Earnings Call: Q4 2011

Feb 7, 2012

Good day, everyone, and welcome to the Unum Group fourth quarter 2011 earnings conference call. This call is being recorded. Now for opening remarks and introductions, I would like to turn the call over to Senior Vice President of Investor Relations, Tom White. Please go ahead, sir. Great. Thank you, operator, and good morning, everyone, and welcome to the fourth quarter 2011 analyst and investor conference call for Unum Group. Our remarks this morning will include forward-looking statements, which are statements that are not of current or historical fact. As a result, actual results might differ materially from results suggested by these forward-looking statements. Information concerning factors that could cause results to differ appears in our filings with the Securities and Exchange Commission and are also located in the sections titled Cautionary Statement Regarding Forward-Looking Statements and Risk Factors in our annual report on Form 10-K for the fiscal year ended December 31, 2010, and in our subsequently filed forms 10-Q. Our SEC filings can be found in the investors section of our website at unum.com. I remind you that the statements in today's call speak only as of the date they are being made, and we undertake no obligation to publicly update or revise any forward-looking statements. A presentation of the most directly comparable GAAP measures and reconciliations of any non-GAAP financial measures included in today's presentation can be found on our website, also in the investors section. Participating in this morning's conference call are Tom Watjen, President and CEO, and Rick McKenney, Executive Vice President and CFO, and also our business segment presidents, Kevin McCarthy for Unum US, Randy Horn for Colonial Life, and Jack McGarry for Unum UK. Now I'll turn the call over to Tom Watjen. Tom? Thank you, Tom, and good morning. I want to touch on three areas in my comments this morning before handing things over to Tom and Rick for more details on our quarter. These include our solid underlying operating results for the fourth quarter and full year 2011, our decision to exit the long-term care business, and finally, our outlook for 2012, which as you see from our release, has not changed from what we outlined at our November investor meeting. First, regarding our fourth quarter and full year operating results. I'm very pleased with the results and the momentum that implies for 2012. For the quarter, we reported operating income excluding special items of $0.78 per share versus $0.66 per share in the fourth quarter last year, or an 18% increase. For the full year, we reported operating income excluding special items of $2.95 per share against $2.69 per share in 2010, or a 10% increase. We continue to benefit from both the solid operating performance across all of our core operating businesses, including the improvement in the fourth quarter results for our Unum UK business, and from our lower share count as we repurchased 25.4 million shares this past year. It was generally a solid quarter across all of our operating areas. At Unum US, we continue to see stable risk results across all lines of business while also growing the business lines we have targeted for growth. I'm especially pleased with the very strong sales and premium growth in our core group and voluntary businesses. The Unum US business segment, which now excludes the long-term care line, produced solid operating earnings growth of 7% in 2011 and a 13% return on equity. Unum UK's operating results recovered nicely from a weaker than expected third quarter as claims activity returned to more normal levels. We are also encouraged by the pricing trends we are seeing in the U.K., which has opened up more sales opportunities than we have seen in previous quarters. New sales grew 15% this quarter, and persistency, which was below year ago levels, remained above our expectations. Despite a difficult environment in the U.K. and the third quarter shortfall, Unum UK produced a 20% return on equity in 2011. At Colonial Life, results remained steady with operating earnings rebounding nicely from last year's fourth quarter. Premium growth was just under 6% this quarter. Sales trends remain positive with overall growth of 4% this quarter and 8% growth within the core commercial market. Margins remain very strong on this business segment, and this business segment produced a return on equity in 2011 of 16.5%. In addition to these strong operating core results, our investment performance in the quarter remained solid. The credit quality of the portfolio remains strong, and we continue to effectively manage through this difficult low interest rate environment. Finally, our capital position remains very strong even after the actions taken in the fourth quarter, which I'll discuss in a minute. We closed 2011 with risk-based capital at our traditional U.S. insurance company slightly above the 400% level and with holding company cash and marketable securities at $756 million. Our capital position continues to be an asset and gives us a great deal of financial flexibility. Now turning to my second point, our decision to exit the long-term care business. Hopefully, this is not a surprise to anyone. As we indicated back at our investor meeting in November, we've been reviewing the long-term care business for some time to determine if it fits with our business and financial objectives. As you can see from our announcement last night, based on our review, we've elected to discontinue selling any new group long-term care policies and place all of our long-term care business into a closed block, much the way we handled our older individual disability business back in 2004. While there is no doubt a tremendous market need for long-term care coverage, in an extended period of low interest rates and as a relatively immature product with difficulty in projecting future loss costs, it simply does not have the risk and return characteristics we find so attractive in our other businesses. You can see from our release that we took a $561 million after-tax GAAP charge this quarter associated with this decision. Rick McKenney will touch on this further, but I would just say that it's important to keep in mind that this action has no direct impact on our statutory capital position or the cash generation capacity of our company. Also remember that a portion of that cost is the write-off of DAC, a portion of which would have been written off with the accounting change to be implemented in the first quarter. With the decision to exit the long-term care business, which represented less than 5% of our operating earnings, our strategy is to focus our attention on our core businesses, which as you can see from our fourth quarter and full-year results, are performing very well. These businesses offer both good growth opportunities and favorable profitability and have the risk characteristics we, and I think the market, find very attractive. My last comment relates to our 2012 outlook, which despite some serious external challenges, particularly low interest rates, remains the same as we discussed at our November Investor Day meeting. That is operating earnings growth of 6%-12%, with targeted capital management levels of 375%-400% for risk-based capital, and $500 million-$800 million of holding company liquidity. We expect capital management to remain a source of value to our shareholders and continue to plan on $500 million of share repurchases in 2012. In summary, I'm very pleased with our operating results this quarter and for the full year. We continue to have a balance sheet and capital position, which gives us tremendous flexibility. It's nice to have the long-term care decision behind us and our strategic focus even more centered on businesses, which I continue to believe, as evidenced by our 2011 results and our 2012 outlook, present tremendous opportunities for our company and shareholders. Now I'll ask Tom White to provide an overview of our operating results this quarter, Tom White. Great. Thanks, Tom Watjen. As you can see from our press release yesterday afternoon, we reported a net loss for the fourth quarter 2011 of $425.4 million, or $1.45 per diluted common share. This compares to net income in the year ago quarter of $225.8 million, or $0.71 per diluted common share. There are four items which are detailed in our press release and will be discussed more fully by Rick McKenney, that help bridge from the reported net loss to operating earnings of $0.78 per diluted common share for this year's fourth quarter. First, in the long-term care business line, we strengthened reserves and wrote off the deferred acquisition costs. Together, these two charges decreased fourth quarter net income by $561.2 million, or $1.92 per diluted common share. Second, in our individual disability Closed Block line of business, we strengthened reserves, which decreased net income by $119.3 million, or $0.41 per common share. Third, we recorded net tax benefits of $22.7 million, or $0.08 per common share, resulting from a reduction of taxes from a settlement of tax issues from tax years 1996 to 2004, net of taxes paid on subsidiary dividends. And fourth, results for the fourth quarter 2011 include net realized after-tax investment gains of $4.8 million, or $0.02 per diluted common share, compared to net realized after-tax investment gains of $17.2 million, or $0.05 per diluted common share in the fourth quarter of 2010. Excluding these items, after-tax operating income was $227.6 million for this quarter, or $0.78 per diluted common share, compared to $208.6 million, or $0.66 per diluted common share in the year ago quarter. You'll note that with the fourth quarter, we have reclassified our segment reporting. The results of the long-term care line of business have been reclassified from Unum US Supplemental and Voluntary into the Closed Block segment. In addition, we have reclassified several other smaller insurance products no longer actively marketed, and this includes the individual life and corporate-owned life insurance, reinsurance pools and management operations, group pension, health insurance, and individual annuities from the corporate and other segment, also to the Closed Block segment. In prior periods, segment results have been reclassified to reflect these changes, and we've included those in the fourth quarter statistical supplement. Now turning to the operating segments. Unum US operating income increased 7.5% to $208.6 million in the fourth quarter, driven by strong growth in the supplemental and voluntary line of business, and generally stable results in the group disability and group life and AD&D lines of business. Within Unum US, operating income in the group disability line was $77.2 million in the fourth quarter compared to $77 million last year, as a lower level of premium income and an increase in the benefit ratio were generally offset by lower expenses. Premium income declined by 0.6% to $511.1 million in the quarter, largely due to the ongoing effects of the weak economy on headcount and salary growth at existing customers. The group disability benefit ratio increased slightly to 84.7% from 84.2% in the year ago quarter, due primarily to a reduction in the discount rate for group long-term disability new claim incurrals, which was implemented in the third quarter of 2011. Submitted claim incident and claim recovery experience was generally favorable in the fourth quarter of 2011 compared to the year ago quarter. Within the group life and AD&D line, operating income increased 1.3% to $53.9 million in the fourth quarter, benefiting from an increase in premium income, which offset a slight uptick in the benefit ratio. In the supplemental and voluntary line, fourth quarter income increased 21.5% to $77.5 million. The year-over-year improvement was driven primarily by solid growth in premium income, 7.4% growth in the recently issued individual disability line, and 8.4% growth in the voluntary benefits line. Lower benefit ratios in each of these lines of business due to favorable risk experience. Moving to Unum UK, operating income in this segment increased 11.6% to $53.7 million in the fourth quarter of 2011. Operating income increased 12.1% in local currency. While premium income in local currency declined fractionally in the fourth quarter, the benefit ratio improved to 69.1% compared to 71.7% last year. In wrapping up our core operations, Colonial Life reported an 11.2% increase in operating income compared to the year ago period, driven by premium income growth of 5.7% and a lower benefit ratio. The benefit ratio declined to 52.5% in the quarter, compared to 53.4% in the same period last year, due primarily to improved risk experience in the accident, sickness and disability line of business, as well as stable risk trends in the life and cancer and critical illness lines. In looking at the results of the Closed Block segment this quarter, we reported a loss of $1,014.9 million, compared to operating income of $29 million in the year ago quarter. These results included the impacts of the long-term care reserve strengthening and DAC impairment in the individual disability reserve strengthening. Adjusting for these items, the Closed Block segment reported operating income of $32 million in the fourth quarter of 2011. Finally, for the corporate segment, we reported an operating loss of $26.7 million in the fourth quarter of 2011, compared to $23.9 million in the fourth quarter of 2010. Included in the other income in the corporate segment is approximately $17 million of interest income, which was related to the tax settlement, but this was mostly offset by higher than usual level of corporate expenses totaling approximately $14 million related to increase in expense accruals and an increase in operating expenses related to corporate initiatives. Now I'd like to turn the call over to Rick McKenney for further analysis of this quarter's results. Great. Thank you, Tom. In my comments this morning, I'll cover in greater detail the assumptions backing the financial actions taken in our long-term care and individual disability Closed Block businesses. I'll also cover the operating trends in our core business operations, which were quite encouraging this quarter, combined with an update on our investment results and our capital strategy. First, on the actions we announced regarding our long-term care business. As we discussed at our November investor meeting, we have been reviewing our LTC business for some time, and with our fourth quarter release announced that we will discontinue new sales of group long-term care products and reclassify the entire long-term care business line to the Closed Block segment. This decision recognized the difficult risk management characteristics of this product line, but also will allow us to concentrate resources on our businesses with more favorable growth, risk, and return potential. LTC has been a small contributor to our overall earnings. As we strategically have moved this business to a Closed Block, we also looked carefully at certain assumptions where we were seeing emerging pressure in the current environment. As a result, this reserve strengthening is reflective of areas where current conditions and future patterns have deteriorated. First, during the third quarter, long-term interest rates fell precipitously with EU challenges, actions by the Fed to lower long-term rates, and the Fed publicly stating its desire to keep interest rates low for a prolonged period of time. While our current portfolio rate has held steady due to our interest rate hedges and limited new cash flows to invest, exposure to interest rate risk over the intermediate term has increased. As a result, our best estimates now reflect how our discount rate might trend over the next three to five years. This accounted for roughly half of the $560 million after-tax impact. A second major factor was that new experience studies released by the Society of Actuaries mid-year in 2011 continued to show a declining trend in claim termination rates. Long-term care is a relatively young product, and we have been a smaller player, which limits our own credible experience. We use a blend of our own experience with industry data to set our reserve and pricing assumptions. With this emerging industry data, we modified our claim termination assumptions used in setting our reserves. This accounts for the majority of the other half of the impact. The before-tax GAAP accounting impact was $863 million, or $290 million for the DAC piece of the impairment and $573 million for the reserve increase. Again, this only impacts our GAAP financial results and does not impact our statutory accounting, which we already have on a more conservative basis. As part of our Closed Block, we intend to aggressively manage the long-term care business. This will include continuing our practice of seeking rate increases on the in-force business where warranted and also exploring opportunities for capital management. Also in the fourth quarter, we increased reserves for the Closed Block individual disability business. This reserve strengthening totaled $184 million, or about 1.5% of the reserve base subsequent to the charge, and impacted net income in the quarter by $119 million. Unlike long-term care, the driver of this reserve increase was very specific to this block of business. The emerging experience we are seeing develop has shown a continued improvement of life expectancies for the older age, longer duration disabled claimants, which lengthens the time that a claimant will receive disability benefits. Our claims data has become more credible in recent periods, and we have the majority of the data in these lines of business, so we are now able, with a higher degree of confidence, to assess our own experience for older ages in our long-duration lifetime claim block. There is very little industry experience for lifetime disability benefits, as our insurance companies were the primary disability companies in the insurance industry at the time these products were offered. By way of history, these products were offered during the 1980s and early 1990s, recent enough that claimants with lifetime benefits are just reaching these older ages. As a result of these disabled claimants living longer, we have adjusted our mortality assumptions. This reserve charge only impacted our U.S. GAAP results and did not impact the statutory results because our assumptions are already within the statutory prescribed assumptions. Let me pause there for a second and move on to the quarter, which we think was quite good and bodes well for 2012. Moving on to operating results in the fourth quarter, I will start with Unum US. It was a good quarter in many ways for the Unum US segment, with operating earnings growth of 8% and solid risk experience, as well as good sales growth in the core businesses we have targeted for growth. For group disability, we were encouraged by the improvement in the benefit ratio in the fourth quarter to 84.7%, compared to the third quarter ratio of 85.5%. Submitted and paid new claim incidence trends showed improvement between the third and fourth quarters, and claim recovery trends remained favorable. These positive trends offset the ongoing impact of the reduction in the new claim discount rate we made in the third quarter. We made no additional change in the new claim discount rate this quarter, and the margin between our portfolio yield and the aggregate discount rate was unchanged. For the group life and AD&D line, results continued to remain stable and profit margins very healthy. The benefit ratio of 70.7% for the fourth quarter was fractionally elevated from the third quarter and year-ago quarter, but the earnings contribution was again solid at $53.9 million this quarter. Looking to the supplementary and voluntary lines within Unum US, we saw very good overall earnings results, driven by solid risk experience and premium growth. Operating earnings increased by 21% on 8% premium growth, and the benefit ratio improved 51.9% from 54.4% in the year-ago quarter. Unum UK's results showed a strong rebound from a challenging third quarter, with operating earnings of 53.7 million or GBP 34.2 million. The unusual claims trends we experienced in the third quarter that negatively impacted results reverted back to more normal trends in the fourth quarter, and the benefit ratio returned to a more normal level of 69.1% for the fourth quarter, compared to 78.8% in the third quarter and 71.7% in the year-ago quarter. Finally, Colonial Life produced another good quarter as operating earnings increased 11% from a soft year-ago quarter, with premium income increasing almost 6%. The benefit ratio compared favorably with a year ago at 52.5%, compared to 53.4% in the year-ago quarter, driven by improved risk experience in the accident, sickness and disability line and stable risk experience in the cancer and critical illness lines of business. After what was an elevated third quarter across each of our businesses, we saw risk experience for the fourth quarter settle down nicely. Across the board, we were also happy with our sales trends. Sales trends within Unum US were quite encouraging, with sales in total increasing 12% in the quarter. Group disability and group life combined showed 12% sales growth this quarter and 10% for the full year. Within that, sales in the under 2,000 life core market increased 10% for both the quarter and the full year, and our mix between core and large case sales was approximately 70% core and 30% large case for the full year, a very healthy mix for us. Voluntary benefit sales were also strong, increasing 11% for the quarter. We continue to be encouraged by the pricing trends we see in the U.K. market, with a general firming of the pricing continuing to emerge. This trend has helped our sales activity and our fourth quarter sales in Unum UK increased by 15%. Finally, new sales in Colonial Life increased by 4.2% in the fourth quarter, primarily driven by higher sales activity in the core commercial sector, which produced an increase of 8.1%. Recruiting trends at Colonial Life remain positive, with new rep contract growth of 10% this quarter and just under 7% for the full year. Shifting to the balance sheet and the investment portfolio, we continue to be very pleased with the results. The credit profile of our investment portfolio remains in excellent shape, with the net unrealized gain position in our fixed maturity securities portfolio at $5.8 billion at year-end. This quarter, we reported net realized after-tax investment gain, excluding the ModCo derivative impact, of $14.6 million, which was the fifth quarter in a row with gains generated, and our portfolio watchlist remains quite small. While the quality of the investment portfolio remains strong, the challenge remains in investing new cash flows at attractive rates. This is nothing new, and I would refer you to our November Investor Day materials for a more in-depth discussion. In short, we benefit from having a low level of new cash flow to invest relative to the size of our existing portfolios, as well as the hedges we have in place on our long duration long-term care portfolio. This allows us to be selective in our asset purchases, and as a result, our portfolio yields have held up well despite the low rate environment. The aggregate portfolio yield was 6.67% at year-end 2011, a decline of only four basis points from the beginning of the year, and we put new money to work at 5.99% in the fourth quarter. The yields on the investment portfolios that support each of our various product lines also showed similar stability. Our capital position remains in a very healthy position. Statutory operating earnings for our traditional U.S. life insurance companies continue at good levels, $178 million in the fourth quarter and $644 million for the full year of 2011. This falls in line with our capital model that is generating $500 million per year of free cash flow. The weighted average risk-based capital ratio for our traditional U.S. life insurance companies eclipsed the 400% mark and ended at an estimated 405% at year-end, above our targeted range of 375%-400%. Holding company cash and marketable securities were equally strong, totaling $756 million at December 31st. We did not repurchase any shares in the fourth quarter, but it was an active 2011 with full-year repurchases of $620 million. We look forward to being back in the market shortly. Finally, as Tom Watjen outlined, our outlook for 2012 remains the same as we outlined our Investor Day in November. Given today's environment and our higher cash level holdings at year-end, we would see ourselves currently in the lower end of the range of 6%-12% earnings growth, but we remain optimistic about our core business operations going forward. I'd like to turn the call back to Tom for his closing comments. Thanks, Rick. As I mentioned earlier, I'm very pleased with our operating results for both the fourth quarter and full year 2011. Our investment portfolio remains solid and our capital position remains strong, and the two remain significant assets in today's challenging business environment. While there was a cost in doing so, exiting the long-term care business allows us to sharpen our strategic focus on our core businesses. As evidenced by our recent performance, these businesses are far less volatile and provide us with sustainable, profitable growth opportunities and attractive returns for our shareholders. This completes our prepared remarks, and operator, let's move to the question and answer session. Of course. If you wish to ask a question today, you can signal by pressing the star key followed by the digit one on your telephone keypad. Keep in mind, if you are using your speakerphone, make sure the mute function is released to allow the signal to reach the equipment. Once again, star one for questions. We will hear first from Bob Plassmiel with Langdon McAlney. Good morning, Bob. I was wondering how sensitive your assumptions are on the charges you took to interest rates, and specifically, how many years would the tenure have to stay where it is where you might have to take another charge? Well, let me ask Rick to speak. I think you talked to that briefly, I think, in some of your comments, I think, Rick, so maybe just pick up on that, if you could, please. I will. Thanks, Bob. When you think of the sensitivity one, but first I'd say, with regards to the individual disability, this is not about interest rates. That business actually in closed block status, the claims are running very similar to the new cash flow, so there's no interest rate sensitivity that we really see in that line of business. On the long-term care side, I think the way you framed it up is the right one, which is to think about how many years this will run out for. What we did is lower the discount rate, keeping in mind what we see in the lower interest rate environment and how our portfolio yield might trend down over a period of time. We think about it, we think about the next 3-5 years, and that framing actually is quite consistent with what we hear from the Fed and outside markets. So that's the way that you would need to think about it. That's our current assumption. Our team has done a great job in terms of exceeding expectations with regards to how they've put money to work over that period of time. We do have some cash flow hedges in that process as well, which will come into play. So think about it over a 3-5 year period of time that we would see that come through in the discount rate potentially. Okay. Just the follow-up is, looks like about half your liabilities reserves are associated with the Closed Block. What is the capital associated with the Closed Block? Tom, yeah, I think it's roughly about 25%, 27%, something like that, I think, Bob. Yeah, Bob, I think the number is 25% on a GAAP basis. Yeah. Thank you. Good. Thank you. Now we'll hear from Jimmy Bhullar with J.P. Morgan. Hi, good morning. I had a question first just on pricing trends. We've heard from a lot of companies in the U.S. disability market that they intend to raise prices. I'm wondering if you've actually seen that in the market. Then second on share buybacks, just if you could discuss why you didn't buy back stock in the fourth quarter given your capital position. As you're thinking about 2012, are you going to buy at an even pace or should we expect you to be more opportunistic depending on where the stock price is? Good. Two good questions. Let me ask Kevin maybe to pick up the first one on pricing trends. Morning, Jimmy. I would say the pricing trends in the marketplace are pretty stable. I wouldn't say they've softened at all. They've probably hardened a little bit. We had a very solid fourth quarter in terms of sales, very solid closing ratios. Persistency for the full year as well as entering 2012 is very solid. My instincts are based on all that data that prices have stabilized and might be creeping up a bit, depending upon which company we're talking about. Okay. Maybe just an extension to Jimmy, that is, as you know, we're experiencing some interesting pricing trends in the U.K. Maybe Jack, you want to pick up on that and just in terms of the U.K. pricing trends. Yeah, actually, we too had very strong sales results in the second half of the year, particularly in the fourth quarter. We had improving persistency results through most of the year. There's a lot of carriers that are talking about raising rates in the market, not only because of aging but interest rates and other factors. We believe we're actually starting to see some of that. Now, we don't believe it's going to be a steady trend every quarter going up, but we do think the prevailing trend is upward. Good. Okay. Jimmy, maybe Rick can pick up your question on share buyback. Certainly. Thanks, Jimmy. When you think about the fourth quarter, there are a couple of things going on, and I think we've mentioned at Investor Day, there are limited windows. We like to be in the open market purchasing our shares. There are limited windows given our Investor Day and a lot of things in the market. Liquidity is a little bit less, so that's one aspect to it. But I think unique to this fourth quarter, given some of the strategic reviews that we were going through and understanding the different pieces of that, we did not think it to be a good time to be buying back shares in the marketplace. It was not denoted by our capital position. We certainly had the ability to do so, and we'll look as we get into this year to be, as you say, opportunistic throughout 2012. I would not think of it on a level basis. I think when our share price is low, we tend to be in buying more. As our share price is higher, we'll buy a little bit less. So think of that flexing over the course of the year, dependent on how our share price is behaving. Okay, thanks. Good. Thank you. Moving on to Jay Gelb with Barclays Capital. Thank you. Can you give us some more insight on the last comment where you think you'll be at the low end of the EPS growth guidance range for 2012? What gives you confidence that you can hit the low end of the range? Rick, do you want to pick up that, man? I certainly will. When you think of our Investor Day, we had gone out and highlighted 6%-12% growth coming into the year. As we got through the end of the year and looking at how our year ended up, a little bit certainly higher than external expectations about our fourth quarter, combined with the fact that we were sitting on a little bit more cash at year-end in a low interest rate environment, it put a little pressure on that range. But we're still very much in that range and committed to it. I don't want to lead anyone out of that range. We still feel very committed to being in that range. I just wanted to highlight the fact that when you think about it, right now there's a little bit of pressure in the market, which won't be a surprise to you, and we're being reflective of the world around us, but still staying in that 6%-12% range. If I could add to Rick McKenney's comments, I think as we talked about at Investor Day, too, you think about the two sources of growth for us. One obviously is operating earnings, the other is share repurchase activity. There's no doubt, I think, in 2012, we'll continue to be a little more skewed to growth coming from share repurchase activity, but still that doesn't undermine the fact that each of our three businesses are expected to grow as well in 2012. Okay. Then just on a separate topic, what do you view as the ROE profile for the major operating businesses going forward? Yeah, I'll start it. I think about a couple different product lines. I think if you think about Unum US now, it's probably a little north of a 13% ROE. Really the principal pieces to that puzzle, as you know, are the strong group returns as well as some of the voluntary returns continue to be very strong. So think of that as a sort of 13%-14% return. I think as you heard in my comments, Colonial Life is operating at about a 16.5% ROE, and the U.K. is at about a 20% ROE. Again, that's why when you compare any decision like long-term care against your existing portfolio of businesses in terms of growth and returns, it's got a pretty high target to meet. Those three businesses continue to be producing, we think, some pretty good returns and expect that to continue in 2012. All right. Thank you. Now we'll move to the next question. That'll come from Chris Giovanni, Goldman Sachs. Thanks so much. First question is in terms of potential for reinsurance transactions with the long-term care block and maybe some of the other pieces that you moved into the Closed Block. Yeah, let me start introduce it, but I think, Rick, if you could pick up. I think Rick mentioned in his comments, Chris, that once it's in a Closed Block status, we don't just ignore it. It's actually going to be very aggressively managed, both in terms of rate activities as well as capital management. You think about, again, go back up in history a bit when we put the individual disability block into Closed Block status, whereas we couldn't do much with rates, we did a lot to manage the capital effectively in that business over time. I think certainly times have changed considerably since 2004. But I'd say, Rick, it's a big priority for us to continue to be sure that we're actively managing that block. Yeah, I would just add to that, there is capacity in the marketplace that we want to tap into today. We are going to run pretty hard at it. It is a little bit more challenging on an LTC type block than it would be against a pure mortality-based life block. But it is something that we want to look at, and as we close it and take through price increase and things like that we think there may be opportunities to alleviate some of that capital through reinsurance. Okay. Then in terms of the reserve strengthening that you guys did, can you talk a bit more in terms of getting investors comfortable that there is not a material charge to come further? Then I guess somewhat of an elementary question. My understanding is the reserves on a GAAP and stat basis are now comparable. With stat accounting and reserving more conservative than GAAP, why should we expect that there shouldn't be some differentiation between or a higher reserve on the stat basis versus GAAP? Rick, do you want to pick that one up? Yes. Let me take it through. Maybe it will give you a sense on the reserve structuring that was done. I talked about the interest rate. I should give you some perspective in terms of how we are looking at it. It is taking a forward view of how something that might happen in the interest rate side. It was a large part of the change that we made around our reserves, and we are going to see how that blends in over, as I said, up to the next five years on that front. The second piece of it was looking at termination rates. It is very much using industry data, which helps to inform our decisions with our own data. These trends are actually becoming a lot more credible as the Society of Actuaries has a lot more data out there. So it is not just something we are seeing internally. It's how we're blending that with what we're seeing externally on those two different fronts. When you think about the reserves, the GAAP reserves more closely approximate the stat reserves in aggregate today. There are multiple pieces underlying that. I think that when we look at that today, the actions that we took, the actions of closing the block as well as looking pretty hard at the reserves on a best estimate basis take us close to those statutory reserves as well, and we feel comfortable today, as we said, on those two fronts. Okay. Thanks so much. Thanks, Chris. We'll now move to Ryan Krueger with Dowling & Partners. Hey, thanks. Good morning, Ryan. I wanted to follow up a little bit on the difference between the GAAP and stat reserve assumptions. The discount rate is pretty self-explanatory. I guess I'm more interested in the claim terminations and recovery assumptions. It seems like all the GAAP charges were caused mainly by emerging industry and Unum's specific experience. I guess I'm a little surprised that that was already reflected in the previous statutory assumptions, even though understandably those are more conservative to begin with. Can you just walk me through that a little bit, please? Sure. Specifically, I think the only one that really you should be looking at there might be the terminations. The interest rate, as you said, as you go into, they start off on a more conservative basis, on a statutory basis from a discount rate. We've reflected a more conservative basis on our U.S. GAAP best estimates as well, relative to what we had previously. When you look at termination rates on a statutory prescribed basis, those are actually established early on and trend over that period of time. When you take all those things together and looking through it, as we said, the statutory reserves would look more similar to the GAAP reserves. It doesn't mean they're one for one across every different attribute, but in aggregate, they look to be about the same today. I guess, what was the key initial difference between the stat assumptions, and GAAP in terms of terminations? Was it just more conservative morbidity assumptions? Was it higher mortality, I guess, people living longer? I guess just looking for some more specifics. Yeah, Ryan, you're isolating one aspect of the total reserves, and you can't really do that relative to the overall. They're looking at it on an aggregate basis as opposed to attribute by attribute and comparing the two. I would caution you from doing that, particularly on just an isolated claim termination rate. It doesn't really work like that. You need to look at the reserves in aggregate, the different pieces, how it looks together. At the best estimate, reserves on a U.S. GAAP basis are more consistent with the more conservative originally set up. But understand, there's many cohorts that go into part of the statutory reserving process over many years where the original assumption set up on stat has continued to run and have trended over time. So I'd caution you from trying to isolate any particular piece to the reserves. Just know that in aggregate, they're consistent, and we feel comfortable with them. Okay, thanks. Just one quick one. Do you know how much statutory capital is associated with the long-term care block of business? I don't think that, Rick. We may need to get back. We'll have to get back. Ryan will get back to you on that one. Thank you. Okay, thanks. Now we'll hear from Mark Finkelstein of Evercore Partners. Good morning, Mark. Morning. Let me actually tackle that question in a slightly different way. At year-end, you would've been subject to year-end asset adequacy or cash flow testing, which would've looked at, obviously, the assumptions. How meaningful was the cushion above the level at which you would have had to have taken a statutory reserve hit? Yeah, Mark, let me give you a little bit on that. One is that you'd have to look at it on an entity by entity basis. Cash flow testing is done for each individual statutory entity, with some netting. Actually, you can look across multiple product lines, and so we'd say, in those entities where we are writing multiple product lines is certainly a high degree of sufficiency across those lines. Some entities, you have to look at it product by product, where things were tighter. But when I take it back in aggregate and our statutory entities, the cash flows associated with those statutory entities, at year end, netted down, and you can see from our risk-based capital ratio up at 405% that they're in a very good position. It's a more complicated question than you're asking, and not one that I want to get into at this moment. Okay. Let me just ask it slightly differently. I know that there's the ability to kind of cross-fund within legal entities, and it's an overall testing. But is your best guess that if you just isolated long-term care, that the assets would've been sufficient, based on the scenario testing? Or is there a lot of benefit from the LTD or what have you? Yeah, it's really not an isolation test we do on many of our entities because it is a netting across the board. I don't know if I'd want to get into isolating every specific attribute of our entities. Okay. Then I guess you talked about the reserve being a blend of your own experience, but largely incorporating the most recent Society of Actuaries factors. I guess I'm just curious, if your own data isn't viewed to be credible, why wouldn't you fully reflect what the industry factors are looking like? If you did that, how meaningful would the difference have been in what we saw this quarter? Yeah, when you look at it, actually, a lot of the data that we're needing to use from the external world get out into longer durations where we just don't have the data. In the nearer term, as we have more credible data, we're actually reflecting more of our own experience and looking at the two of those. I think we actually are relying on external data for some of the long durations already and some of the shorter durations closer to the products that were originated, we're using our own data. I'm not sure if I'm answering your question, but I think that credibility has come through, and in some of our own data, we're using that. Where the Society of Actuaries now has credible data in their most recent study, we'll use that as well. When I say blend, it almost deals more with a blend over the horizon of different claim patterns. Okay. I guess just finally, last question is, you talked about the reserve assumptions being based on interest rates at where they are for a three to five-year timeframe. Is the answer the same on stat as GAAP? If rates stayed where they are, you wouldn't really need to make an impact for that variable alone under either stat or GAAP, or is it just a GAAP commentary? That was very much a GAAP commentary. If you think about the stat, those are prescribed rates, and the tests that govern those reserves actually are more holistic than looking at any particular attributes on the stat side. Right. Okay. Thank you. Thanks, Mark. Now we have Eric Berg with RBC Capital Markets in the queue. Good morning, Eric. Good morning, Tom. Good morning to the team, too. I am very interested in exploring this whole mortality issue just because I was telling Tom White last night, I do not think this is the first time this has happened. I think we are going to go back a long way, but I think, call it 10 years ago, Unum took large charges in LTD because of issues related to cardiovascular care and separately related to the effectiveness of HIV-related drugs. Now we have two more mortality-related charges. Granted, a long time has passed since those last charges, but because we do not hear this sort of thing, competitors being challenged by mortality, I am just wondering, do you feel like you are keeping up with medical developments as well as you should to understand mortality? Or do these four charges that I referenced, cardiovascular, HIV, long-term care-related mortality, individual disability-related mortality, do they point to an effort to perhaps improve your understanding of what's happening with lifespans? Eric, let me start on that and maybe ask others to chime in as well, but I'm probably one of the few historians that can actually relate back to some of those times, actually. Eric, I guess as you recall back to those times when we talked about updating mortality studies, I think frankly, there wasn't a rigor at the company back then to do that on a regular basis. The mortality studies, I think were outdated. As a result, when we put the combination of the businesses together, we had a chance to make some assumption changes and update some of those mortality studies, and that's what you're referring to in terms of the company strengthening reserves back there at some of those early days. Needless to say, we're actually much more timely in terms of updating our mortality studies, and so I think if part of your question was, is this a brewing issue that's broader than the one we're talking about here now? The answer is no, because I think there's a much more rigorous process of updating the assumptions and reflecting that, not just in the reserving assumptions, but pricing assumptions and other things that affect that business. But again, I look to my colleagues, if anything you want to add to that. Kevin, I think again, your team is very actively involved in making sure that we continue to keep all the studies that are associated with making these critical underwriting decisions current. Yeah, we update our underwriting processes all the time based on emerging medical data. We update our pricing on all of our products that we can at least on that same data, and then we update our reserves as well. The one thing I'd point to, Eric, is that this particular block that you're talking about was written back in the 1980s and 1990s. It's an individual disability, non-repriceable block, and those claimants are just now in their lifetime benefits, which we no longer sell, and haven't sold for some time. This update is just as we see emerging experience based on policies that were written 20-plus years ago, and they're just now reaching sort of that extended duration disabled life status, and we thought it was appropriate to update it. One more quick one for Rick. In the news release, you referenced the fact that in long-term care in the Closed Block, if you didn't have the reserve charge, your interest-adjusted loss ratio in the quarter still would have been higher than the year-ago quarter, due primarily to an increase in active life reserves. How could you have an increase in active life reserves if you undergo, I guess, what used to be called a FASB Statement No. 60? I thought the reserves are locked in and the only time you have an increase in the active life reserves, if I understand the bookkeeping correctly, is when you do a loss recognition study. So what is this increase in active life reserves, and how can it happen absent a formal loss recognition study? Thank you. When you look at the active life reserves, actually, they're increasing, giving the lower persistency. That's been a trend we've seen over a number of years. So that's what causes and has been causing actually the loss ratio kind of on a non-adjusted basis to increase. We have now gone through loss recognition, so each of the assumptions across the reserving processes have been reset. So you shouldn't see that same deterioration because we are reflecting our current experience around lapse rates on a more updated basis, and we've unlocked those, effectively, those FAS 60 reserves as we've gone through loss recognition. Just to clarify, and I'll be done at this point. This unlocking and the increase in the active life reserves, are we referring to the group business or to the closed down individual long-term care? I assume that you're referring actually to the closed down long-term care business, which includes both individual and group. And there is a policy or active life reserve on both types of policies, or only on the individual? They're on both types of policies. Actually, the group looks very similar to the individual as you go through the accumulation phase until you hit claim somewhere down the line. Thank you. Very helpful. Thanks, Eric. Now we'll hear from Nigel Dally with Morgan Stanley. Great, thank you. Good morning. Hey, Nigel. Another question with regards to interest rates. Just wanted to clarify that the rate assumptions you're using for long-term care are the same as what you're using for all other products you offer, or if not, are we potentially looking at similar charges elsewhere in the organization if rates remain low? Second, with the IDI charge, I understand that reflects increased life expectancies for active claimants. Can you discuss why that wouldn't be also a factor influencing your reserves for group disability claimants? I'm guessing it's that group policies only provide benefits through retirement date rather than lifetime benefits, but perhaps you can clarify that. It was a little bit rapid fire in the second question, but certainly Let me talk about the first in terms of rates in our other lines of business. I think we've talked a fair bit about how interest rates impact our other lines. It's actually quite different. I think when you look at our LTD business, we've talked about our, actually, our portfolio yield has been above what we've seen on the discount rate side. We would've talked about last quarter, actually reflecting some of the interest rate environment that we had in decreasing the discount rate on that, and we've been feeling that impact coming through. Although, I would tell you on the quarter, our margin or the difference between our portfolio yield and that discount rate didn't move. So we actually still sit with a very large margin on that front. In our closed disability block, when you think about that, new claims that are claim payments that are going out are matching up with cash flows coming in on premiums. So really the interest rate risk there is reflected, and it's been very stable on that front. Those are really the two big pieces. I think the difference that you would've had, particularly to long-term care is, as we've gone through loss recognition and updated those estimates, we're giving a new best estimate relative to what the interest rate environment looks like today and how we see it potentially transpiring over the next several years. Yeah, Nigel, it's Tom White. On your second question, I think the key thing is that we don't have lifetime benefit provisions for our other products. We don't have it in the individual disability recently issued. We don't have it in LTD. So, what we dealt with in the closed block is very specifically tied to that particular benefit provision, which we don't have elsewhere. Great. Thank you. Thank you. Next, moving to Mark Hughes with SunTrust. Morning, Mark. Yeah, thank you. Good morning. Any opportunity for the kind of the underlying in the U.S. business, the headcount, the salary growth, the pickup here, any signs of life in the first quarter? It seems like the job market is showing some movement. If it continues to be relatively healthy, would you start to see more of that natural growth? Maybe I'll ask Kevin to speak to that. Kevin, and maybe at the same time speaking to job growth, also just the new case count growth, which actually is positioned as well when we do see some job improvement. Good morning, Mark. Little early, I think, to see a sort of a market and sales reflection of recent job reports. But I think if those continued, you'd expect to see some increase in natural growth. As you know, we were disappointed in 2011 that natural growth didn't come back where we had hoped it would. For 2012, we're not planning on it coming back, so any improvement in the economy and the employment economy or in wage inflation would benefit us relative to our performance and relative to our planning. We did see some improvement in the second half of 2011 in what we call MBOC or updating of benefits by existing employer accounts. We did see some increase in re-enrollment in existing accounts. Both of those would seem to reflect an improving economic environment for our customer base. Of course, we acquired over 20,000 new lines of coverage with new customers during the course of 2011. Any improvement in the economy across either job creation or wage inflation would definitely benefit us on the top line. In terms of the sales strength in the quarter in the U.S., were there more opportunities, more RFPs out there, more people who were looking for new providers? Was that an important driver? I think we were pretty consistent throughout the year in terms of increasing our activity levels, explaining our value proposition in terms of our ability to package both group and voluntary products together, and I think that momentum just carried through into the fourth quarter. I think our sales and service organization out in the field did a terrific job reaching out to customers and brokers and explaining our value proposition, and our closing ratio was quite strong in the quarter. I wouldn't sort of turn that over and say it was because market activity in total changed very much. I think it was more a reflection of the diligence and effort of our field organization. Maybe, Kevin, to add to that, I think that the growth you saw was probably most prominent in your core commercial and your core group and your voluntary, which were two areas where you put a lot of resources and focus on the last several years. Yeah. That's right. So over the last several years, we've worked hard in our field sales and service organization to what we call integrate our ability to deliver both voluntary and group products together in packages. We've talked about that in the past in terms of our Simply Unum value proposition, and I think the effectiveness of our sales organization in delivering that showed up during 2011. Thank you. Thanks, Mark. Now John Nadel with Sterne Agee has the next question. Hi, good morning, everybody. Hey, John. I have a question about the N.Y. sub and the long-term care business there. I know the N.Y. sub houses maybe 14%, 15% of your LTC reserves and would be subject in N.Y. to a more stringent cash flow testing at year-end. Is there any need, based on that cash flow testing, to raise reserves in the N.Y. sub? Rick, you want to pick that one up? Sure. John, as I was mentioning to Mark and going through that, it is a sub-by-sub type of evaluation you need to go to. N.Y., you isolate it specifically. We don't like to necessarily do that. But it does have different cash flow testing. As interest rates have dropped, we have looked at that sub, and it has needed some strengthening reserves given that there are not the offsets that you see in some of our other subs. We reflected some of that through the third quarter and saw that coming. I think that if you want to isolate one sub, I think that you can do that. I would go back to when you look across all of our insurance subs, the net cash flows that we saw over the course of the year-end actually were netted to basically a neutral number, and that's why you saw the 405% RBC level. Okay. If, and I know this is a big if, but if the entirety of your statutory book of business were subject to the New York more stringent cash flow testing, can you give us an estimate for how much higher the statutory reserves would need to be? It's a big if, and I don't think we would do that. We look at each of our entities and certainly abide by the statutory rules in each of those entities and go through that process. Yep. Okay. When you think about it from managing the company, I think on a netting basis across, there are pluses and minuses in anything that you look at, and I think that the fact that we are able to use excess margins we have in some products relative to other products which are more challenged, actually makes a whole lot of sense. Okay. But we're going to deal with that state by state. If I can, I saw Fitch last night reaffirm the rating, no change in outlook. As of right now, I haven't seen any of the other three rating agencies out. Do you have any expectations that any of the rating agencies will sort of negatively respond to the quarter's charges? Tom, you want to speak to that? Yeah. John, I hate to kind of front-run what a rating agency would announce. I would say that we went through extensive discussions with all the rating agencies and just as we've talked today, talked about how the fact that this is a GAAP-only event, it's not statutory, it doesn't impact risk-based capital, cash flow generation, or in effect the credit quality of the company with the exception of our leverage ratio moving up. Also the fact that we had very strong operating results. So you see how Fitch interpreted all that. I think the other rating agencies are basically in the same spot. But to the extent that they're going to make announcements, you'll see those coming out over the next handful of days. Okay. Appreciate that. Then just finally, with all the reclassification, the three segments that were impacted, supplemental, voluntary, the closed block, and corporate, at least from operating earnings perspective, ex the noise associated with the charges. Is there anything in those three segment results that you would characterize this quarter as perhaps non-trendable? No. Thank you. Good. Thank you, John. Thank you. Now we'll move to Randy Binner with FBR. Good morning, Randy. Great. Thanks. Good morning. So just on the long-term care runoff, I think you had talked about re-rate plans or price increases on that block, bringing in $25 million or $30 million of premiums by mid-2012 and 2013. So it's kind of a two-part question. One, now that that's in runoff, do you feel like you could put a little bit more pressure on re-rates? And the second question is, we have kind of a confirmation of overall earnings guidance. I guess, should we think of the closed block as kind of being our plug to get to that earnings guidance? Or is there any update you can give us on the guide for the closed block going forward? Rick, you want to touch the rating actions or the pricing action? I'll touch on both of them. Yes. Thanks, Randy. When you look at what's going on, you talked about the actions that have already been taken across our individual block of business. I think when we look at managing this, as I mentioned in my notes, we're going to go after rate where it's warranted, wherever that might be. I think it's something we'll continue to look at. As you see, if you see deterioration in these blocks, we'll continue to raise rates on them commensurate with that. It will be an actively managed block. It will be a closed block. When it comes to rating actions and reflecting that, we'll certainly be active on that front. When you think about the closed block and the earnings outlook that we've put out there is 6%-12%, I don't think that has really changed. One of the things as we went through this process, the emergence of earnings that will come out of it looked very similar than it would've looked on a run rate basis anyway. I think it should look stable going forward. You won't see a deterioration in that earnings profile. That's why it doesn't impact our earnings outlook for the year. That's helpful. So the quick follow-up then. As far as the group business goes, there's no re-rates kind of specifically or implicitly baked into that guide? No. Understand that when we go through pricing actions, it takes more than 18 months for that to come through. That's not going to impact our 2012 at all. What I wouldn't take off the table is that we would be looking at pricing actions across both books of business, the individual, which we've already taken multiple pricing actions on, as well as the group business going forward. That's out there, but certainly that doesn't come into play as we look at our 2012 outlook. Understood. Thank you. Thanks, Randy. Next will be Jeff Schuman with KBW. Good morning, Jeff. Good morning. Thanks. I wanted to go first to the U.K. You talked in the press release about some impact from implementing new claim management processes. I am wondering if you can give us an update on just kind of where that process stands. I mean, Jack's been there, I think, for over a year and a half. I would have thought you are pretty far into that process, but can you give us a sense of whether there is still a ways to go there, please? Yeah. Jack, do you want to pick up on that? In your response too, Jack, it would be good to remind everybody the way the U.K. market works is a bit different than the U.S. Yeah. We are pretty well into that process. It took a long time to get up and going. I would say the technical aspects of the claims management process are fully in place. We expect that there's some potential for modest improvements going forward as we fully embed the process and work on the culture and the management of the organization. I think that's baked into our 2012 plans, and it helps offset some of the pressure that we're going to feel from interest rates in 2012. Okay, thank you. I want to come back to the U.S. I think Rick just touched on this, if I understand correctly. I'm wondering about how the significant balance sheet charges in this quarter would impact earnings going forward. I would think at the very least, the fact that you've written off long-term care DAC would mean that we'd have an absence of DAC amortization, for example, going forward. But can you just clarify to what extent earnings will be different than if you hadn't taken the charge at this point, or maybe different than earnings would have looked historically in 2011? Yeah, I give you that, Jeff. It actually, I mentioned in the last, it actually looks very similar in terms of where it is now. It comes from different geographies. Yes, there is no DAC amortization, but there are different claims costs associated with how that works in the future. Also, as I mentioned on the interest rate side, we're now reflecting a lower discount rate. So there's a restructuring effectively of how that earnings profile will emerge, but it actually looks strikingly similar to what it would have looked like in previous years or even as the result of our outlook for 2012, absent the charge. Okay, thanks a lot. Thanks, Jeff. Steven Schwartz with Raymond James & Associates will have the next question. Yeah. Morning, David. Hey, good morning, everybody. Just about everything was asked already that I was going to ask, but Jeff's last question was something I wanted to ask about. The change or the write-down of the DAC in LTC has no effect on the ASU 2010-26 charges? I think you showed $14 million-$16 million on a pro forma basis for 2011. Yeah, actually, I should be clear about that with our outlook. We have changed our outlook around the DAC change that we will have in the first quarter as a result of this long-term care charge. About $90 million of our DAC write-off would have been written off as part of the process. Now if you went to actually our outlook for the DAC accounting change in the first quarter, that impact we had previously a range of $400 million-$600 million is down to $400 million of our expected impact in the first quarter. So that actually is a change in our outlook with regards to looking forward to what we will see in the first quarter. Right. But there is no effect pro forma on the earnings impact of the new standard? There is not, no. Okay. The less DAC to be amortized is basically offset by, I guess, less commissions to be capitalized. You have that, and you have interest rate changes. Oh, you're talking specifically about the DAC. Yes, that would be the case. Okay, thank you. Good. Thanks, Steven. Thanks, operator. I think we'll just do one more question. That final question will come from Ed Spehar with Bank of America, Merrill Lynch. Good morning, Ed. Thank you. Good morning. Just wanted to clarify something. On the rates that you're assuming for the long-term care charge, are you assuming the continuation of current interest rates, or are you looking at some sort of forward curve measure? Rick? When we look at that, actually, we're looking at the current interest rates over the next 3-5 years, and what you would see in that, Ed, is the portfolio rate would come down effectively. We're setting the discount rate as to how we would see that come down. There's a lot that goes into that. It's not just about forward rates, which are actually, as you look out 3-5 years, aren't that steep anyway. I think taking that into account, you're looking at credit spreads and everything else. So there's a lot of pieces in there, but our best projection would say that as we look out 3-5 years, that's how the discount rate would come down with our team performing at a level consistent with what they've done in the past. Well, given the inherent difficulty in forecasting interest rates, and I don't think anybody can do it, can you just give us some sense of what the sensitivity is between if you assume current low rates for the next 3-5 years versus if you did follow something like the forward curve? I can't do that off the cuff, and it'd be somebody to take you through. But I think 3-5 years within that range you wouldn't see much different off the forward rates. But we like to look at today's rates. I mean, forward rates are a tougher thing, particularly as you're only looking out 3-5 years in terms of how that might move. Actually, it can move around a fair bit. So we more look at the overall modeling of our portfolio, rates we see today, credit spreads we see today, and take that out for the next 3-5 years. And just one thing on your comment on opportunistic buybacks. I mean, even before the stock decline today, you're trading below book value. You talk about high returns on equity in your core business. And I think that while maybe it's too early to declare victory, we certainly have had some better numbers on the U.S. economy recently. I mean, what's more opportunistic than right now? I think in my comments, I actually said we look forward to being back in the market. And so although I had not seen the share price where it is today, I think even where it was yesterday we see that as good opportunity to buy back our stock below book, and we're going to take advantage of that. Well, I won't ruin your morning and tell you where it is. Okay. Thanks. Thanks, Ed. Well, again, thank you all for taking the time to join us. We know there was certainly some complexity in our release yesterday, but hopefully over the course of today's conversation, we've helped separate the strong underlying operating performance from obviously the important strategic decision to exit the long-term care business. As always, we stand ready if there's any follow-on questions. Please don't hesitate to give us a call. With that, I think operator, this will complete our fourth quarter earnings call. That will conclude today's conference. Thank you for your participation.