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Thank you for waiting. My name is Jeannie, and I will be your conference operator today. I would like to welcome everyone to the Unum Group Second Quarter 2025 Earnings Call. I will now turn the call over to Matt Royal from Investor Relations. Please proceed.
Great. Thank you, Jeannie, and good morning to everyone. Let's get started. Welcome to Unum Group's Second Quarter 2025 Earnings Call. Please note that today's call may include forward-looking statements and actual results, which are subject to risks and uncertainties that may differ materially, and we are not obligated to update any of these statements. Please refer to our earnings release and our periodic filings with the SEC for a description of factors that could cause actual results to differ from expected results. Yesterday afternoon, Unum released our second quarter earnings press release and financial supplement. Those materials may be found on the Investors section of our website. Along with a presentation of the most directly comparable GAAP measures and reconciliations of any non-GAAP financial measures included in today's presentation. References made today to core operations, sales and premium, including Unum International, are presented on a constant currency basis. Participating in this morning's conference call are Unum's President and CEO, Rick McKenney; Chief Financial Officer, Steve Zabel; Tim Arnold, who heads our Colonial Life and Voluntary Benefits lines; Chris Pyne for Group Benefits; and Mark Till, CEO of Unum International. Now let me turn it to Rick for his comments.
Thank you, Matt, and good morning to everyone joining us today to discuss our second quarter results. There are three key areas I'll address in my opening remarks. First, a look into our current period earnings and the variability that we saw; second, a view of the market dynamics and the implications for our franchise; and third, a look at our capital levels, capital deployment and ongoing management of the closed block. Looking at the second quarter, it was one where results fell short of our expectations, particularly in GAAP earnings. More broadly, our core fundamentals remain solid, particularly in premium growth, and we continue to make meaningful progress against our key strategic priorities. Notwithstanding this, benefits experienced in several lines of business were higher than our expectations for this quarter and caused the overall shortfall. From a top line perspective, the second quarter results include a continuation of strong premium growth near 5%, with growth experienced in almost all product lines.
Premium growth is at the heart of our business model and drives our ability to protect more people in the workplace. With disciplined pricing and risk management, it also drives consistent earnings growth over time. Several factors support premium growth, including the renewal of current customers, the increase in the number of employees on payroll, relative wage inflation, and the addition of new customers with new sales. Similar to 2024, sales in the first half of 2025 have started slower than our annual growth expectations and are lower year-over-year. As you may recall, the back half of the year is a critical timeframe and will include a majority of annual sales, with the fourth quarter being our largest. Last year, it accounted for more than half of annual group sales. Given results to date, we recognize there is more work to do. While difficult to predict, we expect sales growth to improve in the second half of the year and show relatively flat sales growth for the full year.
Equally important to our premium growth is the persistency of current customers, which has a more immediate benefit to the financial results than even a new sale. We saw a modest uptick in persistency in the second quarter ending the first half above our expectations across the board, which keeps our premium growth on track. Based on market feedback, our continued investments in digital capabilities and service excellence are resonating with clients, reinforcing our competitive position in helping us both win new business and retain existing relationships. Specifically, since 2023, we've seen average persistency several points higher on cases utilizing our HR Connect platform over non-HR Connect business. This platform allows employers to have a tighter, more simplified data connection with us. As far as wage inflation and employment levels, these both appear to be tracking on our expectations.
Turning to the margins in our business. Core operations continue to demonstrate solid fundamentals with benefit ratios across all lines tracking within our expected outlook ranges. However, earnings were lower than we had expected, driven by claims experience in our group products as well as the Closed Block. In group disability, the benefit ratio was 62%. This is higher than what we built into our outlook coming into the year, but it is another strong result on a historical basis. We are leaders in disability insurance, and at these levels, this continues to be a well-managed, high-returning business. We continue to see stable levels of paid claim incidents, steady levels of recoveries, and there appears to be a reasonable pricing discipline in the market. This points us to continue to have a full year expectation of a benefit ratio in the low 60s. While the benefit ratio in group life and AD&D of above 70% was in line with our outlook, it was elevated compared to prior year due to higher average claim size, which can be volatile quarter-to-quarter.
We're still very happy with the performance here, although this margin is a little bit less than the very high margins we experienced last year. Across our other core operations, earnings were relatively flat in our International and Colonial Life Segments, but both experienced solid premium growth, with International up 12% on a constant currency basis and Colonial Life started to build its growth trajectory with a 3.5% premium growth. These are businesses with excellent margins and opportunities for continued growth. Turning to the Closed Block, there are multiple headwinds in the quarter. Our investments, our alternative investment portfolio fell short for the second consecutive quarter, but continue to inch closer to our 8% to 10% target as we yielded 7% this quarter on an annualized basis. We also saw claims pressure in LTC. While incidence counts continue to remain similarly elevated, the pressure was more related to claim size.
Most notably, we've advanced our strategic work in addressing the Closed Block. Earlier this month, we announced the closing of our external reinsurance transaction. This is a major step forward in focusing our long-term strategy of positioning Unum as a leading employee benefits provider while meaningfully reducing our exposure to Legacy Long-Term Care. The transaction reflects our disciplined approach to managing the Closed Block. By improving our risk profile, freeing up capital, and sharpening our focus on more capital efficient, higher returning core businesses for reducing risk and strengthening protections for policyholders. We continue to prioritize actions aimed at increasing prices where appropriate and reducing the risk of the footprint of the Closed Block. So bringing it all together, given the results we have seen year-to-date and expectations of the environment for the rest of the year, we now expect full-year EPS to be approximately $8.50.
While this represents a notable shift compared to our expectations entering the year, we are driving a consistent strategy. We see high returns and growth opportunities that remain for our core business in conjunction with several years of exceptional performance. We also remain encouraged and committed to further reducing our LTC exposure, a block we will continue to manage with the same discipline we've demonstrated for well over a decade. We execute this strategy with a company in a robust capital position. Building from a strong capital generation model, we ended the quarter with $2 billion in holding company cash and a 485% risk-based capital ratio. We are well positioned to remain ready to act when attractive opportunities arise. We recently took several actions aligned with our capital deployment priorities to enhance the franchise and help position us for future growth. In the U.K., we acquired a relatively small block of group business and became the exclusive U.K. Employee Benefits partner for the Generali Employee Benefits Network.
This action leverages our leading U.K. operations and supports our efforts to scale the business in the years ahead. In the U.S., we completed a capabilities-driven acquisition to further enhance our industry-leading digital platform. Similar to our 2018 acquisition of Leave Logic, Beanstalk Benefits is a technology solution that will be integrated into our existing customer experience ecosystem, strengthening our overall digital offering. While an immaterial capital outlay, this capability complements our traditional insurance product set by providing digital and enable resources allowing employers to better care for their employees at the time of need. These two transactions represent the kind of areas where we will look to continue to invest. Of course, our largest capital outlay is returning capital to shareholders. Consistent with our long-term capital deployment framework, we announced a 10% increase in our annual common stock dividend and repurchased $300 million in shares during the second quarter.
That brings the year-to-date total of capital return to $650 million, with $150 million in dividends and $500 million in repurchases. After closing the LTC transaction and our solid overall position, we now expect to finish the year toward the upper end of our $500 million to $1 billion range of share repurchases that was outlined earlier and end the year with continued strong capital. Thank you again for joining us this morning, and let me turn the call over to Steve to walk through our results in more detail. Steve?
Great. Thank you, Rick, and good morning, everyone. Second quarter adjusted after-tax operating income per share was $2.07, down from $2.16 in the same period last year, reflecting the earnings pressure Rick described earlier. Core operations premium growth was 4.6% in the quarter, keeping us well on track to achieve our full year premium growth outlook of 3% to 6%. This growth was driven by a strong persistency and natural growth within the in-force block, both of which will mitigate the impact of pressured sales. While these growth fundamentals remain strong, we experienced some headwinds in the first half of 2025 that are reflected in our updated outlook. When also considering our view of trends in the second half of the year, we now are expecting 2025 after-tax adjusted operating earnings per share to be approximately $8.50. I will take some time to unpack the key changes to our outlook in a moment.
Diving into our quarterly operating results across the segments, the Unum U.S. segment produced adjusted operating income of $318.2 million in the second quarter of 2025 compared to $357.5 million in the second quarter of 2024. As described in our outlook, benefit ratios for group disability and group life and AD&D were expected to increase and impact earnings growth on a year-over-year basis. This includes our full year 2025 expectation for low 60s and around 70% benefit ratios for group disability and group life and AD&D, respectively. Group disability adjusted operating earnings of $124.8 million in the second quarter of 2025 reflect a benefit ratio of 62.2% compared to 59.1% in the year-ago period. The increase in the benefit ratio was driven by lower recoveries compared to the year-ago period. While recoveries were less favorable than they were a year ago, they are still running at a very strong level on a historical basis.
Sequentially, the benefit ratio was roughly consistent with the 61.8% in the first quarter with recoveries also consistent. But results were impacted by larger average claim size, which can be volatile quarter-to-quarter. Despite the slightly higher benefit ratio in the second quarter, returns on this line of business are still robust, as shown by its ROE in excess of 25%. Results for Unum U.S. Group Life and AD&D include adjusted operating income of $70.2 million for the second quarter of 2025 compared to $89.1 million in the same period a year ago. The benefit ratio increased to 69.7% compared to 65.4%, driven by an increase in average claim size. While the benefit ratio increase represents a sizable change from a year ago, it is consistent with our expectations laid out in January of approximately 70%. Adjusted operating earnings for the Unum U.S. supplemental and voluntary lines were $123.2 million in the second quarter, an increase from $115.2 million in the second quarter of 2024.
The increase was driven by voluntary benefits premium growth and favorable benefits experience. The voluntary benefits' benefit ratio of 44.3% was lower than the prior year's result of 45.1%, due primarily to critical illness and hospital indemnity benefits experience. So turning to premium trends and drivers. Unum U.S. premium grew 3.9%, with support from typical levels of natural growth and persistency at levels above our expectations. Similar to last quarter, group disabilities reported premium was flat with prior year due to the runoff of the stop-loss business. Excluding this impact, group disability premium grew approximately 3% year-over-year. Unum U.S. quarterly sales of $262.4 million compared to $313.2 million in the second quarter of 2024. Total group persistency of 89.7% increased sequentially from the first quarter, but decreased from 9.4% in the same period last year as expected.
Moving to Unum International. The segment continued to experience solid results. Adjusted operating income for the second quarter was $41.6 million compared to $42.5 million in the second quarter of 2024. Adjusted operating income for the Unum U.K. business was GBP 29.4 million in the second quarter compared to GBP 32.5 million in the second quarter of 2024. The results reflect underlying claims performance including a benefit ratio of 75% compared to 69.5% a year ago. The change in benefit ratio was primarily due to inflation differences year-over-year with the corresponding earnings offset reported in net investment income. International premiums continued to show strong growth, supported by Unum U.K. persistency of 91.6%, a result higher than both the first quarter and the same period a year ago. Unum U.K. generated premium growth of 10% on a year-over-year basis in the second quarter, while our Poland operation grew 21.8%.
The international businesses' sales were $65 million compared to $67.9 million in the same period last year. Next, adjusted operating income for the Colonial Life Segment of $117.4 million in the second quarter increased from $116.9 million in the second quarter of 2024, with the increase driven by premium growth of 3.6%. The benefit ratio of 48.3% compared to 47.8% in the year-ago period and similar to most core operations products was within our expected range provided in the outlook. Premium income of $462.1 million compared to $446.2 million in the second quarter of 2024 was driven by higher levels of persistency and a growing trend we've seen in sales momentum fueled by strong agent recruitment and productivity trends. Sales in the second quarter of $126.5 million increased 2.9% from prior year, primarily driven by new account sales. We are very pleased with the top line momentum at Colonial Life and its ability to produce strong returns, including an ROE of 18.6%.
In the Closed Block segment, adjusted operating income of $3.9 million was significantly lower than last year's result of $24.4 million. The decrease was due primarily to unfavorable LTC benefits experience, primarily in capped cohorts, which drives higher levels of current period earnings volatility. The LTC net premium ratio was 94.9% at the end of the second quarter of 2025, higher than the reported 93.7% in the same year-ago period due to experience as well as the assumption update in the third quarter of 2024. Sequentially, the NPR increased 20 basis points compared to the first quarter of 2025, breaking down the drivers that experienced in the quarter, the majority of pressure was a result of higher average size of new claims and lower size of claim mortality. Incidence counts continue to run above our longer-term expectations, but were in line with our recent experience. Annualized yield on the alternative asset portfolio was 7% and was slightly below the low end of our long-term expectation of 8% to 10% returns.
For the first half of 2025, the portfolio has generated a 6% annualized yield. Each percent of yield contributes approximately $14 million in annual earnings, most of which supports Closed Block liabilities. Due to our actual earnings in the first half of the year and a revised view of alternative asset yields towards the lower end of our 8% to 10% long-term expectation for the second half, Closed Block earnings are trending below the expectations we had entering the year. As such, we now expect full year Closed Block earnings to be between $90 million and $110 million. Finally, we advanced our Closed Block strategy with the closing of the external reinsurance transaction on July 1. We continue to stay focused on actions that create value, reduce the footprint and increase predictability of outcomes for the block. In terms of premium rate increases, we continue to make progress and have achieved approximately 60% of our current reserve expectation through the end of the second quarter.
Then wrapping up my commentary on the segment's financial results, the adjusted operating loss in the Corporate segment was $31.7 million compared to a $45.3 million loss in the second quarter of 2024, primarily driven by higher miscellaneous net investment income, which we don't expect to recur. We expect quarterly losses in the Corporate segment to be in the mid-$40 million range for the remainder of the year. Moving now to investments. We continue to see a good environment for new money yields and credit quality. Overall, miscellaneous investment income increased to $37.3 million compared to $35.4 million a year ago as higher traditional bond call premiums offset lower alternative investment income. Income from our alternative invested assets was $25.3 million, representing a 7% annualized yield as previously discussed. As of the end of the second quarter, our total alternative invested assets were valued at $1.5 billion, with 45% in private equity partnerships, 37% in real asset partnerships, and 18% in private credit partnerships.
Now let's move on to an update on our capital position. As expected, our capital levels remain well in excess of our targets and operational needs, offering tremendous protection and flexibility. The weighted average risk-based capital ratio for our traditional U.S. insurance companies increased to one of the highest levels we've seen at approximately 485%, and holding company liquidity remains robust at $2 billion. Now that we have finalized the two LTC transactions announced earlier this year, we anticipate a year-end RBC of 425% to 450% and holding company liquidity between $2 billion and $2.5 billion, both in excess of our long-term targets. I will also add that dividends from our insurance subsidiaries are traditionally weighted towards the fourth quarter, which will change the geography of excess capital from risk-based capital to holding company cash as we close out the year. This strong position also considers our intention to return capital to shareholders.
In the second quarter, we paid $74.2 million in common stock dividends and repurchased $300 million of shares. Through the first half of 2025, we returned $500 million of capital through share repurchases, which puts us on a trajectory to finish the year towards the top end of our expectations of $500 million to $1 billion for full year 2025. Capital metrics in the second quarter continued to be supported by solid statutory after-tax operating income of $291.8 million for the second quarter or $781.6 million for the first half of the year. This does include approximately $130 million of reported statutory income that resulted from the internal long-term care restructuring we executed in February. Considering where we are today, we've taken the opportunity to reexamine our outlook across all dimensions, including top line, margins, and capital. Starting with top line, while we feel confident in our ability to hit our 3% to 6% premium growth target for core operations, how we get there may look slightly different.
From a sales perspective, we are now anticipating relatively flat core operation sales in 2025 with varying considerations for each of our segments. Compensating for lower-than-expected sales growth is higher-than-expected levels of persistency throughout our businesses. Moving to margins. Through the first six months of 2025, we've seen our group disability benefit ratio of around 62%. While this is in line with our low 60s range, it is slightly above our internal planning expectations. Given recent stable levels of recoveries, we expect results to stay in the low 60% range and in line with the results seen throughout the first half of the year. Outside of group disability, we also have seen lower alternative investment income results. While the returns have improved sequentially, they are below our long-term 8% to 10% target. Despite the first half results, we see the lower end of the target returns achievable for the second half of the year.
Lastly, while not a change to our outlook, with the long-term care transaction now closed, we will see a step down in supplemental and voluntary earnings power of approximately $10 million per quarter starting in the third quarter, representing the ceded individual disability income business. Considering all of this, we are now forecasting full year earnings per share of approximately $8.50 with the quarterly run rate increasing as the year goes on, driven by the growth of our in-force block and the impact of share repurchases. As already mentioned, we are projecting holding company cash to finish the year in the $2 billion to $2.5 billion range, which now reflects settlement of the long-term care transaction and our expectation for increased share repurchase. We are now anticipating that we will buy back stock at the top end of our $500 million to $1 billion range. We see significant value in buying back our stock, and we'll continue to do so to return capital to our shareholders.
So to close, while we took the opportunity to refine our outlook based on first half results, the underlying fundamentals of our business remain solid. Our core business continues to deliver on both top and bottom line trends, including continued premium growth of 4.6% and robust returns, including an ROE of 20.9%. Our level of excess capital puts us in a position of strength and enables further flexibility to fund growth, return significant capital to our shareholders, and pursue further derisking opportunities for long-term care. We remain encouraged and cautiously optimistic for what the rest of 2025 has in store. Now I'll turn the call back to Rick for his closing comments, and I look forward to your questions.
Great. Thank you, Steve. As we head to your questions, let me reiterate, we believe strongly in our strategic positioning and our business model. We have the capabilities and capital to deliver for our customers, expand our reach and create increasing value for our shareholders. So now let's move to the question-and-answer session. Jeannie, if you could start the Q&A.
分析師問答
Your first question comes from the line of Mike Ward with UBS.
On group disability, just hoping you guys could unpack the underlying drivers of the elevated claims and what you've seen that drove the change in guidance? And if you're seeing any of that continue into July?
Great. Yes, this is Steve. Mike, thanks for the question. And, yes. So generally speaking, we continue to feel great about the margins on this block and the loss ratio. It is a little bit above our expectations that we had coming into the year. It's been pretty consistent with the first two quarters at 62%. What I would do is refer back to last year, we did see recoveries that were a little bit higher than what our longer-term expectations might be with incidents that were pretty favorable. So as we came into the year, we did think that we'd see a little bit of normalization there. And what we've really seen is recoveries have been a little bit below our expectations in 2025, but very stable from quarter to quarter. We have seen a little bit of elevation in our incidents. And really, it's kind of acute stories in the first quarter that was a little bit more related to count and a little bit more acute earlier in the quarter.
That really has subsided in the second quarter. Now what we're seeing in the second quarter is a little bit higher-than-expected size of those new claims. And as we look out the year and we're trying to set the outlook and set expectations, we think 62% is a pretty good anchor for that. But obviously, with this type of business, we may see some variability in both recoveries and new claims. But I feel like we have pretty stable experience for the first two quarters, relatively speaking, that we can use that kind of as in our anchors going into the back half of the year. The other question, obviously, with just the claims performance itself is just what's going on with pricing in the environment and the influence that might have on the loss ratio. And so maybe, Chris, it's always good to just hit on what we're seeing in the markets right now.
Yes. Thanks, Steve. So, good morning, Mike, competitively, it's still a consistently competitive market, and we always expect to compete hard to make these deals come together. We would say where we can put capabilities together with the right prospect, we still find it to be a favorable environment. Obviously, sales were disappointing in the quarter. And Rick appropriately kind of outlined what we think the back half of the year is going to be. It's going to be big, but we did reset to be flat for core operations. Unum U.S. will have the most headwind in that mix, but we're still looking hard to find plenty of prospects still out there in decision-making mode right now. So inventory is there. And we've got capabilities that are interesting relative to integration with tech platforms and lead management. So that's where we stand right now, and we're working hard in the back half of the year.
Yes. Mike, to kind of zoom into the current quarter a little bit as well, we don't really see pricing actions being a material part of what we saw in the benefit ratio for the second quarter. And so we'll definitely just be monitoring the operational aspects of just the claims management as we go to the back half of the year.
And then on Long-Term Care, just the lower claimant mortality. Do you see the current quarter result as truly a one-off or a normal volatility? Or is there anything about the remaining block or the health profile that could cause pressure to persist?
Yes. So yes, two important questions in there. So I'll focus just on what we saw in the second quarter. We actually saw the counts of new claims pretty consistent with what our expectations are. And I know that's been something, obviously, that has been elevated here for a couple of years. That was pretty much in line with what our expectations were coming into the year. And so you're right, there really was kind of an average size variability that we saw in the current quarter. It impacted both new claims as well as those claims that terminate due to mortality. And just to scope it out, they were both about 5% off what our expectation would have been. And so we view that right now from what we're seeing as just volatility. They were pretty different than what we've seen here over the last several quarters. And so we wouldn't expect that to continue as we go into the back half of the year.
And so as we were thinking about the outlook for Closed Block, which I noted, our recent outlook is somewhere between $90 million and $110 million for the full year. We did bring the annualized yield on the alternative asset portfolio down to that lower end of the 8% to 10% range. But we haven't really adjusted kind of the benefits performance for the back half of the year to any way, kind of put in less favorable benefits experience than what we had anticipated coming into the year. So what we're seeing right now, we think it's an anomaly. But obviously, with this line of business, we're going to have to just see how it plays out for the back half of the year.
Your next question comes from the line of John Barnidge with Piper Sandler.
My first question, given the Long-Term Care experience, just sticking with that in the first half of the year, how should we be thinking about the upcoming annual actuarial assumption review?
Yes. On that, I would say, just to reground, we complete our GAAP assumption review in the third quarter and report out on that as we get to our third quarter earnings review. And then we look at the statutory reserve adequacy as we're going into the end of the year. So it's pretty early in that process. We'll take into account all the experience that we've seen over the last several years as we update our experience set. But we're constantly looking at that. I'd make two points. One would just be about just remind people around the $2.6 billion of protection that we feel we have within the Long-Term Care balance sheet. So when we make adjustments to our best estimate for GAAP, we do have a lot of protection against that best estimate when it comes to our capital position. And then I would just say we're kicking that off right now. And we'll see how that plays out as the year goes on. I will remind myself, I actually didn't answer all of Mike's question. And just to get that point across about the experience we saw in the second quarter, how does that impact the part that's reinsured versus the part that's remaining? And what I'd say is we really saw this experience across both parts of our block of business. It didn't really influence what's going to be remaining in our block versus what we reinsured kind of nonproportionally. So sorry, I didn't hit that, Mike.
And then my other question around buybacks. Given the excess capital position, how should we be thinking about sustainable free cash flow conversion at the company given completion of the transaction? Why not more buybacks? Or is this more about the sustainability of free cash flow conversion, not just 1 year?
Thanks, John. It's Rick. To give you an overview of our capital deployment, capital generation remains strong. This quarter, we achieved $300 million of statutory earnings, building on a very good first quarter. As we've mentioned before, our capital generation continues to be robust, which is key for both deployment and free cash flow conversion. Regarding our cash allocation, I mentioned a couple of deals completed this quarter, but they are not material in terms of cash utilization. We are focused on returning this capital to our shareholders. Our dividend has increased by 10%, with $150 million distributed in the first half of the year, totaling over $300 million for the full year. On share repurchases, we've raised our outlook to the upper range of $500 million to $1 billion. If we look back two years, our focus was around $500 million, and last year, we operated at about $750 million, although we executed more due to balance sheet restructuring.
This year, we will operate at the higher end of the $500 million to $1 billion range and aim to maintain a sustainable approach. We do have excess capital and the capacity to act on it, and that is our current position. We are prepared to be dynamic with our share repurchase strategy, acting when appropriate to enhance shareholder value. This is a long-term strategy, and you can see how our share repurchase has positively impacted our shareholders over the years.
Your next question comes from the line of Elyse Greenspan with Wells Fargo.
I guess I wanted to come back just to disability and the updated guide for the second half of the year. You guys are looking for it to kind of be consistent with the first half. And so when you think about that, are you expecting the elevated persistency from the first quarter to persist or the severity that you guys saw in the second quarter? And then I'm also interested, right, if kind of 62% is the level for this year, how should we think about kind of '26 beyond '25, just the loss ratio of the business as well?
So maybe I'd start and just say, Elyse, I appreciate the question. And I'd just reiterate some of the things that Steve said. This is a very high-returning business even in the levels that we've seen thus far. So we're very happy about where that's been, the persistency level in this block, how it fits into the overall portfolio. And so I'd just reiterate that, first of all. And as we think about coming years, how we'll talk about that. But Steve, maybe you can give a little bit deeper context in terms of why we're thinking we are where we are and where we think we might go.
Yes. I kind of break apart the benefit ratio between what we're seeing with recoveries in the current year and then what we've seen with incidents. Recoveries are pretty close to what we would have expected. And they are lower than what we saw last year. But last year recoveries were very strong. And it's part of the reason that we were operating kind of that high 50% benefit ratio last year, and we really raised our expectation coming into this year. And it was because we thought that recovery rates would come down a little bit, but they're pretty much right on top of what our expectation would have been and how we see that playing through. So we think that part of it's pretty sustainable, and that's built into kind of that 62% expectation for the back half of the year. Incidence is where it's been a little bit higher than what we would have thought coming into the year. In the first quarter, we had some kind of very early year count elevation within the benefit ratio.
And then that came down in the second quarter. In the second quarter, it was more around average size. And so there is a possibility that incidents will come down in the back half of the year. But as we're trying to set an outlook, that has some reasonable assumptions, we thought it was just prudent to look at how it's performed for the first half of the year in the 62% range and just really carry that forward to the back half of the year to set that kind of that spot expectation for EPS for the full year. And then really beyond this year, we wouldn't see any reason for the operational performance to change longer term, but that's something we'll get into as we close out the year, see how the back half of the year performs, and see how things are going just kind of from a commercial competitive environment, and then we'll kind of set expectations as we're going into 2026. But we don't see anything operationally right now that wouldn't be sustainable.
And I'd just reiterate that, Elyse, which is the team is doing a really good job of pricing on the front end of the business, good risk management, the claims management of the team that's actually able to do that, helping to get people back to work. That's all going very, very well. And so it is that competitive dynamic, which is hard to predict in terms of what that looks like. But I would reiterate that where we stand today, the competitive environment has been reasonable. It's always competitive. People are always looking to grow their own piece of the business. But what you look out for is somebody that comes into the market and actually is unreasonable in terms of how they price. We're not really seeing that. We think we're seeing good competition in the market today. And I think that bodes well for where this is going to go over the next couple of years.
My second question is about your commitment to further reducing your LTC exposure that you mentioned in the prepared remarks. When you announced the transaction, you also indicated that you were potentially exploring other opportunities. Now that the deal is closed, could you provide us with an update on any discussions regarding future transactions with the block?
Certainly. I think there's a couple of things that we did early in the year. One was actually the transaction, external reinsurance. We also did some internal structuring in the block, which I think was a good positive move for the enterprise. And then as we said then, as we'll say now, we're continuing to look at how we reduce the size of the footprint of LTC from an external perspective, and we continue to be active in the market. So that really didn't slow down with the transaction. We think this is something that strategically we want to continue to do, and we'll keep looking at that. From a market perspective and how it is, I think it ebbs and flows. And so I think we're still in that period of time. As you've looked at three transactions that have happened externally now, I think that's a good thing overall for the market. So you're starting to see repeatability in these types of transactions. But they're very hard to do. And so I would just reiterate that we'll keep working hard at that, but the ability and the timing of when something will get done is very hard to predict.
Your next question comes from the line of Ryan Krueger with KBW.
First question was on the dynamics with more plans staying put with their existing carriers. I guess maybe can you just give a little more color on why you think that's happening? Do you think it's more related to the pricing and competitive dynamics? Or do you think it's more about uncertainty in the external environment and plans just summing to not make changes right now?
Yes, Ryan, it's Chris. Thank you for your question. You're correct that we have observed a situation where the incumbent carrier holds significant power in our area. There are efforts from various parties to protect their position because it is beneficial at the moment, and they want to ensure they reach a fair agreement. We take a leading role by working closely with each customer to transparently demonstrate the loss ratios. In some cases, a rate increase is necessary, and we communicate that; in others, we adjust rates downward or establish pricing that is appropriate for a more stable, long-term environment. That's always our objective. Currently, in the business's financial landscape, we believe some competitors are engaging in similar tactics to retain customers that provide a reasonable return. We still see many prospects who need assistance in leveraging their technology investments in platforms or addressing larger issues like lead management.
The environment remains dynamic, and customers are actively seeking solutions. We are working to create opportunities for ourselves, which will help us boost our sales results in the second half and beyond. However, I acknowledge that the competitive landscape has some notable differences right now, where incumbents are favored. From a broader perspective, companies are making their own decisions based on various factors within their industries. But I think the primary influences are more localized.
And Ryan, I just maybe I'd put a bow on that a little bit and just come back to our feeling for our premium growth outlook as this year plays out. And I mentioned in my remarks, we do think that the trajectory is going to look a little bit different as far as the contribution of sales versus the contribution of persistency. And so as we look out, though, we still feel really good about the outlook that we put out there for premium growth in our core operations. And we mentioned a couple of things. We'll have to adjust that for stop-loss, obviously, and then there's part of the individual disability business that we ceded now for the back half of the year. But as we go into 2026, we still think we're going to have a really nice in-force premium coming out of the dynamics that we're seeing right now in the markets.
Yes. And Ryan, we were talking about specifically group care. I think it would be helpful to go to Tim, too, to talk about what's happening in the voluntary benefit space, both for the Unum brand as well as for Colonial Life, Tim?
Yes, specifically with respect to the question about persistency, we're seeing improved persistency for both Colonial Life and for Unum U.S., BB driving improved levels of premium growth a little bit above expectations. In addition, you think about persistency at the employer level and also at the employee level for BB. And increasingly, we're seeing that the people who buy these products understand the value of them and want to keep them for longer periods of time. As you think about premium growth also, we're very fortunate to have had double-digit growth on the Unum BB side over the last few years with 10.3% growth in '23, 11.5% growth in '24, and about 14% growth in the first quarter of this year, which again drives premium growth. And then on the Colonial Life side, we're seeing a lot of really positive momentum in the leading indicators for sales with recruiting up 31% in the quarter and sales from those new agents at plus 34%. The sectors that we like a lot, public sector, up 9% for the year, new sales up almost 10% for the year, and we're also having a good first half of the year from a large case perspective. So we're excited about the momentum we're seeing on the Colonial Life side, really pleased with the persistency results we're seeing driving premium growth above where we thought it might be at this point.
And Ryan, I have to bring international into the mix, too, with double-digit premium levels of growth. Mark Till, maybe give us some context in terms of what's happening in the markets around the world.
Yes, sure, Rick. Persistency has been very strong, a bit of a common story that both Tim and Chris talked about. So persistency in the U.K. is up about 1%. That's to levels that we haven't seen in quite a long time, and Poland is up 2%. We've seen core business sales being very strong in both countries risen very nicely year-on-year. For example, the U.K. is up in low double-digit growth there. Large case in Poland has been very strong. Large case in U.K. has been a little down on last year. The market can be a little bit more lumpy, and we did have a jumbo in quarter two that sort of hurts the comparison to prior year. But I would say the pipeline in both countries is very strong at the moment. And we still feel that the guidance we gave at the start of the year for premium sales is a reasonable expectation for the international business.
Just a quick follow-up on long-term care. I'm curious, while mortality was unusual this quarter, it seems overall mortality is improving in the population and for the insured businesses. Do you have any concerns that this could be tied to broader mortality improvements? What gives you confidence that this isn't just a result of an atypical quarter?
The variability we experienced this quarter wasn't primarily due to the number of claims, as those were aligned with our expectations, consistent with the trend over the last several quarters. The focus was more on the size of the terminated claims, which relates to the richness of benefits. This can appear somewhat random on an individual level, but generally, the average remains consistent over time due to the law of large numbers. However, this quarter, we saw exceptionally low claim reserves for those terminated claims, often influenced by the richness of benefits or claim duration. We consider this to be a bit of an anomaly, but it's important for us to monitor how this develops in the upcoming quarters.
Your next question comes from the line of Alex Scott with Barclays.
I had a follow-up on LTC. I just wonder if you could give us an update on sort of where you're at with your last premium, I guess, pricing approvals from regulators and maybe just how that's comparing with what you assumed in the reserves the last time you reviewed?
Yes. Things are going really well. From a regulatory standpoint, the environment remains very positive. I've mentioned this before, but the process has shifted to being more administrative. It primarily involves collaborating with states, submitting necessary documents, answering queries, and it has become less political compared to how it was a decade ago. We’re pleased with the current environment. We have achieved approximately 60% of the last reserve adjustment we made, which is encouraging. This quarter, the income from approvals is around $90 million, making it a strong quarter. We've seen stability in our progress each quarter, and we are optimistic about our advancement concerning the reserve assumption and the overall environment.
I know you guys provided a lot of commentary around like what kind of drove benefit ratios here or there. But I wanted to see if maybe you could talk more broadly about potential for medical cost inflation. We've seen it from a number of health insurers, I think a little more like Medicare and Medicaid, but I think even more recently, some of the commercial health stuff with United. So I just wanted to see if you could kind of walk us through like are there areas of your business that you get impacted by that? And then I assume there are a lot of areas of your business that are much less impacted by that. So maybe you could frame that.
Yes, Alex, I appreciate the question. I actually say, in general, we are not very impacted across the board in terms of what's happening from a medical inflation perspective. If you think about our benefits, and I just talked about life insurance, it's going to be what happens. Disability insurance is really about some of these wages, not about what cost of care looks like. And even as you get into the long-term care business, we're indemnity-based business, so it's a fixed benefit level. So in general, yes, I don't know, Chris, if there's anything out there, we'd highlight that we're watching.
Yes. Thanks, Rick. Alex, it's an interesting point. I would say just some of the things we don't always talk about are just the quality of our claims organization and the work they do behind the scenes. Medical cost isn't really our big issue, but we do a great job of making sure that people on claim get the right care and that they're on the right treatment plans that improve outcomes. So we're tied to medical in that way, but not so much in terms of the cost of care. So I think that it's an interesting point, though.
Your next question comes from the line of Tom Gallagher with Evercore ISI.
First, I have a question about Long-Term Care, followed by a disability follow-up. Since your last actuarial review, the trends in incidence or inventory seem to remain above long-term expectations. Is there a risk that this situation could become permanent? It was expected that there would be improvements by now, but it appears that has not happened. Is my understanding correct? If so, it seems, based on your comments, that any impact would likely be a GAAP-only charge with little chance of affecting statutory results due to the substantial buffer you have in Fairwind. That's my first question.
Yes, Tom, I'm not going to preview kind of any results from the reserve adequacy work this year. That's ongoing. We'll report out on that as we get to the third quarter. I would say there was really nothing new in the second quarter that would be different than maybe some of the elevation of counts that we've seen prior to that. And so we'll take that into account as well as all of the rest of our dataset as we go into that. So I don't take any of my comments for saying that we might have an impact here, but not there. We'll take it all into account as we're looking at our best estimate reserve, which is really what our GAAP reserves are based on. My only point is if there was some sort of adjustment there, we continue to have a significant buffer when it comes to the margins that we have in our statutory reserves. And we just feel really good about that and really good about statements that we've made just around capital deployment in the past. behind LTC, and that buffer remains. So that was my only point there, but really no preview of results of the reserve assumption review.
My follow-up is on the disability loss ratio. I heard your response to Elyse's question about stable operational performance beyond 2025. However, I want to point out that a 62% loss ratio is still 13 points better than pre-pandemic levels. When I compare you to peers, the best-in-class competitor is around 10 points better. While I understand your perspective, it seems that your accounting improvements have outpaced those of your peers, making it difficult for us to conclude that 62% is the appropriate level. A 65% loss ratio would still represent a solid outcome and a good return on equity. Can you clarify whether you believe the 62% ratio might trend higher, or do you think that, despite being better than peers, 62% is indeed the correct figure for you?
Yes. We believe we have top-notch operations and the ability to manage claims effectively. We don't focus on our competitors; instead, we concentrate on our internal processes and understand the reasons behind our improvements. We can observe enhancements in our operational areas, which gives us confidence that the current level of recoveries is sustainable. These are longstanding businesses, and while we don’t forecast far into the future, we feel optimistic about the sustainability of the results we're achieving in our claims management over the medium term.
And maybe just one other comment, Tom. In terms of, again, the way we're selling to customers, the way we're tying into their ecosystem and managing things like leave, price is still an important part of the discussion, but it's not what it was years back, where in a lot of ways, price was the first and the primary thing we talked about. There's much more kind of connectivity into their ecosystem and much more problem solving. And that gives us a little bit of capacity to get a fair return and work things through. And I think that shows up in the analysis that Steve just shared.
Your next question comes from the line of Joel Hurwitz with Dowling.
I just want to go back to Colonial Life real quick. Tim, you provided some good metrics on recruiting and overall momentum. I guess, do you see a path for sales to improve to your 5% to 10% growth target for '25 at this point?
Thank you for the question, Joel. We have consistently indicated that we expected momentum to build throughout the year. In the fourth quarter of last year, we appointed a new Head of Sales, and she and her team have done an excellent job of refocusing on our core fundamentals and ensuring consistent execution of our business plan. We shared some metrics earlier, and one additional metric is that sales for individuals who joined Colonial Life in 2023, 2024, and the first half of 2025 have increased by 16.3% collectively. We are currently experiencing widespread success. For the areas where we are seeing some softness, Ashley and her team are focused on addressing those issues. Our plan is to maintain this momentum throughout the second half of the year, and we believe we have a chance to reach the lower end of our growth range.
And then shifting gears. Back when you guys announced the LTC transaction, you had noted that the deal created some further excess capital within Fairwind that could potentially be dividended out. With the transaction now closed, where do you stand on potentially extracting capital from Fairwind?
Yes, our perspective remains the same. We generated approximately $200 million of released capital in Fairwind, which is factored into our $2.6 million or $1 billion of protection in Fairwind. At this moment, we haven't made a decision about whether to keep it there or not. We will consider this as we conclude the year and evaluate our overall capital deployment strategy. So, no updates on that front.
Your next question comes from the line of Wes Carmichael with Autonomous Research.
So on LTC, you obviously closed a pretty significant transaction. But in the month, I guess, since you've announced that deal, has there been any change in the risk transfer landscape, whether that's new counterparties or any other changes? And I guess, relatedly, do you have any insight into the appetite for global reinsurers to want to take additional biometric risk like this deal was structured?
I appreciate the question, Wes. Earlier, I mentioned that the market has experienced some fluctuations. The news of three different transactions seems to have sparked greater interest in understanding the dynamics at play. As we've indicated, this was a beneficial deal not only for us but also for our two reinsurance counterparties involved. People are definitely intrigued and exploring the market further. However, entering this space requires significant effort from counterparties to grasp the dynamics of the liability profile and the necessary investment strategy. Every transaction tends to attract more interest as people seek to comprehend what's unfolding. How long this interest will last is uncertain, but I believe that more transactions will be advantageous. Each one we observe in the market has a unique dynamic, which is positive. I expect we'll continue to see increased interest, similar to the development witnessed in other reinsurance markets with different liability profiles. It's promising, but we still have work ahead and aim to approach this with a long-term perspective.
I have a follow-up regarding LTC. Steve, can you help us understand the movement in the net premium ratio for this quarter? It increased by 20 basis points, but we experienced some unfavorable outcomes in the capped cohort. I'm trying to gauge whether future movements in the NPR will depend more on the performance of the uncapped cohorts. I would appreciate some insights on this. Yes. I mean the way to think about it is the benefits experience that we look at is in multiple cohorts. Each of those kind of that unfavorable experience, it's going to articulate itself differently. And so what you would see is on the capped cohorts, that's going to come through earnings more directly because there's really no buffering impact on those. And then on the other cohorts, that will come through as a change in NPR and in essence, get a portion of that get buffered into the reserve itself. The current period experience that we saw was really across both capped and uncapped. So you would have seen unfavorable earnings results in the period, but also a little bit of an uptick in the NPR.
Your next question comes from the line of Suneet Kamath with Jefferies.
I wanted to revisit the buybacks briefly. Rick, I appreciate that your team has been boosting the annual buyback levels. However, it also seems that excess capital has been rising. Based on your prepared statements, you could finish the year with $2 billion to $2.5 billion in holdco cash, which exceeds your initial expectations outlined in your 2025 plan. So, my question is, why not consider increasing beyond the $1 billion, especially now that you've received an additional $630 million from the LTC restructuring?
Yes, it's a fair question, Suneet. We don't minimize that returning capital to shareholders is an important part of our overall construct and our value proposition. And so we do think about it. We've said we'd be dynamic. I think as we look at where we are today and given the performance and closure of the LTC transaction, to move to the top end of our range going into the year is appropriate. But it's something that we'll always look at in terms of the pace and how we look at it. And all your facts are right. I mean the generation has been good. We had even some excess generation with reinsurance earlier in the year. We put that into our outlook and then the ability to buy back shares. So facts are right, something we'll evaluate and continue to talk to the market about, but this is where we see things right now.
Your next question comes from the line of Alex Scott with Barclays.
I had a follow-up on LTC. I just wonder if you could give us an update on sort of where you're at with your last premium, I guess, pricing approvals from regulators and maybe just how that's comparing with what you assumed in the reserves the last time you reviewed?
Yes. Things are going really well. I would say from a regulatory perspective, it continues to be a really nice environment. And I mentioned this in the past, but I think that whole process has really transitioned to be somewhat of an administrative process where you just need to work with states, go through the process of submissions, answer questions, and it's really turned more administrative than maybe what that looked like 10 years ago that it was a little bit more political. So we feel great about the environment. We're up to about 60% achievement of what's in the last kind of reserve adjustment that we took. So feel good about that. And this quarter, the approvals are right around $90 million. So it was a good quarter. And it's been pretty stable as far as every quarter, making progress. And so I would say we feel really good about our progress against the reserve assumption at this point and good about just the general environment.
Your next question comes from the line of Suneet Kamath with Jefferies.
I wanted to revisit the buybacks briefly. Rick, I appreciate that your team has been increasing the annual buyback levels. However, I've noticed that excess capital has also been growing. According to your prepared remarks, it seems you might end the year with $2 billion to $2.5 billion in holdco cash, which is higher than your initial expectations when you presented the 2025 plan. My question is, why not increase the buyback beyond $1 billion, especially with the additional $630 million from the LTC restructuring?
Yes, it's a fair question, Suneet, we don't minimize that returning capital to shareholders is an important part of our overall construct and our value proposition. And so we do think about it. We've said we'd be dynamic. I think as we look at where we are today and given the performance and closure of the LTC transaction to move to the top end of our range going into the year is appropriate. But it's something that we'll always look at in terms of the pace and how we look at it. And all your facts are right. I mean the generation has been good. We had even some excess generation with reinsurance earlier in the year. We put that into our outlook and then the ability to buy back shares. So facts are right, something we'll evaluate and continue to talk to the market about, but this is where we see things right now.
I'll now turn the call back over to Rick McKenney for closing remarks.
Great. Thanks, Jeannie. Appreciate it. Thanks, everybody, for joining us this morning and your continued interest in Unum. As you can tell from our comments today, we are very focused on executing on our strategy and confident in our 2025 outlook and beyond. So with that, we conclude today's call. Look forward to connecting with you again in the very near future. Thanks, everyone.
Ladies and gentlemen, thank you all for joining. You may now disconnect.