Unum (UNM) Q1 2026 Earnings Call Transcript

DATE

Wednesday, April 29, 2026 at 8 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Richard McKenney
• Executive Vice President and Chief Financial Officer — Steven Zabel
• EVP, Chief Operating Officer, Unum US — Christopher Pyne
• President, Colonial Life — Timothy Arnold
• Chief Executive Officer, Unum UK — Mark Till

TAKEAWAYS

• After-tax adjusted operating earnings -- $353 million, with adjusted operating EPS of $2.14, up nearly 10% year over year under the new reporting definition that excludes the Closed Block.
• Unum US Group sales -- Achieved $335.1 million, increasing 22% year over year, driven by both new and existing customer growth.
• Group persistency (Unum US) -- Rose to 92%, up 2.7 percentage points from the prior year, indicating customer retention strength.
• Unum US Group benefit ratios -- Group Life benefit ratio decreased to 61.8% (from 69.3% a year ago), while Group Disability benefit ratio was 63.7% compared to 61.8% year over year and improved sequentially from Q4’s 64.2%.
• Supplemental and voluntary adjusted operating earnings (Unum US) -- Reported at $116.2 million, down from $140.7 million, due to long-term care transaction impacts and unfavorable underlying experience.
• Colonial Life adjusted operating income -- Reached a record $127.8 million versus $115.7 million, with a benefit ratio of 46% (better than the 48%-50% expectation) and premium income of $472.7 million.
• Unum International adjusted operating income -- $30.9 million, below the low $40 million range outlook and $38.7 million last year, with Poland premium growth of 15.2% offset by U.K. claims severity pressure.
• Closed Block Group LTC case terminations -- 7% of group LTC cases closed in the quarter, reducing net exposure by approximately 30,000 lives and resulting in a statutory reserve release of less than $100 million.
• Capital metrics -- RBC ratio at 460%, more than 100 points above the target, and holding company liquidity of $1.7 billion, supporting a full-year capital generation outlook of $1.4 billion-$1.6 billion.
• Share repurchases and dividends -- Bought back roughly $400 million in shares (retiring 3% of float), and paid $78 million in dividends, with a stated goal of $1 billion total repurchases for the year.
• 2026 full-year outlook -- Targeting 4%-7% top-line growth, 8%-12% EPS growth, and maintaining 400%-425% RBC with $2 billion-$2.5 billion of holding company liquidity.

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• Steven Zabel said, "paid family and medical leave experience was somewhat elevated in newer PFML states and modestly pressured in existing jurisdictions," causing group disability benefit ratio to remain at the high end of the range.
• Adjusted operating income for Unum International dropped to $30.9 million, below previous outlook, due to higher benefit ratios driven by large claim sizes in the U.K. disability line.
• Unum US supplemental and voluntary lines saw adjusted operating earnings decline to $116.2 million from $140.7 million, attributed to the long-term care transaction and "unfavorable underlying experience."
• Closed Block long-term care results saw "elevated GAAP accounting volatility" and margin compression as a result of employer-level terminations, although the company prioritized risk reduction over earnings impact.

SUMMARY

Unum Group (NYSE:UNM) delivered after-tax adjusted operating EPS of $2.14, reflecting nearly 10% annual growth and supporting its reaffirmed full-year guidance. The company capitalized on strong top-line trends with 14.4% consolidated sales growth, especially in Unum US and international markets, while maintaining robust capital metrics well above target levels. Management highlighted continued risk-mitigating actions in the Closed Block, including 7% group LTC case closures and ongoing evaluation of further risk transfers to reinforce long-term stability.

• Colonial Life reported a record quarterly operating income of $127.8 million, with a benefit ratio of 46%, outperforming the anticipated 48%-50% range.
• The group persistency metric improved 2.7 percentage points, reaching 92%, as a result of digital investments and product bundling strategies.
• RBC ratio was reported at 460%, representing over 100 points above the company’s target range and supporting aggressive share repurchase activity.
• Poland premiums grew 15.2% while Unum UK faced higher average claim sizes, which created earnings volatility in the international segment.
• The company’s share repurchase activity in the quarter retired 3% of common shares outstanding, using excess holding company liquidity to accelerate buybacks.

INDUSTRY GLOSSARY

• PFML (Paid Family and Medical Leave): State-mandated insurance coverage for employee leave related to family or medical events, often bundled with short-term disability.
• Closed Block: A segment containing legacy policies (such as group long-term care insurance) that are no longer actively marketed or sold, subject to deliberate runoff management.
• RBC (Risk-Based Capital): A regulatory measure of insurer capital adequacy relative to its risk profile, with higher percentages indicating stronger solvency cushions.
• Fairwind Protection: Unum’s internal buffer of reserve margins and excess capital specifically allocated to absorb adverse experience in the Closed Block, disclosed at $2.2 billion.
• Persistency: The percentage of insurance customers who retain their coverage from period to period, directly affecting future premium and earnings streams.

Full Conference Call Transcript

Richard McKenney: Great. Thank you, Matt. Good morning, and thank you for joining us. We are very pleased with a solid and encouraging start to 2026. It is one that reflects strong execution across the business for both the top and bottom line, greater capital deployment and continued progress in management of our Closed Block. Core operations performed well with earned premium growth of over 5% adjusting for the transactions. After-tax adjusted operating earnings of $353 million and after-tax adjusted operating EPS of $2.14 is up nearly 10% from a year ago. Leading the way our group -- our U.S. group business had a standout quarter with sales up 22% and persistency is strong at 92%.

Combined, this drove premiums up approximately 5%, specific to our group lines. The top line also translated to the bottom line as we saw record earnings in group life, bringing total U.S. group earnings to over $220 million and with a very high ROE. Within the group portfolio, this quarter, it was clearly the Group Life business, which outperformed, but not to be overshadowed, our group disability business showed consistent strength with high returns and good long-term disability fundamentals. As we pay careful attention to pricing and risk selection at the employer level for new and existing customers, our team continues to do an excellent job helping people get back to work and fulfill our purpose.

These results reinforce what has long been true for us. We have built our business on disciplined pricing and underwriting, strong customer relationship management, which is key to high persistency and continued focused investments and capabilities that differentiate Unum in markets. It is particularly important where technology and human support come together at moments that matter most. It is also another quarter in which we delivered on the consistency and execution that our customers and shareholders expect from us. To achieve this, we have been deliberately investing in technology-enabled solutions that help us win, retain and grow business by making it easier for employers and their employees to engage with their benefits.

This is evident in this quarter's results with the success we're having in providing solutions and services that resonate with our customers. In recent years, employers have placed increasing importance on managing employees leads. The expansion of state family and medical lead programs has provided another avenue to leverage our LEAP management leadership position and reach more people. Our Digital First Total leave platform combined with our traditional insurance products and technologies such as HR Connect, delivers a best-in-class experience to our clients which in turn contributes to the high levels of satisfaction and persistency exemplified this quarter. Extending from our leading group businesses is a very successful and broad-reaching supplemental and voluntary product business.

These lines of business saw a 20% sales growth in the quarter. We see employers looking at the broader benefits package more often as these products leverage the same digital tools and employers know they can depend on Unum across their benefit needs. Taking our Unum US business in totality, we delivered strong before tax earnings of $338 million and an ROE of 25% in the quarter. At Colonial Life, momentum continues to build. The business delivered a record earnings quarter supported by premium growth in line with expectations, attractive returns and continued benefit from disciplined execution and strong relationships in the worksite market.

Colonial Life is an important component of our reach and able to get to employers of different sizes that are looking for high-quality solutions to help take care of their employees. Looking internationally, after significant growth on top and bottom line over the last several years, Unum International produced mixed results this quarter. Strong performance in Poland, where growth continues at an exceptional pace was offset by benefits pressure in the U.K. Our market position and know-how gives us confidence that we can actively address macro market dynamics and we are excited about the long-term value growth and contribution of our international businesses. Overall, core operations are in excellent shape heading into the rest of the year.

As we refine how we present and focus our earnings on an ongoing basis, we'll also continue to provide transparency into our closed block. This remains an area of active and deliberate management. Importantly, results this quarter reflect tangible progress in reducing both the size and the risk profile of the block. As we announced late last year, we discontinued new employee coverage on existing group cases. The response was well received by clients, particularly among employers who had not recently evaluated the cost and value to their employees of this legacy offering within their broader employee benefits package.

Because this product was last marketed in 2012 and provides benefits well beyond an employees working years, our engagement this quarter led some employers to voluntarily cease their coverage. As a result, 7% of all group LTC cases closed during the first quarter, meaningfully reducing our exposure. Importantly, this reduction in footprint was achieved with clarity and transparency for our clients. As our customers' evaluation continues, we expect additional case closures going forward. Beyond that, our fair wind protection remains at a robust $2.2 billion. The external reinsurance transaction we completed last year continues to perform well. and the elimination of new employee tail risk is fully in place.

We continue to evaluate a broad set of options to further mitigate LTC exposure, including risk transfer, and we are encouraged by our progress and the opportunities ahead. The actions we are taking are methodical, deliberate and effective. Each step improves the risk profile and allows us to keep our focus where it belongs, growing and strengthening our core business. Turning to the balance sheet. Our portfolio continues to perform well in the current environment and remain solidly investment grade. Our team has done a good job over the last several years, increasing our overall credit quality at a time when you weren't getting appropriately paid for the inherent credit risk.

Additionally, our capital position remains very strong. with RBC at 460%, which is over 100 points above our target range and holding company liquidity is strong at approximately $1.7 billion. With solid capital generation, we remain committed to our capital deployment framework, investing in our business for growth, both organically and inorganically, and then returning capital to our shareholders through dividends and share repurchases. Our outlook calls for the redeployment of roughly $1.3 billion, which is roughly what we generate in a year. During the first quarter, we repurchased approximately $400 million of shares taking advantage of attractive prices to accelerate a portion of our planned repurchase. This reduced our public float by approximately 3% in 1 quarter.

After paying out $78 million in dividends in the first quarter, we will also look to increase our dividend rate in the coming months heading into our annual meeting. Our delivery of investing in growth and deployment plans are intact. Looking ahead, we remain confident in our 2026 outlook, which consists of delivering 4% to 7% top line growth, 8% to 12% EPS growth, attractive returns on equity in our core operations and continued strong capital generation and deployment. The environment remains supportive. Our sales pipelines are building as we move through the year. Digital connections with our customers continue to deepen and our teams remain intensely focused on execution.

Most importantly, our purpose of helping the working world thrive throughout life's moments continues to guide our teams. Our growth and our culture over the long term. This year, we were pleased to be named 1 of the world's most ethical companies for the sixth straight year. This all comes together to generate the results of today and the long-term value creation we are building for customers, employers and shareholders. I'm happy now to turn the call over to Steve to walk through the numbers in more detail. Steve?

Steven Zabel: Great. Thank you, Rick, and good morning, everyone. The first quarter of 2026 was a strong start to the year with many of the expectations we laid out in our outlook meeting emerging across our businesses, resulting in after-tax adjusted operating income per share of $2.14. Notably, Group Life and AD&D, along with Colonial Life had record levels of earnings and group disability met our expectations. Alongside the strong margins we saw, top line trends were ahead of our expectations with sales growth of 14.4%, grew persistency increasing 2.7% year-over-year to 92% and core premium growth of 3.9%.

While premium growth is slightly below our 4% to 7% full year expectation, we had expected this to accelerate and build throughout the year. . Adjusting for the runoff of the stop loss business and the transactions executed last year, core premium growth would have been just over 5%. Before moving on to our segment results, I will remind you that this is the first quarter reporting under our new definition of after-tax adjusted operating earnings, which excludes the closed block. While the closed block earnings are no longer represented in our headline adjusted after-tax operating income, I will spend some time later in the call to talk about key trends in that business.

Diving into our quarterly operating results across the segments, the Unum US segment produced adjusted operating income of $337.9 million in the first quarter of 2026, compared to $329.1 million in the first quarter of 2025. Group disability adjusted operating earnings of $106.6 million in the first quarter of 2026 reflect a benefit ratio of 63.7% compared to 61.8% in the year ago period and an improvement from 64.2% in the fourth quarter of last year. Overall, long-term disability results are consistent with the assumptions embedded in the models that underpinned our guidance last quarter and reflect continued progress as the line continues to normalize.

With that said, the quarter did include higher incidents in the short-term disability product line compared to the same period a year ago. Specifically, paid family and medical leave experience was somewhat elevated in newer PFML states and modestly pressured in existing jurisdictions, reflecting continued investment in the attractive leave opportunity discussed earlier. As PFML remains a maturing market. Our standard 1-year rate guarantees provide flexibility to respond quickly. Excluding PFML, group disability experience was solid and within expectations supported by stable incidents, strong recoveries and a rational pricing environment.

Results for Unum US Group Life and AD&D include adjusted operating income of $115.1 million for the first quarter of 2026 compared to $69.2 million in the same period a year ago. The benefit ratio decreased to 61.8% compared to 69.3% in the first quarter of 2025 driven by lower incidents. This result was extremely favorable compared to our outlook of 70%, and we've now seen multiple years of better-than-expected results, averaging in the mid- to high 60s. We believe that this moderate level of outperformance could continue to persist. Adjusted operating earnings for the Unum US supplemental and voluntary lines were $116.2 million in the first quarter, a decrease from $140.7 million in the first quarter of 2025.

The decline in earnings was driven in part by last year's long-term care transaction, which ceded a portion of our IDI business. but also by unfavorable underlying experience in that line. Turning to premium and sales. Our top line trends remain healthy. Unum US premium grew 3.3% with support from high levels of persistency. Excluding the impact from the runoff of the stop loss business and our transaction last year, Unum US premium grew just over 5% year-over-year. Our pipeline for future growth remains strong. Unum U.S. quarterly sales were $335.1 million compared to $277.5 million in the first quarter of 2025.

Total group persistency of 92% increased sequentially from the fourth quarter and from the same period last year, reflecting the enduring relationships we are able to create with our customers. Moving to Unum International. Adjusted operating income for the first quarter was $30.9 million compared to $38.7 million in the first quarter of 2025. And below our outlook for earnings in the low $40 million range. The International segment's benefit ratio was 71% compared to 66.5% in the year ago period driven by unfavorable experience in the U.K. business. Adjusted operating income for the Unum UK business was GBP 20.4 million in the first quarter compared to GBP 29.5 million pounds in the first quarter of 2025.

The results reflect underlying claims performance, including a benefit ratio of 72.9% compared to 76.1% a year ago. The change in benefit ratio was primarily due to a larger average claim size in our group long-term care disability business in 2026. International premiums continue to show growth. increasing 8.1% and are supported by healthy persistency levels and sales growth of 5.5%. Premium growth was broad-based with U.K. premium growing 6.5% and Poland premium growing 15.2%. Next, adjusted operating income for the Colonial Life segment of $127.8 million in the first quarter was a record, and increased from $115.7 million in the first quarter of 2025 driven by strong benefits experience and underlying premium growth.

The benefit ratio of 46% compared to 47.7% in the year ago period and was better than our expectation of the range of 48% to 50%. Premium income of $472.7 million compared to $457.3 million in the first quarter of 2025 and was driven by strong sales in the prior year and stable persistency. Sales in the first quarter of $106.3 million were up slightly from the prior year. Colonial Life produced strong returns, including ROE of 19.2%. I will now provide an update on the closed block focusing less on the earnings results and more on key business trends and balance sheet health.

Long-Term Care's results this quarter were largely influenced by employers' decisions to cease coverage following the discontinuation of new employee enrollments on existing GLTC cases that we announced in the third quarter of last year and that was effective in February of 2026. As a result of these decisions, we saw elevated GAAP accounting volatility from these closed cases, which is acutely seen in the headline segment earnings results. Despite the margin in these closed cases, which reduced current period GAAP earnings, we are very pleased to reduce the associated exposure and tail risk in the block.

In addition, first quarter results included amortization of reinsurance costs related to the LTC reinsurance transaction that closed in July of 2025, which did not impact the year ago period. Outside of these impacts, underlying experience trends remain in line with expectations. Combined with the underlying benefits experience, the NPR increased 10 basis points to 97.6% on a sequential basis. Other key considerations for monitoring the block health include our Fairwind protection remaining stable at approximately $2.2 billion and continued success with our premium rate increase program with our achievement rate sitting at approximately 15% for our current program.

Then lastly, for the closed block, our alternative investment portfolio, which mainly supports LTC and an annualized yield of 6.7% in the quarter, below our long-term expectation of 8% to 10%. We typically see seasonality in first quarter marks due to the timing of receiving year-end statements and therefore, we remain confident in the construction and resiliency of this portfolio. I'll end by covering our capital position. In the quarter, capital metrics across the board remain robust. Holding company liquidity stood at $1.7 billion and traditional RBC at 460%, both above our long-term targets and consistent with our expectations.

These levels keep us on track to achieve our full year outlook of 400% to 425% RBC and $2 billion to $2.5 billion of holding company liquidity. Our robust capital position is supported by statutory after-tax operating income of $314 million in the first quarter, positioning us for our full year expectation of $1.4 billion to $1.6 billion of total capital generation. This cash generation model paired with our strong position enables our durable approach to deploying capital to our shareholders. In the quarter, we took the opportunity to execute a dynamic approach to share repurchase buying back around $400 million of stock.

While we are constantly evaluating our capital deployment plans, we view these actions as a pull forward of our plan and remain on track to repurchase $1 billion of stock this year representing all of the free cash flow we plan to generate. Our thoughtful share repurchase, paired with our common stock dividend of $78.4 million put first quarter deployment just under $0.5 billion, underscoring our ongoing focus of executing prudent capital management. So all in all, it is a solid start to the year for the company. The encouraging top line trends and strong margins across many of our products illustrate the high-quality nature of our business.

This paired with our continued active management in the Closed Block and opportunistic acceleration of share repurchases and provides us with healthy optimism for the remainder of the year and positions us well to execute against our goals. I will now turn it over to Rick for his closing comments before going to your questions.

Richard McKenney: Thank you, Steve. And overall, you heard from both Steve and I as we delivered a strong first quarter. It reinforces both our near-term momentum and our confidence in the company's long-term positioning as we move through the year. Before we move to Q&A, I want to recognize an important leadership transition for our company. After more than 4 decades at Unum, Tim Arnold has decided to retire in July. Tim has been a highly respected leader with a significant impact on our voluntary benefits businesses, particularly at Colonial Life, where he has been the President for the past 11 years.

Tim is 1 of the few people who has lived in each of our 4 major locations and has impacted the people and the communities he has served. We are grateful for his many contributions and the legacy he leaves behind. We're also very pleased with the planned leadership transition, including the appointment of Steve Jones. Currently, Colonial Life Head of Market and Field Development as the next President of Colonial Life. This reflects the depth of our management team and our focus on continuity and long-term growth. We will look forward to Steve joining us on this call in the future. So with that, operator, we'd be happy to take questions we have out there.

Operator: [Operator Instructions] Your first question from the line of Alex Scott with Barclays.

Taylor Scott: First one I had is on the paid family medical leave. I wanted to see if you could provide a little more color on what you're seeing in that product line as you move into new states and -- just help us understand if we should expect to continue to see some pressure there until we hit another renewal cycle or what you saw in first quarter is a little more one-off in nature.

Richard McKenney: Yes. Thanks, Alex, for the question. It's Rick. I just wanted to just say that this is an important part of the overall mix. And so when we think about it, we think about it, it's been consolidated in our group disability results, which, as you can see, very high returning business. And so this is a new developing area, which one we've been talking about for a long time. But certainly, we can give us some more details behind that, which is just an extension, as I mentioned, of our leave business. But maybe, Chris, we give some more context in terms of the dynamics in the paid family medical leave currently.

Christopher Pyne: Sure. Thanks, Rick. And thanks, Alex. Ultimately, this is an exciting time in our business. If you think about PFML and the states that have come on over time and most recently, Minnesota and Delaware were added 1/1, and then May will come up in the first quarter this year. This is an expansion of a business we're in, giving more employers the requirement to be covered for short-term disability on the employee side, but also adding coverage for family events where people need to be away from work.

So it really fits the work and the investments we've made in the lead business where you bundle products and services to make sure that we can be that partner to employers as they manage their workforce for both regulated events and also just what they want to provide in terms of flexibility for their employee population. When stays come on, we deal with it like any other new line of business coming on in a state. And you can see some pressure from pent-up demand that happens at times. We manage it. The good thing about PFML is, it is high-frequency type coverage like short-term disability. It gets credible quickly.

You can see how the experience emerges and it is short in terms of rate guarantees. So normally, a 1-year rate guarantee gives us the opportunity to reprice and we've been doing that at current, and we'll continue to do that. It also can give you a little bit of lift in sales. Normally, that's been small enough to just be absorbed into our business because it's one state at a time. And obviously, our disability business is quite large. When you have 2 or more or it can show up a little bit, and that does provide a little bit of tailwind in sales. But I would bring you back to -- this is the business we're in.

This is the business that employers need our help with, so it's an exciting time. When new states come on, that is part of it as prior states mature in terms of how the experience plays out, that's given us more information, and we'll continue to adjust price and manage that business very well, which is part of our heritage.

Taylor Scott: That's helpful. Second one I have is on long-term care. Could you talk about the in-force management actions that you've taken? And just the 7%, can you tell me about what portion of the policies had that renewal that occurred this quarter? And how much are you expecting to renew that you're working on some of these actions with through the rest of the year. So how do we think about that 7% potentially growing to a larger percentage of the total group LTC .

Richard McKenney: Yes. Thanks, Alex. Let me just provide a little bit more context around our LTC actions. And we've been taking them now for several years. As we've said, it's been methodical addressing different parts of our book of business. That includes rate increases, which we've been doing now for a long period of time, also includes the capital actions we've taken behind Fairwind over the last several years. And then most recently, last year on the risk transfer that we did as part of that -- and then in third quarter, we took some actions around new lives on group cases, and I think that has some impacts that we've started to see coming out there.

And Steve, maybe you can take us through some of the details of Alex what we saw specific to this quarter? .

Steven Zabel: Yes. Yes. So I would go back to last year when we notified our employer base that we were going to be no longer accepting new lives on existing cases. And then what that did is it really -- it really started a lot of conversations with our employer groups, just about the value of the program, the future of the program. You get into the discussions about kind of what we're looking for going forward around our rate increase program. And it's just a point in time where they evaluate their entire employee benefits package and how the LTC plans might fit into that.

And so -- as a result of some of those discussions, we did have much higher levels of employer level terminations of those cases, we did quote that about 7% of our cases did terminate in the first quarter. That equates to approximately 30,000 actual lives on a net basis that would have ceased coverage during that period of time. And so as we think about just ongoing communications with our customers, that's part of the conversation. We will continue to have those going forward. I would say, as we look forward, first quarter is probably the most acute that we feel the impact, but we could see future terminations on some cases as those conversations continue.

I would just pull it back up though. I know there's a lot of GAAP accounting noise on this one. But at the end of the day, we're having good conversations with our clients. As a result, we've reduced risk exposure, tail risk on that book of business, and we just view it as another part of us thinking about how to manage this business going forward.

Operator: Next question from the line of Tom Gallagher with Evercore ISI.

Thomas Gallagher: First question is just on how to think about guidance over the balance of the year. I heard your comment on Group Life and AD&D, how you think that's probably going to trend somewhat favorable relative to initial assumption. I don't know, can you just mention have you changed anything for the other businesses? It does seem like international is running somewhat adverse. And I guess, group disability, the loss ratio sounds like it might be more toward the high end of the range, if I'm reading you correctly on this PFML issue, assuming that process for a bit, can you just talk about how are you thinking about the different businesses over the balance of the year?

Steven Zabel: Yes, this is Steve. I mean I would go up and just say, we feel very comfortable in the guidance range that we've given based on what we've seen in the first quarter, the drivers of some of the margins in the first quarter and how we look to the back half of the year. I'd start with we feel great about growth within our core businesses, and that's a real driver than of bottom line. So everything we're seeing commercially would very much support the top line growth that will drive the earnings that we have in that outlook. We did have some variances against kind of original expectations in the first quarter. You mentioned group life.

That was a great result for us. We do think that there's a possibility that will continue to be somewhat favorable to the 70%. But as you know, group life can be very volatile. So we just have to see how the year plays out. International benefit ratio was a little bit higher. There was kind of some one-off things around just the average size of new disability claims. We don't believe that will persist. That will be wild cherry for us, though, and we'll monitor that as the year goes on. Colonial had a great quarter. Really everything from a benefit ratio perspective was very positive. We have a lot of different products within that.

And there's usually a little bit of offsetting of performance. But this quarter, everything was very positive. And then there are some other lines where we had some variations, including group disability, but they were all within our range, going into kind of planning for that ultimate outlook. So Tom, at this point, we're 1 quarter in. And so I'd say we still feel very good about the broad outlook range that we gave at the beginning of the year.

Thomas Gallagher: Got you. My follow-up also long-term care. Can you give a little bit of color for how big are the group LTC reserves relative to the total of -- we'll call it, $14 billion or so? And did you -- when you had a 17% reduction from nonrenewals, can you provide a little more transparency, what did that do to reserve levels versus the capital that make up the $2.2 billion of excess over best estimates in Fairwind?

Steven Zabel: Yes. So it wasn't 17%. We had a 7% reduction in cases in the first quarter due to employers ceasing the coverage in their plans. What I would tell you is kind of from a statutory reserving perspective, we did release reserves in the first quarter of the year and felt very good about that. I kind of zoom back a little bit and just think about the protections that we have in Fairwind generally. And mechanically, what happens is we release those statutory reserves and those in essence flow into excess capital in Fairwind.

And when you think about our definition of protections in Fairwind, it's a combination of the margins that we have in the reserves and the excess capital, it was pretty much neutral. . And so the way I think about it is we still have $2.2 billion of protections in Fairwind on a block that's smaller. And so net-net on net, feel like we have more relative protection in Fairwind for the remaining walk there. We haven't really disclosed the split between GAAP and individual -- or sorry, group and individual statutory reserves. And so -- and that's something we can consider going forward.

There is a lot of demographic information about the split between individual and group in our annual investor packet that we send out as part of that call.

Operator: Our next question from the line of Suneet Kamath with Jefferies.

Suneet Kamath: Just wanted to start out, congratulating Tim Arnold on his retirement, but I did want to ask him a question. Just on the voluntary business, we're starting to see some reports of states telling insurance companies to lower premiums on certain products. Just wondering if you're seeing any of that in terms of your business?

Timothy Arnold: Yes, this is Tim. Thank you so much for the congratulations on the retirement. I appreciate that. There have been states throughout the last 10, 15 years who had loss ratio requirements that differ -- and so it's not something new that we're working through, but we are seeing a couple of additional instances where states are inquiring about loss ratios and just trying to make sure that the products are performing as they were originally priced.

Suneet Kamath: Got it. Okay. And then, I guess, turning to Unum US, I mean, the 20% sales growth was pretty strong. I think most of it is from the core market. But -- can you just kind of unpack that a little bit? How much of that is sales to existing customers versus new customers? And any comment on kind of the natural growth that you typically talk about on these calls.

Richard McKenney: Yes, Suneet, actually, we'll let Chris get into that. But I think it would be helpful to actually talk about sales around the horn because I think we had a really good sales quarter and in the U.S., but I think that, that was other places as well. So Chris, do you want to start us off and maybe we'll ask Mark and Tim talk a little bit about sales as well. .

Christopher Pyne: Great. Thanks, Sumit. Yes, strong sales in the quarter, 20% growth and we're thrilled as we look at that sales growth that we continue to tie back to where we've made investments and capabilities, no surprise, HR Connect and connecting to the platforms of choice hugely popular with our new sales and also growing existing sales when that type of connection is in place. totally is a huge driver of decisions that people make and they buy a bundle when they do that for both total [indiscernible] HR Connect type platforms.

I want to also reinforce that we've got a very strong marketing alignment in terms of going out and finding the right types of prospects so that we know where to spend time and energy and our brokers and consultants are focused on the right things when it comes to making a difference for their client base. That's an exciting partnership, and it's nice to see that alignment all the way through the sales funnel. You referenced that new sales for small and mid customers really strong.

That was -- there's a little bit of tailwind in PFML in that space, but even when you strip that out, new sales for small and mid customers really strong, nice to see that growth year-over-year. First quarter is a little bit more volatile. It's a small quarter for us in terms of our national client group. And we -- again, we did see some tailwind from PFML in the large space with Maine coming on [indiscernible] which we credit the -- which we see in the quarter. But overall, the fundamentals of where we're winning tied to capabilities, winning on new and growing our business have been really positive, great start to the year. So thanks for asking.

Richard McKenney: Tim, do you want to follow up?

Timothy Arnold: Yes, sure. I'll start with the Unum VB side of the house. Extremely strong sales in the first quarter, up 24% year-over-year. New sales were at a record level. In the VB business on the Unum side, the first quarter is the biggest quarter of the year. So it's particularly comforting to see the business get off to a plus 24% start that bodes well for the remainder of the year. On the Colonial Life side, sales were a little sluggish in the quarter. However, I would just bring you back to the fourth quarter where sales growth was almost 10%. I think we had a little bit of a soft pipeline coming into 2026.

But I would tell you the fundamentals and the leading indicators remain very strong. Recruiting is very strong. We like the number of sales managers we have in the organization and the performance that they are demonstrating. We saw strong sales in the quarter from new clients and also from large case clients, had a little bit of weakness in the existing client sales base. And [indiscernible] and the sales team are working hard to get that back on track. And we believe that the remainder of the year, there's reason to be optimistic.

If you look at the gap between where we finished the first quarter at Colonial Life and where we thought we would be, it's about 1% of total annual sales. So we certainly think that, that is recoverable. And then if I may, Suneet, since you started the question with my retirement, I'd be remiss not to say I'm extremely excited about Steve Jones. I have the opportunity to work with him now for 2.5 years. He joined Colonial Life as the Head of Sales and Marketing support field to market development. He is an incredibly strong leader. He's led 2 other P&Ls in his career. And I think this transition is going to be extremely smooth.

He's very much aligned to all the things that we've been doing and [indiscernible] of a zone that I think are pretty exciting. And so really, really happy to have Steve in the role moving forward.

Richard McKenney: Good. Thanks, Tim. And Mark, let's talk a little bit about international. .

Christopher Pyne: Yes. Thanks, Rick. If you look at international as a whole in dollars, sales were up 14%. As we know, the U.K. is the predominant part of that. So if I perhaps touch on local currency sales in the U.K., they were up 15% on the quarter. I always think sales are a function of the proposition that you have and the way in which the brokers in the U.K. market view you. We've been investing hard in broker service, digital propositions.

It was last week that actually an independent survey by NMG on brokers rated as the number 1 for Net Promoter Score, and we led the market in pretty much every major capability, whether that's relationship management, claims, management, absence management, rehab product, value-added service. Those are the things that contribute -- those are the things that contribute to the growth in the business. We also got some data last week that said that in 2025, we were the #1 writer of new business in the U.K. market. So I think we've got some confidence that we have the support of the brokers and the propositions to be able to drive the growth sales in the business over time.

Richard McKenney: Good. Thanks, Mark. I think you have Suneet. I mean I think it is a broad-based story, and so I don't want to focus on just the USP sales looked very good across the enterprise in the quarter. Thanks for the question. .

Operator: Your next question from the line of Jack Matten with BMO.

Francis Matten: Just 1 follow-up on the group LTC actions. I guess what you said that Unum is incentivizing its group customers in any way to determinate their cases? Or do you plan to offer any consensus there? Or is it really just these terminations or an outcome from kind of more normal course conversations around things like rate increases?

Steven Zabel: Yes. This is Steve. Absolutely no incentives. This is a unilateral decision that a group HR director makes when they're looking at their entire benefit package for their employees and just evaluating the value of the different pieces of that package. And so we're obviously here to have that conversation with them and discuss their options with their plan, but there's absolutely no incentive coming from us, and from our perspective, the key is for us to continue to serve those customers that remain in force, and that's what our team is focused on. But we're also there to help give a little bit of education and help and administrate or through their decision. .

Francis Matten: Got it. That makes sense. And then a follow-up on the international business. And I think some of the pressure you talked about in the U.K. Group LTD. Can you just unpack a little bit more? Was that more frequency or severity issue -- and do you view any of the trends there or something that could persist for a period of time? Or do you view it more as just kind of a one-off this quarter?

Steven Zabel: Yes, this is Steve. I can cover that one. It definitely was for the quarter, an average size for the long-term disability business over there. And really, the size of new claims is a function of just those individual claims that come in based on diagnosis based on occupancy, based on based on the industry. And so we have a lot of data to say those types of claims when they come in, this is a reserve that we need to set up. And so you just -- you get into some of these quarters where just the mix of those claims drive a higher expected size of claims than what you would have expected.

So really nothing to do with the incidence counts specifically there. I will say we've seen that in the U.S. business as well over time, and they tend to just be kind of anomalies that you see in a quarter, and so right now, we would view it as just some first quarter volatility. But obviously, we're going to need to look at that as the year plays out and see how that impacts our view of the outlook for the business. .

Operator: Your next question from the line of Joel Hurwitz with Dowling.

Joel Hurwitz: First, Rick, in your prepared remarks, you mentioned that you were I think, encouraged by opportunities and progress that's been made on further risk transfer. Can you just elaborate what you're seeing in the market? And I guess, any optimism in getting another deal done this year?

Richard McKenney: Yes. Thanks, Joel. And as I talk about that, I look back to the transaction last year, it's been just over a year since we announced the transaction closed at midyear last year. Very happy with how that performed, how that went through close, and we think it's just a good overall impact to the risk transfer. We talked a little bit about what's happening on the group side today. But we are looking across the book with different counterparties to think about what our other ways that we can use reinsurance and risk transfer to help mitigate that. So coming off of a successful 2025, we also, at that time, said we're a deal ready.

We're ready to go for the next tranche. It's just about finding the right counterparty. So we have the preparation and the teams are ready to do that. We have a strong desire to remove this risk, which we have been very consistent on, and that's in multiple forms in terms of taking the risk across the enterprise. And on the risk transfer side, the market is constructive. I think we've used that term constructive before.

There are a number of players out there that might take on this type of risk, lots of interest that's out there, but getting interest to be actionable, takes some time because it does take a good qualified counterparty who's willing to do the work. But there are a number of people out there willing to take the biometric risk. And I think part of the development we saw a couple of years ago is the ability of companies to parse the risk between the biometrics and the asset management side, which is such an important piece as well. And there are a number of players out there thinking about the biometric side.

There are many players out there thinking about the asset side of it and then how do you bring it all together? So I'd put it with the same category, it's constructive where the team is active, does not necessarily mean any deal will come to fruition. This is still a complicated hard work, and we're going to do the right thing in terms of shareholders as well when we take off that risk. And so -- but we're working hard at it. And I think that we'll continue to have this to be a priority in the company to remove the risk of LTC from the balance sheet.

Joel Hurwitz: Great. And then just shifting to Group Life, just I guess can you unpack the experience? Was it all essentially frequency? And then just given -- I think it's been a little over 2 years now of continued strong results in group life. When does that get reflected back in pricing? Or is the benefit ratio in the 60s for this line, sort of the new normal now?

Steven Zabel: Yes. So in the quarter, it was definitely just incidents. These tend to be lower face amount type policies in group life. So normally, when you see kind of fluctuations in overall benefit ratios, it's just going to be driven by the number of claims that we receive in a period, and that's definitely what we saw in the first quarter, very, very low number of claims submitted when I kind of zoom back a little bit, if you go back and you look at the average benefit ratio in this line going back many quarters, it's been kind of in that high 60% range.

So this quarter was really an anomaly and doesn't necessarily change our view of the block significantly. I did make a comment that looking forward, it may be in that high 60% range benefit ratio. But I would say, from a market and a pricing perspective, we'll take it into account, but it is just 1 quarter of very, very good performance. And we'd have to see that play out for longer really before it impacts pricing in a big way. And like all of our products, we look at this in a bundled way as we're working with our cases. And so we'll look at the overall economics of the case.

And over time, it could factor in, but right now, I think it's too early.

Richard McKenney: Yes. And I think that's an important point, Joel. When you think about it, it is that bundling factor. We've been talking about that a lot on the group disability and the great results we've seen there. It's more than just the stand-alone product line, what's doing. It's more about the relationship, our risk selection and all those different things that come in as we've talked about leave management and the wrapper around that, that's all important. So it's good to look at it. We're very happy with the results, but it's really hard to predict in terms of where that's going to go or how the market will factor some of that in. .

Operator: Your next question from the line of Wes Carmichael with Wells Fargo.

Wesley Carmichael: I wanted to come back to group LTC for a second on the terminations in the 7%. Just looking at the statutory annual filings, I think the group LTC reserves around $7.5 billion at the end of 2025. So just curious, Steve, does that imply that the reserve releases are in the neighborhood of, call it, $500 million, $525 million? Or is there any help you can give us on the impact on the statutory front?

Steven Zabel: Yes. What I'll tell you on that one. You can't just kind of use averages to think about what a statutory reserve release might look like just because the policies are in different ages. There's different benefit coverages. And so it's kind of hard just to do that. What I'll tell you is on a net basis, the statutory reserve release it was less than $100 million. It was significant, but it wasn't something that would change a capital plan or change the way we think about protections on the balance sheet.

We're very happy for us, the main thing is we're very happy reducing the risk exposure, but not a big capital impact, I would say, in the quarter, but as you said, the reserves on these are going to be positive for statutory purposes. So there will always be a reserve release. .

Wesley Carmichael: Yes. That's helpful. And I totally acknowledge the reduction in risk along -- sorry, was it something else?

Steven Zabel: No.

Wesley Carmichael: Okay. Just a second question, I guess moving to Unum US. Just on expenses, and I think I asked about this last quarter and you guys had hinted that maybe there is some potential operating leverage coming. But any thought on how you can improve the expense ratio going forward in Unum US.

Steven Zabel: Yes. I mean we kind of think about it in aggregate and kind of take it to the top of the house of the consolidated operating expense. I think the comments that we made is our expectation for 2026 is going to be -- that's going to be relatively flat with maybe some improvement as we work our way through the year. We are driving productivity within the organization, which we think is important, but we're also investing back into what we're trying to do commercially. And so I think if you want to look for this period in 2026, I think it will be a pretty neutral story, all things being considered.

Operator: Your next question from the line of Brian Kruger with KBW.

Unknown Analyst: I had a question on the traditional group persistency improvement of about 3 points year-over-year. Can you just talk about the, I guess, the dynamics that you think led to that both from a market perspective and maybe anything unit specific?

Christopher Pyne: Yes. Thanks, Brain, it's Chris. Persistency is really strong. We're thrilled with the beat we had with persistency, and we do think it reflects very directly, the investments we've made in capabilities. We've got historical evidence that continues where there's a spread in persistency in terms of higher persistency where you've got either HR Connect, technology investments and/or total leave, and we expect that trend to continue. Couple that with the fact that we talk about consistent and transparent discussions around price. And when things are going really well, we'll make sure we set the price on a go-forward basis in a way that reflects good value to us and fair value to the consumer. . Employers appreciate that.

It shows up in terms of persistency, and we can keep customers with a modest rate reduction going forward at very high margins. That's a good day. And when you tie that to full bundle, lots of different products, lots of services that we provide, including fairly significant from a volume perspective in [indiscernible] things like managing leave customers value our -- what we do for them, and we feel the persistency, while not always going to hit the higher that we had this quarter is going to be a real kind of key to growth in the future.

Operator: The next question from the line of Mark Hughes from Truist.

Mark Hughes: Flip side of that, I think supplemental and voluntary persistency, perhaps down a little bit, I think, still with a normal range, any strategies to see similar improvement like you've seen in those core group disability, life and AD&D? .

Richard McKenney: Do you want to take that .

Steven Zabel: Talk about the volume business. I would start with the wrapper though because those things that Chris talked about are important overall in terms of the digital connections we have, et cetera. But our voluntary business does have a little bit lower persistency at the employee level. And Tim, maybe you can talk a little about that. .

Timothy Arnold: Yes, Rick, that's right on. That's exactly where we experienced the pressure in the quarter. So as we continue to attach the voluntary benefits business on the Unum side to our lead program and to our platform partnerships with HR Connect and brokerage things of that nature, we're seeing improving person on the employer choice side, we had what I would describe as volatility in the first quarter on what we call member lapses. So policyholders who are either changing employers or for whatever reason, dropping their coverage.

The overwhelming majority of those are changing employers -- and so we're taking a deeper look at that just to make sure that we are fully understanding it and then we'll put together any actions that are necessary to bring that back. But we think a big part of it was just some volatility in the quarter.

Richard McKenney: Yes. I mean, I might just underscore Tim's point, it's a really good one. Those conversations when you're in talking holistically about the human capital management platform and leave and the full portfolio. We have the chance to talk about how to make sure that ongoing enrollments remain strong, and we get persistency left over time. So glad to let him with that.

Mark Hughes: Appreciate that. And then the corporate outlook for the balance of the year, what do you expect in terms of the corporate loss?

Steven Zabel: Yes, this is Steve. I would say mid-40s loss is probably about where I peg it. It was a little bit light. The loss is, I think, a little bit light this quarter, but that would be probably where I would estimate it being going forward for the year. .

Operator: Your next question from the line of Pablo Singzon with JPM.

Pablo Singzon: One more question on Unum International, where you referenced macro dynamics in the U.K. Was that related to inflation potentially picking up again, the economic outlook or something to do with underlying risk experience that you had already commented on.

Richard McKenney: Mark, I don't know if you picked up the question, but I was talking about just the macro environment and if that's causing some of the benefits and you specifically highlighted inflation. So it's a little hard to hear. So .

Mark Till: Yes. I mean I think it's fair to say that the macroeconomic environment in the U.K. is not as strong as it has been for the last couple of years. We have some slightly higher inflation. The Bank of England is yet to respond with higher interest rates and actually sent some very calming messages saying that it wasn't going to do that. But there has been a little bit of a slowdown in -- we saw in 2025. And in existing employers adding lives to schemes. But actually, that picked up in quarter 1 '26.

So -- at the moment, I would say, I think there's a mood is a little bit lower, but not lots of site that the economic activity is much lower.

Steven Zabel: Yes. The other thing that I'd add, Pablo, because I think you maybe have a specific question about what the benefit ratio somehow influenced by some of our policies that are inflation-linked. And I would say that's not a significant contributor this quarter, it's more just around the average size of some of the claims submissions. .

Pablo Singzon: Yes. And then second question, U.S. supplemental. 1Q was below the quarterly run rate get provided before, I think it was $120 million to $130 million, and the loss ratio was at the high end of your range. Can you give us an updated [indiscernible] .

Steven Zabel: Yes. There's not really anything in there specific that I would say would be recurring. We still feel really good about kind of the quarterly outlook that we give for supplemental and voluntary IDI claims were a little bit high for the quarter. We saw a little bit of volatility in voluntary benefits. But nothing that we're looking to really continue as we proceed through the remainder of the year. So not really changing our viewpoint on ongoing earnings there. .

Operator: Your next question from the line of Tracy Benguigui with Wolfe Research.

Tracy Benguigui: Most of my questions are asked. So just 1 for me. I appreciate you clarifying that $100 million of reserves for the group LTC case exits was not material enough to move the needle on capital. So just taking a step back, can you share what you need to see to reallocate some of your $2.2 billion of LTC protection into excess capital?

Steven Zabel: Yes. It's Steve. We feel really good about leaving the protections down in Fairwind right now. We don't really have any other needs for that capital necessarily. We would have the ability to dividend some of that up to the holding company. But as everybody knows, we have plenty of excess capital of the holding company to have flexibility to do what we need to do. So right now, we think the most prudent thing is to leave that protection down in Fairwind that also possibly could support a transaction in the future. So we just think it's good to use of capital right now, Tracy.

Operator: Your next question from the line of Mike Ward with UBS.

Michael Ward: I Just wanted to go back to the paid family Medical. I'm just wondering if you're able to kind of like help us size the actual underwriting business that you've gotten from the state lease management programs just because it -- you've spoken about this for a couple of years, but I kind of understood it was like a fee-for-service kind of model.

Christopher Pyne: Yes. Mike, it's Chris. Thanks for the question. And when you talk about leave, there is an element that is fee-for-service, and that's somebody can have us outsource their corporate leaves and FMLA which is the federal lead job protection component. But where -- PFML generally gets most of the discussion, and there are different flavors is when a state has a mandatory plan and they provide for a private option. We very much like to play in those spaces, and we have an offering that will be compliant with the state requirements, and we can incorporate that into the broader short-term disability and long-term disability play.

It ties in with leave management in total. -- helping employers keep track of what their different employee populations that are eligible for because inside of 1 employer obviously, you have multiple states frequently and different rules apply to different people. But really, it's the insured component of not just the leave associated -- paid leave associated with a medical claim the employee has, but also an event that a family member may have where they need to take time away and they also get insurance cover for that. When you -- maybe to just size it, it's still less than 10% of our overall disability book.

And normally, once that comes on at a time, it doesn't have that much impact. I think this quarter, as we referenced, we had 2 larger states that -- obviously, with Minnesota being a little larger and Delaware that showed up a little bit in the loss ratio and also new sales coming on can have an effect in a smaller quarter like the first quarter for when Main comes on. But in general, that's the element of PFML that we're talking about outside of the fee-for-service lead management business that you historically know.

Michael Ward: And then is it -- like are you seeing -- is it a rental leave? Or is it more so that sort of family member that is ill that needs care? And is there anything that prevents that from becoming a long-term claim, if it's a family member.

Richard McKenney: Great question. So think about -- so your short-term disability long has forever been Maternity has been the most prominent claim in short-term disability that now gets extended for the birth mother and also the paternity leave associated with it. So a mother can go longer than historically, just the element of giving birth and the time after birth. They're frequently, there are set number of weeks that they're eligible to stay out. And then there is a maternity factor, which has become a very meaningful bonding element of family medical leave that is real, but there's also a cap on that. Same with family members.

So if you have a [indiscernible] or a child or some reason you're taking time away from work, all of these things are capped. So they're eligible to be used, but they very much have a tail. That's part of what we do for employers is we actually keep track of how long somebody has been away from work, what they're eligible for, how long they can be paid. And then part of our job is to tell them when they've exhausted that cover.

Steven Zabel: And I think, Mike, the important thing is all of that can be priced for right? And so that's how you respond to changes that might emerge in that book. It's very short tail and the pricing cycle is very short as well. .

Operator: Our next question from the line of Wilma Burdis with Raymond James.

Wilma Jackson Burdis: Last was in Group LTC, can you just go into a little bit more detail as 1 large account that left? Or was it a lot of small accounts. Maybe just kind of give us some visibility there. We're trying to evaluate just is the product just not as attractive as it once was. I know you mentioned that it is still attractive. Maybe just give us a little bit of color there? Or was it just kind of 1 big account? And just help us think about how we should think about it going forward?

Steven Zabel: Yes, I think kind of a good articulation of it is we did have 7% of cases terminate. So it was definitely broad-based. It wasn't that there were a couple of major accounts in there that terminated their plan. It was more broad-based. And it's just based on kind of the value that an HR Director use with their budget of how they spend their money because many of these tend to be funded by the employer. And so that's just a decision that they're making as they think about the broader benefit package. .

Wilma Jackson Burdis: And then we haven't seen as many of your peers laying into buybacks to the extent that Unum did this quarter. Can you just talk about how you guys view that kind of tactical buybacks going forward?

Richard McKenney: Yes. When we think about -- I appreciate that, Wilma. It's very consistent with the things that we've talked about overall in terms of taking our overall generation and then with a similar amount of deployment billion over the course of the year was our plan is our plan currently. And we just saw the opportunity to actually buy more. We sit in excess capital, so it was not challenging to make that decision, and we were opportunistic in the market. But I think 1 of the things we said we want to be dynamic in that share repurchase. We showed that in the first quarter.

We're not changing the longer-term outlook on that, but we want to make sure we're taking advantage of different things that we see in the market, and we did that in the first quarter. So very happy to retire 3% of our shares in the quarter, and we'll see what future quarters look like as well.

Operator: We have reached the end of the Q&A session. I will now turn the call back over to Rick McKenney for closing remarks.

Richard McKenney: Great. Thank you for joining us today. We do appreciate the engagement. So we will be out there upcoming opportunities to connect. We would note that our annual meeting will be held on May 21. You can all dial in for that as well or send questions. Thanks for your time. Please do send Tim Arnold a note. I'm sure he would appreciate it. And congratulations to him. And that concludes today's call. Thanks, everyone. .

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.