Unum Group (UNM) Earnings Call Transcript & Summary

We will go ahead and get started here with the next session. I'm pleased to welcome Rick McKenney, CEO of, Unum; Steve Zabel, CFO. Again, thank you for being with us. The session here will be a fireside chat. I'll just run through a series of questions.

And the first one I'll ask is a bit more high level to get it kicked off here. So as the impact of COVID-19 declines a bit and long-term care seemingly becoming less of an issue. How are your strategic priorities shifting? What are you focused on as we think through '23 and '24?

Yes. Thanks, Alex. First, thanks for having us here over the course of the day. We've had the opportunity to meet with a number of investors. We always appreciate that opportunity. And I think that your question is a good one. And if you talked about a couple of those items that we've seen over the last couple of years, certainly, the COVID impacts to the industry, we saw that actually change pretty dramatically over the course of this year. Well, I'm sure we'll talk at some point about our long-term care and what the current status of that is. But I think behind the scenes, continually through the last several years, the team has continued to do a very good job taking care of our customers in an area of the business that we actually think that is of prominence in terms of taking care of people at time of need, the purpose that we serve in the business, taking care of people at the workplace, and doing so with a whole suite of products that we have to take care of those individuals. And if I look over the last couple of years, even through COVID, we were investing a tremendous amount to make better digital connections with employers, with their employees, to ensure that we were there at time of need. And so those strategic priorities were really first and foremost through the period of time, and that hasn't shifted. And so if you think of the investments that we've made over the last several years of digitizing and getting closer to customer, they're really starting to pay off now. Those connections are better. The experiences of our customers and the employers that they work for continuing to be more streamlined. And it makes us very optimistic when we go forward that we've been making the right investments even through a pretty challenging period of time, and that started to pay off. So clearly, COVID has abated over the course of the year, very happy to see that. Even on the long-term care side, we continued to manage that book of business well taking care of our customers, and a rising interest rate environment has helped on that front as well. And so overall, from an enterprise perspective, we feel like we're very aligned to grow the company, and that is our strategic priority as we look to wrap up this year in strong fashion and as we go into 2023.

Maybe digging in first the Unum U.S., the group business. Could you discuss the pricing competition that you're seeing? What does the year-end process looks like around all of that as we get through open enrollment?

Yes. So it's a good time, I think, across the industry. Competition is actually in a reasonably good spot. So it is a competitive environment. We are in a good business, as we will talk about it, but I think other people understand that. So the competitive environment, people are in our space -- are coming into our space, some incumbents, some new players that have gotten in. But I would say, overall, the competitive environment is one of being reasonable. And so that's what we look for. We want to win based on the capabilities and how we deliver to the employers. It's not just based on price. It's about the connectivity that we continue to drive. And so having that full suite of products, bringing that to employers, we actually feel pretty good about how we're wrapping up the year from a sales perspective. We look forward to continuing to grow with our customers looking out to 2023. So that's all we do as for as a good competitive environment. Historically, you can see players that come in, go out, a little bit irrational pricing. We really don't see that today. And so that's a good environment, I think, for all competition, ultimately good for our customers as well, as they can see stability of pricing over a longer period of time.

Can you discuss maybe for a moment the -- some of the macro elements around employment has certainly been a bit of a tailwind for the business? To what degree has that been fueling the growth? Has some of that maybe slowed? What happens exactly with the recessionary scenario? But just help us think through maybe, as that slows a bit, how will that impact your revenue growth?

Trying to take one here -- great -- and Alex, great to be here and great to have everybody here today. So I'll kind of go back to what we saw during the pandemic and through COVID. There's a construct within our premium growth that is both at the employer -- the level of employment, so the number of people employed as well as the salaries are getting paid. and that is a generator of premium growth for our company in the group space. What we saw during COVID was that really abated to just about 0 growth. And when you think about where we were, salaries were pretty flat. People were really managing their employment within their companies. What we've now seen over the last few quarters is that has really started to accelerate. And that makes sense. A lot of salaries going into employers' payrolls, and you've seen higher employment levels. And so we feel good about the impact that has on our premium growth. Normally, going back to pre-pandemic, we might see a 2% type of increment to premium growth year-over-year just from those components of natural growth. What we've seen in the last 2 quarters, that has really accelerated. And this last quarter, that was over 5%. We don't think that, that will continue as we get into next year. We think that, that will slow. But we also think even if we get into kind of a moderate recessionary time, it won't go negative. We still think we'll have positive momentum and kind of a positive influence from those components as we go into next year, but it definitely will reduce over time. We're kind of in a -- we haven't seen this level of natural growth for a long time, and things are really coming together as far as number of employees and salary levels. So it's something that we watch, but is something that we think will moderate as we go into next year.

Your last Investor Day, I think you did go into some of the drivers that are a little more idiosyncratic around initiatives that are fueling revenue growth in Unum U.S. Can you talk about what some of those things are? What are some of the successes you've had there?

Yes. So when you think about some of the investments we made over the last couple of years and where we're seeing growth coming from that, it does get back to the connectivity we have with our employers. We talk about it as HR Connect. It's how do we drive deeper integration into human resource systems, HRIS systems. And I think that, that has been a real enabler to bring. And it's all about ease, making sure that there's ease for those employers and actually their HR departments to enable benefits delivery over time, with a good digital experience ultimately through to their customers. I think that's been a good one, and it's paid off over the last several years. We've been at that for probably 4 or 5 years now. The other one that's coming out in a more rapid fashion right now is around leave management. So when you think about the proliferation of leaves across the country, state-by-state, type-by-type, making sure that the human resource department can deal with that complexity. That's something given our scale, given our digital investments we've made, we think we can help them with. And so those kind of things that focus around taking broader care of that employer relationship, allows us the ability to get closer to the end consumer in the end.

Yes. And I might just -- I'll just cap on that a little bit with what we are seeing in year-over-year premium trends getting back to, what I call more normalized growth rate. Historically, we've talked about it at different Investor Days. We like to see our core businesses grow top-line in that 4% to 7%. Third quarter was the first quarter on kind of a constant currency basis that we were back to the very low end of that range. And so we think it's a good start for us getting back to normalized premium growth rates, and a big part of that is some of the digital investments that we've made throughout the pandemic.

From the leave management, if I go back -- it might have been a handful of quarters now. I remember there was some discussion of some re-pricing that occurred around some leave management. Can you talk about where we're at with that probably here end of the quarter?

Ongoing. So I think that when you think about the delivery to the end consumer, I think price is an element of that. And when you think about a digital delivery -- like many capabilities that are delivered. It's priced on a per employee basis. And so we need to make sure that the pricing is commensurate with the cost. But we've been in the mode of investing. We've talked about those digital investments. We're getting ahead of it a little bit. So now we got to make sure that the pricing is at an adequate level for those individual employers. So that's going to be something that works out over time. We see it as a good tech delivery. But when you think about overall, this is about the overall profitability of the profile. And so when you think about all of our other product lines and part of that glue we created with the end employer, we're able to deliver a really good disability product, great life product, good voluntary benefits. The overall profit profile at an employer level is still quite good, even with those investments.

And disability, the benefit ratio, particularly, I think, for long-term disability came in quite favorable. And I think some of that sounded like -- not necessarily sustainable. But I think there was a part of it that you sort of did communicate was the result of some of the work you've done over time and there was some [indiscernible] to it. So I'd just be interested if you could unpack that a little bit and what to expect there?

Yes. So I think that some of that sustainability -- and we actually had a dramatic change over the last couple of quarters in the loss ratio we saw in that business. As you said, it was kind of in the mid-60s, dropped to the low 60s in the third quarter. We talked about it coming back up from those levels because it is actually beyond our expectations in terms of what that looks like, to in the high 60s, which -- so you're right. Some of that we think will persist. That is really coming from recoveries of people getting back to work after being on claim. There's a couple of factors in that. Number one is our team working with those individuals to make sure that they bring the right data, the right technology and the right empathy to the individuals to get them back to work. And the second piece of it, which we don't know how it will play out is, we haven't dealt with the world that's seen wage inflation like we have through this period of time. And that wage inflation comes into the psyche of an individual. Although it won't fix a situation where there's a disability, it certainly may make them want to get back to work quicker to avail themselves of the wage inflation that they're seeing in their peer set. And also, as a reminder, those disability products are a fixed amount that goes as they go out on disability. So this is a real financial dynamic that might influence on the margin. Once again, it's still about getting people back to work in a reasonable, responsible way, and that's what our team really focuses on.

Next is that, when you -- could touch on some of the ways that you invested in the business? You touched on some of it there. But can you help us think through some of these investments, and maybe more tangibly, like what's being done and what kind of digital capabilities are coming out of it?

Yes, I can hit on it. We talked about total leave. We think that will make us more competitive in the leave management market. And the key to that is, it's not just the leave management services. A lot of employers now, that's at the top of their list of, a lot of the benefits that they want to be provided to them. And so it's really important that we provide a good experience for the employees and their employers. So total leaves a big piece of it. We also talked about HR Connect. But if I can go more broadly than that, maybe focus on our Colonial business, the Colonial brand, that's a voluntary benefit business, lower end of the market. And there's 2 things we've been investing a lot in. One is making our agents more productive, and it's a capability called Agent Assist. Think of it as just a CRM for our agents that helps them manage their leaves, manage their appointments and manage how they engage with the market, investing quite a bit in that, and that's starting to get traction. And it's gotten a lot of traction, frankly, during COVID because it's been even more important for these agents to be productive with their time, to be able to either in person or virtually engage with potential employee prospects. The other -- from a Colonial perspective is just enrollment capabilities. That's a real value add to an employer as well as being able to get more employees at an employer participate in our products. So we've put quite a bit of investment in enrollment capabilities. There's a lot of other providers out there. And so we leveraged off of some of those, but also building our own capability there. So it kind of all comes down to what the experience is for our customers. And some of these capabilities that we're putting in the market, it's very hard for an employer group to replicate that with another carrier. And so yes, it helps us sell upfront. But also if you can give them an experience that makes -- especially as an HR decision-maker, an HR department, makes their life easier just administratively, that's a very sticky client. And the HR Connect capabilities really helps us do that. Some of the portals that we put into place for people to access their information, that's also been very helpful.

I think, Alex, we could go on and on. It's really not a piece of our business that isn't being touched by new digital initiatives, new investments. And so we really have done a lot taking a really good enterprise, and we're making it better, more streamlined, easier to do business with ,and as Steve said, getting closer to the customer experience.

When I think about the expense margins and where they are right now, I mean, to what degree are they impacted by whether it's an acceleration or just a greater focus on this at the moment, versus a more normal just level of [ spending ] that has to occur for you to achieve these kind of outcomes to the business? What does that look like over the next few years? Do you see expenses kind of coming down from that level at all? Or is this an ongoing initiative?

Yes. I would just think everybody back to our Investor Day and some of the disclosures we made there around expectations around expense ratios. We said, going from 2021 to 2022, we thought our overall operating expense ratio would go up somewhere between 125 and 175 basis points. Coming into the year, we thought really the 2 drivers of that would be, one, we were understaffed, as you think about attrition out there with employers. We experienced that as well coming out of '21. So we wanted to get fully staffed. And we thought that would happen in the front half of the year and then carry through the year. The second thing we wanted to do was invest in our capabilities and maybe even increase that spend. What we've actually seen play out in 2022, similar but a little bit different. Our staffing levels took a little bit longer. We feel good about where we are in the back half of the year. But it took a little bit longer to ramp up. We did invest more, and we continue to invest, but then we also saw the pressure on salaries. And so that was definitely an upward driver. Our current expectation is, we should end the year with a year-over-year increase of somewhere in the low end of that range of $125 million to $175 million. That's probably where we'll come in. We do think as we go into next year, that may increase a bit just because we are fully staffed. There might still be some expense pressure around salaries. But then we think '23 will kind of be the peak of that. And then, just through productivity, we will be able to work that expense ratio down. The thing I always go back to is, a lot of that investment and a lot of the people that we employ, they're very focused in our group disability business, which includes leave management. So we have a lot of [ bad ] expense in that business. That business is still earning in the top teens to close to 20% ROEs. So when we really step back, that's an extremely profitable business. We think that the investments that we're making there in both our people and our capabilities are paying off. And so we feel very optimistic about the profitability of that business going forward, and try not to get too hung up on just that one ratio because we look at the overall profitability of that line of business.

Yes. And I would just say, Alex, I think we're going to continue to invest at the same rate, maybe even slightly greater than we have. The returns that we're seeing are very good. And so we'll have to offset that, as Steve says, the productivity, just as we grow the size of the book with some of this premium growth we're seeing, keeping some expenses flat. I think we can manage that. But it is one of continued investment because we think these are great businesses to continue to invest in.

If you shift gears to the investment portfolio, could you discuss some of the changes you've made over the last few years and how you feel the position -- or the portfolio is positioned for a potential rate deterioration credit?

Sure. It's been interesting over the last 2 to 3 years what we saw early on in the pandemic, and I go all the way back to really the summer of 2020. We have a high-yield portfolio at the time. It was probably about 9%, maybe a little under 9% of our overall portfolio. With what rates did during that time period, we saw a lot of bond, calls and that came through as current period income because there's premiums on those bond [ call ] make-wholes. And so that was good in the short term, but did really mature a lot of that high-yield portfolio. As we were kind of looking around then and looking at what we wanted to do with that money, where we wanted to put it to work. At the time, the high-yield allocation just didn't seem to make as much sense to us, if you really look at a risk-adjusted return that you could earn. We actually shifted gears a little bit and started to barbell a little bit, and put some in higher credit types of corporate bonds, but then also looked at our alternative asset portfolio. And so we kind of doubled down a little bit on investing in that. It's a great asset class to match off against our long-term care liabilities. And so we did that. That has paid off very well for us through the pandemic. The returns on that investment portfolio have been great during the pandemic. The impact of that is we're down just below 6% of our portfolio now in high yield. So I don't know that, that was a strategic change. It was more of just what the market did. And then, as we looked at money to be put to work, what the best asset class is, I think high yields have recovered now as far as their relative value. Also corporate bonds obviously are at very high yields right now comparatively. So we'll manage that going forward. But I'd say, other than that, no big shifts through the pandemic. We were just opportunistic as kind of the market met us and we thought about our investable cash flows.

Yes. It's worth reiterating, too. Our -- the credit work is done by our team. So these are our employees in our offices, and I think that they span the entire perspective of credit. So it is a good credit shop. We will get into high yields. When it makes sense -- we'll stay out of high yield when it makes sense. And so we've been very happy with the performance through multiple cycles of the team. And as we look into 2023, depending on what the environment looks like, we stress the portfolio to understand where that might go under multiple scenarios and still feel good about our overall position.

And in terms of the benefit from higher interest rates and new money yields, can you talk a little bit about that? I mean, how do the roll-off yields compare to some of the new money opportunities? And what kind of benefit can that be over the next year?

Yes. I think from a macro level, third quarter was probably the first quarter in a long time where the yields we're able to get on current period investments purchases. Actually, we're at parity or exceeded a little bit with our portfolio rates. So it was a bit of an inflection point across most of our product lines. So from a macro perspective, we feel like we've somewhat bottomed out as far as the portfolio yields, and now we're going to be able to start to build those up. Tactically, what that means, I'll say, specific to 2 main product lines. In long-term disability, it means that we can price accordingly and think a little bit different about the discount rates that we use to set up new claims and just how we think about pricing just generally. So that's a nice tailwind that we have on that product line. And then for long-term care, obviously, you'd have the current period earnings impact. We're able to invest at higher yields. That lags in a little bit more over time as far as our earnings capability. Where it really helps us is when we think about reserve adequacy and we think about reserve requirements, specifically on a statutory basis. As we look out yields at this level, it really mitigates some of the additional reserving that we have to do around our premium deficiency reserve and long-term care. Obviously, that has capital implications and going forward around how much capital we have to deploy behind that line of business.

And so you started touching on it there, but I did want to shift over to long-term care for a minute. Can you remind us of the status of premium deficiency reserve or your approach to funding is? There's been some voluntary funding going on. Maybe we just start there?

Yes. No, that's great. And I know people in the room, how familiar you are with our premium deficiency reserve. We started to recognize that back in the 2018-2019 time period. It was something that was in conjunction with an examination with our main regulator, the state of Maine. And there were 2 or 3 constructs within that premium deficiency calculations that are important. But specifically, we talk a lot about the interest rate assumption. That's a very meaningful assumption. It generates the discount rate that we're able to use in calculating that. We did enter into a resolution with the state of Maine where we were able to recognize the full reserve over a period of time. It was allowed over 7 years. What we've seen since that is, based on where rates have gone and just our capital position, we've been able to accelerate the pace at which we recognize that. And so if you bring that forward to a discussion we had last February in our Investor Day, we talked about different interest rate scenarios, and really what that ultimate premium deficiency reserve would be, and then what's implied in there as a related capital requirement. And happy to say, as we sit here today with interest rates, we're favorable from one of the better scenarios. Back then we said we may be able to fully recognize the premium deficiency reserve as early as 2024. We still feel very comfortable with that statement. And I just think we have a lot of flexibility with the timing there. The other thing that we did along the way was we had suspended share repurchases during the pandemic. We reinstituted those in last fall and feel really good about deploying capital jointly behind our LTC balance sheet and that line of business as well as the point it's back to shareholders through share buybacks. And we feel comfortable with that strategy going forward, and we'll make a few more comments about that when we get to Investor Day. But we think it's been a good prudent strategy to benefit our shareholders directly, but also bring more certainty to the LTC line and what the future capital requirements might be there.

And I think at different times, you've made some comments around some of the underlying assumptions of that PDR, and in particularly some of the morbidity assumptions and so forth that -- there's a layer of conservatism that seems to be included in this relatively new reserve requirement.

Right.

Could you give us a feel for what does that looks like relative to your actual experience? And I know we've been going through a pandemic favorability. It might not be exactly comparable, but any way to give us -- a feel for how much better that's been running?

Yes. I would say -- I'd just go back to some of the comments we made through the pandemic, and I think some of the specific assumptions where we did have this agreement with our regulator. One was around [ older age ] mortality and the assumption we used for that. And the other is around morbidity improvement and how we reflect morbidity improvement. Specific to incidents and on the latter issue on morbidity improvement, the state did agree with us that our experience would support it. It was just a period of time that we're able to incorporate that into the reserve assumption. We have it in there for 20 years. They had it in there for 10. I would say then if you step back and look at our experience throughout the pandemic, we feel good about the underlying assumptions that we have in that reserve. It is really difficult to parse through both on mortality levels as well as incidence levels, how the pandemic really impacted that and what the ramifications may be to our longer-term assumption set. We haven't changed it. We haven't seen anything through the pandemic that would require us to change it. But we do -- we look forward to seeing maybe a more regular environment to see what our experience is going to look like playing forward. And so we have that EBITDA on an annual basis. We go through a pretty rigorous routine on an annual basis. And we're getting through that for our statutory reserves this year and feel good about that. We finalized that in the third quarter for our GAAP reserves and made no changes to those assumptions.

While we're on long-term care, what's the latest view on the market for closed block transactions that's gotten more attention from investors in recent years? There's, some transactions that started to make their way into variable annuities. Are we likely to see that sort of thing start to be in the long-term care then?

Yes. I think it's -- I think we will see it at some point in time. The question is when, when you think about these types of transactions. And as you planning the picture, there are -- there is capacity in the market for reinsurance transactions of different type of liabilities. I think it started with simpler liabilities that the capital is coming to the market for. You've seen multiple transactions on that front. The liabilities that they've looked at have gotten a little bit more complex as we've seen some variable annuity transactions in that type. And even our own individual disability transaction we did back in 2020, we would have -- if you look back 5 years previous to this, it wasn't a market for that. And so time helps, because it starts to bring the data sets together for both buyers and sellers of those blocks of business. And when we think about long-term care, it is a little bit more complex. But if you get the right people on the buy side, they go through and understand the complexity of the risks, more data that's being developed year in year out, and then our propensity to want to sell that block of business. I mean, there will be buyers meeting sellers at some point. I think the biggest thing is that the data is continuing to get deeper and deeper just with aging in this block of business. It is a block of business that as history only goes back into the '90s, effectively. And so that data set is supposed to build out, as Steve mentioned, and that older age mortality is really a big piece of that type of discussion. So I think we will get there. It's a question of time. I think we've been very clear to say that there's nothing imminent on that front from our perspective. We are preparing ourselves for that, understanding our own perspectives on the block of business, talking to counterparties, and getting the 2 of us together will be something we'll continue to focus on. But it's really hard to predict what timing might look like on that front.

As we get closer to being fully funded on the LTC, just going to open up more opportunities for you in terms of the amount of cash flow that you have to work with coming off your business. How do you envision distributing that capital, or maybe redeploying is a better word -- in terms of returning to shareholders versus investing more in the business, organic growth opportunities in M&A?

Yes. So I'll take you back actually a little bit in terms of what's happened from a capital generation perspective. We've been incredibly happy over the course of this year how that has changed. And we're really back to our run rate of capital generation that we would have seen prior to the pandemic. Certainly, the number of COVID claims that we paid out, put a dent in that through that period. But that's our purpose. That's why we're here. And so we kind of moved through that period of time. And 2022 was a time where our capital generation was back on the run rate that we would expect, and we see that going forward. So really happy about the capital generation. As a result of that -- and we slowed down, as Steve mentioned on the share repurchase front. Previously, we've seen our capital build up. So in the last couple of quarters, we've seen RBC levels up over 400%. We've seen hold the company cash pushing up over $1 billion. We've been in a very good position. So what we're thinking about as we look forward is, you have started, as Steve talked about the premium deficiency reserve. As we were putting money towards restarting our share repurchase program, we put more money into accelerating that PDR reserve. We think that's a good and prudent use of our capital today. So we have that -- still work through that premium deficiency reserve. It's going to continue to consume capital. But we do so from a position of strength, and we're really looking forward to that period of time as we get beyond that and think about the capital deployment. When you think about capital deployment, even today, as we talked about some of the investments that we're making, we'll continue to do that. We think the organic growth in this business -- and fueling that is something we never slowed down on we won't. Given the type of returns that we see in our business, core growth is paramount across all of our teams. And then we'll look at M&A to help [ supplant ] that, think about capabilities that we'll buy, to help us to connect more closely with customers, and we'll continue to invest in those. So those are the big things where we'll put money first, share repurchases we're doing today, funding the PDR. And then I got the fact that we're paying dividends and have increased -- our rate of dividend increased 10% the last couple of years. We think that's an important way to return some of this capital to shareholders. But I think over the course of the year, things changed dramatically in terms of our ability to both generate that capital and the options that we have to put that money to work.

Alex, I think it's also important that, as we go into the year -- you can put the math to some of the sensitivities. And sometimes you fall into we're going to be there tomorrow and that's not really how the calculation works, given that it's a trailing 3-year kind of weighted average of what prevailing market rates are. It's going to take a good part of next year for that to work its way back into the formula. And so during the year, we think it's smart to continue to build our balance sheet. And then, as we get through next year, we'll have to think about what our options are.

It's only a few weeks left under the new -- under the existing accounting regime. We're awfully close to moving to this new accounting. So just be interested to hear how the final stages of that are going, moving over to it. And if there's anything that we should be keeping in mind, whether it's around some of the numbers you've given us on the transition, or anything else that you think maybe we should consider as we're learning to analyze these new financial takeaways?

Yes, good luck. That is going to be a journey for all of us. But now I would make a couple of comments. And I think about LDTI implementation in really 3 main buckets. And I'd say we're working our way through each of those 3 and hopefully getting people more comfortable as we go. The first is just the initial impact. We've disclosed that for some time. It goes through AOCI, and it's really AOCI, and it's really driven by the differential between the single [ A ] discount rate, prevailing market rate, and the balance sheet date and how we think about our investment portfolio. And so the initial impact we had estimated is a pretty large number. It was in that $6 million range. What you've seen since, and we've continued to update that really using current market rates and pushing it back to the adoption date. It was down to $0.5 billion to $1 billion, the disclosure that we made at the end of September. And so you can see it's unbelievably volatile and doesn't really match up with what our investment strategy is. So I think the markets have kind of absorbed that and understood that. I think the rating agencies have too. But that's not really something that you could -- you should take into account of the value of the franchise and that, that volatility says anything other than we're moving our liabilities with a spot rate that can be very volatile. So that's bucket number one. I think, hopefully, we're through that. Bucket number 2 is impact on ongoing earnings. We've started to make some disclosure on that last quarter -- in the second quarter. We started to talk about the qualitative impacts and kind of the categories that we think that impact will be, whether it's amortization periods, whether it's kind of the buffering of volatility in our experience, whether it's runoff of reserve margins, those have remained consistent. We took the next step forward in the third quarter and gave a directional read to what our earnings might look like under the new basis. We commented on 2021, completed our recast there. And we made a comment that, that's net positive to us as a company. We do think based on what we're seeing, that that will be pretty consistent for 2022. We're not speaking to the future, but we're seeing pretty consistent outcomes for those 2 years, and we think that's going to be, frankly, a fairly moderate impact to earnings itself. So that's the next step is being able to talk to the market as we come out with our guidance next year where we think EPS is going to be under the new basis. But that's directionally what we're seeing. And then the third step is going to be disclosures. And I don't even want to go there right now. But that's something that we're going to have to get into, as we start to make new disclosures as part of our 1Q -- or our first quarter 10-Q. So that will be kind of the next step of the education process.

Yes, Alex, if I could add one thing to that too. I just -- I know they're going to be listening back in the home office. The team has worked on this has done a tremendous job of preparing us for what it's going to look like. And so I just want to give hats off to them. They've worked hard on this for over a year, getting us ready. We're ready, and we'll take you through it. So looking forward to taking the market through the understanding that it will provide and some of the flaws and everything else, but we'll be ready for it.

So maybe for the last question. What do you see as the key opportunities and challenges as you look forward over the next year?

Good broad question, a good way to wrap it up. Our opportunity is about growth, and it is about connecting with those customers, bringing those good digital capabilities, and doing so in a deeper way than we have even in the past. And so that opportunity, as you think about our overall profile, both on the group benefit space, wrapping around that services that actually can help those employers, combining that with a really powerful Colonial Life franchise, that's getting out there and talking to smaller employers face to face, helping people get protected. That's the opportunity. And so I think -- the challenges, I think, are clear, but I think insurmountable in terms of what we've got ahead of us because those challenges are the same opportunities to get after. So we're really looking forward to 2023. We think it's going to be a good year for the company, and we look forward to taking you through.

Great. Well, thanks again for being with us. Thank you, everybody.

Thank you, Alex.