a securitization, but through reinsurance or some other transaction for that capital. I'm not saying it's a huge opportunity. It probably has less to do with changing the risk-based capital level, but changing the face of the risk-based capital because the capital that you need to put behind a life annuity is a lot different than the capital you need to put behind a disabled life reserve. That would be where the arbitrage would be.
Is that block on a legal entity basis? I know on a GAAP basis, there's different reporting.
Yeah.
On a legal entity basis, how profitable is that block now? I just want to get a sense for last time I checked, I don't think it was making a lot of profits on a legal entity basis, and I just wonder the size of the benefit for a block that large that's actually not earning much of a profit. Could you size that?
It doesn't earn much. It's a closed block. It's priced to break even. I think the opportunity has less to do with the earnings on the block and probably more to do with the capital situation.
Got you. Okay. One for either Rick or Mike on, I guess, the shift from employer-paid to employee-paid and how that seems to be a lot of momentum occurring there. I'm just curious, as the % changes seem pretty meaningful even, well, I guess looking at it over a decade and now employee-paid represents for Unum US a bigger % of your business. Just practically speaking, what does that represent for you from a challenges, opportunity standpoint? Have you had to rejig or shift your business model given that change?
You want me to go? Yeah, you're right.
Yeah, thanks. It is over a 10-year period, so the good news is it's a shift that we've sort of seen coming and been able to manage through, so it wasn't like a light switch going off. Fundamentally, it's basically if you're an employer-paid world, you tend to be, here is your benefit plan. It is handed out to employees. There's one check that's written every month. The employer pays it. It's a pretty simple administrative process. You do not worry about enrollment or payroll deductions integrating with an HRIS system. When you get into an employee choice world, it becomes much more complex to manage. That puts a burden on us as a carrier, but we see it as actually very advantageous, right? Because it is a much less of a price underwriting contract sale today. Those things remain still important.
In an employee choice world, it is about the delivery of the benefit and investing in the staff, investing in the technology and the process.
Is a big deal, having scale and having market-leading positions is a big deal. What we've seen is as the business has shifted, the profile of our business has generally improved. The loss ratios are generally better and more stable. It sort of provides opportunity for us to better differentiate ourselves in the market. We're not at the end of that journey, I would say, too. We're going to continue to invest at a very healthy clip over the next 3 to 5 years because we still see that employee choice as the primary growth opportunity for us.
Go ahead, John. You got a mic on.
Thank you. John Nadel from Piper Jaffray. Excuse me. I have a couple of quick ones. If we look at Unum US, there's about a three-point differential as you look out to 2016, your premium growth rate versus your earnings expected growth rate. Is the differential there entirely an investment income decline or is there something else expected in there? I know on the Colonial side, you had a very good year of underwriting margins this year and you're assuming some normalization. On the Unum US side, it seems like a pretty significant gap.
I'd say it's a couple of things. Big piece of the differential is investment income and interest rate. I'd say there are other pieces. I mean, DB risk was extremely favorable in 2015. We don't necessarily expect that change. I think the other thing I'd say is there is a cost to growth. In the initial year where you're paying sales comp, you're implementing cases, there is deferred acquisition cost, but you don't get to defer all of those costs.
Okay.
Growth is going to be a little delayed relative to premium growth.
I assume that you guys did point out group life. There was a capital allocation change there. That's obviously got to work in here as well.
Yeah
on the Unum US. Can you size that? Is that dollar amount of capital shift or reduction, is that significant?
It is not significant for Unum US.
It is for group life.
It is for group life. It'll be noticeable.
Okay. The next question is, top line for a closed block seems very consistent with what I would've expected, but it looks like you're expecting earnings to grow in 2016, which is somewhat surprising. Again, is that an allocation change or is there something else there?
Yeah. A piece of it was an allocation change, so they get a little more allocated net investment income. That's a driver. A piece of it's the build-up in statutory reserves behind the long-term care blocks as well.
The last one I have is I was hoping you could walk us through what the Landing Spot means.
Okay.
Maybe I haven't been paying attention, but it was a new term for me.
My bad. It's become so used to us. When we filed the individual long-term care rate increase, we requested very big rate increases, so 90%-100% on the block. However, we also said if long-term care holders were willing to change their future inflation rate from 5%-3%, they could forego that rate increase and keep their current premium. We called that change from 5%-3% the Landing Spot option because it keeps them where they are.
Okay.
It's very well received with state regulators. It's helped us get additional approvals. It's a good deal for consumers because it allows them to keep that important coverage and keep it in a meaningful way given current inflation outlooks, and it's a good deal for us.
Does that prevent you from being able to go for rate increases at any point in the future?
No. It's just an option on the rate increase.
Terrific. Thank you.
We can come up front over here.
Hi, thank you. Seth Weiss, Bank of America, Merrill Lynch. Jack, a couple for you. First, I suppose I'll break the ice on LTC. The detail you give in terms of the group versus individual is very helpful. If we think about the $8.5 billion of the reserves and we look at the in-force premium split between individual long-term care and group long-term care, how do we think about the reserve split between that?
Yeah. It's more heavily weighted to individual long-term care, in part because they have bigger premiums. It's an older block, so it's getting closer to when those benefits are actually going to be paid out. That split is, and I'm not sure exactly what the split is, but it's heavily weighted toward individual long-term care.
Then along that, considering that individual larger uncapped portion and obviously bigger reserve, but it's a more mature block. If we think about the sensitivity to assumption changes, be it mortality, be it interest rates, to group versus individual, I'm just trying to, I guess, qualitatively understand the sensitivity where you have a much bigger reserve in individual, but that's a much more mature block. Is that going to be much more sensitive to assumption changes?
That mature block, it tends to be more sensitive, in part because more of the world is behind you. If benefits change, our ability to change premiums going forward relative to that mature block. The other thing that makes it more sensitive is just it has much higher persistency experience relative to the group life block. You expect more people to get out to claim on that block. It tends to be more sensitive than group.
Okay, great. If I could just sneak one in on the ongoing businesses, the Unum US, you talked about the reserve declines in Unum US as being a contributor to net investment income decline. This was helpful, I guess, is this pace going to continue if we just draw that line? Is that slope a good proxy of thinking of how that pressure contributes going forward? Just maybe a description of what that is, because it seems to be a little bit new information was helpful.
No, I wouldn't expect that pace to continue. It will bottom out as we get to a point where we don't expect our recovery experience to get better and better forever. We think we're kind of near the frontier of how good that can get, as that flattens out, that curve will flatten out as well.
The block's growing now, as the block grows, new claims coming in, new reserves going up. It starts to trough and then slowly build.
Thank you.
Pass it to Suneet.
Thanks, Rick. Suneet Kamath from UBS. Just starting with the closed block again, Jack, when you do your testing, margin testing, do you do the individual and the group block separately, or are they on a combined basis?
They are on a combined basis.
Would it be beneficial to you, I guess, as you do that margin testing? It seems like the group business is so much less risky. If you could find another solution for that, is that something you would consider, or is it that individual is sort of being subsidized by groups, so separating the two might not be a positive for you?
We consider everything in that block. Okay? If someone came to the table with a solution, we'd look at the value of that solution, we'd take it in concert with what we know about the individual blocks, and we as a company would decide whether that enhances our shareholder value or not.
There's nothing that would prevent you from doing something on one of those blocks versus the other?
No, as well as there's nothing that would prevent us from looking at pieces of either of those blocks.
Got it.
From a reinsurance perspective, they're malleable.
Can you give us a sense, I think you gave it to us on a consolidated basis for the cumulative price increases in LTC, but can you give us a sense of how individual compares to group?
It'd be hard to say even how you would do that, whether it's a % rate increase. I would say overall, though, we've had pretty consistent success in both lines. I mean, we're on our third round of rate increases on the individual long-term care business. It is the Landing Spot option. It's been very successful, but we were very successful on our last round of significant rate increases on the group long-term care business.
Got it. Okay, one for Mike, just in terms of your Unum US guidance, you mentioned a couple of times in the presentation the leverage to wage inflation, employment growth, all that. Can you give us a sense of if there's any of that built into your guidance?
Yeah. We assumed a level pretty consistent, actually, with what we were feeling here in 2015, which is slightly better than 2013, 2014, still probably a point and a half short of what we would think would be a reasonable normalized growth state.
That should flow through if it happens fairly quickly, I would imagine, right? You wouldn't have to wait for another year of the next pricing cycle or something like that?
No, generally, it'll come in month to month. As the jobs are added or wages increase, a lot of the benefits are hinged on that.
Perfect. Thank you.
Give brief camera. We'll get you in a second.
Humphrey Lee from Dahlman Partners. A question for Mike and Tim. You talked about the technology spent in the voluntary benefits, at the same time, many of the peers talked about the same thing as well. I know you kind of being a pioneer or at least ahead of the trend in terms of making investments in that regard. Can you maybe provide some color in terms of your enrollment capability or your servicing capability compared to your peers? Do you feel like you still have some room kind of relative to your peers that you can maintain your current level of voluntary benefits growth?
Sure. Tim, you want to take it?
Sure. Yeah. I think on the technology side, as it relates to enrollment, we're still well ahead of the game. We believe the Harmony system at Colonial Life is a competitive advantage, especially in a small case market where there's typically not a benefits administration system. The work we've done over the last year and the investments we've made to enable our systems to connect to those of our customers has kept us, I think, still ahead of the competition.
I think it's one of those areas where focus makes a huge difference, right? We actually do look at spend levels on technology through industry benchmarking, and we tend to find that firms that are pure-play spend the most on technology as a % of overall expense and as a % of revenue. As you go to businesses that are buried inside of larger entities, they spend a bit less. We feel like it's put us in a good stead, but we're not going to pull back, actually. We're going to continue that investment over the next few years and just One of the key advantages is we've built out an IT center in Ireland, and they own what we call our connection strategy. It's a team, they're agile, and they're 100% focused on helping us stay ahead of the pack.
Just to follow up on your earlier comment about continuing to make investment into Unum US and Colonial Life in terms of voluntary benefits. Is there any way that we can kind of size the investments per year in your expenses?
Yeah. It's interesting. I hadn't really thought about it that way. I guess one way we could think about it is the technology spend in general has been, as I sort of think about going forward, has been an increased share of our total expense. I'd have to get back to you on what that exact % has been.
maybe kind of as a % of your earnings, how much you're reallocating your earnings back to kind of investment in the business.
back into investment.
Yeah, we don't really.
We can come back on that.
Yeah. We haven't really looked at it that way. We make ongoing investments every year. It tends to be pretty stable and grows with the growth of the business and earnings.
Okay. Thank you.
Sure.
Last back there.
Thanks very much. Eric Berg from RBC. Jack, I have a couple of questions for you and then one for Tim. Jack, my first question has to do with wage hikes. When people make more money, you collect more premium, but you also pay more benefits, presumably in a like amount. Could you explain the dynamic as to why you're better off in a higher wage rate environment if those two presumably pretty much offset each other?
Yeah. They do offset each other, but your top line grows.
Right.
Right? You get top line growth. There's virtually no expense associated with a wage hike.
Sorry, once again, aren't you paying commensurately more?
You pay benefits.
That's right.
Your loss ratio stays the same, but the margin on that wage hike is your regular profit margin plus most of your expense margin.
Got it. That's good. Second question relates to your comment about the closed individual disability block, and the point you were making that the reserve for a lifetime annuity is much less than that for a disabled life claim reserve.
Yep
In disability. My question, where are you in that process? I understand the idea that the longer a person is disabled, the lower the probability of that person's returning to work, and that the relationship is kind of exponential. They don't sort of move.
Yeah.
Right. Where are you in the process of having a good number of claims that are at the point where the reserves could be materially reduced?
We have a significant portion of our disabled life reserves on the closed disability block that are beyond three, four years duration. Many of them are already over age 65, and so they're already basically in a life annuity. It's a significant block.
Thank you. Then last question for Tim. I would have thought given the bullishness that you have expressed, your positiveness around the voluntary benefits business, that we would be seeing stronger premium growth in your forecasting. I understand that earnings growth is being pressured by investment income. Given your enthusiasm for the voluntary benefits marketplace, why can't you post higher premium growth next year than you're forecasting?
That's a good question. I think part of it has to do with how rapidly we can grow sales, and we need to continue to build out the infrastructure that we've been making progress around over the last couple of years. In order to get premium growth north of six, 7%, you got to grow sales eight, 10%, with persistency being what it is. We're continuing to make good progress. We're seeing strong results, but there's still more that we need to do to build the infrastructure so that we're not growing too rapidly.
Here, bring the mic across the room.
Thanks. Ryan Krueger with KBW. First one for Rick on M&A. It's been a bigger discussion this year. Can you just talk about to what extent would you be interested in M&A outside of the U.S. and the U.K. and other markets?
Yeah. Actually, while I think we're outside of the U.S., the last point outside of the U.K., because we did that acquisition in the U.K. this year. We like that opportunity that we have in the U.K. and also parts of Europe that would be similar type dynamics that we have here in the U.S. Still very focused in the U.S. We think there's opportunities to grow out our footprint and smaller deals. Anything that's larger than that, we'll be active in looking at from a consolidation perspective as well. We think there's still good opportunity. When you look to the U.K., that dental business is a great opportunity that Peter brought forward, and if we see more of those type of things, both in the U.K. as well as on the continent, we would love to expand on that front as well.
All right. Then I guess one quick one on long-term care. Can you just tell us what the lapse rates are in the individual versus group blocks at this point?
Overall, we're at a lapse rate of somewhere around 5%. Most of that is driven by the group lapse rates. Individual long-term care ultimate lapse rates are near 1%, and probably averages somewhere around two or so.
Is the 5% on the total block, or is that the group piece of it?
No, that's the total.
Okay. The group would be higher.
Group's 10-ish.
Okay. All right. Thanks.
Yes.
Thanks. Erik Bass with Citi. Two questions for Mike. First, you talked about how much of your sales are coming from essentially a cross-sell from existing clients. How much more room do you think there is to grow that going forward?
Secondly, you talked about some competitive pressure starting to tick up. Is that across the board in Group, or are you seeing differences between different lines of business?
I'll take them in reverse order. Competitive environment, I would say tick up is a good way to describe it. We see it across the Group Insurance. You always feel it more acutely on the employer-funded traditional lines of business. What we probably see is a bit more competitiveness in what we call our mid-market. In our space, most carriers are either small case, small employer focused. They look at that mid-market, say 500 employees, 1,000 employees, as a good win, and they're a large case. Conversely, you've got large employer players that look down to the mid-market as a smaller case, but a good growth opportunity, and the whole market converges there. That's probably the point where we would see the most aggressiveness. Again, I'd say a tick more aggressive is sort of how we see it.
To give you a sense, we look forward and say, new client sales will probably be flat to down next year. We are always sort of opportunistic. If we've got opportunities within our pricing and underwriting parameters to write, we will write. We certainly have the capacity to do so, but we're first and foremost going to stay disciplined. We do expect sales to existing clients to continue to grow, and that growth will net out to the guidance we provided. That gets kind of to your first question. Today, we average just shy of about two and a half products per employer client, and we think it reasonable over the next five or six years that that could move up to three and a half, four per client.
Certainly, we've got six or seven products in the portfolio, a fully integrated client across IDI, disability, life insurance, all the voluntary benefits is six or seven products. Each 10 basis points is quite significant. Yes, Beth.
Thanks. Sean Dargan from Macquarie. I have one for Mike and one for Jack. Looking at the voluntary sales in the U.S. and how they've migrated to benefits brokers. We have Towers Watson and Willis merging, we'll have a third stronger benefits broker. I'm just wondering, what does that mean to the economics for you? Is it better or worse if the product is sold through a broker? Do they view the client as theirs?
Great question. We've absolutely seen consolidation and have for a number of years. We've seen it increase at the high end in particular. We haven't seen that materialize in sort of a change in the economics of the relationship. I think it's something we watch over time. There's really two dynamics in the brokerage market. One is the consolidation, the second is there are fewer and fewer brokers at the very smallest end of the market. We've even seen some health carriers discontinue health commissions in the smallest end. Continuing to grow out Tim's agency force that very effectively gets to that small employer market is a key part of our strategy. Finding other distribution, some of them technology-based, to get to that small end of the market is also key.
In the specific M&A activity in the brokerage space, we've sort of had good relationships with both parties. That's played through. It's something we'll continue to watch.
Okay. Thanks. Then one for Jack on LTC. Can you just revisit your comment on utilization rates and indemnity versus reimbursement, is your product different than what other large LTC-
It is different than the standard. Most LTC products have a maximum daily benefit, but they will reimburse you up to that maximum for actual charges that you receive. It's like dental insurance or healthcare. You actually get bills from the provider, you submit the bills, they pay the bills up to a max. If you're in that realm, your inflation cost is the inflation that's happening on those bills. If you see 2% or 3% inflation forever into the future on home healthcare, then the inflation rate you're building into your future benefits is that 2%-3%. If rates go up and inflation goes up, you get the benefit of the higher interest rates, but you also have to build that higher inflation rate in up to a max of 5%. The liability and the asset move together on reimbursement policies.
Our policy is a straight indemnity policy. If you have a service on a given day, we will pay you that daily benefit, no matter how much that service costs. As a result of that, our inflation rate, since it isn't tied to the actual bills that we have built in to our reserve, is 5%, because that's what the inflation adjustment, that's what the daily benefit's going to go up by. It's more expensive up front, but when interest rates rise for us, we don't change that benefit stream. We're more highly leveraged to positive interest rates than some of those other carriers.
Figure with Bob, last speaker.
I'd like to dig deep into the sort of investment perspective that you have today. It was a steady as you go presentation, Jack. You said keep the high yield around 8.2. Your long-term chart on interest rates and spreads looks ugly, but your short-term chart, if you blew it up, would look terrific. Spreads have widened a decent bit, and rates have moved up a little bit. Are you taking this as an opportunity to, on the margin, increase your risk because you can actually pick up some good yields here? Or are you taking an attitude of things look riskier here, we've got to be a little bit more careful? Related to that, the R word has been starting to get thrown out throughout the recession. A couple of people saying one in three chance next year.
That would have some risk on the incidence ratio, potentially, that would make you maybe want to be a little bit more careful on the investment side. How do you integrate your investment strategy with the environment and with the potential recession being at least in the probability of a scenario that you'd need to think about?
Okay. I'd make a couple of comments there. One is terrific is a relative term. It may be terrific to yesterday, it's not terrific to historical standards and where our portfolio rate is. Even though we get a slight uptick, it's not as beneficial relative to where we've been. The second thing I would say is a lot of the spread widening has not been across the board. It's been in certain sectors and has reflected the risk in those sectors. We aren't necessarily diving into those wider spreads. We try to be focused and conservative all the time. We're not taking opportunities to go out on the risk curve currently. We do understand that we're closer to the end of the cycle than the beginning, risk is building in the fixed income world, and we're acting accordingly.
I know we had a broker yesterday, Gallagher, saying they're seeing the energy slowdown really impact the economy in that region and impacting sales. You're not getting any early warning signs of geographical pressures from the economy, from the energy meltdown in your sales?
I can take that. It actually ends up being a relatively small, less than 2% of our insured block. We have been given the state of that economy and the concentration in a couple of regions in the country watching incidence and haven't seen anything adverse yet.
Thank you.
Guess we'll go back to Tom.
Thanks. Jack, just a numbers question. Last year, I believe capital management was a 2% to 3% EPS tailwind.
Yep.
You're saying this year it's 4% to 5%?
Yep.
Your buyback's supposed to be consistent. Is there another piece that I'm missing related to that?
You're missing in the fourth quarter of 2014 because of the reserve charges, we only repurchased $300 million. Since that $100 million had a full year impact on 2015, going 2014 to 2015, the growth wasn't as big because we only had three quarters of the ongoing purchase level.
Okay.
It adds another % versus where we were last year.
Got it. Okay, thanks.
John?
Thanks. John Nadel from Piper Jaffray. Just a quick one for you, Jack. If I think about the closed block, GAAP equity, excluding unrealized gains and losses, I think is right now about $3 billion. Is it safe to assume that that's about a third IDI and the other two-thirds is LTC?
Ballpark.
Okay. Thank you.
Good. I think that's all the questions that we have. I'd like to thank everybody for coming out today. Certainly, Tom White will be available to answer further questions that you have. We appreciate your time this morning.