Unum Group (UNM)

Investor update

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Dec 16, 2013

Well, good afternoon, everyone, and welcome to Unum's year-end outlook meeting. My name is Tom White, the Head of Investor Relations for the company. It's my pleasure to welcome the group assembled here in New York in person, as well as those of you who are joining us on the webcast today. Presentation materials should be with you. If you're in the room and you didn't pick one up as you walked in, I've got a few extra copies over here. For those of you on the webcast, the presentation is on our investor relations page on our website. Here's the cautionary statement on forward-looking statements and non-GAAP financial information. This serves to govern the forward-looking statements that will be made here in today's meeting. Actual results may differ from the outlook provided today, and the risk factors that could cause actual results to differ from our outlook are listed here, as well as in our 10-K and our 10-Qs filed with the SEC. I'd also remind you that we will be using non-GAAP financial measures, and the explanations on how we calculate these measures is provided in the appendix, as well as the reconciliations to the most directly comparable GAAP measures. Slide 3 lists today's participants, and they are all assembled here on the dais. The agenda slide outlines the order of our meeting for this afternoon. After Tom Watjen's introductory comments and his overview, we'll hear a review of our business from Rick McKenney. Then Mike, Randy, Peter, and Jack will cover their respective business segments. Rick will then cover our 2014 outlook. Tom will conclude with some closing remarks. Then we'll open the meeting up to your questions for the whole team. Now to begin today's presentation is Tom Watjen, President and CEO. Tom? Well, thank you, Tom, and let me add my welcome. It's a real pleasure to have a chance, obviously, to spend some time here with you today and talk a little bit about our 2014 outlook. I thought, actually, I would spend a few minutes just trying to put the outlook discussion in context, actually, because I think there's some things that you'll see here as you listen to us today, which reflect some seeds that have been sown many years ago in terms of this company, what we're trying to do, and how we're trying to operate. In many respects, 2014 is going to be a continuation of the sorts of things we've seen in the past, which frankly, we think is an interesting sort of benchmark to look at as you think about future performance. I just want to start you a little bit with just a little view of how I think of performance. There are lots of ways we can think about this, but I do think that it is important to look at the track record of this company over the last 10 years in terms of its consistency of performance. I would certainly start with EPS growth. As you know, we have been able to achieve this sort of result, as you will hear in just a moment, with operating performance, but also with our capital management strategy. Those have been the key elements in our strategy here in the past in terms of providing that relatively consistent, stable growth in EPS. As I mentioned, capital management has been a very important part of our strategy, share repurchases being a big piece of that over this period of time when once we began to initiate that program following getting the company stabilized on a stronger financial foundation and with a stronger operating set of performance measures. We have repurchased almost $2.5 billion of stock over that point in time. We will talk about that in the outlook in terms of how that piece will certainly continue to be a portion of our strategy going forward. That was also supplemented by consistent growth in dividends. You can see the dividend history. Once we got to the position of stabilization, we actually began a relatively consistent process of actually returning capital to our shareholders, not again, just through share repurchases, but with also dividend increases as well. If you put those two pieces together, basically we returned about $3 billion of capital to our shareholders over this period of time. That is a very important part of our strategy, operational performance, but also capital management performance. If you put those two pieces together, look at the book value per share growth. This is a measure we think is critically important. The one you have on the screen and in front of you reflects the book value per share, excluding AOCI. This, I think, we think is a good measure of financial performance when you bring all the different pieces of the business together and the quality of the results that actually come from those operations. So, this is a platform we feel very good about. It is a history, obviously, we feel very good about. Obviously, when we have meetings like this, the focus is on the future, but we actually do think that looking at the past may be a very good proxy for the future because the things that we do today we think are sustainable. There are reasons behind these results. I want to take a few minutes just touching on some of those reasons why we think we have been able to deliver that kind of performance in the past, but also why, as we think forward, in fact, we think we can continue to deliver that kind of performance into the future. You cannot help but look at a period of time like this, too, and recognize that there is something stuck in the middle of there, which was the financial crisis and the economic downturn. Again, we've shown that our business is very resilient in good times and not so good times. There's no doubt as we talk about the results for 2014 and beyond, we all could benefit from a little better economy, a little better employment picture, higher interest rate, maybe a little better stock market. But those variables are things I think we've shown as a business that we can operate very effectively through in both good and bad times. Again, I start with a very important reason why we can do that. Frankly, we think we're in pretty good businesses, which have what I would call very solid macroeconomic aspects to them. There's a basic need for the protections we sell. We still believe the workplace is the very best place to distribute product and to communicate with large portions of the population. We find in the U.S. and in the U.K., both of our two markets, if people don't get the very basic benefits that they get for protecting themselves and their families, they don't get them at all. So again, the basic proposition for why we exist, we think is a very sound one. Again, it's not only served us well in the past, but this obviously becomes the foundation of how we think about the business going forward. The second thing I draw your attention to in terms of why it's a good business is it's gone through a lot of change. I know in the Q&A session, we'll talk about healthcare reform and the role of exchanges, but really the move began long ago to move away from the employer paying for all the premium for the benefits they get in the workplace, to actually employees paying a greater portion of the benefits they get in the workplace. This exhibit shows you, basically looking at the sales results back in 2003, 54% of our sales had some element of the employee paying for that benefit. That number is up to 69%. So again, the theme in terms of employees paying for a portion of their benefits is not new. Obviously, healthcare reform and the exchange has certainly added a new dimension to that. But this is a business that's been evolving. It's not been stagnant for quite some time. Again, we as a company have evolved with it and actually capitalized on a lot of the things that have happened as that evolution has occurred. The third reason I point to it as a good business, frankly, is if you manage it in a disciplined way, this can produce really some quite solid returns. What you see here is an exhibit I think you've seen from us many times before, which show our basic returns for our key business lines. Again, they're all, I think, very good, solid returns. The other part of the story obviously, too, with the company is how we manage the closed block. We're certainly going to share with you some insights and perspectives on how we're managing the closed block. But again, getting back to our ongoing businesses, our ongoing businesses are truly, we believe, able to produce solid returns if you stay disciplined, stay focused, and continue to focus on the fundamentals, which you're going to hear in much of the discussion that we go through today. Last but not least, again, looking forward, this is all wonderful in terms of how we look back. But again, we still think there's tremendous growth in this particular area. There's really four basic reasons why we think that's the case. First, both in the U.S. and the U.K., many consumers are still living paycheck to paycheck. Yet, in most cases, they have a relatively high probability of being out of work or losing a loved one that provides the income to support themselves and their families. So there's a fragility to the consumer today as never been before. The second box you see to the right there is that still the vast majority of consumers are underinsured for disability, but also life insurance as well. So they don't have the very basic protections that they need to support themselves and their families to protect themselves against those events that happen in everyday life. The third piece to the puzzle is still today, we see employers wanting to continue to play an active role in providing benefits and support to their employees, even though, again, they may be asking their employees to pay for that benefit. Over 70% of employers that we've continued to research indicate that, again, they want to play an active role in providing some basic infrastructure and support to support themselves and their employees. Last but not least, it comes back to my original macro point, which is, frankly, if people don't get this basic protection in the workplace, they don't get it at all. Certainly government programs are under a lot of pressure today, both in the U.S. and the U.K. So it's very difficult to see that some of the government programs can step into place and fulfill that safety net for the vast majority of consumers. So again, it's very odd to step back and say, jeez, you start with the fact you're in a good business. You expect most CEOs to say you're in a good business. But I really do believe the things that we do have not just served us very well in the past, but again, there's an environment which we think is very good for the future in terms of as we think about how to build and grow off what's a very, very sound foundation. Now, the second point I guess I'd point to why we've been able to deliver those consistent results is I think we're an organization that has a history of making tough decisions. If you look at just, for example, how we've addressed the closed block, again, which Jack will get into in a few moments, there's a history here. We've had a history of getting out of products, discontinuing them, bringing them to a closed block status where they're more visible and transparent to our shareholders and investors, putting more resources behind those businesses. We will talk more about the things that we have done with the Bermuda business. Again, I think we have taken a very proactive approach to those businesses which frankly either do not meet strategic objectives of our company or frankly are not meeting the sort of financial objectives we set for the business. On the same token, as you know, we have got a very good set of ongoing businesses, our core operations. I went too far there, I think. Again, even there, fortunately, there are not as many examples, but on occasion, things do happen in insurance. Like we have been through with the U.K. group life experience, I mean, once we find an issue, discover it, we put the right resources on it, and we turn it around. You will hear an update on that as Peter O'Donnell goes through the U.K. results. This is a culture which we think is a big positive for the company because again, we are very proactive. We are very close to the business. We are very fact-based in terms of how we think about performance and the results we have in our business, and are not afraid to actually deal with issues as they come up. Again, think back to my earlier example, still do that and produce those kind of financial results over a sustained period of time, which we think is obviously a big testament to what we have built here at Unum. This does not happen without a lot of work and diligence on the part of a management team. I am very proud of the group we have here today, but also those that are not here today to represent the company. We have spent a lot of time developing talent at all levels, deepening our talent within the organization. Again, we have got very, very strong bench strength because again, we know we are in a specialty business. It requires specialty skills to capitalize and to run that business. We are constantly developing and grooming our talent within the company to basically take advantage of what we see as a tremendous opportunity, because we also know part of the goal is to avoid the problems, too. I think that is one of the things we have done a very, very good job with our ongoing businesses is avoid those problems, stay disciplined, walk away from business when you cannot get your prices and when the conditions are not right in the marketplace. Again, I think you will hear that from each of those presenting about the business today. I cannot help but just take a moment, though. As you know, one of those that is listed here announced earlier their intention to retire, actually. I think as many of you know Kevin McCarthy, you know him personally. He has been on trips with you. He has been part of investor meetings. Again, I just want to say amongst this group how much certainly we have recognized Kevin for his contribution to the company. Also, again, you see Kevin as the guy who has produced good results for the quarter or provided a good explanation for the direction of the business, which you also should know, back to my earlier point, is he spends a lot of time developing people. I think Kevin leaves things in a very, very good spot, actually. We are very fortunate we continue to have him with us for a period of time. Kevin obviously has been a critical piece to the company, but he's also spent a lot of time being sure the foundation's in place, the talent management's in place, and the succession plans are in place to assure that we have a very smooth transition. Kevin, thank you very much, not just for what you've done, but how you set things up all for the rest of us. The other piece of leadership, though, obviously, is because we can all talk about price discipline and things like that, but as a leadership group, how do we instill in the rest of the organization the importance of doing the right thing? I just put a couple representative awards that we've received here recently, recognizing the quality of our people, the ability to attract the best and brightest in our industry. Again, those can oftentimes be soft points, but I think this is a tremendous asset of our company right now, because we've spent an awful lot of time here these last several years, again, not just producing results for the quarter and for the year, but developing talent at all levels. Again, if you're going to sort of capitalize on an opportunity, if you're going to talk about the importance of discipline, talk about the importance of focus, we all can do our part of it, but we've got to engage 10,000-plus people in multiple locations to actually also see that value of that approach to the business. Again, we're very proud of the things that we've been able to do to be sure that it's not just us that can deliver and talk about the business in this fashion, but it's all of our people who feel some sense of responsibility to do that as well. Last but not least, let me also talk about corporate governance, because again, we as an organization believe strongly in having strong and relevant corporate governance in place. It's not just the structure. This exhibit, I think, shows as much as anything, the structure, and we certainly are ones that do try to follow best practices the best we can in terms of how we separated roles, how we seek independence, how we think of diversity, how we think about shareholder rights. What's not said here, though, is the board obviously is a critical partner as we think about how we allocate capital. Again, as you know, our model is one if we stay focused and stay disciplined, we generate significant amounts of excess capital. How we choose to put that capital to work, obviously, we'll talk more about today, but it's been a mix of different things. We've got a very good board in terms of thinking about how we not only think strategically, but how we think about that very important question about how to be sure we allocate the capital in the best fashion that fulfills all the different stakeholders we're trying to manage. That's an important part of our success as we look back to that first exhibit I took you through. Again, as Tom mentioned, I'll have a chance to come back and make a few closing comments. I just want to leave you with the notion that we feel very confident about the plan we're about to go through. We don't need to have a spectacular environment to kind of reach the results that we're going to talk about. Sure, we'd love to see a stronger economy. Sure, we'd love to see a little better interest rate picture. But again, if you think back to that 10-year history, that came with a whole host of different issues and challenges more broadly throughout that period of time. With our ability to stay focused and narrowly direct our energies to a few different things, we can produce those kinds of results, and I'm very confident that provides a level of confidence and a basis to operate into 2014 and beyond. With that, let me turn things over to Rick McKenney for the next level of discussion. Thank you, Rick. Try to step off here. Go ahead. Good afternoon, everybody. Let me start off by taking you through the state of the business. I'll give you a sense of some high-level financial results. Then we'll hear from each of our business leaders talking about the details of where they see or where they're operating today, as well as how we take that into 2014. Let me start off actually by giving you a quick view of 2013 here as we start to wrap up our year. If you look across our segments over the course of the year, it's actually been a very good year of execution on all fronts. I'd reiterate first to you that we see things similarly to what we saw at the end of our third quarter reporting, is that we're in the top half of our expected earnings for the year. I think that's come across a variety of fronts. I'll share that with you in a second. But I think that overall, our loss ratios actually look really good across our businesses. When you think about our trends as we enter 2014, we feel very good pretty consistently across all of our business lines that our loss trends look good. Next, our premiums are actually on a little bit on the lower end of our range, but still within our range in terms of what we've seen over the course of the year. Sales were a little bit slower. It was a pretty dynamic world in 2013, given some of the things going on in the regulatory environment, just the economy at large, including the things we saw towards the back half of the year and the shutdown. But as I said, with good persistency across the board, we've actually seen premiums that are tracking to our expectations, and we'll look to see taking that forward into the next year. The last thing which I certainly need to mention, I'll give you some more details on that, our capital generation, first of all, and our active capital management have certainly been a highlight of 2013. We expect by the end of the year, we'll have bought back over $300 million of our stock, and we've seen that continuation quarter by quarter. The next piece is our UPIL, which is our Bermuda captive, actually has been redomesticated. We actually finished moving that back on shore last week, so we can talk a little bit more about the details of that, but we're very happy to get that done on a pretty rapid basis given the complexity of that transaction. Then certainly earlier in the year, in the May timeframe, we announced our dividend increase of 12%, which is in a series of dividend increases that we've seen. So 2013, actually looking pretty good. Let me start on the earnings front, though, and I think if you look at through the third quarter, we're actually up 6% year over year, so exceeding what we expected going into the early part of the year. I think the best part about this is it's actually been a balance across our business segments of good earnings really across the board. Good, stable, steady returns, as we talked about. We mentioned persistency. We talked about margins. We talked about how we've invested our cash flows. What was certainly in the earlier part of the year, a very challenging investment environment, I think we've done a good job. As I mentioned, coupling this with good active capital management through returning capital to our shareholders through share repurchase has done well. So we are coming into the home stretch of the year, and although there's much work to do before we get our results finalized and talk to you about that early in February, I certainly think you'd agree with me that we're entering 2014 in a very strong position. Importantly, though, when you look at how we've actually continued to generate, these are the returns that we see across our business lines. We would have shown you a similar page over the last several years. Strong core returns across our business lines. These are on an unlevered basis by each of our lines, and all of them in our core lines in excess of 12% returns on an unlevered basis. If you look at the first three bars on the left, Mike Simonds will take us through that, but our U.S. business aggregates to a 13.5% unlevered ROE, a very strong business that we've seen consistently generating good returns over the last several years. Then certainly when you look at Colonial Life at over 16%, very strong returns. Our U.K. business saw a real turn over the course of 2013. I think we entered 2014 in a good position that Peter O'Donnell and the team have taken forward to get that business on very solid footing. I would be remiss to not mention the closed block, right around 3% return on the far right side of the page. We certainly need to weave that into the mix, but when you bring that all in together, you are still looking at a return for the company of about 11.5%. Still very respectable, very good, particularly in the environment that we are in, and we will talk about how that trends in 2014 as well. The next piece is growth, and I mentioned it has been a difficult environment in 2013. I would also mention that we have seen some good growth in some of our segments that we are really focused on. You can see that denoted in the upper left-hand part of the chart, our growth markets we talk about, whether it is our core business in the U.S., the voluntary benefits that we see both in our U.S. business as well as Colonial Life, and our group income protection that we have in the U.K., all very good growth markets. The premiums, not just the sales, the premiums in these lines have grown 2.5% in the course of 2013. Good returning lines at a good growth rate. On the left-hand part of the chart, you will see our opportunistic markets. To be fair, we write a large amount of business in our large case market. You can see our premium is about $2.2 billion here, but we are more choosy in this area. I would note that it shows us down 2.5% on a premium basis. Included in this is actually the reinsurance that we have done in the U.K. So if you bring that out of it, we have actually seen our opportunistic markets also grow 1.5% over the course of the year. So happy about where we are pricing in those markets, and we have seen some good growth that we continue to see there as well. Let me take you to our risk experience. I think the thing to note here, both as we talk about our benefit ratios and our expense ratios, are one of stability. If you look at this over the last three years, our total aggregate Unum US loss ratio has been in the range of 72% and trending down in 2013 to 71.5%. This has been pretty good performance across all of our businesses. Of particular note, people look at our group long-term disability business has seen very good trends as you look over the last several quarters and over the course of the year, and we are certainly pleased where that is going. Colonial Life as well, you can look at our loss ratios here. As I mentioned on the previous page, very high margin business, good returns that we have seen in that business, and it has been very steady in that 52-53 range that we have talked about over the last several years. So very happy with how that is performing. On the expense front, we do not talk often about our expenses because it is one of the things that we manage day in and day out. It is something that we are pretty careful on in terms of how we spend our money, how we invest our money. We will invest our money into new platforms. But you can see our expense ratios here have seen a very good trend, and it is one that we do manage at the expense ratio line, making sure the money that we invest in the business is well-placed and then is borne out by the margins that we see within our products. One of the things that you will not see here in the benefit ratios is our Unum UK business. You would see a lot of volatility if you look at that because of the tremendous work that the team has done over the last year of getting the profits in line to what we would expect through both reinsurance that we have done with a block of business and, more importantly, the pricing that we have taken there. Peter O'Donnell will talk a little bit about that, and I will come back around on that in a second. On the capital generation side, this has been a story we have showed you certainly over the last several years. On the left-hand side, you will see our statutory income on slide 18, still very strong through the first 9 months of the year on a 12-month basis, almost $750 million of statutory earnings that we generated, and this is in our U.S. subsidiaries. The thing I would note as well, you will see on the negative line, the small green bar at the bottom, over the last 4 years, these are capital losses. So on a statutory basis, we have not seen capital losses in the investment portfolio. So what you see on the earnings side is coming through in pure capital generation and that which we are willing to deploy. When you bring that together with our Unum UK business on the right-hand side of the page, you will actually see our overall statutory income, including Unum UK earnings in the $700 million to $800 million range, pretty consistent with what we have seen over the last several years. We spend about $150 million of that on interest expense that we see in growth funding, which has been minimal over the last several years. We would like to see that pick up as we look forward to an overall generation that we can put back to work of $550 million to $650 million. The first thing I will talk about in terms of where we put that to work this year, we talked about it on our third quarter call, would be on our UPIL, which is our Bermuda subsidiary, redomestication back to the U.S. As I mentioned a second ago, we actually completed that transaction last week. We have actually moved that back onshore. It is a U.S.-regulated entity. To do so, we actually put $300 million of cash and capital into that entity. As a result of that, now the reserves that we see at that entity are consistent with what we see in Unum America and with our other U.S. statutory subsidiaries. So on a statutory basis and very consistent. We also have the capitalization of that entity is consistent with the rest of our U.S. insurance subsidiaries, which would be in the 375%-400% range. So hats off to our team that got that done on a very rapid basis. Roger Martin led a team that has actually worked through this very quickly, and we are certainly glad to get that completed by the end of the year. So that is part of an overall capital deployment we had in 2013. I'll start off through the first three months. You can see that we talked about as we got through nine months, our share repurchase of close to $270 million that we did, our dividend payments of $109 million, and then two items that we did earlier in the year with our Tailwind debt retirement, which was a structural item that we had out there to take that debt back in, as well as the pension funding as we closed our pension mid-year. You can see that we spent close to $500 million in the first three quarters of the year. Then you combine that with what we're doing in the fourth quarter, $300 million that we put into UPIL. Share repurchases that we'll talk more about, but we're still not done on that front. As we said in the third quarter, we are buying back stock in the fourth quarter. Then our fourth quarter dividends, you can look over the course of the year, we spent about $850 million-$900 million. So even relative to the generation that we have on a normal basis, we've been actually able to put more capital to work this year on a variety of fronts that you see here. So what that means as we wrap up the year on the capital front is you can see that as of the third quarter, we were close to 400% RBC, with $678 million of cash available to us. After we've gone through these transactions and all the other capital items that we talked about, we'll still be in that 375-400 range. We have tightened in our cash range to $500 million-$600 million of cash that we'll have at the holding company. We think after all the transactions that we've done on the previous page that I mentioned to you, we actually feel in very good stead. I would also reiterate that with that cash level, we also, in the third quarter, went through and put a letter of credit facility in, not related to any of the transactions that I just talked about, but just a pure cash facility available to us of $400 million. So we feel very comfortable in terms of how we're able to manage the capital going into the end of the year, and that will take us into next year. So with that, I'd wrap up the 2013 discussion with a little view of our book value per share. I think Tom mentioned this earlier. Our book value growth has been an important piece. When you look at it's purely our earnings coming into the company, less some of the shares that we retired over the course of the year. You can see that was actually up over 10% on a three-quarter basis, and we look to see this as a metric, a continuing growth of book value per share, as we look out to 2014. So let me give you a little snapshot on 2014, the outlook that we have before we bring up each of our businesses to talk about some of the detail. The first is our overall view of the business environment. We still think 2014 will be challenging, and I should be more specific on that front and see how we talk about that. One is unemployment or underemployment. We think will still be challenging, which can affect the premium or the natural growth that we see in our businesses. It may not be as acute as what we saw in 2013, but it is still going to be a difficult environment from that perspective. The second would be inflation is expected to be low. In that same natural growth phenomenon, because wage inflation may not be what we would expect on a normal basis, we will not get that natural lift to our overall premium number. I expect we still may see a little bit of noise from Affordable Care Act perspective, but probably a lot less than we saw in 2013. Across the board, I think I can say this pretty holistically, our loss ratios are expected to stay stable. The incidence trends we have seen, as well as the recovery trends across much of our business, will continue to be stable. I think the important piece here is those loss ratios are also improved by the pricing actions that we are taking across each of our product lines. You bring those all in concert, we actually expect our loss ratios to be quite good in 2014. We do expect an interest rate environment or investment environment to be consistent with the second half of 2013. The move up that we have seen in rates in the second half of the year, we expect to be consistent. If you take that through some numbers, for planning assumptions, we use the forward curve as of the end of September. What that would denote was on an average basis, we expect 2013 to be just under 3% from a 10-year treasury perspective. We are not expecting a big move up in our plans, just reflecting that of the investment environment and credit spreads similar to what we have seen in the second half of the year. All of that comes together, operating EPS, and we will give you some more details on this, of 5%-10%. Given some of those headwinds we continue to see, we feel very good about the 5%-10% growth that we see as we look into 2014, and we will take you through some of the details. The last piece on the capital front, which has been a key tenet of our strategy over time, we are expecting share repurchase in the $300 million-$600 million range. The range there denotes what we see in the overall environment, so we will certainly see how that plays out over the course of the year, but we certainly expect capital available for us to deploy. The last thing I would mention on the dividend is we do expect to increase the payout ratio. If you think about that, it would be in excess, basically, of our EPS. Dividends continue to be a main part of our portfolio. We actually will work with our board to think about what is the right level at the right time. Dividend and increasing dividends has certainly been a key attribute of our capital management strategy over the last several years. Let me pause there. I am going to turn it over to Mike Simonds, who is the President of our Unum US business, to give more details of what they are seeing. Mike? Thanks, Rick. Good afternoon. It's good to be here with you in New York, and frankly, it's a good time to be in the employee benefits business. As Tom said, the need for our products has never been stronger amongst employees and individuals. If you move beyond that, actually, employers and their interest in our lines of business, as well as their brokers and consultant advisor partners, the interest that they've taken in our business over the last few years is certainly a positive trend for us. While we do continue to see some headwinds in the macro economy, like Rick was highlighting with unemployment, some distraction in 2013 with ACA implementation, on the whole, we're optimistic and genuinely excited about the long-run opportunities that are emerging in our business. In the next few minutes, I want to hit on three things briefly. The first is just review the strategy at Unum US. Second is to provide an update on our execution against that strategy. Finally, provide a financial outlook for 2014. As many of you know, Unum US is the Unum-branded benefits business here in the U.S. We distribute primarily through independent brokers and consultants. We enjoy strong market leading positions in each of our lines of business. With good growth over the last several years in life insurance and our supplemental businesses, we've traditionally been known as a group disability provider, but as you can see on the chart, group disability is now just a little bit under half of our earned premium base. Our group of employer clients is diverse, so we've got good share amongst small employers all the way up to the Fortune 500, and across a broad set of industries and geographies. It's the diversity of this client base across these different segments, across these different product lines, that's helped us to manage that mix of business to a consistent level of profitability with ROEs in the 12%-14% range. Talking about our strategy, it's actually pretty straightforward. Three key elements. First is investing in offerings based on real insights into the employee as consumer and the trends that we've talked a lot about over the years around this gradual shift from employer decision-making to empowering employees to take some of that decision-making in their benefits choices as well as provide some of that funding. The second is after 38 years of disability market leadership, we've established a very broad base of clients, and we continue to work very hard to broaden out those relationships and move from being purely a disability company to being that broad benefits provider. It's our focus on these employer clients that's driving a good amount of our growth as we successfully cross-sell and re-enroll. In fact, in 2013, north of 60% of all of our new sales will come from existing client relationships. That's important not only because existing clients represent potential for future growth, but that growth comes at price levels that are favorable. It comes with lower acquisition costs associated with it, and cross-selling also drives greater stickiness, so more persistency into the book of business. Focus on the consumer, focus on our employer clients, and the third element of the strategy is about developing collaborative marketplace partnerships. Being the number one, two, or three players in each of our product lines positions us favorably to partner up with leaders in other product categories, as well as with the technology firms and the ben admin providers that are increasingly enabling the delivery of employee benefits. We will talk a little bit about benefit administration technologies and exchanges. That is the strategy. Let us talk just a little bit about some of the things we have been doing to invest against that strategy and looking forward, what we are doing to execute. The first, on the consumer front, we continue to strengthen our employee pay choices and offerings. In 2014, we will be rolling out new voluntary disability products, as well as improvements to our life and supplemental health portfolio. We now enroll the vast majority of all of our employee pay products digitally. We are developing a very rich data source from these millions of transactions at the work site. Using this data, we are starting to glean some very interesting insights. We have traditionally, if you think about Unum, the insurer, to focus on risk and pricing decisions, and we obviously will continue to do that. But we are increasingly training those guns onto the problems around consumer elections at benefit times and decisions around keeping and retaining the policy over time and using the interactions to help us shape how we educate, how we talk to, how we package, and how we price at the employee level. What I would say, as a benefits provider, we have been using a lot of educated guesses around that end employee, and I think we are starting actually to use data to make more informed decisions looking forward, and we see that as a key growth opportunity for us. One of the great advantages of having these insights into employee benefits behavior is the ability for us to use that data to be more consultative with our employer partners. Over the past two years, one of the things we have done, you see it here, client management strategies, we have actually moved our transactional and responsive service accountabilities from our field locations into central, more efficient organizations. We have captured those OE gains, but as importantly, we have restaffed our field office with proactive, relationship-oriented client managers. They are out in the market every day, meeting with employers, talking about the data we see and peer analysis, and helping them construct benefit administration and benefit product plan designs on a go-forward basis. These client managers, we started to see the impact of that in 2013, where again, over 60% of our sales came from existing clients, and we actually expect that is going to continue to build and be a key driver of our sales growth in 2014 and beyond. More and more often, as these client managers are out meeting with employers, a topic of conversation is technology and the technology that is being employed to deliver benefits. Over the past four or five years, what we have done is actually gone proactively out into the market and secured partnerships with key firms that are in this technology space. To date, across Unum US and in partnership with Randy at Colonial Life, we have over 40 different connections into the ben admin space. Importantly, it's these same firms that are providing the backbone to the private exchanges that have begun to spring up. It might be worth pausing here just for a second to talk about private exchanges. In our view, the increased interest in private exchanges is really just the latest manifestation of a longer-term trend towards employee choice. We identified that trend, and Tom alluded to it in his slides, seven or eight years ago and made employee choice the central thesis to our investments and to our strategy going forward. Those investments, in turn, have allowed us to establish market-leading positions in the employee pay space. Which opens the door to potentially interesting partnerships, including the 40-plus technology firms that we're already connected to. While these exchanges evolve, I think evolve is probably the right word, over the coming years into potentially a new distribution opportunity for Unum, it's worth noting that in every one of the case examples to date where we've been working through private exchanges, the employer remains involved in selecting the carrier and the set of choices that are going to be made available to their employee. In fact, really without exception, we see that employer continuing to play a vital role in our lines of business around what are the high-quality carriers and what's the right set of choices given their employee demographics. Before moving to the outlook, the last point I'd make is that underlying our strategy remains a firm commitment to risk discipline that served us so well. While we've seen, and all of you have seen, some amount of volatility across returns amongst players in our industry, we believe the pricing, renewal, and risk management strategies we've put in place that have enabled the consistency of the performance in our book of business will persist as we look out into 2014 and beyond. Making good, sustainable, data-driven decisions is part of our DNA, and we're unwilling to sacrifice those principles in pursuit of market share. As our strategy continues to take hold and the headwinds in the market lessen just a bit, we anticipate sales growth at Unum US in the 7%-10% range. Given that dynamic market that Rick described in 2013, and the impact on sales in 2013, earned premium will be flat to just up just a bit. Through the renewal pricing, as those take hold, strong benefits management and expense discipline, we expect slightly higher BTOE growth in the 1%-3% range. We also anticipate what we believe to be industry-leading returns to persist into 2014 with ROEs in the 12%-14% range. So that's a snapshot of 2014. If you think about achieving these targets in 2014, sales growth in this 7%-10% range, continued strong persistency from our cross-selling and client management efforts, we expect that earned premium growth in 2015 and the years to come will tick up more into that middle single-digit range, which is where we were headed into 2013. I'll close right where I started, which is, this is a great set of businesses to be in. While certainly we've got a few short-term headwinds that we continue to work through, the franchise is healthy. The long-term outlook for consistent and predictable growth is encouraging. With that, I'll turn it over to my colleague, Peter O'Donnell, to talk about the U.K. Thanks, Mike. Want that? Oh, great. Thank you. That'll be handy. Good afternoon. It's a pleasure to be here in New York. Hopefully, you'll get by my accent. I'm not a native, but as I've been around it this weekend, it's been very familiar. So, delighted to be here. I'm going to follow a very similar structure to Mike, actually. Hopefully you'll get familiar to this as we walk through this actually. So a business snapshot. Just perhaps to ground you a bit in the U.K. and just explain a bit about what we do in the U.K. I'm going to use the U.K. terms, so I'll just make sure I explain those as I start. So group income protection and group life. Group income protection is long-term disability, so we just refer to it as group income protection in the U.K. Group life is lump sum. You're very familiar with that. Then we've launched a new product this year called sick pay insurance, which you will know is short-term disability. The right-hand chart just sets out the premium mix in 2012. Unum UK is the number one provider in group risk products in the U.K., and we have been in that position for many years, and we're going to continue in that position. Our challenge is to grow the market as our market share, particularly in group income protection, is just under 50%, and therefore, it's quite difficult to get organic growth without getting that market share, without growing the market and expanding the market itself. We distribute through brokers solely, and it's primarily all employer paid, so we don't really have a voluntary market in the U.K. For the short to medium term, I think that's likely to continue. Employer paid is going to be the way that we grow that market. Those employee benefit consultants, which are a segment of the broker market, are the key players in that. They specialize in giving advice to employers about benefit packages. We have a great relationship with them, which we want to build on as we go into 2014. Our market position is number one in group income protection. In 2012, it was number four in group life, and I expect to stay about there. We're opportunistic in group life. We'll ride it where we can make the margin. Group income protection, we believe we've got competitive advantage, so we can maintain our pricing and do better than the competition. I'll come back to that in a minute. So turning to the outlook. Really, the outlook is going to show you a continuation of what we've been doing in 2013. Really, as Mike discussed and Tom discussed, the strategy is very consistent as we go through into 2014. The first thing is we are focused on expanding the group income protection market. Just one statistic. One in seven private sector employees in the U.K. have got income protection. If you compare that to the U.S., it's three in seven. In Ireland, it's three in seven. In South Africa, it's four in seven. In Australia, it's three in seven. There's significant under-penetration in that marketplace. The challenge we've got is to up that penetration. It's also the great opportunity we have in the U.K. That has been our focus, and that's our key focus as we continue into 2014. We've had a number of other things to do as well. Both Tom and Rick referred to this. The repricing of the group life book has been very important. We're about two-thirds of the way through that. We need to finish that off in 2014, so that will take us some time. Probably around the third quarter, we'll be finishing that. Really that's where we've been putting double-digit rate increases through the book and also pruning exposure to schemes that we don't like and some of the competition's been picking up on that. You will have seen, when you see our numbers, that we're actually shrinking our exposure to the group life book, and that will continue in 2014 and dampen its growth as we look out. The other area, sorry I've gone too far there, is strong risk results. A key thing that Unum brings to the party is that underwriting and claims discipline. We have been embedding that into our organization. That culture is totally embedded as it is in Unum US, and it's really important to us that where there's growth, we will write it if we like the risk. We won't write growth if we don't like the risk. That's a key element to our strategy that we've really embedded this year and will continue next year. The final area is about simplification of process and leveraging group capabilities. As you will no doubt know, we're a lot smaller than the U.S. business and a lot smaller than some of our competitors. Actually taking advantage of a lot of the U.S. capabilities, particularly around claims and underwriting, data capabilities, and also some of the investments they do, is a key part of our competitive advantage. Working very closely with Mike, Randy, and Jack, you'll have seen that a lot of the claims expertise that we've brought, a lot of the underwriting changes that we've brought in terms of that renewal program is actually a replication of what Unum US went through five or six years ago. That's been very helpful for us to pick that up and use it. Process simplification is a challenge for us all. We need to make it easy for employers and brokers to do business with us. Insurance is a complicated business. Sometimes we overcomplicate it. We are really driving process simplification into our business to see how we can make that much easier and also utilizing technology to do that. In terms of the outlook for top-line growth, and I am really referring to sales and premiums there, will be constrained by market headwinds. There are two aspects to that, really. One is the group life repricing, so damping that premium growth. The second is, whilst economic conditions in the U.K. and the U.S. are better, GDP growth is still quite muted and therefore census growth, salary inflation that we would have seen historically is still not coming through in the way we would like it. And employers are reticent to invest significantly in a turning market still in the U.K. We see that. However, looking longer term, we do see the political environment as conducive to our growth. In the U.K., there is a movement from government support to putting protection risk on the individual and a growing awareness of that. There is also something called auto-enrollment in the U.K., which is moving pensions out through the worksite to all employers, which is rolling out over the next two or three years. And that is a great opportunity for us to take advantage of and put our group risk products alongside that pension change. Longer term, more growth, really. Looking at our key priorities. Distribution, I am going to start there. There are two aspects to distribution from the U.K. perspective. The first is the large employer arena where our current employee benefit consultants and brokers play. Really, that is about expansion of coverage to new employees, so different class of employees. It tends to be an executive benefit in the large employers. We have been working very hard with those EBCs to give them the training support so they can go and sell this to large employers and explaining why it is a great proposition to extend coverage. The second area is about small and medium sized employers, which distribution tends not to focus on. And there are other brokers who are not currently in group risk who are into that market and have got corporate offerings, but they do not have a group risk offering. And really that is about bringing them support and capabilities to enable them to sell group risk products and extending our relationships with them. Some of the wealth managers in the U.K. we have been talking to, and we have just done a significant new network opportunity with St. James's Place, which is a wealth manager who are starting to sell group risk products in late 2013, early 2014. Very important to get that distribution moving and expanded. Marketing. This is an area we have been investing in quite heavily in 2013. Using data in slightly different ways than Mike talked. One of the great advantages we have over the rest of our competitors is we have more data about who buys, why they buy, which industry buys, than any of our competitors. We can take that to brokers and identify hot leads and say, "Here is the type of organization that is more likely, has a higher propensity to buy, than you wasting your time with a number of other organizations." That has been a key area, and we have had great success this year in actually getting first time buyers to buy using that analytics and working with our partners to do that. The second area is about using our social media capability to get to the HR and CFOs of those potential buyers. We've built up a capability through Facebook, LinkedIn, and are using that to basically get our messages across of why employee benefits and income protection and group risk products within employee benefits is actually a great thing for the employer and the employee. So when the broker goes in, they've actually got a warm client and a set of messages that they're going to recognize. Operations. This is about analytic capabilities. Again, working with the U.S. to look at how we use data to be able to underwrite more effectively, to identify those risks we like that we can get at the right price for our business. Again, that's an area that we've got more data than the market to be able to do that. Plus, we can leverage the U.S. understanding there as well and the tools and capabilities and actuarial investment that they've put in over the last few years. Then process simplification, I talked about that earlier, to deliver enhanced broker and customer propositions. We want to actually work with a number of our brokers to look at the end to end customer experience and make that whole experience more efficient and effective and take cost out of the process. Finally, risk management. We have to complete the repricing of the group life block and maintain that pricing discipline. Then secondly, as you guys know, we use reinsurance. In 2013, we put a new reinsurance program in place. So we brought our retention level down from about GBP 1 million, sterling, we're returning to half a million, and we also did a quota share. We're looking to continue that in 2014. The numbers that I'm going to show you reflect the continuation of that quota share and that retention level. So taking a look at the numbers. Sales growth 4%-7%. That's really in our income protection product and three drivers of that. One is, we're expanding that market, getting more new-to-market schemes, expanding coverage, getting more employees in the large customers to buy, and also getting that short-term disability product, SPI, in the U.K. up and running. That's going to help us get that sales growth up to 4%-7%. We would look to build momentum from there. Premium growth, more muted. That's primarily as we continue to reduce the exposure in that group life block, and we've still got repricing to finish that off. So that's at the lower end, 0%-2%. Look to build momentum from that as we move forward into 2015 and 2016. Operating earnings pretty good, 5%-8%. That's the benefits of having what is a smaller exposure to group life, but more profitable, and continuing to get that rate through. We pruned the least profitable schemes. So that helps our loss ratios. Plus we put rate through. So that helps also. So 5%-8% there. Then finally, the operating ROE, I think we talked about 12.2% on my first slide. Rick talked about 13.5. We're looking to get that back up to what is our longer-term range of above 16%. That reflects both the improved profitability of the book, but also that lower exposure to group life, higher exposure mix, higher exposure to group income protection, meaning that overall we get back into that 16%-18% range next year. Great. I'm going to hand you over to Randy to talk about Colonial. Thank you, Peter. Appreciate that. Good afternoon, everyone. Start with a quick overview of Colonial Life, starting with our products. I just want to make it very clear to everyone that we have an exclusive focus on the voluntary market at Colonial Life. You see our three primary target segments here on this slide. These are all three, I want to emphasize, these are fixed benefit products that really provide us with a very, very stable risk profile. You look over on the right-hand side of this chart in the pie chart there, you'll see the breakdown of our premium between these three segments. Again, a very well-diversified product portfolio. On the distribution side, we are an agency-driven distribution. We go coast to coast, have a very large distribution system. This provides us with a variable cost structure for distribution and makes our products very cost effective in all of our product segments. We have a very, very strong partnership in effect between the field and the home office. We think this gives us a lot of advantage out in the marketplace. We've been in this business for a long time. We're definitely a pioneer in the worksite business. Still an industry leader today. You can see very large company with over 80,000 accounts served, and over 3 million policies in force. If you look over to the financial metrics for 2012, we do exceed $1.2 billion in annualized premium. We continue to have very strong profitability in the Colonial Life business and continued very strong ROEs. Through the whole period of the financial downturn, we have maintained very strong cash flows through our business at Colonial Life. We've continued to improve efficiency through that entire period of time. We've maintained extremely high customer satisfaction ratings in all of our different customer segments and maintained very strong persistency throughout this entire period of time. In terms of business outlook, in terms of our business plan, it is centered heavily on execution of our growth strategy, and this is really all about delivering an integrated approach or a turnkey approach to benefits counseling, enrollment services, and our voluntary products, of course. This is all delivered through our career agency system and will continue to enhance our operating effectiveness in all areas, including process, risk, and of course, our talent. As Rick mentioned, the economic environment continues to present challenges, but we are looking for growth, sales growth in 2014. That's going to be driven primarily by continuing to grow our agency system and improving its effectiveness, both in direct sales but also in working through brokers. We'll stay focused on our target segments, that being what we call the core commercial market. We define that as employers with less than 1,000 employees, but most of our agents on any given day are operating in that under 250 life space. We also have a very strong focus on the public sector, and that would be cities, counties, schools, and select state governments. The market is changing very quickly. Mike and Rick and Tom, everyone's talked about that. We need to maintain pace with all of those changes. Again, it's a very dynamic market. A lot of opportunity, though, as Mike said, as we see this ongoing shift to more and more employee responsibility for their benefits. We feel like we're very well aligned throughout the Unum enterprise to take advantage of that opportunity. But we are seeing customer expectations continue to go up. We're seeing a lot of competitive intensity and so forth. But we're making all the necessary investments in products, capabilities throughout our whole value proposition, benefits communication, enrollment, and so forth, and all of our various customer service offerings to make sure that we keep pace and even get out ahead of the competition. From an earnings growth perspective, we feel we can deliver growth in earnings in the range of 1%-3%, and we'll continue providing very strong margins and ROE levels. In terms of our key priorities at Colonial Life, distribution is definitely job one for us. We'll continue to strengthen all aspects of our sales organization, again, continuing to grow our agency distribution and improving their productivity. Marketing is a key focus throughout the enterprise. I think Mike and Peter both have talked about that. We're working together on multiple fronts to keep enhancing our capabilities in that area. It's heavily centered on the end consumer, on the customer, their needs, what they're looking for. It's about simplification, making our products and services easier to understand, and providing tools to our distribution to make it easier for them to open new accounts and enhance penetration in all of our accounts. From a segmentation standpoint, again, we're going to keep building out capabilities in those target segments I mentioned earlier, the core commercial and the public sector. We're going to continue to focus on customers in general that are looking for that turnkey approach, who are very interested in what we call personalized benefit communication. On the products and services side, again, we'll maintain that very important balance in our portfolio in terms of having good diversification, making sure we have the right risk and return balance, and of course, making sure we're meeting the needs of all of our various customer groups as well as the needs of our distribution, making sure they have the right training, the right support, and of course, very importantly, have compensation aligned appropriately to support our efforts in all of those areas. Last but not least is operational excellence. This is a very, very strong foundation for our strategy, and that's true throughout the entire enterprise. We'll stay focused on all those items you see listed there. Risk discipline is a very important foundational item to our strategy, and talent is incredibly important and will really provide the leadership for our company for the future. Kind of bringing it all home in terms of the key financial metrics, our sales growth, we are looking at 4%-7%. Again, still plenty of challenges out there, as Rick and others have talked about. But we think this is very doable. Some lag then in terms of premium growth catching up with that. But we feel we can be in that 2%-4% in terms of premium growth. We will maintain very strong profit margins and hit an operating earnings growth in that 1%-3% range, and also continue having very strong operating ROEs, as you can see in that 15%-17% range. I just close by saying that the Colonial Life business is in a very strong and stable position. Even though there are marketplace challenges out there, we feel like that we have a very positive outlook for 2014 and feel like our strategy is extremely well aligned for ongoing success. With that, I will turn it over to Jack McGarry to talk about the close block. Thank you. Good afternoon. I am Jack McGarry. I am going to talk to you about the closed block. I should be a little briefer than my panel members here because, for reasons that should be clear to you, I am not going to dwell on our growth strategy. I am going to start by telling you what the closed block is. There are a couple of really small businesses in it, and by and large, the closed block is split 50/50 between the closed IDI block and the closed long-term care block. Very different blocks today. The closed IDI block was closed in the '90s. It went through a period of upheaval in the later '90s. But lately, it has been very stable. It has been running off as the policyholders approach retirement age and been running off predictively and smoothly. The long-term care block is basically a flat block as rate increases offset persistency in the block. It is newly closed with the individual long-term care block having been closed in 2009, and the group long-term care block closed to new sales in 2011. There is still some work to do to get the long-term care block to the same position that the IDI block is in. In terms of the outlook for 2014, we expect BTOE to grow by 6%-9%, driven largely by increased asset allocations to the long-term care business, as well as a very slight improvement in the loss ratio. The financial performance of the individual disability block will be same old, same old. It has been very stable for several years now. We expect it to continue to be stable into 2014, and in fact, continue to be stable well beyond that. Investment yields remain a concern for the long-term care block. They have improved dramatically from the trough we were in a year ago. We are up about 150 basis points since then, but we are still not quite at the level where new investments would support our portfolio rate. We need some more increases in interest rates to get to that level, but we are in a far better position today than certainly we were a year and a half ago. We do expect near-term expenses to increase on the long-term care block. We have committed significantly more resources to this block. We recently reorganized the long-term care business resources. They all report into me now, including the finance resources. We have not only reorganized, but we have upped the level of financial resources committed to it. Today, we have 15 full-time actuarial resources working on the long-term care block, 16, if you include me. Really what they have spent their time in 2013 doing is building the infrastructure. So building the modeling tools, the analytical tools. Our focus in 2014 has shifted to using those tools to develop a deeper understanding of the block. Then finally, we are going to continue to focus on capital efficiency in the block. We made one move with the UPIL re-domestication this year, and we will continue to stay abreast of the capital markets going forward. Our key priorities for 2014 is going to be to continue to focus on our key strategic areas. There are four of them. The first one is operational effectiveness. That starts with high-quality claims management. That is really important in the IDI block. It is also important in the long-term care block. But equally important in the long-term care block is making sure that we maintain the highest standards of regulatory compliance in that block. There has been some trouble in the industry related to claims management. We have avoided that. We have not been included in that trouble, and we are committed to continue to stay at that with our high-quality claims management organization. The other piece is around the effective communication and implementation of approved rate increases. It is really straightforward on the individual long-term care block. It is more complicated with the group long-term care block because we have to go through brokers, employers, to participants to communicate that. We have been very effective at that thus far, and we will continue to commit to that going forward. Financial analysis. We just developed and implemented a valuation and modeling tool for long-term care. It was built on a commercial-strength actuarial modeling platform. We went live in the third quarter with that, in that both the valuation tool will allow us to understand better the emerging experience and the impact on earnings on a quarterly basis. But that projection tool is going to allow us to build a view of the future going forward. The other thing we delivered in 2013 in the fourth quarter is a new experience analysis tool. It is a state-of-the-art tool that allows us to dig in depth around the underlying experience and compare that to our expectations. We plan in 2014 to combine those two tools to do a comprehensive review of the underlying assumptions of long-term care and to really get a clear view of what the future holds. Rate increases will continue to be a focus for us. There is an easy part and a hard part to that. The easy part is around pursuing the rate increases that we've previously filed and either got disapproval or partial approvals on. We'll be going back to state regulators to follow up with that. But in addition, particularly on at first on our old individual long-term care block, we're going to begin filing stratified rate increases. So rate increases that reflect the risk dynamic of the underlying plan designs that we're filing for. We're going to use that filing in order to develop attractive options for people so that they can buy down out of their rate increases. We think this is a triple-win situation. It's good for the consumer because it allows them to keep a meaningful plan while mitigating what can be really big rate increases. It's a win for us because it still improves our margins. It also begins to de-risk the portfolio going forward. Finally, it's a win for regulators because it allows them to approve a much more palatable rate increase proposal that allows good options for consumers in their state. Finally, we'll continue to look at capital management. We're going to implement strategies, structure changes to enhance our flexibility. UPIL was one of those. We'll continue to look at others in the future. We're going to stay abreast of developments in the capital markets. There's not a lot of action in the capital markets today, but as interest rates continue to rise and as the product becomes more known and more stable, we're hopeful in the future some of the opportunities that we saw in the IDI business, we'll also see in the long-term care business. So looking at our outlook for 2014, sales growth is N/A, and I apologize for that. Tom White put this together. I'm not sure whether that stands for not applicable or never again. But either one would work. Premium growth is -4% to -6%. That's largely driven by runoff in the IDI block as people approach retirement age with relatively flat premiums in the long-term care block. Earnings growth, 6%-9%, again, related largely to assets allocated to the long-term care block. Our ROE of 2%-4%. Both of those blocks are in loss recognition, so they're both gross premium valuations. Breakeven is what we can expect on them. With that, I'll turn it over to Rick to follow up with investments. Great. Thanks, Jack. Let me transition you quickly here before we head towards a wrap up and talk a little bit about our investment portfolio. Just to remind you, roughly a $50 billion investment portfolio. I think the thing that you would note over the last several years in this investment portfolio is its lack of things that have popped up and surprised us over that period of time. The credit quality remains very strong. You can see on the right-hand side of the page, our watch list is at all-time lows, so there's not a lot of bonds that we're tracking out there that we have any concerns with over that period of time. If you go to the lower right-hand corner, you'll see that we actually haven't seen any losses coming through the portfolio. The only blip we saw in the third quarter is that we actually did rotate through and took some losses with some active portfolio optimization that we did. As a result of that, we have a very good portfolio. We don't have a lot of concerns today, and as it has been over the last several years, the quality remains very stable and in the single A range. One of the things we're certainly focused on is actually the interest rate environment. Just to give you a sense of 2013, through three quarters, we put $3.1 billion to work over that period of time. Our yield on the overall portfolio, given that it's at 6.3%, did drift down slightly, about 15 basis points over the course of the year. When you look at the overall interest rate environment, even where we are today, there are still interest rate headwinds on those new cash flows that we're putting out there at lower rates today. But certainly the team is doing a good job of putting those into good spots. And you would have seen in the previous couple of years, adjustments to reserve discount rates as necessary. We have not done so this year and don't expect to this year, move the discount rate given the stability of the portfolio, and I'll show you one of our key lines in a second. As I mentioned, the best part that the team has done in the mitigating factors is opportunistic deployments. Given relatively lower levels of assets to invest in, they pick the right times in the market. When spreads widen for something going on in the world around us, they'll plow into it. When spreads tighten or interest rates move down for reasons that are outside of our space, they'll certainly sit it out as well. The one thing that you talk about interest rate environments that the operating teams have done a good job on is actually taking premium rate increases. When you take those two together, the way that you combat a low interest rate environment is actually you raise rates. And the team, throughout the first half of the year, throughout the entire year, and over the last several, have taken premium placements to actually deal with some of that low interest rate environment headwind that we've seen out there today and have done a very good job on that front. The last piece is our measured reductions in the interest reserve margins that we've seen. As I'll show you in a slide, we actually look at our disability line, particular long-term disability, and we maintain the spread between our current invested assets today and the rate at which we discount. And I'll give you a quick demonstration of that. If you turn to slide 47, you'll see actually this is a representation of our interest rate margin that we have on our U.S. long-term disability line. When you see that target range is what we want to stay above, and so it represents what we would have in the case of any defaults in the portfolio or actually moves in the overall space. When you see this green line here, we feel in a very comfortable position. What you would see is the pricing that we have taken over time, discount adjustments we made last 2 years, actually being good examples of that, where they actually the denominator in that down in terms of our overall discount rate. We also allowed the margin in this line during the credit crisis when we were investing in bonds at a much higher rate because we are cash flow positive in our lines. We let that margin build up through the credit crisis. The last piece I'd say is we do have a manageable amount of new cash to invest, so we track this very closely. When we think about our portfolio, we think about matching it up product line by product line, and we've done a good job actually over the last several years, making sure that we do so on a representative basis, keeping the match between those two very tight. If I take you to 2014 outlook, I gave you a snapshot of this earlier, and just to reiterate some of the points. We do actually see, and you would've seen from the business results, a little bit better sales environment. We actually start off the year and going through our renewal season, actually optimistic about how things are going to transpire across the business, and you would've seen that from everybody going forward. We are seeing premium growth. Last year you would've seen this number down around zero to 2. We are seeing the premium growth this year, 1%-3% for core operations. That's not what we would expect longer term. We would expect to see some natural growth as part of that, some wage inflation, and some actually increasing payrolls that we have out there, which we aren't seeing right now. 1%-3% we think in this environment is pretty good. Persistency has been kind of the counter side of some of that noise we've seen. People have decided to keep their cases with us, so we have not seen a lot of momentum. We've seen in the last couple of years all-time high persistency levels, which keeps those premiums on the books intact and very profitable. We expect next year will look similar to that, generally consistent with what we've seen in 2013. Bringing all those together, and you'll see the margins actually in the business with a disciplined pricing and risk selection that we have over time. Continued very stable returns that we see, both from a margin perspective and what we see, and that brings it all together, where we see earnings growing in the 5%-10% range next year. Good expectations we have going into the year. The plans are in place to get there, and we've taken you through a lot of the details of that. Finally, on the capital side, certainly continuing to execute our capital deployment plans as we wrap up this year, as well as going into next year. A range out there of $300 million-$600 million of share repurchase. So kind of in that range, taking account of the generation that we expect, which should be very stable as we look into 2014. Then we will increase that dividend payout ratio as we see fit going out through the course of the year. The last piece is on the capital side. We do next year, as we have over the last several years, expect an RBC range wrapping up this year in the 390%-400%. So we've tightened that range in for the overall. Then 2014, 375%-400%, and then a holding company level at the end of 2014 at greater than $500 million. So still plenty of cash to do flexibility and having that financial flexibility to do what we want to do. So if I were to wrap it up overall, and you've heard from each of our business leaders on this front, when you bring our total core operations together, we're seeing sales growth in that 5%-9%. It's certainly a lot better than we've seen over the course of this year. As I just mentioned, our premium growth 1%-3%, so it's still very good and driving the overall operating earnings growth of 2%-4% in our core lines of business. And importantly, our ROE in the 13%-15% range in those core operations. Very strong results as we look out to 2014. You bring that together with our closed block, our overall operations, which includes our corporate segment as well as our capital management, brings us down to that 5%-10% EPS growth and an ROE expectation in the 11%-12% range. So let me turn it back over to Tom for some closing comments. Thank you, Rick. I'll make this very brief. We know we want to get to your questions, but I'm hopeful, as you've listened to our discussion here today, you walk away with a couple thoughts. One is that through Mike's discussion, Randy and Peter, we've got some good operating businesses. And even though we talk about growth, we're going to stay very disciplined as we think about how to grow our businesses. But we think we've got tremendous opportunity ahead. Through Jack's discussion, again, you're going to see an enormous intense focus on the closed block. And I think hopefully you get a sense, too, that we put a lot of resources behind Jack to be sure that we've got the right people helping to manage that block. It's an important piece of our sort of capital story. And again, we've got to put focus and energy behind being sure that we maximize the things that we know we can do in that business to improve performance. Through Rick's conversation, obviously, again, we have historically had a very strong financial base to operate from, one that generates consistent cash flows. And again, we continue to feel that's an asset, and we continue to think we make good quality decisions in terms of how to manage that capital, put it to the best use of our shareholders. And therefore, collectively, hopefully, you feel like we're making the right decisions, and we have great confidence that the kind of things that we've done historically, we can continue to do into the future. With that, Tom, let me turn things over to you to moderate the question and answer session. Great. We'll go to the Q&A session now. Do we have microphones? We have microphones. So if you could just hold your hand up, and I'd ask that you identify yourself and your firm so we record that for the transcript. Why don't we start with Jeff back here? Thanks, Tom. Jeff Schuman from KBW. I wonder if you could talk a little bit about long-term care and the decision to put more actuarial resources there. I guess what comfort can we get that once you apply more resources and study the business more in-depth, that you don't come to somewhat more negative conclusions than you have historically? Why don't I start that one, actually, then ask Jack to pick up on that a little bit. I think actually, Jeff, the decision to put more resources there really came as a result of putting the long-term care block into a closed block and realizing, listen, now we have actually over 30% of our capital basically in a closed block status. We need to put in equal level of resources behind that we have around the rest of the company and treat that, frankly, as an ongoing business, just like we do with the other three operating segments. I think the tendency when you do things like that is to focus on the operating segments and keep the other stuff to the side. That's not the way we looked at this. We wanted to put a lot more depth of resources, recruit some of our best talent with the new organization. Again, so we can actually be sure that to the extent we have levers out there to use to better manage that business, we've got the best and brightest within the company to look at that. And maybe with that, Jack, you could talk a little bit about some of the other aspects of what you've done and how that connects to Jack's two points. Okay. We are working to understand the long-term care block. We have a lot of resources behind it. We have a lot of new tools. The one thing I'll tell you is no matter how many actuarial resources you put behind it doesn't change what's going to unfold in the future. Our view is the better we understand that and the better we think about how we want to manage that and how we're going to react to that, and the earlier we know that, the better off we're going to be. There's no guarantee as to where the results of that analysis is going to come out. Given the resources we have on it, I will guarantee you it will be of high quality analysis and every opportunity to mitigate those risks and to change that outcome to the extent it's not as positive as we like will be thoroughly explored. To the last point, should we think that part of the building is kind of building out more capability to kind of strategize and execute rate increases? Is that part of Strategize and execute rate increases as well as a better understanding of what the dynamics are within the many assumptions that go into the valuation of the block and a better analysis and understanding of the credibility of those dynamics. What we're not expecting is that there is not going to be like one fell swoop, this is the final answer. It's a long way out. It's sensitive to small changes and assumptions. And we'll reflect that as we work through the work. If I could add just the way I think about the reserving, as Jack said, is going to be what it's going to be. What this additional focus is going to do is help us to nuance how to think about rate increases, operational changes, how we think about capital structure supporting that differently. Data and analysis is going to be very helpful to do that, actually, and we didn't have that before. Again, I think it's the nuances of how you think operationally and how you think about actions that you can take both operationally as well as from a capital standpoint. I think that you're going to see some benefit from that. Okay. Thank you. Why don't we come up to Suneet here? Thanks, Tom. Suneet Kamath from UBS. I guess first question on the UPIL transaction. Can you talk a little bit about how that $300 million number that you talked about in terms of capital infusion was split across the two businesses, long-term care and IDI? Because I thought that in the past you'd said that you'd manage the long-term care piece of that to a risk-based capital ratio of in excess of 400%. Can you just talk a little bit about that number? Yeah, sure, Suneet. This is Rick McKenney. Let me just give you a sense that most of the capital that went in there, the cash went in there is actually back in reserves. We actually increased our capital reserves that we have behind the line. When you look at the overall RBC level, it's pretty consistent as we talked about that. We're now on a different reserving basis than we were before. That reserving basis is consistent with what we do in our other statutory entities in the U.S., and that's where the majority of it went. Okay. Can you talk about where the new entity is in terms of which state it's in? We'll probably wait to do that as we get through our fourth quarter, but that's a process that we're in the middle of, and we'd be happy to do that. I think the important thing to look at when you see it overall is that it will be reflective of what we have at Unum America, which is our main, which is our lead insurance company, and the reserves will be on a mirror image to what they see there. All right. Then just one last one. On the third quarter call, there was a question that I thought was a good one about are we going to get Blue Books for this new entity? Once everything is said and done, now that you've done the transaction, have you done any more thinking around that? We have done a lot more thinking about that. I think that when you look at this captive entity, many captives that are out there do not publish Blue Books. We probably will be in a similar boat where we will not have a Blue Book that will be out there available. I take you back to the point, though, which is this will look very much like the mirror of what we see in Unum America. There won't be more information that would be available there than you'll see just in the overall pre-reinsurance, Blue Book in Unum America. Thanks. Why don't we go to Steven in the back here? Thank you. Just a quick follow-up on UPIL. The $300 million of capital, Rick, that you put in. You upped reserves by $300 million? There's actually a lot of movements in there, but $300 million is ultimately what we did. When we brought it back onshore, there were other reinsurance pieces that moved around. There were other pieces that went in. The reserve increase was more than that, slightly more than that. Okay. But overall, $300 million went into that entity. The $300 million, the capital contribution, is the $300 million being allocated to LTC now? The increase in assets that was noted? Yeah. When you look at the increase in assets, as Jack talked about that, I wouldn't put those two together. Okay. When you look at it, if you think about the overall with the closed block and the earnings, which have been $25 million to $30 million, the 6% increase he talked about overall is like $6 million. It's fairly immaterial in terms of the overall earnings on surplus that moved there. Okay, great. Then a question just on the U.K. Four or five years ago, we were sitting here, and we'll probably be sitting over at the different building, but at any rate, the discussion at the time was about voluntary. Voluntary was going to be big. Voluntary was an opportunity. It hasn't really developed. What is it about the U.K.? What is it culturally that doesn't allow that to happen? Well, I think there's two or three things. I would say voluntary may happen. I just don't see it in the next two to three years. There's probably three things. One is, individual's attitude to protection. The culture in the U.K. has been more state dependent, and therefore, they don't naturally lend themselves to looking after yourself. If you talk to any of, and when I talk to any of the politicians, that has to change. The problem is that no politician wants to be the one to tell people that actually you need to start putting your hand in your pocket to protect yourself because I'm not going to be there to support you. So it's going to take a while. Secondly is distribution is a challenge. In the past, like the U.S., we used to have door-to-door sales guys who went around and helped people buy stuff. That's gone from the U.K. Part of our opportunity is perhaps to rebuild that through the work site. But there's no distribution currently going to the work site to help individuals make good decisions. Then thirdly, to be honest, the economy is not a great place at the moment in the U.K. to be asking people to spend more on products that they would have other priorities for their investment with and less money in their pocket. So those are the three dynamics. All three need to shift, but it's just the length of time it's going to take really, I think is the question. If I could add just one little element also too. I think one of the things that's happened since that point in time, it's become more obvious that here we sit with one in seven insured. Maybe the most important thing we could do is get to the six of the seven that don't have the basic protections within the employer and find, I think, ways to deepen that penetration within that employer. So voluntary is a new concept. Having said that, if we can work within the framework of things that are already in the marketplace and just be better at it, getting deeper into those employers, there's an awful lot of growth that just comes from doing that, actually. Why don't we go to Eric Berg over here? Eric Berg from RBC Capital Markets. Two questions, one related to the closed block. If the assets that are being added are modest relative to the total, and if the loss ratio is expected to improve only modestly as well, what's driving the earnings growth? Yeah, no, I would actually say it was what Jack mentioned earlier is the assets backing that line. So I'm just saying it's not a big number. Steven Schwartz is trying to relate that the $300 million equals new invested assets. I'm saying don't combine those two. However, the LTC or the closed block business is up slightly year over year because of higher assets or higher allocated assets. Okay. My second question is separate, and it relates to the future of exchanges. My sense of the way that employers have been shifting costs to employees over many years is by raising premiums on, for example, major medical, raising deductibles, raising co-payments at the pharmacy and so forth. Why shouldn't we think that that's going to be the way that it's just going to continue? To put my question differently, is it necessarily obvious that there will be, by large corporations, a major move to move their employees to exchanges? Is that apparent? Is that obvious? Or could the existing approach continue? Yeah. Mike, I think Marty might be in the best position to answer that because I think you are actually getting to an issue we see happening very clearly, which is maybe not. Yeah. I think, Eric, if I am hearing your question right, could we sort of look at the current levers that an employer has to pull? Within the set employ. Yeah. Absolutely. I think, and that is why I would say it is evolving versus sort of any sort of point-in-time dramatic change. We would absolutely anticipate that with healthcare costs increase, employers will go to the existing strategy set of moving up deductibles, increasing premiums, and co-pays. I think increasingly what we see, particularly in the mid and large employer, is them getting much more active in actually managing the incurred cost. A good example would be we have now about an 18-month to two-year relationship with UnitedHealthcare. What we do there is we combine the management of disability with the management of healthcare costs. What you find is the folks that are out of work due to disability are also the primary drivers of healthcare cost increases. What you can do to drive greater consumerism into your benefits is actually give better information and better support to that segment of your population that's driving costs. In just about two years, that's now a $100 million disability business for us. It's been a very strong grower, and I think it's a good representation of employers' commitment to the benefits business, wanting to stay engaged in the plan design and actively use benefits as a means to drive productivity and engagement with their workforce. I think exchanges are here. There's no doubt about it. I think they're going to have gotten a lot of talk. They're going to get a lot of talk over the next couple of years. The technology continues to improve in terms of engaging employees. I think the fundamental point, though, is what we see across small, mid, large, different sectors, different geographies, is employers staying committed to employee benefits and wanting to stay involved, particularly in our product categories. Thanks. Why don't we go to Eric here on? Thank you. Erik Bass with Citigroup. Just one thing to clarify first on, I guess, the $300 million reserve increase. In the past, for long-term care, you've talked about a potential reserve increase of $400 million or so. Should we think of this reducing that or not? Certainly. I think that, Eric, when you look at it, let me be very clear that when we talk about this reserve increase, this is purely statutory basis. A lot of the other commentary that's happened over time from many of the folks in this room has been discussing around GAAP. There is no change to GAAP. Let me start there and say that as we go into year-end, there's no expected change from a GAAP perspective. From a stat perspective, actually reserves have increased overall, which is, you can think of that as more capital effectively within this line now. Thanks. Then maybe switching gears, it sounds like you're a little bit more optimistic about the sales outlook now than you were a couple of quarters ago. Is that you're seeing demand pick up, or is it something on the competitive environment improving? Mike? Yeah, sure. We started to see probably one of the two key drivers of the slowdown, which was ACA implementation, compliance, reporting. Just employers exploring the public exchange, pay or play, private exchanges, and then having to sort of think through their health plan designs. We started to feel that in the first quarter. I'd say second quarter was probably the lowest point in terms of our business. I mean, things had really ground to a halt to a degree. You guys would've seen in the third quarter, sales came back to more of a flattish outlook. That's sort of the trend that we're on, is just sort of gradual improvement. I think employers are coming to terms with what ACA means to them and devising strategies about how to attack it. I think that frees some things up in our lines of business. I think that'll be a continued point of focus next year. The employer mandate got pushed out a year, so we'll see a little bit of distraction next year as well. I think, generally speaking, probably we felt the worst of it early in 2013. Okay, anything changed in terms of the competitive landscape and pricing? Yeah. I mean, I'd say what happens is, particularly in the group insurance business, when there are fewer clients out there looking to make changes in the disability life portfolio, fewer RFPs out there, then price competition picked up a degree. I think that's how we most acutely felt the sales slow down because we weren't going to play there. I'd say on balance, it remains a pretty competitive market. There's no doubt about that, but maybe just slightly a little bit firmer than it was middle of 2013. I'd say that the broader trend, and Randy, you may jump in here, but we've definitely seen other carriers getting into the voluntary benefits business. Most of your traditional group insurers, health insurers, have made forays into voluntary benefits. To be honest with you, the easiest part of the business is actually creating the product. They're available at every state insurance office. You can photocopy them. The rate structures are straightforward. It's the technology, the administration, and the education that's the real barrier to entry, and we think that's going to take a little bit of time for others to scale up. Yeah, of course, we're operating primarily in that smaller end of the market. Yes, there is a lot more competition, but as Mike said, it's very difficult to have quality fulfillment there, and that's where we think that turnkey approach that we bring to the market makes a huge difference. We are seeing the economic environment, of course, gradually improve at this point. Consumer confidence is huge in our market, and we're seeing that gradually start to tick up. Then, as Mike said, the Affordable Care Act was really a huge impediment here in 2013. We're starting to see that small employer kind of break loose of that now and start focusing again back on the future. Definitely a better environment for us in 2014. Thanks. Actually, Peter, since we are on the competitive dynamic, you want to speak to the U.K. market? Yeah. The U.K. market, I think on income protection, we have seen rate increases going through there, and we obviously were first into that, but I think the market has hardened rates over the past 18 months. I think clearly as we have gone through our plan, put the rate through, it will probably dip down a bit next year in terms of the amount of rate going through the market. Group life and dependents have been more volatile. We have had a number of insurers with an appetite to write risks we would not write. It tends to be the broader insurers who have waterfront portfolios who are looking to top up their sales probably, and will take some easy premium, I guess, in the lump sum. That is why we are opportunistic in that market. There are times to write it, there are times not to write it, and that will continue as well. Why don't we go to Jay and then in front of him to Marco? Thank you. Jay Gelb from Barclays. For Unum US, on the economic sensitivity for growth in that business, how do you think about that? Is there a certain percentage or number of employment growth that would translate into a certain level of growth for Unum? Yeah, good question. Rick alluded to it a little bit, but the most immediate connect is to something we would call natural growth. Natural growth would just be an existing client that's adding new employees to an employer-funded plan or putting through things like merit-based salary increases. Most of our benefits hinge off covered payroll, so that's another way that we get a natural increase. If you look back prior to the financial crisis, in a normal part of the business cycle, we'd typically see maybe 1-2, 2.5 points of natural growth on the block. 2009, 2010, we were negative by 1 point. We're about flattish right now, a little bit different by industry. As things improve and as unemployment, and in particular full-time employment, continues to recover, we start to see a little bit of lift on that natural growth front. It can be a little bit confusing in that some of the headline numbers around unemployment sort of mask the underemployment issue. If you think about our book of business, particularly when it comes to employer-funded benefits, our biggest leverage points are going to be full-time salaried and benefited employees. If that's flat now, do you have any expectation for that being a lift in 2014? Yeah. We sort of plan for consistency. We'd love to see the upside, but that's really not baked into any large degree into the outlook we talked about. Okay. Then in the runoff business, Tom, I think you mentioned at the outset of the Q&A that it accounts for 30% of the capital of the entire company. What can Unum do to accelerate that runoff? I think capital market solutions were mentioned as a possibility. However you want to explain that'd be helpful. Yeah. I would tell you, Jay, right now, as you look at it's actually difficult to see that capital accelerating. I think about the typical type of solutions you'd use. It would be the use of reinsurance, it would be the use of capital markets to alleviate some of the capital strain that we see today. Given the nature of the block, a lower interest rate environment is tough to have, although we hear about some, but they're quite small transactions out there. I think you're going to need to have a reinsurance world that looks at this and sees more data. One of the things we have in this block of business is the credibility of data is still building in that block of business. Once that happens, if you see a little bit better interest rate environment, then I think that you could see some good capital markets solutions for this product line. But it's still early. Well, if the reinsurance market can reinsure VAs, maybe they can do fourth line. Well, I think as Rick said in his comments, our goal is to be positioned when those market conditions improve that we can do something to capitalize, even if it's only a small window of opportunity. That's where I think if you look back to the behavior and things we did with the disability block, you can see an evidence of that. We were in position to do the right thing to securitize, even with a small market opportunity or a window when it opened. We want to be in the same position with long-term care. Okay. I want to go back to the $300 million and try to maybe reconcile a couple comments about, you put up the $300 million, you're still doing work on the block. Maybe I'll ask the question this way, which is, when you put up the $300 million, was that subject to stress testing or traditional statutory asset adequacy testing? If so, how much of that $300 kind of fell into that bucket? Yeah. Let me take that. Actually, it was not asset adequacy testing. When you think about our block of business with the reinsurance that we had to our previous captive, so now it's going to be representative of the underlying reserves that are held at Unum America, the ceding company. So the original company now has mirror reserves in the captive, whereas those reserves would've been lower in previous years. Is there any sense at all in terms of how sensitive that $300 million would be if you had a reversion in rates or you had morbidity that went up X percent? Is there any way of thinking about how sensitive it or how conservative that $300 million is based on what you know today? Yeah. I think the best way, Marco, when you think about the sensitivity to it is to look at where our statutory reserves are relative to our best estimate reserves when you think about that today. Now they're in excess, our statutory reserves are in excess again over our GAAP reserves, which are our best estimate reserves at the time being. Maybe that gives you a sense. Okay. Fair enough. Maybe just on the U.S. LTD. When you look at your incidence rates, look at your claims recovery patterns, do you look at your margins as at normalized levels or do you still see opportunity for further margin expansion on the loss side? Yeah. We probably look for more consistency in things like the level of submitted and paid incidents. Recovery performance has been strong, offset performance has been strong, but I think in a sustainable level. I think the outlook, probably one of the factors to think about is the rate increases that we've been through. As those continue to burn in, there's probably a little bit of room there around the margin, but performance and the trajectory we've been on we think is pretty indicative. Okay. So you're basically in a range of what you- I think we're in the range. I think there's probably a little bit more improvement to be had as we work through the full renewal cycle and price for the interest rates. That takes three years to get all the way through. We're still sort of in the midst of that. So there's probably a little bit more improvement, but generally in the range. Thanks. Why don't we just go to John next to Marco? Thanks, Tom. John Nadel from Sterne Agee. I think what I'm hearing sort of overall is consistency into 2014 off of more recent results. As you look out to 2014, the capital deployment outlook is a pretty wide range relative to you guys. Maybe you can speak to the one or two key items or variables that we should be monitoring to think about the lower end of that $300 million-$600 million of buybacks versus the upper end? Sure, John. I can give you a sense of that overall. When you think about 2013 as a barometer, and going through that, we actually had other uses of capital that we used throughout the course of the year. That share repurchase is going to be, as we said earlier, in the 300-plus range. So it would be in the use of other capital deployment that we could see out there. I will tell you, when we look at it today, there is not that many choices, but those come up at times, and we want to make sure we capitalize on those when they come. I think the more important thing to look at is our capital generation. You will see that throughout the year as we talk to you about what is our statutory earnings generation, both in the U.S. and the U.K. If that is still doing well throughout the course of the year, and we do not have any reason to believe it won't be, then you will see us utilizing it with share repurchase. The last piece I would throw into that is, we have talked about it on multiple calls, is where is the stock price as well? So it is not as attractive at certain levels as it would be at others. But as we mentioned in the fourth quarter, it does not preclude us from buying back stock as we have even at where our stock price is today. Okay. That is really helpful. The last one is as we look out to 2014 versus 2013, it sounds like the only real place where we should think about any, I will say meaningful, but it may not even be meaningful for the closed block. Meaningful change in allocated equity to the segments. It sounds like the closed block is really the only place where that will change a bit. I think that would be right. Yeah. No, I think when you look at the overall framework, it is going to look very similar in 2014 as it does in 2013, and I do not think allocated equity would be an exception to that. Perfect. Thank you. Thank you. Okay. Why don't we go to Chris over on the far side, and we'll work our way back? Thanks. Chris Giovanni, Goldman Sachs. The slide you show where you showed back in 2003, 56% of your customers had an employee paid attribute up to now 69% today. Could you talk about, maybe on a dollar basis, how much was an employee contributing then versus what they're contributing today? Yeah. You want to take that, Mike? It was your slide, Tom, but that's all right. Yeah. I think the shift has happened on a couple of different dimensions. Great question. First is, part of what's driven that is just pure straight out growth in the voluntary 100% employee paid business. Both in terms of Randy's business and in terms of the Unum branded business, that's been one of our fastest growing segments is 100% employee paid. We've seen probably a bit more gradual, but nonetheless very consistent shift within the more traditional group insurance lines, long-term, short-term disability, life insurance, where the percentage of funding coming from employee has slowly moved up. A lot of times what will happen is covered payrolls are going up, average incomes are going up, but the base employer funded plan will stay fixed. If employees are going to continue to keep up their coverage ratios, they'll need to buy up over time. There's sort of a natural elevator to the employee paid components, but it's both of those sort of pure voluntary coming in more and more often where maybe there wasn't a benefit in place before, and then an existing benefit where maybe the employer was 100% funding, sort of shifting towards employee. Okay. I think, Chris, Mike gave the good general answer. Tom's looking for the specifics, actually, and we'll just see if we have it right now. Yes, since I put the slide together for Tom, maybe I am responsible for it. One thing, we got three pieces in there. You have Colonial, which is 100% employee paid. We have voluntary benefits, Unum US, which is 100% employee paid. Then the part that you would not be able to pick out of the statistical supplement would be in Unum US, kind of the traditional employee benefits. I think that is gone from about 38% to about 52%. I cannot directly answer your question, but there has been shift within that. What you would think of as traditional employee benefits, there is a good piece of that that is employee paid. Again, that is drifting up. Okay. I guess the next question is on the group side, your message is, I would say, pretty consistent with what we have heard from a number of your competitors in terms of the benefit of rate actions that you have been putting through, starting to continue to lead to further improvement in the benefit ratio. Yet this focus on the voluntary products and the top-line side. Mike, you made the point around, it is easier to manufacture the products. It is maybe up a few other areas where you can really differentiate yourself. But if the move to voluntary and exchanges really takes off and you have a lot more manufacturing just taking place, where do you think the margins will go to and over what period of time as more and more competition that can easily enter the market starts to take place? Great question. I would break it down a couple of ways. First is I would definitely separate the growth in voluntary and the growth of exchanges, because I think very much we have seen the growth in voluntary, we have seen it across segments, and that predates exchanges, and I would expect that is going to continue. I think exchanges are a little bit more of an unknown. From my point of view, what I would say is exchanges can help relieve the burden when it comes to a self-service or web-driven enrollment transaction. What exchanges do not solve for necessarily is how do you handle the administration? How do you handle the claims? How do you handle some of the complexity that if you are going to be a product manufacturer, you have to be able to handle on an order or two order of magnitude, sort of increase in the number of transactions per client. Those are some of the investments where Randy, the Unum operations have been in voluntary for a long period of time and know how to handle a client where you have got 100 employees under there who have picked 100 different plans, and how do you administer and how do you service that? Those are some of the things that are a little bit bigger barriers to entry than perhaps that front-end web self-service. For us, a big part of our strategy is integrating the employer and the employee funding aspects of it. If you can integrate those well, if you can deliver really strong service to the employer, help them manage, strategically, their benefit plan over time, I think there is good margins in that business. Whether there is a ben admin or exchange technology involved as some piece of that puzzle or not. Okay. Then just a quick one for Rick. On the slide with RBC and holdco liquidity, in the past, you highlighted leverage as well in terms of one of the metrics. Can you just highlight where you expect your leverage ratio to go to? Sure. It is going to be sub 25%. It is probably going to be more in the 23% range. Okay. Thank you. You can get Jimmy back there. Yeah. All right. Just a question on the long-term care block. The charge that you took in 2011 is partly because of incidents, partly because of rates. Maybe if you talk about what's happened to incidents overall, if there have been any major moves in your block. Secondly, on rates, I think you'd mentioned at the time that if rates remained consistent or didn't go up for the next three to five years, there might be a potential charge, and it will be three years at the end of next year. So how has your view on reserve adequacy for the long-term care block changed as it relates to rates and incidents as well? Jack, you want to take incidents, I'll take rates, or? Sure. There was a little bit of a rise in incidents. That's what brought the loss ratio up into the high end of the 85 to 90 range. It's been fairly steady since that rise. We've actually seen a little bit of improvement over the last couple of quarters. So, a little bit of rise, but still within the range that was estimated in the reserve assumptions. Jimmy, when you think about rates, if you do go back and talk about, we talked at that point in time in the environment that there was kind of a 3-5 year range. I would tell you, as we sit here two years out from that point in time, we are still probably at least one to two years on that front. Rates haven't changed very much from that point in time. They have gone down and come back up. We still see that there is room there in terms of how we are investing and pretty consistent with what we originally had set out. On the U.S. business, maybe if you could discuss what you expect margins to be, or how much of your business do you expect to come from exchanges one to two years out? Are you indifferent as to how you get business, or are your margins different whether it comes through a broker to you directly, or whether you are going through an exchange or some other way? Mike, you want to start that? Yeah, sure. It is a little early to tell on margins because we have a very small fraction of the business that is actually coming through on exchanges, despite the fact that we are on all the largest and all those being put forward by our key national brokerage partners. It is early to say on margins. It is early to say, frankly, what percentage of the business is going to come through that way. I can tell you on the set of cases, two things. One is we are not underwriting them any differently than we do business coming through traditional channels. From that perspective, we wouldn't see different margins. The second is, again, just to reiterate, in each of the cases, the employer remains involved in picking the carrier and picking the set of plan designs that are made available to the end employee. I think that bodes well for Unum as well. If I can add just to what Mike said. Obviously, there's been a lot of questions, as there should be, about exchanges. I would say we certainly recognize we've got to have optionality. We have to understand how to use exchanges. I think you've heard from both Mike and Randy the significant number of initiatives we have underway. I'm not so sure we think it fundamentally changes the basic businesses that we're in. I think what you're hearing from us a little bit, again, is we want to continue to have those connections. But again, the employer still is a critical piece to this. Employers have shown no desire to get away from the ability to support their employees and provide choice. The second thing we know from past experiments that have been done in terms of web-based selling of basic financial products or even the basic quoting of different financial products, this needs a certain level of intervention and communication that frankly, sometimes exchanges don't seem to bring, actually. So again, we want to keep an eye on it. It's all relatively new to all of us. But I also think some of us actually believe that some of this is actually going to provide another distribution channel for us, but isn't fundamentally changing the basic business. Let's come over here to this side of the room. Why don't we start with you, Ron, first, and then Bob. Thank you. Yaron Kinar from Deutsche Bank. Two questions, if I could. The first is on the U.S. and Colonial business, where I look at the forecast for 2014, I see a 12%-14% ROE guidance for the U.S., 15%-17% for Colonial. I look at last year, it seems like the ranges are low relative to what results were last year. I'm just curious as to what's driving that ROE to be tempered. Maybe to help you out, the ranges or the actual ROEs that you provide were 13.8% for the U.S. Right relative to that 12%-14%, and 16.8 relative to the 15%-17%. Yeah. I think when you look at the ranges that we have out there going into next year, I think they're reflective of where we're going to be overall. We've had some very good results as you look at that, both for both Colonial Life and the Unum US business, and I think that dictates the range. We hope that over the course of 2014, that we're exceeding where these ranges are, or at least to the top end of the range, but I think that's how we've rolled out the plan for 2014. Okay. Going back to closed block, if I could. I think Jack, you had talked about doing some capital efficiency work, and yet if I listen to Rick later, it sounds like there's not much going on or to be expected this coming year. Is that more of a longer-term plan, or what are the thoughts around that? Yeah, that is more of a longer-term plan. What we'd want to do, again, is to be in position should the capital markets open up to be able to take advantage of it. Part of that is having an appropriate level of capital behind the business. Part of it is having the administration and management of the business in a place where it's conducive to entering into a transaction. A lot of this is preparation work. If interest rates do rise, if the liabilities become better known over the next couple of years, we're in a position to pull the trigger. Bob. Well, since Closed Block is your fastest grower for next year, it is not surprising it gets the most questions. Jack, as I understood your comments on the earnings growth of 6%-9%, you said mainly asset growth and a little bit of margin. I am a little surprised that you are willing to start the year at 6%-9%, because it does sort of give you a cushion for bumps and bruises in long-term care. Should we get that you got a little bit more confidence, sort of in response to your answer to Jimmy's question? Just some more color on where the margins improvements come in, and your level of confidence and why that can be a source of- Well, there is a high degree of confidence in the earnings improvement from asset allocation, because it is basically just the investment income on the asset. I would say a lot of the 6%-9% is based on that. The other pieces are smaller and less material. It is basically kind of steady as she goes from 2013. Where is the margin improvement? You said a little margin improvement. Where is it coming from? We have a slight improvement in the loss ratio for long-term care built in. That is a very modest improvement. But most of the growth in earnings are coming from the asset allocation. It is net investment income that we are going to get. Thank you. Go to Ryan in the middle of the room here. Thanks. Ryan Krueger with Dowling. First question on long-term care. Can you give us an update on where you stand on rate increases? What type of rate increases you've already been approved for in the past, and then what you're requesting these days? Okay. We requested a 75% rate increase in our group long-term care business and filed that across the 50 states. We had an assumption built into our GPV reserve. We are in excess of that assumption, so we have rate increases in hand that are higher than we had assumed in our long-term care reserve. I think relative to the increases we've been approved for against that 75, it's north of 40%. So better than we expected, a successful campaign. We'll go out and ask for the rest of it again over the coming years. We had a little bit less success on the individual rate increases. If you recall, we asked for a 90% rate increase on our newer individual long-term care block. That came in more in the 30 range, which was more consistent, actually, with what we expected. But we think the improvement in the way we asked for a rate increase, the stratification, and the better buydown options should improve that going forward. And we'll continue to pursue those rate increases for as long as it takes. Okay, great. Thanks. On the U.K., should we expect any impact of Solvency II on the capital required for your business once it gets implemented? In terms of the type of products we write, we're not variable annuities. We're not equity-driven products at all. The Solvency II is quite muted in terms of its impact, and we factor that into our plans. Great. Why don't we go right behind to Eric? Thanks for allowing me to ask another question. Eric Berg from RBC. Back at the end of 2011, when you exited part of the long-term care business, you said that your data was not sufficiently credible because you had a small number of claimants relative to the total block. You relied on a Society of Actuaries study to help you reach the ultimate GAAP conclusion that you did. My question, is all these resources that you're putting into an analysis, that you're putting into the new block, into the next year, pardon me. Does that mean that a year from now, we won't necessarily need another study from the SOA for you to reach a conclusion about the adequacy of your reserves? No. Actually, even with our block, it is still a young block. The average age of our group long-term care block, which has our most policyholders, is in the late 40s. Even our individual long-term care block that has been closed since 2009 has an average age, which is in the late 60s. I mean, a lot of people issued their business in the late 60s. It is going to take a while for that to be credible. We will still look at the Society of Actuaries study. That is not due to come out until 2015, 2016. There are other sources of information we get. You can buy long-term care cost guidelines from some of the actuarial consulting firms. We are looking at that. Even within those, at some of the older ages, and some of the different assumptions like active life mortality, it is still thin, even with industry-level resources. The credibility is something that is going to emerge over probably the next decade or so. It is not one or two years. Okay. Let us get Seth over here. I am sorry I missed you. Thank you. Seth Weiss, Bank of America Merrill Lynch. Rick, last year you gave a helpful walkthrough when thinking about the interest rate impact on the overall company EPS growth rate. A few moving parts this year in terms of the second year of rate increases, a little bit better of a rate environment, but still a headwind. Could you help us think through of the net impact from interest rates? Certainly. Last year we did talk about particularly the rapid move down in rates we saw. Then we were being impacted, and I did comment a little bit on that, by discount rate moves, and we don't see currently the need to do discount rate moves given the good environment that we've seen. Interest rates are still a headwind. They're not the headwind that we saw going into 2013, and those played out pretty much how we expected. We were able to take a lot of price in the market, and we'll look to continue to take price this year to offset some of those interest rate impacts, but it's nowhere near as acute as it was in 2013. When you look at growth year-over-year, interest rates becomes less of the puzzle in terms of how those movements look overall. Can we think of any kind of a net tailwind from the fact that there's pricing increasing coming through without that offset to the discount rate? It gets lost, I think, in many of the different pieces, but we are getting a tailwind. The team worked very hard in terms of raising prices earlier in this year, and as long as interest rates stay up and we don't have to adjust discount rates, it's hard to call it a tailwind, but I certainly don't think it's certainly at our backs. Okay, we're about to 4:00, so why don't we take one more question from Chris? Thanks. Just one around the capital market solutions for long-term care. Are there dialogues that are actually taking place, or is it something that theoretically, at some point down the road, there could be the possibility? I guess if there are dialogues that are taking place, is the sticking point around we need a certain level of interest rate? Is it we need to see how the regulators respond for rate increases, or we just need your book to season more? Can you just kind of bring us into the dialogue that's taking place, if there are dialogues? A lot of the dialogue now is frankly with investment bankers saying, "Have you considered this?" There's not a lot of dialogue between parties about actually moving down the road to the deal. A lot of the wind for that is what's happened in the variable annuity businesses, with private equity gaining more interest in some transactions playing there. A theory that there would be similar interest in the long-term nature of the assets backing long-term care. We've got to equal that with confidence in the long-term nature of the liabilities associated with long-term care. So it's early on. It's a theoretical discussion. There's no party-to-party dialogues except on some really small blocks. Chris, I was going to say that Jack and I talk about it all the time. So active dialogue. The last piece of it, I'm the only historian up here who did the last one, actually, the securitization of IDI. It takes a long time. I think the point is we need to take our time to help educate the market, gather the information, as Jack was saying, continue to have these dialogues and discussions. These are ones that are quite customized. If you ever find one that makes sense to do, it just takes time, but we're investing the time to help people along. Great. Thanks so much. All right. Since John had his hand up before we hit 4:00, you will never forgive me. Yeah, he was standing down. Go ahead. Thank you. I was going to tell you, I was going to ask about Colonial, but if you wanted to end on long-term care, that was fine. My question, though, is for Randy on Colonial, and that is 4% to 7% sales growth outlook for 2014. on the surface, it seems a little optimistic, but the comparison to 2013 seems like it is going to be relatively easy given some weakness this year. I was just wondering if you could break down that sales growth for us a little bit more. How much recruiting growth? How much of it do you think is just a bit of a benefit from an easy year-over-year comparison? How much of it is truly sort of the recovery of the small business? First of all, I hate to use the word easy on any of this, but it is very hard work, of course. I want to clarify that. But no, part of it is growth in our distribution and then secondarily improving their effectiveness. We see our agent count going up in 2014. We see continuing to open up new district sales offices, so we will be expanding that whole system. So that is a big part of it. Economic environment is improving, as we have talked before, very gradually. So that is part of it. And just improving our overall effectiveness in terms of sales tools, our marketing capabilities that we talked about. And we really see things opening up in that small end of the market. Do not mean to overplay the Affordable Care Act, but it really was a major factor. Of course, Mike, you saw that in your business in 2013. We are starting to see that loosen up now, and we think that is going to come right into our sweet spot and create a lot of opportunities. It is really not just one or two things. We are really seeing some positive developments in several areas right now. Okay, thanks. I will not follow up with a long-term care question. Thank you. Well, I think as Tom said, I think we have actually exhausted our time with you, but I want to thank everybody for taking the time, both here in New York to join us, but also certainly those that participated on the webcast. I hope you found today to be informative. I think hopefully we got as granular as we could in terms of operating segments and how we expect the performance in 2013 to unfold. Hopefully you took away the comment I guess I started with, which we think 2014 is just a continuation of the things that we have already done. Lots of work to do, lots of challenges out there, but I think we as a management team are very confident we can deliver. Again, thank you all very much and have a happy holiday.

Data Source: Quartr Last updated: Dec 16, 2013

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