Unum Group (UNM) Earnings Call Transcript & Summary

Good morning. Welcome. I'm Matt Royal, Head of Investor Relations at Unum, and we appreciate you joining us for the Unum Group 2023 Outlook Meeting. Our remarks today will include forward-looking statements, which are statements that are not of current or historical fact. As a result, actual results may differ materially from results suggested by these forward-looking statements. Information concerning factors that could cause results to differ appears in our filings with the Securities and Exchange Commission and are also located in the sections titled Cautionary Statement regarding Forward-Looking Statements and Risk Factors in our annual report on Form 10-K for the fiscal year ended December 31, 2021, and our subsequently filed Form 10-Qs. Our SEC filings can be found in the Investors section of our website at www.unum.com. I remind you that the statements in today's meeting speak only as of the date are made, and we undertake no obligation to publicly update or revise any forward-looking statements. A copy of today's materials can be found in the Investors section of our website, and a presentation of the most directly comparable GAAP measures and reconciliation of any non-GAAP financial measures can be found in the appendix. I would like to also point out that in 2018, the Financial Accounting Standards Board issued accounting standards update 2018-12 targeted improvements to the accounting for long-duration contracts. This update significantly amends the accounting and disclosure requirements for long-duration insurance contracts. We will adopt this guidance effective January 1, 2023, with changes applied as of January 1, 2021. The following outlook discussion includes considerations of the impacts of this new accounting standard to projected future operating earnings. However, historical results do not reflect the impacts of ASU 2018-12. Moving now to our agenda. We have 2 sections for today's meeting, beginning first with opening remarks and an overview of the company from Rick McKenney, Unum Group's President and Chief Executive Officer; then Mike Simonds, our Chief Operating Officer, along with other members of our management team will discuss growth strategies, including segment outlooks. We will then take questions on those sections from the in-person audience. Following a brief intermission, the second portion presentation will focus on the financial performance and strength of our franchise, including hearing from Martha Leiper, our Chief Investment Officer; and Steve Mitchell, President of the Closed Block. Unum's Chief Financial Officer, Steve Zabel will then provide updated guidance as well as updated capital plans and outlooks. We will conclude the presentation with a second opportunity to field your questions and ask that questions on our financial plans be held for the second session. When asking questions, please announce yourself first by stating your name. Now let's turn to Rick for his opening comments.

Great. Thank you, Matt. Good morning, everyone. It is really good to be here with all of you today. Very excited to take you through the story of the company. We'll take you back a little bit, take you forward certainly and give you a sense of where Unum stands today. I'd also recognize this is the first time we've been in an in-person presentation like this since December of 2019. We're very glad to be doing that here in person. We're also webcasting today, so people can be listening in their workplace or at home. So a big welcome to everybody. Good to have you here today and what we've got. As Matt talked about in the agenda, I mean, think about this, we're going to take you through a little bit of history. This is a moment. Every quarter, we could take you through what's happening in the current -- we want to take you back a little bit, take you forward a little bit more than we usually do to give you a sense of what's going on in the company and certainly get all your questions as we go through it. So let's talk a little bit about who Unum is today, what we're doing. When you think about our company, a highly purpose-driven company that we have, we're going to talk about the multiple cycles that we go through, the resilience of our business model and where we're able to continue to deliver for our customers, deliver for our employees and deliver for our shareholders. Coming out of the pandemic, where we sit today, we are in a stronger position than even where we entered it. So you would have seen this year or 2022 year-over-year earnings growth of 43% as we came out of the pandemic cycle and into strength, and you saw that actually throughout the course of 2022. I think good news about that as well. If you went back to the meeting we had about a year ago, about a year ahead of what we expected from returning to our growth trajectory. And so I think that when you think about the company longer term, Steve will take you through that, but we're very happy about where we are today, but also equally as excited about the growth trajectory we have over the next couple of years. And part of that is fueled by a very strong capital and cash position that we'll take you through. Currently today, the uses that we're going to have for that over the course of 2023 as we look forward and continuing to be able to deploy that capital in a good way for our company and for our shareholders. Steve Mitchell will talk about the Closed Block today in some more detail. Certainly, something that we've been talking about over the last several years. His comments will refer to how we position that block today, the opportunities that we have to unlock value in that block and where we see it going over the next several years. And I think a big part of today is going to be talking about the future. 2023 will start out with. We have the ability to continue to grow the company in a very strong way. So we're putting out there this year, our expectation is to grow earnings per share 8% to 12% off of last year's basis. We're also going to fully recognize the long-term care premium deficiency reserve by the end of this year, which I think is an important step that we're taking around the surety in our Closed Block. And then last piece is we're going to increase the run rate of share repurchase that we talked about going into the end of the year. We were at $200 million per year. We're going to elevate that run rate in the second half going to more of a run rate of $300 million a year. So very excited about the -- what we're going to take you through today, a lot of detail. And I think what's really different today is very excited about Mike and the rest of the senior team here being able to talk about our operations. talk about some of the details. The things that we can't get to in an earnings call on a quarterly basis to take you a step deeper. And so you can see the strategy and the investments we've made over the last several years coming to life. So I'll just start with all of you that are not as familiar with the story to give you a quick snapshot of who Unum is today. do it from the financial side. You can see roughly $1.25 billion of earnings that we have on a revenue base of about $12 billion, a circa Fortune 250 company we have today, and we saw good earnings last year. return on equity of around 11.6%. And then the book value per share, which we've continued to grow, and I'll show you a slide in a minute, we've consistently grown that through multiple cycles to a current book value per share ex OCI of $60. So a very strong financial position as we enter 2023. On the right-hand side, you can see the breakdown of the $9.6 billion of premiums that we generate today across our distributed franchise. When you look at that premium distribution, we do originate all of this at the workplace and through the workforce. And so it's something that's key to our overall strategy to do that, whether it's here in the U.S., across many of our group lines, our voluntary benefit lines Colonial Life in the U.S., the agency force. You'll hear more about that today from Tim. And then our Closed Block and then finally, our International segment that we have I am very happy that Mark Till is over from the U.K. to talk to you about what's happening in the U.K. as well as our Poland acquisition that we did a number of years ago as we continue to grow that business. So those of you new to the company, we're very good and diversified stream all at the workplace and do so in a very disciplined way. Importantly, when we talk about the company is talking about our purpose. And so we spend the time whenever we're talking to our employee groups, and we'll do it here as well to talk about we have a very strong purpose as a company, and that's helping the working world thrive throughout life's moments. It really comes to life when you think about the culture of the company, what we do, who we're there to protect. And last year, we paid roughly $8 billion in benefits of people at time of need. We take great pride in that. Even if you look back through the pandemic, we paid over $750 million of life insurance plays to families at time of need, and that's a sense of pride in the company, which I think differentiates us taking us forward. We also think about the 45 million people that are on the books today, making sure that we're there for them, serving them well that when they may run into a certain set of events in their lives that we're able to take care of them. We do that through 180,000 companies that we have. So across the U.S., ranging from companies of 10 employees to companies of tens of thousands of employees. And I think that, that's really good that our different distribution channels that you'll hear about today can reach employees wherever they may be. And I think that's exciting when you think about the opportunities to continue to grow the number of companies that utilize our benefits. And then lastly, 1 of the sense -- sources of pride over the last year, and it has been in the company in the last 30-plus years, is on the disability side. It's helping people get back to work. And Mike is going to take us through some details of our group disability business, but that's how we think about it. It's about getting people back to work, taking care of them at time of need and making sure that we can help them fulfill a good and stable life. So let's talk about the market need. And I'm setting up the background to this when you can think about where we participate in the markets today, the strength that we have and where we're going. The first is when you think about the U.S. today, true in the U.K. as well, people are living paycheck to paycheck. And this is the working world are living paycheck to paycheck. And oftentimes, people cannot come up with $500 if they have a need. And when you think about what can happen to anyone, as we went through the pandemic would have been a good example, but there's many, many small examples then when people have a child who breaks an arm when people actually get sick for an extended period of time. They're on able to make ends meet. And we want to be there to help them, and that's what the protections we do take care of. The second is the fact that we like to raise around our disability business is 1 in 4, working Americans will be disabled in their working lifetime. And that's greater than 6 months. And it's a staggering fact that we bring out there. And I think the good news is that we are there to serve those individuals. It's something we look to make sure that we're protecting as many people as we can. It can be in our group disability business. It can be our shorter disability businesses as well as our voluntary benefits to take care of those needs. And then when you think about also back to that financial fragility, people are in high deductible plans today. Sometimes those gaps are $5,000, $8,000 of deductibles that people have to infill, out of pocket expenses. And that's where all of our products help to fill in those gaps for people when they run into some unforeseen circumstances. One of the things we'll talk about a lot today too, is at the workplace, Leave is becoming a broader and broader topic. And we want to be there to serve really the workforce and including the HR departments that are helping to administer this because 1 and 10 people is out on leave at any given time. And it's a real need that our customers have at the employer level and at the employee level and we want to be there to serve them. So overall, when you think about the market need, it is strong and growing. Mike will talk a little bit about that today. It changed a little bit of trajectory through the pandemic, and we think that's going to play positively for us. The other piece that's important for our company is we only operate at the workplace. And when you think about it, it is the best place to distribute protection products that we have out there. Starting with the employee. The employee looks to their employer as a person of trust as an organization that they trust to help source the right benefits for them at the right prices. If you think about the disability market today, 90% of all disability is actually distributed through the workplace, sometimes invisibly or I should say, less visibly to the end employee but still critical. Also, almost 80% of life insurance is also distributed through the workplace. So that's where people are getting their benefits, often it can range in all sizes of face amounts but very important. Today's world, the employer is looking to help attract and retain. So that's never more -- been more acute than the last 18 months. And so when they think about that, their benefits package matters a lot. They certainly are having to compete on salary, but making sure they're attracting the right people, retaining them and being competitive from a benefits perspective is where we come in. It's also the workforce management. How do you get, as I mentioned earlier, people back to work, do so in a reasonable way, make sure they're taken care of. And so that workforce management piece is where we come in. And then for us, it's actually a very good business because you think about the economies of scale that we can provide, how we can connect with those individuals very seamlessly through the digital platforms that already exist at the workplace. We're able to pool the overall risk of an employer when you think about that. And so then ultimately, we can educate and bring people to understanding what our benefits are. So we think the workplace is the really the best place to distribute these type of protections. And that's where we play, and that's where we solely play. And I think that's important when you think about Unum as an overall enterprise, whether it's in the U.S., the U.K. or even in Poland. The last piece I'd have when you think about the background, trying to understand what Unum is, is we are about doing the right things the right way. When you think about it overall, from an ESG perspective, we don't have a large environmental footprint. We do have a large investment portfolio. So we have signed on for the principles of responsible investing. But when we think about that, it's really much more about the S in ESG and making sure the social benefits that we have, taking care of those people in need is a real differentiator for what we do in taking care of people's financial security. And obviously, we have to run the company away through governance that is leading in terms of the practices we bring to life. The right-hand side of this page actually tells you things we're very proud of. We were very proud to be recognized as 1 of the world's most ethical companies as well as taking care of our employees and our workforce in a different way to everyone. So it's a company that does things the right way. We take it very seriously to manage all things across the business because we think we can have a very good business across all fronts. So let me take a little snapshot in terms of where the company is today. And so when you think about -- we don't spend as much time on this, it's really important when you think about the leading positions that we have today. And this matters a lot in terms of the scale that we have, the know-how we have as we go to market and talk to our customers, that they know us as a leader. Our Unum brand, our Colonial Life brand may not be day-to-day brands, but when you talk to the employers that are out there, they look at Unum and as Colonial Life as leaders in this space, and that's a position that we take very seriously and that we want to continue to foster. When you think about what's going on in the markets today. So first, let's start, and this is looking back probably the last 5 years. group consolidation has happened. So you think in the group space, you've had some carriers that have sold out, health care companies that have sold their position, others. And I think it's actually a good thing for us overall because -- you've had those go to incumbents that have been doing this business for a long time, and I think a competitive environment is fine. I think you just have to make sure that it's not an irrational competitive environment. And that's what we've seen. And as long as we continue to see a good competitive environment, I think it's good for our customers, it's good for us, and it's good for our industry. On the voluntary benefits side, we've seen an influx of people of players of carriers that have gotten in to try to expand into the voluntary benefits space. It's incumbent upon us to make sure we are a market leader, continue to invest in that business. We'll hear a little bit more about that today in a few minutes. And then solutions and services, I talked about leave management those services are critical to employers to make sure that they can get to their customers in the right way. And that's a big part of what our agenda is today is to talk more about those solutions and services that are making a difference to employers. So lastly, I'd say, if you talk to Mark Tilt in the U.K. The U.K. market is growing in this space. When you think about the protection needs, the recognition of our products in the U.K. and in Poland has actually increased through the pandemic. And so I think it's a good time in the U.K. to be in these markets to participate and Mark will take you through some more of that. So I'll take you back on 2 fronts. One is the resilient business model. And so we oftentimes are looking forward working quarter-by-quarter. I think if you look back over the last 10 years, you'll see a business model that has done well through different cycles. So on the left-hand side, you see core operating premium. When you think about that, we were growing at about a 5% premium growth rate through 2018, got into the pandemic, and we actually grew every year in the pandemic. And when you think about our business model being at the workplace in an environment that was quite volatile, actually continuing to grow our premium line, I think, was very good through that period of time. And now we are reascending into an escalation of our premium growth that we were accustomed to in the earlier days, but it just goes to show the resilience of the business model, the hard work of our teams out there, the good work of our employees, taking care of customers at time of need. Through that period, our persistency rates remained incredibly high, and they did a great job. The second is the resilience of the company from the overall strength perspective. Our book value per share has grown in every period as you look over that over the last 10 years, roughly doubled in terms of what our book value per share has looked like. This has been steady over a period of time because of the resilience and the diversity of our business model continue to weather storms, including through the pandemic, and we feel very good about where we are going forward. So that's a little bit of history to talk about the strength of the franchise as you go back, and it also comes through from a capital perspective. So we ended 2022 in an incredibly strong position. RBC levels that we haven't seen before, up over 420 that we saw in the fourth quarter, cash at $1.6 billion, and then leverage has actually come down pretty dramatically over the last 5 or 6 years to around 23.5%. So very happy with the strength of our capital positions that we have today. As a result of that last year and over the last couple of years, we've increased our dividend 10% every year. And we've paid $255 million in dividends to our customers. That's in conjunction with buying back stock, which we started about 18 months ago, buying back shares at a rate of about $200 million per year. 2023, Steve will talk about this a lot more, but I think there's a real strength as we go into it with ample capital we have. We'll look at the dividend again as we continue to do as we have done in previous years. That will be part of the agenda over the course of this year. We're going to increase the run rate of our share repurchase from that $200 million to $300 million, and you'll see that start in second half of this year. And I think importantly, we're going to fully recognize the premium deficiency reserve in our long-term care books well ahead of schedule by the end of 2023. So I'm going to wrap up this section as we get to others to talk about it. It's actually quite a simple story when you think about it. Number 1 is grow our core operations. Growth is paramount, having the top line grow, doing it in a disciplined way will translate to the bottom line. LTC is an area, which Steve Mitchell will talk to you today about, about the work that we're doing on LTC to manage that book of business as we continue to see it grow over time and mitigate those risks, which have caused in the past market concerns. And then ultimately, we will return good value to our shareholders through dividends and share repurchase, and we look forward to taking you through some of the details today. Like I said, this is a little bit different meeting. We're going to go a little bit deeper. We're going to get into some of the details, some of the excitement. I hope as you get through this today, the materials went out last night, but I think as you start to see our team take you through it, you'll see an excitement about what 2023 and beyond looks like you'll see the facts that stand behind that and make that a reality as we work through it. Plenty of hard work to do. The team is up for it, and we're really excited to take you through that today. I'm going to be back up for Q&A, but I will turn it over to Mike Simonds, our Chief Operating Officer, to take us through the next section. We're going to stop there. You're going to be tempted to actually ask a lot of financial questions at the end of the section. I'd ask you -- let's talk about the operations in this first section. We'll have plenty of time to get through some of the financial questions that you have in the section. So let me turn it over to Mike. Mike Simonds, our Chief Operating Officer.

Thanks, Rick. All right. Are you guys ready to have some fun. We're going to talk. Thank you. Steve Courtesy laugh. I appreciate that. We're going to talk about this first bullet right here about growing our core. And I think we've got a pretty exciting story to tell. I'm going to talk a little bit about the market context and how that context is presenting some tailwinds for us, talk a little bit at a high level about our strategy across core operations before turning it over to our very capable team of business leaders. If there's 3 things in this section, I hope you take away from it, they're pretty simple. The first is that we operate in very attractive markets with sustained and, in many cases, growing demand for our products and services. The second is there's rapid change occurring amongst our client base when it comes to cloud-based HR technology and the prevalence of these cloud-based systems are providing a significant catalyst for our growth. The third is really around that piece about growth that Rick was talking about is what you'll hear across the businesses is that we have very, very healthy franchises and really strong and well positioned from a return point of view. The focus is primarily on growth. And while we're growing to be sure that we have that underpinned with strong risk management and operating expense discipline. So growing demand in markets, there's a lot of info on this page. I'm just going to take you through 3 points. The first is that as hard as it is to believe, maybe admit for some people in this room, myself included, millennials are now the largest part of the workforce. And what's interesting when you think about how those folks have come into the workforce, what their history is, they're attuned to the importance of benefits. So you see here 47% would say benefits at the workplace importantly, are more important than they were pre-pandemic with another 50% saying they're at least as important. So you've got an overwhelming majority saying that these benefits are really important. So that's point one. Point two is, I think there's really good reasons to believe that what we've experienced recently around the mismatch between supply and demand for labor, business cycles, notwithstanding the demographics would tell us there's going to be tightness in the labor market for skilled labor, in particular, for a long time to come. That is a very good time to be in the employee benefits business. So if a shortened number of workers value the benefits, the pressure on employers to do the right thing and be sure that there are good benefit options in place is only going to grow. And as it grows, there's room for it. So if you look on the right side of this chart, you can see across different size segments, small, mid and large employers and across different product categories, there is still room for the industry and for Unum to grow. And in particular, if you look at the small and middle markets. There is a big opportunity to increase penetration. So when we think about that from a market context, I would say having demand there for our products and services is a necessary but not sufficient condition for us to grow. The second piece is you have to be able to fulfill that demand in an efficient way. And this gets to my second point around what's changing amongst our client base, and this speaks to the HR technology. And so think about these human capital management platforms growing rapidly with projections to continue to grow at a double-digit rate for the foreseeable future. What's happening there in the middle and large markets is employers, HR teams are making decisions. And what they're doing is they're unwinding and they're moving away from on-premise generally customized HR software, and they're moving to cloud. And why that's important is it is very hard to integrate as a benefits provider with a single instance custom on-prem HR, so it's point to point, every employer is a different integration. As they move to single instance on version cloud software, your Workday, your UKG your ADP Workforce Now, now all of a sudden, you have the opportunity to build your products and services into those ecosystems. And the efficiency that you can get to those clients, get to them number 1 and get down into them in the case of voluntary to the employee is significant. And it's really the pairing of those 2, growing demand for the product and a real catalyst around HR technology that we I think gives us a lot of confidence that the growth we're beginning to see in our businesses is sustainable. And you're going to hear from Polly, who runs our solutions business about our HR Connect services into these HCM platforms in that middle and large case market. And in the small end, you see over here, 95% of small employers are still using paper. So they're not moving from on-prem solutions. They're moving from very basic and manual process. And Tim Arnold is going to talk about a proprietary platform that we're taking out through 12,000 Colonial Life agents, again, targeting that very underpenetrated market in a scalable way. So you take technology advancements and think about our strategy technology and that expanded reach and that efficient reach enables our sales and distribution teams to get more productive and increase their reach. It enables us to deliver superior experience both to the HR team as well as to their employees. And then Mark is going to talk on the international front about how the broker experience and adds to our value proposition are also going to fuel our growth internationally. A lot around new capabilities behind our growth. And the investment you could see on the left side, without getting into the specifics of all the numbers, this has been a big focus for us starting pre-pandemic 2019. That's a doubling by the time we get to this year's budget and our plans and what we're going to spend in 2023. So a very significant and sustained commitment to transforming our business and taking advantage of what's happening in the market to fuel our growth and fuel our growth in an efficient way. And Puneet is here, and I know it's going to be here for lunch as well, our Chief Technology Information and Digital Officer. He could tell you that, that spend -- some of it is going out the door in terms of payment to software companies and licenses, but the majority -- the vast majority of it is people. It's people that we're bringing into our firm to help us grow and develop. And the majority of those people are coming in with new skills. They've got backgrounds in the technology, the digital, the AI, really rethinking how we run our processes. But importantly, and you can kind of see it here, and I think this is a little bit of our special sauce. More and more often, what we're finding is that we are retraining our existing folks into our change in technology functions, fully 1/3 of them in 2022 came from other parts of the company. I think that's a really important mix. Rick has talked about. We have a long legacy. We are very focused. It's kind of unique for us. We're exclusively focused on financial protection at the workplace. So we've got deep expertise around the channel, around the products, around risk. And when you combine really good outside expertise with really deep understanding of the domain, I think that enables us to move faster and deliver capability a lot more effectively. And that shows up in terms of the growth outlook that we have for the business, the momentum we've built. It also shows up in our risk management and operating effectiveness. So I'll just hit on those 2 very quickly. So disability risk management. The left side, and again, Rick hit on some of this, but you see leading market share, and we've been leading market share for a good amount of time when you think about different disability products in the U.S. and the U.K. And you put it together, it's the biggest book of disability outside of the United States, Social Security disability administration. So what that does is it gives us a data set that's really unparalleled when it comes to disability risk. And what we've seen and what we've talked to you each quarter through the pandemic when it came to disability is we saw incidents move up with the pandemic and particularly around environmentally sensitive claims, diagnoses like behavioral health. And as we got through the first part of 2022, we started to see that claim incidents begin to decline. And by the time we had gotten through the end of last year, it had really returned to pre pandemic levels of new claim incidents. And as we look forward into 2023, we think that that's a really reasonable estimate for us. And most of our long-term disability is going to come first through short-term disability where we've integrated those coverages. And we look at short-term disability and there really isn't anything showing up there that wouldn't suggest that this sort of pre-pandemic level of incidence is reasonable. The other thing you see on the chart up here is recoveries and a pretty healthy and sustained increase in our recovery rates. And that was what Rick was talking about, our that are working with claimants to help them return to work, help them return to a more productive lifestyle. And while we wouldn't project a continued increase in those recovery rates in 2023, we feel comfortable again that the investments that we've made put us in a pretty good spot to keep helping our claimants return to work at the same rates we achieved as we got to the end of 2022. So you put those 2 things together, moderated new claim incidence rate that's back to kind of historical norms, improved and sustained higher levels of recoveries, and it puts us sort of in the mid-60% range for a disability loss ratio. And as you would know, that's a little bit lower than what our long-term targets would be. And so like we've talked about, over time, that will come through an experience at renewal pricing and new business pricing in the next couple of years. I would expect that will revert back up into the high 60s, low 70s. But for 2023, the mid-60s, I think, is a reasonable, reasonable estimate. The other key driver for us over time will be operating effectiveness in the expense ratios. And in general, we did what most good firms did through the last 24 months, which is make investments in wages to be sure that we're retaining good talent and kept up with market. We also started to see sales growth really accelerated through the back half of the year. And so we need to staff ahead of that to be sure that we're ready to serve those customers as we implement many of them on January 1 of this year. So that, along with the technology investments, several of them, which are behind that solutions business, those are investments that we're making, and those have had the result of driving up that expense ratio. We anticipate here in '23 that we'll now get that full year of those salary and staffing increases that we made, but that will peak here in 2023, and our expectation is actually sort of toward the early mid-part of the year and we'll be on a downward slope over the next couple of years. as things like investments in digital, investments in AI on our claims team side, total leave is a big example, Polly will talk about as we move our existing leave and short-term disability business to that new platform delivers a better experience and a more efficient unit cost. So it will take some time, but we do see this as a tailwind over the next few years. You put it together, I think a favorable market condition to be a focused employee benefits player that's made significant investments in talent and in technology. We see sales growth in that 8% to 12% across core operations. Premium, think about sales are always going to be leading on the upside. So premiums is clicking up here in the 3% to 5% range. earnings in the 10% to 13%, and we think is industry-leading returns with an ROE in that 17% to 19% range. So there's a lot to be excited about. There's a lot to feel good about here in 2023. And I think this team here on the left deserves a lot of credit for that. It's a really good team. Rick, I think it's safe to say we're very biased, but we do believe we've got some of the best leaders in the industry. But I'd say, importantly, it's also a team of diversity of background that's been in some ways reflective of the path we've been on at Unum that I was talking about earlier. So we're going to have Chris Pyne and Tim Arnold, Chris runs our group and individual business at Unum U.S., Tim runs our voluntary Colonial Life business, each has over 30 years of experience with the firm, different. Chris came up through distribution, knows the market inside and out and has done a bunch of things since Tim came up more on the risk side. So deep experience in underwriting and in disability claims management. But it's amazing to have people with that depth of experience. Paired with Polly and Mark that have a total of 5 years with the firm at a little less than 5 years with the firm, Polly runs our solutions business comes to us with a background in HR technology and services. And Mark Till comes with deep financial services expertise in the U.K. with a lot around marketing and strategic growth, which you'll see come through. So there's a really nice blend and I think has really helped us as a firm move forward through this cycle and take advantage of what's happening in market. They are different in a lot of ways, even their personality is a little bit different. See if you can pick that up in their remarks, but they do have some things in common that are really important. Shared values around -- or we are Unum values, a real focus on customer, real focus on employee and pretty relentless in terms of pursuit of profitable growth. So I've talked to you guys up. Let's see if we can deliver. We'll start with Chris Pyne, Group Benefits.

Thanks, Mike. It's great to be with everyone this morning. We're really excited to talk to you about all the things going on at Unum. I will focus my comments on Unum US. And it starts with the fact that we just have an exceptional team and a very, very tight focused strategy, and we're coming off a very strong year. And we believe we can carry that momentum into the future. So we come in with confidence. I'll give you a little bit of background. Maybe I'll advance that slide. Give you a little bit of background on our business. We provide employee benefits, and we do that in all market sizes. We're very focused on both employer and employee funded products and services. We put them together in ways that make sense for our customers. We have great relationships in the brokers and consulting communities, and this is a real strength of ours. We have added significant focus to technology platforms that are important to those customers and distributors to make sure that we're doing things in the most effective, modern and efficient way for the benefit of our customers. You'll hear several themes this morning in our comments. First, we have built a $6-plus billion business with market-leading products and services. It's really important to remember that the products we bring to market do a great job providing financial protection. Ultimately, that is what is most important, getting products to the right place, the right people and then having them do their job at time of need. But we do that with an eye towards a huge accelerate, which, as Mike pointed out, is this technology world we're living in to make sure we understand what's important to our customers, what's important to their distributors, and we're matching up very effectively. Number two, Unum is known for risk discipline. And with our robust portfolio, we're able to put together packages in unique ways that work really well, so we're underwriting at the customer level, delivers great value for the customer but also is able to deliver great value for Unum, and that's evident by the 16%-plus ROE business that I'm going to talk about. And third, our distribution team. we are extremely committed to having an exceptional team of people who are out in the market with knowledge and capability to deliver for our customers. This includes putting the right products, services and technologies into position for the benefit of our customers so that we can deliver. I'm going to give you a little bit of background about how we go to market, and I'll start with the distribution teams. First, in the small end of the market, under 100 lives. We have a team of 75 small business consultants who work virtually. They provide bundles of benefits that work really well for the small end customer. This is a very digital-first and efficient approach, and think of it in terms of dental, vision, disability, life, supplemental health. Again, this can be a combination of employer and employee funded business. And again, the technology plays a huge role in terms of how we work with these customer sets. Our team, our small business consultants are based, in fact, of knowledge and responsiveness. They have got to be able to reach out to a large number of brokers across the country. They've got to work with the high-volume benefit shops of our large broker houses. And we give them the tools, both digitally and through social media to make sure that they're covering as much ground as possible. This is a real advantage for us. We're only 1 year into this model. And in the fourth quarter, we saw a nice lift in both coverage and quota activity sales, which propels us into 2023 with great confidence. The good news is we're very good in this market, the smaller of the market, but we know it's underpenetrated, and we know we have growth opportunities. In the middle market, this is the space between 100 and 2,000 employees. We deploy core reps who focus on new business and client managers who look to grow our current customer relationships throughout the portfolio. So think of these folks as calling on large regional, national and global brokers, partnering with them out in the market with the HR teams at the employees who fit in this space. Now when you think about it, obviously, the broader technology needs come into play here. The expertise is different. That's really important. And then as mentioned by both Rick and Mike, I believe needs of our customers in this space really start to take hold, and our solutions are extremely popular there. We'll talk more about that in a bit. And maybe 1 of the key things that we did in this space is we relieved these experts of the small end transactions so that they could slow down, focus and really drive sophisticated results for these customers, which are very meaningful and long-lasting. We think it's going to be a very sticky business and we've seen that. Very excited to report that in the fourth quarter of this year, quote and coverage sales were up 15% from the sales experts and premium was up 20% during the same period. Over 2,000 lives is where we enter our national client team, and we have national client specialists, large case specialists and national client managers who serve both the new business and the ongoing blocks of business here. And as you can imagine, almost every conversation is focused on the leave needs of these customers and the deep integrations with the human capital management platforms that they choose. As Mike said, we know where we can go deep and make a real lasting impact on the relationships there. It's so important to us. We're going to actually pass it to Polly and just a little bit to go deep on these particular offerings. What I'm most excited about is total leave is our modern leave offering, and this will be the first year we're a full year in the market with that, and it's going to have a huge impact on our ability to win new customers and really change the discussion with our brokers and consultants. And then finally, we have a select team of specialists across 3 areas where there are some unique needs and expertise that's important that we dedicate folks in these areas. First is individual disability benefits. We are the clear leader there. The team does a great job. Second, our large voluntary benefit specialist for large employers looking to deploy products across a significant number of employees. And then third is stop-loss, which is a wonderful growing business, which we're really excited about, and we've got experts who are able to go in and really deliver at a high level of expertise in that area. Now these teams all do what they do in their relative space, but the commonality between them all is that they are 100% aligned behind our commitment to underwriting and pricing at the appropriate levels. We want to grow, but we want to grow maintaining our market-leading margins. This has been a winning formula for Unum and the stability it brings is really important to both our company, shareholders and our customers. These threads go deep and they go deep even into places where others don't put them. That includes our field offices, our field incentive plans, we're growing counts, but you also are rewarded and incented to do it the right way with profitability in mind. So a long story short, this type of pricing discipline, this type of focus on profitability is simply in Unum's DNA, and it's a really important competitive advantage. Now to just break it down and talk a little bit about how we go to market, again, using size as a proxy. This is why we're recommended by brokers and consultants to their clients. I'm going to focus on the small end of the market first. and talk about the great product bundles that we have that enable us to do a lot of good with customers to do it in a way that works for them and really a growth opportunity that we see as having a lot of runway. So as I mentioned before, in the small end of the market, a really standard bundle of benefits that we are able to offer on a very standard basis, dental vision, disability, life and supplemental health, again, blending both employer and employee funded protection depending on what the customers' needs are. As Mike mentioned, the labor strain is real, and these customers need to go out and compete, sometimes matching large employer benefit packages, and they need to do it maybe earlier in their cycle than they thought. And we're able to do it in a way that helps them attract and retain the right talent. So with this in mind, we know that none of these firms have the HR staff that can take on a lot of work. And we've worked really hard to make sure we offer our products in a tight way and alleviate those stresses. Again, this means we're focusing on technology that does a lot of the old manual tasks that used to come with offering, enrolling and administering benefits packages. And again, that gets more and more complicated, the more products you put together and the more funding types you have. So we're really focused on that. I'll give you 1 example. From a bundled perspective, we've invested a lot in our My Unum platform. And this is our own offering for customers who need us to go ahead and put together those products that I mentioned in a way where we can go out and offer with confidence, the enrollment and ongoing administration so they can look to us for one-stop shopping. They've got their medical plans, retirement and then the products we offer and do it in a way that has consistently high customer satisfaction scores. We focus on those scores in a very, very disciplined way to make sure that we're improving the experience, and we've got the right things on the road map to continue to accelerate. I'm thrilled to report that fourth quarter ended with a record high in terms of My Unum customer satisfaction and the road map to enhance that type of an experience for our customers is robust and will carry us into '23 and beyond. So when you think about connectivity, we're going to spend some time going deeper on other parts of the offering. I wanted to give you 1 example in the small end of the market, but Tim and Polly will go deeper in other ways, we can even take connected technology to our customer base in a way that really differentiates and makes us the customer of choice for these bundled packages that I'm talking about. And the theme that I started with around our distribution, it is really key that they are skilled up to know when and how to offer these programs beyond contract comparisons, beyond your basics around financial protection, which have been hallmark for the industry for so long. This technology discussion is critically important, and we're spending time and energy to make sure that our teams are skilled in that area, again, matching the right product solutions and technologies for the right customers. So I did want to mention before we move up market to the mid and large. I did want to mention 2 product enhancements that we've made that are really important to this end of the marketplace. I'll start with Dental. We love being in the dental business. It's really important as a lead product in those bundles. We spent time and money in a few areas to make sure our dental offering was working as effectively as we wanted it to. First, we replatform the claim platform to make sure that it was doing all those modern things we needed around provider management and also making sure auto adjudication was where it needed to be. We're really thrilled with that deployment. It gave us a big lift in the fourth quarter because we kind of completed the work that it launched in third quarter. And it's been hugely successful even with a significant influx of new cases for 1/1. So nice to see that stand up to that test. And then the second piece is our network. We are focused on growing our dental network. We have rebranded it under the Unum name. That has clarified a lot of things for customers, employees and providers when they have Unum Dental and then at the provider -- the network is also referred to the same way. So a couple of important things that have taken our dental and vision business to the next level, and again, really important as part of that bundle that we offer down market. Second, individual disability. And again, this product spans all marketplaces small, medium and large. We love our individual disability business. It's incredibly strong for us, and it has grown meaningfully over the recent years. We've done a few things to make this even easier to offer at the workplace. Individual disability has become a bit of an interesting employer-funded offering that people want to provide to certain segments of their population. Formally, there had been some administrative challenges to that, which we've eliminated, and we've seen a meaningful growth in the number of employers who can go ahead and pay for an individual disability policy for a certain set of their employers. That's a wonderful business for us. We're really pleased to be able to remove those barriers. And then upmarket, we've also made enhancements to our enrollment capabilities to make sure that people can communicate and understand this wonderful product, and we get strong participation. We're obviously investing in our enrollment capabilities all the time. That's an important upgrade. And then finally, delivering policies in a modern way through our e-policy delivery. These are important investments that we think secure our significant lead in this market space to keep us going for the future. I will say a lot of these policies are written on top of our base LTD plan. So it's a nice story to be able to talk about extremely strong long-term disability, and Mike referenced all the good news there and then to be able to complement it with individual disability on top. As we move upmarket, mid and large case, the human capital management integration becomes that much more critical and as well as the lead discussion. So because of the importance of these elements of the sale and ongoing relationship with the customer, I'm going to turn it to Polly Nicholas, who's going to do a deeper dive on these areas. She leads our solutions business, and it really is critical to the experience that our customers in this space have with Unum. So Polly?

Thank you, Chris, and good morning, everybody. It's great to be here today, and I'm looking forward to spending just a few minutes talking about Unum Solutions and the important work that we've been doing over the last couple of years. As Mike mentioned, I joined Unum a little over 2 years ago with an opportunity to focus on 2 things. The first is to find ways to support an already overburdened HR function who is looking for support in 2 ways. One is to automate and eliminate transactional processes and the second is to modernize their employee experience. The second is employers are looking to simplify a growing complexity of leaves. It is both growing in scope and in deep need for customers. And so we are really focused on making that experience the right 1 for employers. I spent over 20 years in the HR technology space, driving modern experiences that help employers in the mid and jumbo marketplace make it easier to retain, attract and engage their people to deliver on business outcomes. My team of technologists, digital product owners and Leave experts have been hard at work on 2 really exciting products, HR Connect and Total Leave, which I'll spend a little bit of time talking about today. And they're really taking off in the market. helping differentiate Chris and Tim's important financial protection products. HR Connect is making it easier to buy, implement and operate the financial protection products we provide. Unum's client base on HR Connect has grown significantly over the last 3 years. HR Connect represented over 45% of new group sales in 2022. Our close ratios when HR Connect is included in the bundle for group, doubles. As Mike referenced, Unum continues to have space to grow in these strategic areas. When you think about UKG and Workday, serving the large employer market, an ADP workforce now serving our middle market the deep integrations that we deliver to our employees make a frictionless process for those companies, making it easier for HR to do their work every single day. But what's really exciting about this opportunity is that Unum has just a small footprint of a number of clients that Workday, UKG and ADP have today. And so this creates a real tailwind for our organization because we're making it easier for HR to deploy the benefits we have in place today, and we have opportunities to grow with these important strategic partnerships. The second area of focus is employee leave. Employee leave is having a more recent and lasting challenge for our customers. This is more than just FMLA. Our statutory leave protection, state paid leave laws and a growing number of corporate paid leads are creating an increased scope and complexity for those customers. Employers need help managing those complexities, but it's more than just compliance. It's about making that experience the right 1 for their people. When you think about leave and time away, it's been cited as the second most important benefit to employees, second only to their health insurance. And when you think about what that means for those employees, what it means is they're expecting that leave experience to match what they do every single day outside of work. That's what Unum Solutions has been up to. We've been focused on thinking about how to build and are actually building that experience on a modern technology stack. And that modern technology stack is creating real-world experiences for those people who are going through that leave experience, digital payments, chat capabilities and an opportunity to interact with us when they need us most. And finally, what it means is that we can automate work to put the people that work at Unum in those moments that matter for our customers. And that is what is really important when we think about that collective experience of both the digital experience as well as the people experience. We launched Total Leave nationally this year, and in '22, we have already exceeded the targets that we set. And in '23, we're already seeing a great, great pipeline. It's safe to say that we've built real momentum in this marketplace. Every dollar of fees that we bring in with Total leave also grows our insurance premiums. So when you think about what that means for our business, every dollar of fees for total lead we bundle brings in $8 a premium across our group and voluntary lines. It's also important to note that we only offer leave with those insured products. So Total leave is providing really critical differentiation at client acquisition and a great deal of sick [indiscernible] for our existing customers. And I've talked about each of these products separately. But when HR Connect and Total leave come together, it creates an even greater value for our customers. In 2022, 50% of our customers who purchased Total Leave also purchased HR Connect. Each independently delivering value, but when bundled together, really make a difference for our customers. We are pleased with the momentum of the capabilities HR Connect and Total Leave will continue to deliver for the enterprise. And I will now pass it back to Chris to talk a bit about where we're headed for the remainder of the group line.

Thanks, Polly. And you can imagine with the discussion Paul just led around capabilities that are so important to customers our sales organization, our client managers are so thrilled to represent Unum with these powerful tools. It changes the conversation entirely. And I give our training team, incredible credit for focusing on getting our folks up and ready. And then also for the sales and client management teams were capturing value associated with these capabilities that have been so important to our offering. And that's a huge reason why I am so bullish on our future. You can see here, we've got some impressive numbers that we think are achievable. And our sales outlook, 8% to 12% is exciting for me, and I know it's going to be a really key that we stick to strategy and deliver those numbers. Premium will grow 4% to 6%, operating income 6% to 9% and maintaining ROEs in that 16% to 18%. It makes for a powerful business and a very bright future. And again, it's because of a tight strategy and extremely talented team. You all have heard in my comments that the employee-funded element of the package we offer is extremely important. And I have the extreme pleasure of partnering every day with Tim Arnold, who has accountability for the voluntary business for Unum US and Colonial Life, and he's going to come up now and talk about those important businesses.

Good morning. As others have pointed out, it is great to be back with you all in person today. I'm extremely excited to talk about the Colonial Life and VB businesses and shared overview. We're going to talk about our strategy and plans to deliver high single-digit or low double-digit sales growth, along with mid-single-digit growth in earned premium and earnings. We'll start with the Colonial Life business, which continues to generate strong returns and maintains a leadership position in the voluntary benefits market. You see here, premium is well balanced across our product categories and heavily focused in the core and public sector markets, which have strong margins and tremendous market opportunity. The public sector market is comprised of over 90,000 entities and employees over 14% of workers in the United States. It's an incredibly important market for Colonial Life. It represents about 30% of our client base and it has the highest persistency of any of our product category or any of our market segments and growth in this segment last year was north of 20%. So we're extremely happy about that particular segment, especially in our expertise in it. In the less than 100 life commercial market, which comprises approximately 70% of Colonial Life's existing customers. There are over 6 million businesses in the U.S. and over 60 million workers in this segment. As Mike pointed out earlier, this is a segment that continues to have such significant opportunity and is incredibly underpenetrated. The quality life value proposition continues to resonate with employees and employers as you see here. Employers appreciate our ability to enroll employees in all of their benefits, including medical, the ability to engage with us digitally or with personal support and our ability to educate their employees about their entire benefit offering. Employees appreciate the benefits education Colonial Life provides and the ability to purchase products to protect their families and their lifestyle. In a recent study by Eastbridge, approximately 44% of people serving said they would prefer to have a benefits counselor available to talk with when purchasing a financial services product. So let's talk a little bit about how we go to market and how we win with our VB businesses. Colonial Life, our national network of over 12,000 independent agents in over 550 district offices, provide a comprehensive footprint and an ability to serve employers in any market in the U.S. In addition, Colonial Life has over 5,000 benefits counselors available to provide curated benefits, advice in person through chat or telephonically, we can also provide self-service enrollment for employers who want that. We support these teams with sales enablement tools, resources and technology, which optimize our productivity and effectiveness. And that capability is particularly important as the recent LMRA survey found that 10% of employees in the U.S. don't even know that they have basic benefits like medical and dental. And more than 20% of employees in the U.S. don't know that they have access to voluntary benefits at the workplace. Colonial Life way is with a comprehensive portfolio of products and services accompanied by outstanding customer service locally and from the home office and with digital tools, which provide support for agents, clients and policyholders. I'll discuss this more in a few minutes, but we recently began distributing Unum Group employer paid products through Colonial Life agents in certain market segments, and we believe that this will be a key driver of future sales growth for Colonial Life and to some extent, for Unum. For Unum VB, you heard Chris and Polly discussing the success we're seeing with the HR Connect for the group and Solutions businesses. And we see an opportunity to cross-sell voluntary benefits to our HR Connect clients as well as to other segments of existing Unum Group clients where we offer a seamless and integrated experience that you heard Chris talking about. We're also working to drive stronger growth with certain broker partners through enhanced incentives and alignment to our value proposition. And finally, we're working to leverage the opportunities that exist across brands to promote the best capabilities of each. With product development, we are increasingly building products onetime for distribution through both brands. We're leveraging the extensive network of Colonial Life benefits counselors that I previously referenced for Unum brand through our enterprise enrollment initiatives, and we're also integrating our back offices to create more efficiency there. So let's talk about how we're going to invest in the future for Colonial Life. A couple of others of references. But the majority of employers in the mid and large case segments have benefits administration, payroll and human capital management systems. But a McKenzie worker engagement survey in October of 2020 found that more than 95% of employers in the less than 100 life market, do not have any technology-enabled benefits administration system, as Mike pointed out. This creates a huge opportunity for Colonial Life especially. So in the spring of 2022, Colonial Life piloted proprietary enrollment and benefits administration platform in a couple of markets. We're really pleased with the market reception and adoption that we saw. So we tested that solution in 4 additional markets in the second half of 2022. As a result, we recently launched a national launch of, what we're calling, Gathr. That's not a misspelling. I'll explain it in a moment. It's a modern enrollment and benefits administration system with payroll and human capital management optionality. This new solution will be available in all markets in the U.S. by the third quarter of this year. In addition to providing an exceptional employer and employee experience, Gathr will allow Colonial Life to enroll new employees as a part of the onboarding process, increasing sales through enhanced participation and to more effectively retain employees who leave their employer, driving improvements in policy persistency. This new solution will also create an opportunity for seamless billing for clients who choose both Colonial Life and Unum products. We're encouraged that during the pilot we saw a 20% increase in the premium per policyholder enrolled on Gathr versus other enrollment means. And we believe that's primarily due to the efficiency and simplification that we've created as a part of that system to enable benefits councilors to see more people per enrollment. So let me add a little color on the reasons we selected Gathr for the name. Our marketing team conducted an extensive creative process spanning 6 months and resulting in more than 250 ideas and concepts. After narrowing down to a few finalists, our teams conducted market testing and conducted sneak peek previews with some of our territory leaders who were in the pilot. The theme of togetherness was -- in every part of these sneak peek previews, and Gathr proved itself for many reasons. The core concept of gathering is in many ways what we do. As a system, it ties together our clients' full package of benefits, saving time and boosting confidence. During [indiscernible] for our clients is often a very stressful part of the year. Through our benefits administration enrollment, our teams bring together America's workers with their benefits, a process now significantly optimized, thanks to the power of this cloud-based system. The system will allow us to bring together Colonial Life and Unum benefits for certain market segments with a seamless client experience. And going beyond benefits, as I mentioned earlier, Gathr offers clients add-on HR functionality where they would like to have that. Finally, we dropped the letter E and the word Gathr to highlight the H and the R together. So moving on to Agent Assist. At Colonial Life, we strive to have the best and most productive sales force of independent agents, and that's one of the reasons that we began developing the Agent Assist platform. With our tech team in Ireland back in 2017, the platform has grown from a lead management system in its early days to a platform that includes CRM for employers and brokers, sales management productivity and workflow tools, product information, marketing materials and so much or virtually on any device at virtually any time. As I mentioned earlier, we began offering Unum Group employer paid products in certain market segments through the Colonial Life sales team in 2022. And as market demand for integrated solutions continues to grow, we are excited about creating access for Unum Group products for the Colonial Life organization. Early results of the pilot are very encouraging with solid activity and very strong closure ratios for these Unum Group products. And while sales of these products will be reflected in Unum US financial results going forward, we believe the offering will also create sales at Colonial Life. I mentioned earlier that when we use Gathr, we see a 20% increase in sales. When we use Gathr and offer Unum Group employer paid products, Colonial Life sales in this pilot increased by 60, 6-0 percent. It's early, but we're really encouraged. As you see here, we also plan to continue to invest in the product portfolio for both companies, with product investments driving approximately $250 million in incremental sales over the next 4 years. As you may know, a number of states have enacted legislation providing state-sponsored family medical -- family and medical leave. In some instances, these state-sponsored programs provide basic disability income protection, especially for lower income workers. We recognize an opportunity to augment that state benefit and created ability product to integrate with these benefits. We're excited about the state programs, which create enhanced awareness of the need, and encouraged about the opportunity to provide broader benefits. Chris provided a very comprehensive overview of the dental offering, and we're really excited about the dental offering available for Colonial Life as well. We're committed to maintaining competitive, simplified and streamlined portfolio of voluntary products for both companies while providing a superior customer experience with digital tools enabled by local and home office personnel support. And we'll also continue to drive enhanced consumer value with stronger benefits, value-added services, benefits education and enrollment support. So what does all of this mean for our results and outlook going forward? The outlook for Colonial Life reflects aggressive goals for growth in sales at prepandemic levels of 8% to 12%. We also expect to generate strong earnings growth and stable ROEs. Planned to earn premium growth will move back into the 4% to 6% range beginning at 2025. And we're pleased that earned premium is back above prepandemic levels. Also pleased with the record earnings achieved by Colonial Life in 2022. So going forward, our plans will be supported by Agent Assist, one of its kind agent productivity tool by Gathr, a proprietary modern enrollment and benefits administration platform with payroll and HCM optionality, by competitive portfolio of products and services, and by the best distribution teams in the business, we believe that this unique combination of technology, talent, capabilities and solutions will allow us to continue to win in a very competitive marketplace. I appreciate your time today. I'm now going to turn it over to my friend, Mark Till, for an update on the international businesses. Mark?

Thank you very much, Tim. As a Brit, I always feel at home in New York. I think it's the fact that basically, it's as cold as -- and wet as it is in London. Anyway, I'm very pleased to be able to take the opportunity for a few minutes just to share details about the international business that we operate in the U.K. and in Poland. And my macro message is that we have a significant opportunity outside of the U.S. in a business, which is performing very strongly and above the levels we saw prepandemic. Unum operates in countries where there's an established group risk market, but where employee penetration is lower than it is in the U.S. For example, in the U.K., less than 1 in 3 workers benefit from any form of group risk products and less than 1 in 10 any form of long-term disability product. And the market growth rates in these countries are both high. For example, in our loan book, we saw in 2022 15% growth in Poland and 12% growth in the U.K. And both the pandemic and the war for talent, combined with labor shortages in both markets, is increasing demand for the product set as employers look to strengthen their employee proposition. For example, in the U.K., we saw an increase of 14% in the lives covered. And that's a consequence of both employee coverage expansion and new business. So the opportunity for a specialist provider in these markets, someone who focuses on the group risk market without the distraction of a P&C business and asset management business or retirement savings business is significant. In the U.K., we're the only dedicated group risk provider, giving us the benefit of focus, which is highly valued by the brokers who control this market. And this can be seen in the clear leadership we have in the areas of claims and rehabilitation, value-added services in the health and well-being space and broker relationships. And importantly -- somebody moved the slide on for me. They obviously noticed that I'd fail to press the clicker. In the reversal, I also failed to press the right button on the clicker and managed to blind people with a laser pointer. Importantly, we're able to leverage the skill and knowledge that is built up in the most advanced U.S. employee benefits markets. And we can take that skill and knowledge across to the U.K. whilst we also get the benefit of sharing back some of the trends that we see in regulatory and social matters that typically get adopted earlier in Europe. So in terms of the shape of our business, Unum UK is the standout market leader in disability and has a market share of over 30%. We hold leading positions in the dental and critical illness markets. And in the life market, our market share is smaller at 7% to 8%, but we see significant opportunity to grow this market, which is the largest of the group risk products in the U.K. And in Poland, we have seen progressive growth in the group business market, with group being now the largest sales channel, making up 65% of all the sales and pivoting the business we acquired to capitalize on the group opportunity. And I think this demonstrates the value that Unum can uniquely add to an acquisition. So I will press the button this time. The U.K. market is entirely intermediated. There is no direct distribution model. It's a little different also to the U.S. in that the broker plays a significant role throughout the policy life cycle, not just the initial acquisition of the customer, but also the ongoing administration of policies and the registering and management of claims. And therefore, for this reason, the strength of relationship and service we give to brokers is pivotal to the growth. You can see in the chart in the bottom corner this drive a significantly higher share of the big broker market mainly because we have more than 80% broker satisfaction score, and we see a direct correlation between our broker satisfaction score and the share of business we win. So in the core and the 500 lives market, we win by building strategic supplier partnerships with our brokers. In 2022, we won or renewed all available partnerships for the big brokers. And as our mid-tier broker service has improved, we have begun to win new partnerships there, winning 3 in the last 6 months. In the large case market, we are leaders in the complex disability product and a heritage of quality claims and rehabilitation management, along with innovation supports our growth. In 2022, we have been investing in a selective large case growth strategy, and we have improved our analytics and pricing to good effect there. And our large case wins in 2022 were the strongest for several years, and our life market share grew by 1/3. Before I turn to Poland, I will briefly touch on the U.K. supplemental market and call out that since we acquired our dental business in 2016, we've seen strong premium growth. It was 16% last year. And cumulatively, it's been 115%. And our critical illness business has been showing double-digit growth in each of the last 3 years. So turning briefly to Poland. This business is split between what was the historically large individual business and what was at the time of acquisition an emerging group risk business. In the individual market, we've distributed through our life protection advisers to affluent clients. And this model is well known. It's effective, and our people are highly skilled, and our strategy is to grow the number of LPAs we have. But increasingly, we've been building out our group business in Poland initially focused on international brokers that we knew both in the U.S. and the U.K. But in recent years, we've added a significant local broker distribution channel, which is driven the sales growth and is now the largest segment of our group business and the primary driver of the 15% premium growth we saw in 2022. So looking at where we're investing in the future. We're investing at a higher level than we have done in recent years, and we're funding that from the international earnings. Our investments focused on driving value in the risk product markets that we know well as well as being open to broadening markets that have share similar characteristics. In the U.K., we've got 3 areas of focus. Firstly, broker experience. This is the basis of everything that we need to do. We need to be and will be the standout carrier for the brokers who control the market. We have addressed the historic service issues that we had in our operations and are taking the skills that we've built in the large broker service to improve our mid-tier experience. We are building out our enhanced online capability to improve the proposition and benefit from a lower cost model. And the early signs are positive. In 2022, we lifted broker satisfaction in the mid-tier market 30 points, and our online quotes rose by 39%. Secondly, we're improving our sales force capability. Our sales team has historically been more transactional in nature, and we're now focused much more on building strategic partnerships with brokers. In the mid-tier market, this is all about winning preferred partner models. And again, our early signs are positive, having secured new -- 3 new partnerships in the last 6 months. And to further support the team, we have a new sales force training program and a building enhanced CRM capability. And thirdly, we're improving our product proposition, both widening and differentiating our products and increasing user engagement. We're seeking to make, what is effectively, a low-touch risk product into a high-touch value added services product, which will lock ourselves into the employers and improve our retention rates. And building on our innovation reputation with brokers, we are launching this year our second-generation customer engagement app Help@Hand 360, which combines virtual GP services, physiotherapy, behavioral health and a range of value-added services. This has become really important since the pandemic where the NHS in the U.K. has been struggling to meet the demands of the workforce population and causing increased absences for employers. So for the employer, there will also be significantly enhanced space assets to allow them to access health -- the health of their workforce and support increased productivity. And these changes, we believe, will place clear blue water between us and our competitors, building what -- on what is already a strong 28% adoption rate for this service. And lastly, in the U.K., we're looking at building into an adjacent employer-funded risk markets where we have capability and will bring new products where there's both a broker and employer demand, allowing us to tap into new value pools. In Poland, we have 2 areas of focus. Firstly, it's on improving distribution, particularly in the group business market, where we're expanding our highly successful group business, broker distribution, and we're going to building out and have been building out a new direct-to-SME distribution channel to look after those smaller firms that don't deal with brokers. And secondly, we're widening our product set, adding a more comprehensive set of health and well-being solutions to drive engagement and retention. So just finally, touching then on the outlook. 2022, as you have seen from our results, was a very strong year for the international business with the benefit of both management actions and the U.K. inflation tailwind, producing record results. We're investing in growing the business and expect underlying growth, particularly if you remove the impact of inflation, to be strong in 2023. Turning firstly to sales. In '22, we increased sales 41% with good performance across all products, including 2 jumbo cases, which rarely become available in the U.K. market. Growth rates as a consequence of these jumbos is lower in 2023. But if you exclude those, then growth is comfortably double digits. Premium growth grew -- sorry, premium income grew by 12% in '22 in local currency, and that was driven by really strong sales growth and solid retention rates. We show a premium growth outlook of 5% to 7% as there is some fluctuations in large cases as we expand the book, but the underlying growth rates are closer to the double digit we saw in '22. And earnings growth in the U.K. in '22, as we said, was heavily influenced by high U.K. inflation, which creates a gap between the investment return we generate and the cash claim payments that we make. This tailwind from inflation will wind down through 2023, but our underlying growth, excluding inflation, is expected to be firmly in double digits. And our ROE in '22 also benefited from those high inflation areas, but the underlying position continues to strengthen and is above the prepandemic levels. So overall, I think our international business -- it's got strong underlying growth in premium sales and earnings, which are overall close to digits. And it's a strong franchise. And I do believe in conclusion that both Poland and the U.K. are attractive markets. Demand for our products is rising. The businesses have momentum from '22, and there are clear investments that we have made and are making that are going to drive the growth for several years to come. And the investments that we're putting in and the winding down of inflation may flatten earnings slightly in '23, but we will be well above prepandemic levels with underlying growth being strong. So thank you all very much for your time and welcoming the Brit who can't press a button. I'm going to hand over to Mike. Thank you.

Key takeaways across core operations. Hopefully, you got a really good sense from the team here about the momentum that they've built across their businesses and also the headroom that is still in each of their markets and the real opportunity for growth. I just want to spend 1 second to say, you think about our current -- okay, Mark. Somehow I'm going to blame Mark for that. Let's go back. Yes. So current focus, disability and absence, life, supplemental health, dental & vision, all the things that the team here was thinking about, the forecast over the planning period, we feel very, very confident we're going to deliver on with those existing business. I did just want to leave you, though, with a sense that we are doing work to think about what is next on the other side of the planning horizon. So while these are not material to the premium, to the earnings, to the returns that we've talked about, the medical stop-loss business, behavioral health, new caregiving services that we hang increasingly off that leave experience, even pet insurance on the voluntary side, these are all things that we have in some form or another in market today. Testing and learning, probably, we're furthest along with our medical stop-loss business. We've continued to build that. Marco Forato runs that business. He'll be at lunch as well if you're interested. Had a very strong sales year in 2022 for stop-loss. I think it gives us some pretty interesting insights around the client and their health history. It's also the same distribution channel we use for our other benefits. The focus in '23 will be building out in-house a lot of our own capabilities, pulling those in from third-party partners. So a lot of reasons to be excited, not just in the short to midterm, but the long term as well. So in summary, strong markets, attractive that we're in, HR, technology, particularly in the cloud is a real catalyst for us, really strong, focused and resilient business model through cycles. And hopefully, you got a sense for the team and for the focus they've got from a strategy point of view. So that is core operations. And I think Rick is going to come back up, and we'll take questions.

Thank you, Mike. Thanks, everyone. It was great overview. I'd like to take your questions. The team is here and take your questions, talking about business operations. I'd first say, I appreciate everyone in the room for going through that. This is us being back on stage for Investor Day, and we really appreciate the time to talk about our businesses. You can see the pride in the team. I'm very happy to take your questions on the business. We have microphones coming around. First one, Suneet?

There we go. Thanks, Rick. Suneet Kamath from Jefferies. Maybe a high-level question. First, when you think about HR Connect and Total Leave, those are clearly key parts of your strategy, if we had your competitors here, would they be talking the same thing? I'm just trying to get a sense of how unique is this to the Unum platform.

Yes. Great question. And we'll do is -- Polly, you want to start with Total Leave and what you think is different from a competitive point of view. I think safe to say leave is really important to pretty much every mid and large case clients. So I would expect most of our competitors would certainly be talking about leave. But what do you think is different? And Chris, maybe talk a little bit about HR Connect.

Sure. So I'll talk a little bit about Total Leave. You know what, what is distinctive in the marketplace is frankly 2 things. One is the strategic advantage we have with the timing and the delivery of this product in the marketplace. When we think about the need and the robust capabilities coming together at the same time, it's been really, really meaningful. And when you pair that with our group and VB products, we're really creating an ecosystem for that customer that then builds on HR Connect that is really unique in the marketplace.

Yes. I'm pleased to add comments about HR Connect because I think the answer to your question is they probably would be talking similar things. The topics of HCM platforms or ben admin platforms is on everybody's mind. HR Connect is a very deep and different focus to get after these winning platforms. Many of our competitors are stuck on the API element of the connection. And that data exchange and API is part of HR Connect, but it's not the story. We exchange data real time. We've done a lot of work to understand what data is resonant in the HCMs and then what can we do on our end to use that data in an advantaged way to make it even easier on the HR team, things like real-time billing, evidence of insurability, lead management decisions into the HCM of choice. These are beyond just the API. So I think that's the big difference is we don't stop at API with our HR Connect platform as we go much deeper through the whole process.

Got it. And then I guess for Mike. You had an interesting slide that showed kind of incidents and paid claims and like the gap was widening between the 2. Just curious like how much of that is just -- what's going on in the overall market? Tight labor market, people wanting back versus what you guys are specifically doing to achieve those results?

Yes. It's a great question and ultimately Suneet, it's impossible to know exactly what's correlation, what's causation. I'd say when we look at recovery by diagnosis, by industry, and we look at it by duration, like where in the life cycle of the claim, it's pretty broad-based improvement. And different industries are experiencing very different things. People have been out for 4 years, very different than someone that's been out for 9 months. That probably gives us a little bit more confidence in the investments that we made in 2 areas. One is we changed our process a bit about 2 years ago to put a more focus on durations and having different people looking at it because we think people's mindsets is just very different, depending on how long they've been out of work. And that, I think, has proven quite beneficial from a recovery point of view. The other, I mentioned the application of AI. That's been a big one for us. So we've always indexed to a higher expense ratio around disability claims, and that's part of our strategy. What we're getting better and better about is producing models that point our people to the highest gain claimants so that their spending time across a very, very large open claim block on the places where the propensity to actually get to action and get return to work outcome is significantly higher. So those 2 things on balance, I think, have been helpful. And I do think the external environment, some of which might be business cycle, some of which, I think, is kind of a material change around flexibility of where you work, those kind of come together, I think, to produce pretty good outcomes from a return-to-work point of view. Thanks. Next, Erik?

Erik Bass with Autonomous Research. So I think you raised the higher end of your premium growth target long term 4% to 7% from the 4% to 6% you talked about in 2020. So curious what's giving you the confidence to raise that. And then as you look going forward, where is more of the growth coming from by either case size? Or is it voluntary versus traditional benefits?

Great. Mike, do you want to start?

Yes. Sure. And it's really -- and we've talked a lot about it. So the strategy that we have in place is sort of picking carefully the markets that we're going to be in. And again, we believe we're very unique and that we're so focused on financial protection exclusively at the work site. Within that niche, we actually see a pretty equivalent growth opportunities ultimately across these businesses. What gives us confidence on the outlook is we look at each of these capabilities that we've been talking about today and I think taking reasonable to slightly conservative estimates of the kinds of growth that we've already experienced, and just to extrapolate that out as they move from, in the case of Gathr, a small number of markets to national markets, Total Leave going from a partial year in 2022, probably right into a full year in 2023. And honestly, you just kind of do the math over the next 2 to 3 years, and it starts to suggest that sales are going to stay in that high single, low double-digit point of view. And then the premium is going to come through as the persistency exists. So I think we've got opportunities really across the business. The emergence of top line growth is probably going to be most acute in voluntary. It's been the slower one, Tim, I guess, to come through the pandemic. Maybe just recruiting really quickly and what you're seeing there because that's kind of recruiting to sales growth to premium growth for Colonial.

Yes. Certainly, recruiting was impacted during the pandemic on the Colonial Life side. And we saw pretty strong headwinds for recruiting continuing through the first half of 2022. I think we shared in the call, in the fourth quarter, recruiting was up 21%. And year-to-date, it's up were 30%. At Colonial Life, we feel like the Agent Assist app that I talked about will not only help us recruit because we could talk about warm leads that are generated through that app and all the resources available to help people become productive in app. So we think recruiting will be enabled, and we also see much stronger levels of success. Our agency force is independent. So we can't require them to do anything. But what we see is among agents who adopt this new -- agents who adopt this app. They're 6 times successful that people who don't. So we think that data will continue to encourage people to adopt and will enable it to become more productive.

And then maybe just sort of the flip side of that, and if we do enter a recession, can you just talk about your exposure to economically sensitive sectors across your business and what that could mean in terms of a dampening impact on premiums?

You want to take that one?

Yes.

I know you can handle this Mike.

[indiscernible] That's what I want too. Yes. I mean I think -- and we talk about natural growth has been a little bit of a tailwind. Think about that as natural growth comes most acutely in the group insurance employer paid, and within that category, the benefits that are indexed to salary. So you're getting kind of new people coming on into an employer-paid situation, and then as wage increases, come through. So that's certainly been helpful. But if you look into next year and kind of a mild recessionary scenario, we still feel really good about the premium projections that we went through there. I think it wasn't in your question, Erik, but the other thing we always think about when you've been in the disability business a long time is there a risk loss ratio through a business cycle. And typically, SSTI will feel that. The private market feels a little bit less and through the last 3 cycles, at least unfelt a little bit less still. So it is not that it won't have an impact. But when we think about sort of the recovery patterns that we've established, how we came through the last couple of recessions and the fact that there's typically a 3 quarter, 2, 3, sometimes 4 quarter, depending on the type of recession, kind of lead time, it doesn't sneak up on you. You start to see it. So again, we'll see how '23 plays out and what the macro environment looks like. But at this point, kind of mid-60s loss ratio for disability feels pretty good.

Thanks, Erik. Tracy did you -- Go ahead, Tracy.

When you look across small middle market, large cases, what is the higher-margin business? And when you're looking at the larger cases, is the renewal cycle staggered? Is there any upcoming like if I think about 1/1 concentrations?

Chris -- do you want, Chris, take the dynamics of that, and then we could also hit this market with Tim as well.

Yes. So we do see higher margin in the smaller end of the market, and that's been consistent for a lot of years, and we actually have a lot programs focused on increasing persistency there. We've obviously had some really nice results, and we feel like we can grow that business effectively. That's part of the reason for it. And then up market, you do tend to see 1/1 renewals being the most popular. It's, by far, our most popular renewal date. That's nothing new. And we've got a very good history of being able to predict what we're going to get for renewal increases in the coming cycle on the larger end. What's great about it is we have a history of getting what we need. So if the block is running well, we don't need as much. And you go with smaller programs, and you're able to place them. If a block is running in a place where we need to adjust, we're able to get out in front of that as well. And obviously, we're writing business every year. So a 3-year guarantee becomes just tacked on to what has been prior year programs where we would do 1 -- excuse me, 3-year rate guarantees over the recent history. So you always have a chunk of your block to renew. So it's kind of proven over time. But that's the element of our risk discipline, which is we're always focused on, understanding where the customers are running, where the blocks are running and have renewal programs that make sense for that business.

So maybe sticking with that, what's your pricing outlook? Do you think you need to take as much rate or upcoming renewals as maybe what you discussed [ in ] last year's outlook?

Yes, very fair question. We are really pleased with the results. There are still plenty of customers that do need adjustments and frequently adjustments up. It is nice to be in a spot that we're actually looking for less money in terms of retained profit on the larger end of the rate increase. So it's likely a smaller program as we look into the near future.

Let's go back. Ryan?

Ryan Krueger, KBW. I had a question about the disability benefit ratio. I guess you mentioned that you expect it to tick up towards your longer-term target over a few years. If you see similar experience on recoveries and incidents, it seems like the only way to get there would be actually reducing pricing. I guess I'm curious is that how it would actually play out. Or would you just expect to maintain pricing rather than raise rates on customers?

Yes. Ryan, great question. I think it's a little bit of both. But frankly, what happens, like Tracy, a little bit to your question, the middle and large case market, the experience on the case, the actual claim experience ends up being the primary driver at renewal time. So at these levels kind of favorability, again, like Chris said, it's a large population of clients. So you're going to see things on a pretty broad spectrum of the curve. But there's going to be fewer and fewer clients where their experience is suggesting that you need to increase. And at times, they would call for a decrease as part of that program. So that -- we go through about 1/3 of the book in that mid and large case market every year. So we're talking years migrating back versus kind of a proactive price reduction strategy.

Yes. I think to add to that, Mike, too, I think that's -- it's a competitive dynamic that comes into that. So we don't really know. I think it's -- we're just giving the idea that it probably will over time, but we don't know that. We feel very good about our competitive position that we have there, the capabilities that we have. So it may not. But I think we're just being realistic to think that it might go there.

Then just one more on January 1 renewals. Can you just talk a little bit about persistency and how it came in this year?

Yes. We're really pleased to hit targets for persistency for the small, medium and large. This is -- with an active renewal program. I might add that as we work more cases into the HR Connect world and more customers buy from us because of Total Leave, or as Polly said, in some cases, both, our ability to achieve rate increase targets becomes that much more powerful. And we see a notable increase in persistency rates even with cases in renewal, which arguably means a rate adjustment when they have HR Connect capabilities. And then we expect the same type of response in a positive way when you add Total Leave or both. So Alex?

This is Alex Scott, Goldman Sachs. First one I have you on HR Connect, could you put more numbers around how impactful that is? Like what portion of your clients are on there right now? I mean it looked like you had a pretty interesting growth rate because of the way the trial was set up. Hard to tell how impactful it is and how meaningful it is to the growth rate.

Yes. And this is where I caution our team because our competitors are listening. So that caveat. So Chris?

Yes. I think, Polly, you hit -- you kind of hit the stat and it's worth reiterating. I think 40...

So 46% of our new sales in 2022 included HR Connect for the group line. So that gives you an indication of the growth that it's bringing in. And obviously, Chris commented on the fact that we are seeing [ greater ] persistency when those customers are on that platform or connected to one of the platforms, which continues to be really important. As you think about leave more broadly, I just think about that opportunity for employers, and there really is a problem to be solved and a solution to bring to market. And so it's exciting to think about those 3 things coming together to really help our clients.

And Polly, I would only add, when you think -- there are kind of 2 elements of HR Connect, which are really exciting. One is we love our offering, and we love the fact that we can go -- get better with the current HCM platforms we have chosen to partner with. That means that our marketing efforts -- that means that our sales efforts are much more intentional, and we get after them. We're getting much better at that over the past 3 years. That kind of wasn't a thing before we were able to say, hey, if it's a Workday customer, we should go hard at that, and this is the strategy to do that. So that's good news. And then the other element is, over time, we'll add platforms. We will pick other HCMs to target. So we have growth that way to go find the next winning HCM platform that works well in an HR Connect type environment, and we'll build out what we've already built with the current ones.

And the second question I had is around the premium growth expectations. When I think through some of the tailwinds like the HR Connect, like some of the pricing adjustments you're making, wage inflation still very much in the system looking into 2023, what are some of the things that offset that, that are causing you to point to more historical growth rates for premiums? I would have thought there are enough tailwinds where you kind of continue higher growth for now.

Yes. Great question. I think there's a couple spots in particular, and we talked a little bit about it, but the voluntary lines have been the ones kind of been the slowest to fully recover. And so with voluntary lines, you got to get sales back up at a commensurate level to the in-force book to get the book growing at a rate, even with a very healthy and sustained level of persistency. So I think that is one place. I mean you look at how important voluntary benefits is to our overall franchise and it continues to be an ever more important part of the book. We've got to get sales back in, and that's really, Tim, what we're planning to do here is get sales back to the level with an aggressive sales growth forecast for this year, premium follows just starts to pick up. It's tough for us to get long-term rate until the voluntary business gets to that level.

Okay. That's the questions for this section of the agenda. We're actually going to go and take an intermission now. We'll be able to ask more if you have follow-up questions on that, we'll be able to wrap around at the end. So we're going to take a 15-minute break here. We'll be back together and talk about our Investments, Closed Block, and then Steve will bring us home on the overall financial picture. So we'll be back in 15 minutes. Thank you. [Break]

Okay. Thanks for coming back. This is good. Everybody's back. Quiet. Perfect. That's pretty impressive. Pretty impressive. Appreciate you taking the time. Those questions are great. Like I said, the team will be able to answer those coming back up around. But now we want to spend the next section of our program on financial strength, and we'll do it across a couple of areas. The first person that we will have up is Martha Leiper who will talk to us about the investment portfolio. Martha has a long history with Unum and our Investments team. Left for a few years, learned some new things and came back to lead that team. We're so happy to have her leading our portfolio. Steve Mitchell has also been with the company, a long tenure in the company in a variety of areas from pricing, to operations and now leading our Closed Block, a real knowledgeable player in the industry. And so we're very happy to hear. Steve Zabel, our Chief Financial Officer, needs no introduction. So all -- you could just talk to him every quarter, and he'll bring it all together and talk about how we see this playing out over the next several years. So a really good section. And with that, let me turn it over to Martha Leiper, our Chief Investment Officer.

Thanks, Rick. It is great to be here. It's great to have everybody back in person and good to talk about overall investments. So what I want to share with you today is not only a look into the investment portfolio that we have at Unum, but also our process and approach to investing. We have a good overall story. I want to give you some high-level takeaways that we'll cover a little bit more deeply as we go through the slides. But first and foremost is we use our liability characteristics to drive the asset allocation at Unum. It's very important that we focus on knowing what those characteristics are and matching the portfolio up to meet those needs so that we're there for the funding requirements of the business, the cash flows, the yields, et cetera. What I do want to talk about, too, is 2022 was a great year for investing. And it was a great year on several fronts. First and foremost, yields. When you look at year-end 2021 to year-end 2022, and you have over 200 basis point increase in yield on long end of the curve, that's good for financial services companies. It's good for Unum because we can put money out at higher rates. We've got a good product mix. We do not have disintermediation risk. So we can buy and hold through the cycle. So what we saw sequentially each quarter was higher overall new money rates, and that'll translate into higher income in the future years. We saw the overall portfolio yield go up year-over-year, and that's a big deal. We haven't seen that in well over a decade. So those new money rates are coming into the portfolio. And another point is hedging. We were able to put on over $1 billion of cash flow hedges, and that will mitigate the risk of investment rates on our LTC portfolio going forward 5 years. One thing that's another benefit for Unum is our overall size of the portfolio. We're about $45 billion -- what that means is we can be selective in our approach to adding assets to the portfolio. We don't have to buy every new issue that comes out to stay fully invested, but we can look for those that we think create opportunity for us in the future. And then another thing I want to focus on, and we'll get into it a little bit more, is recession. A lot of people are calling for a recession or a weaker economic backdrop, I think, over the last couple of weeks. That got maybe a little bit lessened as some of the financial numbers, economic numbers came out a little bit stronger. But we look at the portfolio. We buy. We're a credit shop, and we're focused on a weak economic environment. And our portfolio will be resilient through that. So when you look at the overall asset allocation, heavily focused and concentrated on corporate credit. It's over 50% of our portfolio, but that's a core competency for us. It's what we do. We dedicate a lot of resources to credit research. We take a bottoms-up approach. And we have good processes in place with respect to a disciplined approach to reviewing our credit, technology that enables us to look through the portfolio and identify areas that might be showing some weakness. It really serves us very well. And again, it goes back to backing those liability characteristics with what we need. It naturally leads us to a long duration fixed income allocation. On the other side of the pie, you see the other asset classes that we are invested in. It's very diversified. These are the opportunities that we get to add incremental yield, take advantage of illiquidity premium because we don't have disintermediation risk. We can buy and hold through the cycle. And when we evaluate credits, we look through the credits to see their resiliency, see their cash flow generation, their ability to step back maybe and hold off on CapEx or do other initiatives when market cycles turn. And we're buying with that in mind. We also have an RBC covariance benefit. So we're very heavy on the C2 risk and RBC formula. So when we go and put the formula together, calculate our total RBC, we don't have as big of an impact if we have a credit deterioration on those BBB credits. So strong performance. I've talked about it in terms of income that we saw over the last year. We also saw credit upgrades close to $400 million of rising stars with no fallen angels. So the portfolio benefited nicely from the last economic cycle. We saw great income on our alternatives. So that's a portfolio that has benefited very well. And we look at the process -- and we'll get into alternatives a little bit later We have the opportunity in our portfolio a long-term care, for example. We talked about the hedges that we have to bifurcate that portfolio and take a core tail type approach where you can now invest and hit that duration match in that first 30 years of cash flows and then concentrate on a long-term opportunity to generate incremental income for the portfolio and build that base over time. And that's where our alternatives come into play. We have a great team that sits behind these assets that looks at every 1 of the individual credits, but we also work as a team to pull it all together, It's a disciplined approach, and we invest on a relative value basis. So we have strategic asset allocations, but we have a flexibility to alternate in between some asset classes where we see relative value and a benefit. That comes into place with especially the high-yield portfolio. So as we dig deeper into our BBB sector and our overall ratings of the portfolio, you'll see that our high yield has declined significantly over time and that was a conscious effort. As we saw the market change and a very strong demand for risk assets a couple of years ago, we were seeing calls that came from our high yield portfolio. We didn't make the decision to replace those when we saw yields on high yield at about 4%. So we naturally let that wind down. We also took advantage and sold out of some of our high-yield credits where we had a longterm view that maybe the outlook wasn't quite as certain and it could have been an increase in default risk down the road. So we kind of pulled through the portfolio as we went through that last economic cycle. Then if you look at our BBBs, BBBs are an area that we focus on. We believe it provides us the opportunity to look for those credits that might be mispriced in the market to really understand their fundamentals and look for companies that will get upgrade or can be resilient through the cycle and you get incremental yield for buying those. In our BBB portfolio, less than 10% is BBB- and over 90% of those bonds have a stable or improving outlook. Our watch list is very low. And as we'll talk about in a minute, how we've approached the credit analysis and our stress test. I think it's really important to note that items that we saw on the horizon a couple of years ago, we addressed. When we look at what we think could default over the next couple of years, it's very minimal. It doesn't mean that something won't come idiosyncratic out of the blue. That does always hit you from time to time, but no systemic issues in the portfolio. And while we saw almost $400 million of upgrades into investment grade from high yield last year. We see on the horizon, about another $150 million plus that we think will be upgraded this year. We do expect, if we get into a weaker economic cycle and rating agencies will start to take action on credits, we could see some downgrades. We don't expect this to be material to our book. So I want to focus a little bit more now on what some will call the higher risk assets and how we approach our view of the alternatives and the high yield. We look at these together. As we have gone through the last cycle, we saw some more opportunities in our alternative investments. We took the opportunity there to go back in 2020 when the market cycle was turning, and we had COVID, and it was very uncertain to say now is the time for these alternatives to really benefit for these managers to take advantage of the cycle and get investments that will outperform. So We made a conscious decision to up our allocation to alternatives. At the same time, we didn't see benefit in high yield. So we let that roll down. So we've managed that segment together. On our alternatives, I do want to point out, we've got a very diversified portfolio. We focus on 3 main sectors. We've got private credit. We've got real assets and we have private equity. What we think this does is let us balance and take a little bit of approach where we're not going to get a full and some downside protection while still giving us the ability to participate in the upside. Over 70 different funds, 35 managers, very well diversified. Our high-yield portfolio BB, B, we don't CCCs. Right now, we've got about 3 CCCs in the portfolio. All of these, we believe, are going to be upgraded or they're going to pay off. So there's no issue with these credits, and it's less than $30 million. The commercial mortgage loan portfolio, I want to touch on a little bit, too. A very good asset class for us. It's a long-running asset class. We take a very disciplined approach to our underwriting. We didn't see many high commercial mortgage loans added in 2022 as we don't think adjusted fully in the cap rates for the significant rise in interest rates. And we think we'll be paid in the future for holding back on that asset class, but it's 1 that's very important to us. The structure of that portfolio too is diversified. As you can see, less than 20% in office. We had concerns about office 5 or 6 years ago, I felt like we needed to peel back a little bit from that allocation and that served us very well. We've also focused on retail but no malls. We haven't had malls in the portfolio for a long time too, just as we saw headwinds from e-commerce and others taking away from malls. Our retail is primarily grocery-anchored shopping centers. And apartments and industrials, where we overallocated our sectors of the market that are still performing very well. Rick said in the beginning with his comments, you want to take a step back and you also want to look forward. And that's what I really want to focus on our performance. So going into a weaker economic cycle, it's not our first rodeo. We've been through numerous cycles, and we've performed well during those cycles. But what we've done in 2022 is very uncertain coming out of the pandemic. We did 3 different stress tests during the year on the portfolio. Early in the year, we did a supply chain shock, as that was a real focus as companies couldn't get their products because they couldn't get the supplies they needed. Then as we went on during the year, we did a stress scenario on the war with Russia and Ukraine, because that was impacting the market. It's impacting Europe. It's impacting energy, and it could impact our portfolio. So we evaluated our credits under that environment. And then most recently, we stressed for a moderate recession. And the process that we've used to do that, again, is a bottom's up approach where we've looked at these sectors where we believe there could be a downturn and pressure. We've haircutted those EBITDAs by 30% to 50%. We've looked at what their credit metrics should be -- would be in our model under that scenario and what likely rating agency actions could come from that. We also, more importantly, looked at defaults and do these companies have the ability and the cash flow generation to get them through this cycle. And what we've seen is, by and far, they do. One of the benefits of easy money over the last several years as companies have been able to refinance those near-term maturities. We identified about $1.8 billion in credits that we wanted to take even a deeper dive into and to look more at the fundamentals. Of those, we went through our credit list, and we have a very robust process for tiering our concern about credits. We ended up with about $200 million that went on heightened focus list or a fallen angel list, and we added one to our 3-tier watch list approach, and our watch lists are how we evaluate what ultimately could default. That resulted in a credit going on as a watch list 3, which means that company has time over the next year -- or 18, excuse me, to 24 months to sell assets to take other actions to keep them from defaulting. So no near term defaults that we see in the portfolio. When we look at our tracking over the horizon. It's been a good story. Our performance on downgrades has exceeded the market. We track on those lists that I talked about, what we think is a potential fallen angel. What's a potential rising star, what does that mean to the overall metrics of our portfolio with respect to the credit quality. Do we need to take action on any of these names? We are heavy BBB investor, and we invest a lot of resources in our credit research, and it's paid off well through the cycle. So while we expect to see upgrades into rising stars still, we expect that there will be fallen angels. And with those fallen angels, those tend to be lumpier because you hold bigger positions. But we don't see a material impact to our portfolio. We're excited with the current interest rates and the ability to add at higher new money rates. So while we're cautious on the economic outlook, we're confident in the resiliency of the portfolio. So with that, I will turn it over to Steve Mitchell, who will go into the Closed Block.

Good morning. Thank you, Martha. I will speak to our Closed Block. First off, while not actively marketed, the book is actively managed. We focus our efforts in 3 areas: creating value, reducing the footprint, and increasing predictability of outcomes. These areas work together to reduce the exposure and reduce the capital demands of the book while meeting our obligations to our customers. We've had a long and successful track record with rate actions, and we bring our enterprise risk management competency to bear on our claim processes. We are active in seeking risk transfer and our recent IDI transactions show the capabilities we have internally to execute on complex transactions at scale, and I think demonstrate the evolution of that market. The interest rate environment has allowed us to execute on interest rate risk management through hedging to reduce the sensitivity and improve predictability of outcomes. Further, the environment has reduced our obligations for the premium deficiency reserve and has been a positive for inorganic transactions. Interest rate levels, combined with our strong capital position will allow us to fully recognize the premium deficiency reserve by year-end 2023 and have the expectation in the current interest rate environment of eliminating expected contributions to support the business over our planning horizon. Just a brief refresher on the composition of the closed book. Again, these are products that are no longer actively marketed. They're primarily long-term care and individual disability. A substantial portion of our individual disability has been reinsured. We'll provide -- we did provide additional demographic information on the long-term care book in the appendix as well. With rate increases, again, we have a long and successful history of working with our regulators on rate actions for the book. We have consistently been able to meet or exceed the reserve assumptions and our expectations, and we would expect that to continue. Recent activities are a good example. In our year-end earnings call, Steve Zabel noted a recent approval early this year with a net present value in excess of $200 million. Additionally, we work closely with regulators and policyholders to create options and opportunities for individuals to alter or buy down the terms of their coverage to manage the actual increased premium they pay. This is a win-win for individuals to manage their premium levels and works to reduce the risk of the book. we will continue on an ongoing basis to seek actuarially justified rate increases. As an enterprise, we have a competency in risk management and claim adjudication. We bring that energy and thinking to our long-term care booked as well. More recently, the capabilities around technology and data have advanced the opportunities for connection and intervention with clients to improve the experience and improve risk outcomes. Broadly this work falls under the banner of wellness. It is a win-win as a number of the interventions can enable continuing independence in aging while reducing the risk for us. We are early as are others in the industry in this work, but we are encouraged by our history of risk management and the opportunity. We are actively seeking partners for risk transfer on our long-term care book. Our recent Closed Block history has been good with the transaction at year-end 2020 and first quarter 2021. In those transactions, we were able to reinsure approximately 85% of our IDI liabilities, significantly reducing our exposure with roughly $1 billion in statutory liabilities remaining and freeing up $600 million in capital. The IDI structure and experience continues in line with our expectations. Our demonstrated capabilities, strong capital position and the interest rate environment are encouraging to see as we seek a risk transfer partner for LTC. However, reaching agreement on liability assumptions and structure are items that will take work and time given the history of the industry and limited experience. Liability considerations concerning unapproved rate increases, morbidity improvement remain challenging. So the market is evolving, but it will take time to mature. Martha outlined the construction of our portfolio and our use of assets. LTC cash flows are long and illiquid. We managed using the core tail concept that Martha noted, which allows us to manage interest rate risk where there are available interest instruments in the marketplace and take advantage of attractive alternative investments. The alternative investments make a very nice match to the tail liabilities and our book has been performing ahead of our internal expectations. The current environment presented opportunities to improve certainty around our capital flows using hedges, and we acted to take advantage of these. We had $600 million of notional amount in Unum America and $164 million in First Unum during 2022 and an additional $200 million in Unum America early in 2023. Hedges have a number of positive impacts on the Closed Block. One, they allow us to better duration match the core portion of our liabilities. Second, hedging provides immediate benefit in First Unum due to New York's asset adequacy testing treatment of declining interest rate scenarios. For our premium deficiency reserves, hedging accelerates the benefit of higher rates as we perform that calculation. Lastly, hedging allows us to improve predictability of our interest earned and capital outcomes through reducing sensitivity of cash flows to further changes in the interest environment. The interest rate environment and our hedging actions have translated into reductions in our asset adequacy reserve in First Unum over the last couple of years and improve our outlook for future reductions. This lends further continued positive momentum to our capital plan. With regard to our premium deficiency reserve, in 2020, we reached a resolution with the Maine Bureau of Insurance to recognize a PDR over 7 years, fully recognized in 2026, initially established as $2.1 billion at year-end 2018. Currently, we have recognized $1.2 billion of that reserve. The interest rate for the balance is determined through a 3-year average. This average is steadily increasing in the current environment, which has a favorable impact on the PDR. The table included in the chart gives you a view of our continued progress and our expectations with regard to the PDR. Our projected balances are improved from prior years based on better-than-expected yields on purchases. And you'll note also the sensitivity of the balances to interest rates is reduced and has been reduced by our hedging program. In particular, if you look at the 2026 balance at 2.5%, stated as $2 billion, that is roughly $150 million less than it would have been without the hedges that we have executed. Given the interest rate environment and strong capital position, again, we expect to fully recognize the PDR by year-end. We project the PDR balance to be just shy of $2 billion at year-end, down from $2.9 billion at year-end in 2022. Should interest rate levels hold, we would not expect further contributions to Fairwind over our planning horizon. Additionally, this creates the flexibility to meet opportunities or challenges in either items such as downward movement in interest rates or risk transfer opportunities that may emerge. Taken together with the first Unum dynamic I mentioned earlier, this is a positive picture relative to the capital demands of our subsidiaries related to long-term care. Further, I would note our overall statutory reserve position remains strong with stat reserves as of year-end 2022, approximately $2.6 billion over our best estimates. This is a good point to transition to our CFO, Steve Zabel.

It is so great to be here in person and I kind of reflect back on the last year. And it's -- I think it's a good way to start the discussion about how we project forward. So if I go back a year ago, we were doing a not-in-person Investor Day, we were on the phone, staring at the phone. And what we were talking about was a 3-year recovery, and we laid out the attribution of how the company was going to get back to hitting certain milestones that really showed -- demonstrated that we were back to prepandemic financial strength. And it was things like just the recovery in claims. We were talking about expense initiatives. We were talking about premium growth. But we laid out that plan and then laid out milestones from an EPS perspective, from a premium growth perspective, from an absolute premium perspective, what that path was going to look like and when we thought we were going to hit those milestones. And I just reflect on the last year and we've really hit them all in 1 year. And so we've really accelerated that recovery into 2022. And why that's so great is now we can just look towards the future. And that's what we're doing. I think you heard the excitement with the business leaders about how we're thinking about our future potential for the company. And so that's what I'm going to talk about is how we think the company is going to grow in certain ways, but also where we think we're going to be able to reduce the capital needed across some of our other businesses. So we're going to talk about the outlook. We're going to talk about EPS and where that's going to go too and some of these are going to be maybe higher than what our long-term expectations are. And so I'll blend in some discussion around LDTI and there is going to be a bit of a step change in how we view the company related to those. And then specifically, I will get into a little bit about capital deployment and the impact of recognizing the full premium deficiency reserve this year and how that's going to play out, we think, into the planning horizon. So that's just kind of the tee up, but it's great. I go back a year or two, and many of you were at AIFA last March. And I just remember that was for me the first in-person investor outreach that I participated in after the pandemic. And the energy level there was just unbelievable, but I think about the uncertainty that was still in the market was still there with claim levels, but there was still an energy and an optimism for the future. And then I fast forward it to where we are today and going into discussions that we're going to have into the spring with investors. And I just think the company is in such a better shape, the environment and the market is in such better shape and the opportunity can never be better. So it's a great platform to talk about our expectations and our outlook. So I'll start with business growth, our view of '23 and then our view just of ongoing earnings power. So you can see, I've given the 3 columns here. The 2022 outlook is really where our mindset was prepandemic. So if you take ourselves back to December of 2019, the last in-person outlook meeting that we had, this was the outlook that we put out. We were looking for premium growth and that historical level of 4% to 6%; operating earnings growth of flat to 2% growth and EPS growth of 4% to 7%. And that was our mindset going forward. You fast forward to where we are today and how we're looking to 2023, we've talked about core operations premium growth. The group business is maybe growing a little bit faster, the voluntary benefits businesses though picking up momentum to grow into the future, but we feel like that's solidly within that longer term expectation that we have for top line growth, which is really the driver of our operational earnings growth within the company. Consolidated operating earnings 6% to 9%, a little bit higher than what our long-term expectations are. And I'll just take a pause. I've got a slide in here to talk specifically about the impact of LDTI. But if you kind of break it all down, there's a lot of puts and takes, not very significant by product line, but you kind of isolate where we're going to get maybe a onetime step change. It's in our Colonial Life organization. And there's really 2 things driving that. One is just the slowdown of the amortization pattern behind deferred acquisition costs. We have pretty significant deferred acquisition costs within that distribution channel and that business. And then we have tremendous margins on our active life reserve, which -- within that business, which is pretty similar to what you'd see with other voluntary benefit business. That will run off over a period of time. That gives a little bit of relief from a benefit ratio perspective and is -- and that will give us a little bit of wind at our back going into '23, which then we'll grow off of. And you can really see that, if you go back to Tim's slide, where he showed operating earnings growth, it was 25%. It was really oversized and a lot of that is really isolating the step up that we're going to get from LDTI. Our other lines, there are some impact, but that's really where you're going to see it. So then our longterm expectation, we'll be back more in that 4% to 7%. EPS growth you can see that same operating earnings step up coming through in our '23 outlook for adjusted operating earnings per share. We do believe, though, that over time, EPS growth is still going to be above what our longer term expectations were if you go back 2 to 3 years. And most of that is just about the growth potential that we see within our businesses. And we also do think, as Mike mentioned, we are at a high point as far as our operating expense ratio and we do think we'll bring that down over time through productivity. That's going to also help us drive maybe higher than historical EPS growth. So all in all, a really good picture not only for '23, but for the longer term for the organization. All right. LDTI. So we've disclosed a little bit of this in our 10-K disclosures over the last several quarters, but I've put it into 4 major buckets. And probably you're going to see 3 of those going forward. One is just runoff of reserve margin. I mentioned it before, historic gap would put your active life reserves more aligned with your pricing assumptions built into that is some margin on the current or on the new GAAP basis, will be our best estimate. So over time, that margin will need to run off. And then we'll be setting new reserves up without that corresponding margin. That's going to impact mostly on our individual disability income business as well as on our voluntary products. And I'd say Colonial Life specifically on the voluntary benefit products. DAC amortization. So this goes different ways depending on the product, but really the significant change that you're going to see will be in Colonial and in our Unum US voluntary products where you are going to see a slowdown in the amortization period for that. And so we'll see that feather in over time. What's really interesting, though, when we look at our longer-term projections, both the dynamic of the margin runoff and the DAC amortization pattern, we still continue to have really strong earnings growth going forward. And so we have a step up here, but we don't really see that trailing off necessarily into the future. I know that's a question some time we get is, are you going to have a little fuel in the fire here early on with some of this transition that will go away. And we feel really good about not only the '23 earnings power, but how that's going to project going forward. Discount rates on new claims. That one's a little tricky. And that can actually go either way. It's going to impact mostly our group protection lines, specifically long-term disability. Mostly where we're putting up new claims with a discount rate, historically, we really just looked at our overall portfolio rates and managed that interest rate margin over time. Going forward on the new construct for LDTI, we're going to need to look at what the prevailing market spot rate for A was when we put that business on the books. Luckily, this business rolls off at renewal and resets the rate every 2, 3, 4 years. So we'll stay somewhat consistent with current market rates. But what we saw in our recasts is in 1 year, our Unum US group LTD rates was a little bit below, where we would have set it previously and another period is a little bit above. So there might be a little bit of volatility going with the rate at which we put up these new claims. And then the last thing is just the buffering of claims volatility. And there's really no way to articulate how that might play out going forward because we'll have no comparison, we'll have no historical gap. In the recast though, that we did see for '21 and '22, we did see dampening of claims volatility in specific lines. And I would highlight lines that have significant active life reserves. So that would be our recently issued individual disability income business, definitely in long-term care, we saw that. But in other lines like group life or group LTD where we do not have an active life reserve, there really is no dampening. And so that volatility in claims experience will continue to come through and we saw that in our recasts. So there is a difference between how the different blocks will react to that buffering effect in the new construct. The 1 thing that I didn't note just for completeness, on long-term care, as you might know, we have no DAC. it's been unlocked. So there's no DAC there, no impact on amortization patterns. And also, by definition, there's no margin given that we've unlocked that historically. And so we're pretty close to best estimate already. So there's really no margin runoff that will necessarily come into earnings over time. So net-net-net, you're going to see a little bit of increase in IDI earnings, but we're really going to see an increase in earnings will be in the Colonial Life book of business. Okay. So then give a little bit more detail just around the segments, and this is a bit of a recap of what you saw before in the different business lines. And so I'm not going to focus too much on the left side of the page, because this is really just a page to summarize what we've already covered. But I do want to give some guidance on benefit ratios by line of business. And I know especially with the conversion to the new GAAP accounting structure, trying to get a feel for what benefit ratios may look like by line and how the implementation of that guidance may impact it. So we wanted to go through. Mike talked about group disability, being in that mid-60s, we think that's a good, at least in the -- over the next year, a good planning assumption. Group Life and AD&D, we do think is going to come down a little bit in '23 from what we saw in the back half of last year. We do think impact of COVID will decrease a little bit. And so we're thinking in the mid 70% benefit ratio for that line of business. IDI kind of hovering around 50%, which has been pretty stable over the last several years. Unum US VB maybe a little bit lower than what our longer-term expectations were. There is a little bit of margin runoff on the active life reserve coming through there and then Dental & Vision pretty consistent. Unum International, we have at 71% to 74%, Mark mentioned it. We are going to still have a little bit of an increase in that benefit ratio probably in '23. Inflation in the U.K. in the first quarter is still a little high. And so we'll see that same dynamic that we saw in the back half of last year, where the income on our GILT based indexed investments will be a little bit higher from inflation. And the accretion of that benefit within the benefit reserve is going to be a little bit higher. So that benefit ratio may be a little bit higher. It's going to be, though, net neutral to probably positive from a bottom line earnings perspective. Colonial Life, we think we're going to be in the high 40s. Again, that's going to benefit from the runoff of the margin. And then long-term care, we think it's going to be pretty consistent with what our historical longterm averages are, maybe more at the lower end of that range. There will still be some volatility in that benefit ratio. But as we saw in our recast, that should be buffered a little bit just because of how the net premium reserve works within the new accounting construct. Okay. Let's move on to capital management then. So I guess I'll start with the context of trying to return to the fundamentals of our business pre-pandemic and to really anchor on what our cash generation model was and what our capital deployment model was and draw the parallels with what we see going forward under both of those. So first of all, source of the capital. And many of these numbers, I know have been built in the models for years, and I'm not sure we've ever been as explicit as we're being today, but we just wanted to put it out there, what our cash generation model is. First of all, U.S. statutory earnings, we've always kind of put a dot on $1 billion of statutory earnings a year from our traditional subsidiaries. And we think that, that's attainable. That comes through in operating dividends the next year usually, but that's a pretty good source of capital generation that we think is going to be consistent and steady going forward. International Dividends. So this is something that's been kind of quiet over the last several years, but if you go all the way back to Brexit and then there was economic slowdown low interest rates and then you come into the pandemic, the U.K. business earnings power was depleted a little bit over the last 2 to 3 years, and we stopped taking dividends out of the U.K. enterprise. So that was not a source of capital. We quietly reinstated those in 2022 and actually did take dividends out, pretty close to these levels during 2022. And we think that we can do that now going forward on a pretty consistent basis. And you saw Mark's projections of earnings levels for the U.K. business, we think that's going to -- it's going to become a new source of capital for the holding company. And then we do have these services agreements. Most of that is investment management agreements. That holding company is kind of a separate, our investment management group is a separate holding company. We pull those management fees up from the subsidiaries. And then we have some other general services contracts. So that adds another just over $100 million of source of capital up to the holding company. And this is really what it looked like pre-COVID as far as our capital generation model. Then when it comes to capital deployment. So we have our '23 outlook, but then we wanted to give a little bit of a 5-year horizon beyond that. And obviously, we have planning assumptions in here. We're looking at interest rate -- current interest rate environments, we're projecting these forward. But this is, given what we know today, our best look at where we think '23 is going to end up and the planning horizon beyond that. So first of all, LTC capital contributions, it's been mentioned a couple of times. We're going to fully recognize the premium deficiency reserve. That's our intention in 2023. That is going to take a pretty significant capital contribution down to Fairwind where that business resides. And so we have that estimated it at $800 million to $900 million that we'll put down into that subsidiary. The impact of that though is when we project them beyond that, we would expect to not have to contribute capital down to Fairwind over the next 5 years, '24 going forward. We think that's really important for the market to give some certainty to what the longer term capital contributions are. And so we think it's important to go ahead and fully fund all the capital requirements we think are embedded in that block of business. Go ahead and do that this year. And then as we go into '24 be able to really talk about the total capital generation and the discretionary capital we have in the organization and how we wanted to deploy that in other ways. Dividends, pretty consistent with where we've been. We had a track record of 10% increases annually. That slowed down a little bit. We kept paying dividends during the pandemic, but the increase slowed down a bit. Last year, we did increase them 10% again. We would project that forward in the foreseeable future to increase at 10% a year. Share repurchase. So we've been on a, over the last, I guess, 1 year, 1.5 years, $200 million a year run rate for that, $50 million, give or take, every quarter. The back half of the year, Rick mentioned this, we do want to increase that to a pace that would be $300 million a year. And so you may -- saw as part of the materials that we put out last night, we gained Board approval and had our authorization for 2023 increase to $250 million. That is our intent. You'll see that in the last 2 quarters of the year, that kind of increased pace. But then we do intend going forward to be buying back at an annual pace of at least $300 million from '24 going forward. And that's something that we'll evaluate as we get closer to the end of the year, going forward, but that would be our intent as we stand here today. And then interest expense, right around $200 million, that's been pretty consistent. We think that's going to be consistent over the horizon. That's going to vary based upon what we do around debt management. Right now, we feel very comfortable with where our leverage ratio is. It's right around 24%. It gives us a lot of flexibility against the higher end of our target of 30%. So a lot of dry powder there. But it is something that we'll think about over time. We think that's a really important tool of having an efficient capital structure. So we wouldn't intend necessarily for the leverage to flow down from there. But that will be adjusted as we might think differently about capital management and just liability management going forward. So we tried to give you what '23 is going to look like, but also give you a little bit about how we're thinking about the years beyond that. So including those in our assumptions for '23, this would be our year-end outlook. And you've seen this a lot before, but just to reiterate. We want to hold capital metrics that we think are supportive of an A-rated financial strength company. And we believe we're there now. We're going to run it that way going forward. And we think that the actions that we're going to take will allow us to do that. Long-term targets, over 350% for RBC. Rick mentioned, we're at kind of an all-time high right now at 420. We're going to be right around 400, we think, by the end of 2023. So we're going to manage that down a little bit by some of the dividends that we need to take out of the operating companies to fund those contributions to Fairwind. For holding company liquidity, we're at $1.6 billion at the end of 2022. We set our target at greater than 1x fixed, which for those of you that haven't followed us as closely, that would be 1 year of debt service cost and 1 year of expected dividends. That's about $450 million in the coming year. We are well in excess of that now, and we project that out in '23 that we still will be about $1.5 billion range. And then I mentioned leverage at 24% at the end of the year and that will probably be in that same range as we get to the end of 2023 or at the end of 2023. So you can see we're doing things around capital deployment, we're intending to in 2023. But when we get through the year, we're going to still have lot of financial flexibility to think about other ways to deploy capital. You heard about a lot of the very exciting ways that we're deploying it internally for growth. And I know we didn't put the amount of spend up to cover those digital initiatives, but it's pretty significant, and we're still going to be paying out $1 billion of statutory dividends every year in conjunction with being able to also make those investments down in the operating company. So with that, I think we're going to go to Q&A, and Rick is going to come back up, and happy to take your questions on any of those materials.

Thank you, Steve. There's a lot to dig through there and unpack. And so we'll turn it to the audience and see what questions we have. Start in the back with Ryan.

Ryan Krueger, KBW. I have for 2 questions. The first is on LTC capital contributions. So the PDR, if interest rates remain at these higher levels, you'll effectively have overfunded the PDR longer term. Would you expect that to then, if interest rates do remain higher, to remain in Fairwind and then just provide a cushion to longer-term needs?

Yes. Yes, I can take that one. Yes, you're thinking about it the right way. There'll be ongoing capital requirements just on that block. The RBC requirements grow over time. And so we -- if rates do stay where they are today, we will have excess capital that we'll use to fund those over time. We just want to put some certainty to additional capital that we project be needed for that block of business. And so we just think that's the right balance between kind of strengthening the balance sheet and then thinking about other capital deployment.

Got it. And then the second question was based on your capital -- your capital levels that you expect at the end of the year, they'll still be pretty far above your targets and then your cash flow generation will also be significantly higher after this year. It seems like you'd have quite a lot of capacity to do more than $300 million a year of buybacks. And so I guess I'm curious if is the $300 million just a low bar that you'd consider raising or are you holding back capital for other things like potential risk transfer over time?

Yes. Maybe I can take that, Ryan. And actually, I'll take you back to the bottom of Steve's slide that he had in the priority order of deployment that we have as he said we've really been excited to take you through some of the details of our core business today. And so we're going to put as much money behind our lines of business, generating those mid-teens, ROEs. So that's number one. Second is we'll look at the inorganic ways to grow the business. Think about that capabilities. So what you saw today was some great technology capabilities, think about some product lines that actually can fit in there. And so those would be on the M&A front. We would definitely want to do to grow the overall enterprise, do so in a reasonable way. Dividends, Steve mentioned, we're going to keep increasing that. And then you come back to share repurchase. And so we put $300 million. We upped it from the $200 million that we had. We feel pretty good about that. But as you see those capital metrics, we'll have at the end of the year. We'll continually evaluate what that looks like. And so you mentioned the LTC risk transfer, that's out there, M&A, all those things go into the mix, but we're really happy to be going through this year, taking the actions that we are behind our long-term care block and still having ample flexibility to do what we want to do strategically over the course of the things as things emerge.

Alex Scott, Goldman Sachs. Just on the topic of the PDR and the underlying assumptions there. I know you guys have talked about the GAAP reserves and best estimate, resulting in a lower reserve. I'm just curious, when you guys are looking at the risk transfer market, and clearly, there's still a bit ask, otherwise we would have seen something happen with some of the assumptions. Is that more relative to your GAAP assumptions or is there some better buy-in from the market around the level of the PDR assumptions? Any way you can help me get a feel around that?

Yes. Maybe I'll start there, and then we'll turn it over to Steve. When you think about it, Alex, the assumptions we have, Steve Mitchell mentioned the bid-ask spread that we have out there. So we have our own assumptions in terms of what we think best estimate is. We've got now cushion on top of that, which is the PDR. When you go to the market, people will actually look at our book of business and understand where it is for their own assumptions. And so it's not that people pick one or the other. They'll have their own things they look at. As Steve Mitchell mentioned, there are different things that they're more sensitive to than others. And so we'll look at bringing the 2 of those together. But when you think from a capital perspective and the increases that we're putting behind this business, that gets us closer from a capital perspective, but we'd have to see where that transaction might come together. I don't know if you want to add more to that, Steve?

I think that's spot on, Rick. I mean, again, the industry experience is still a little thin. Different parties are comfortable with whether it's longevity or incidents. They have different capabilities, and they may be looking to lever value in different ways whether that's through the investment side or whatever. So each is specific. So again, as I noted, it's evolving. We feel good about the direction, but those liability assumptions are a big area.

Got it. Okay. And just thinking through as a follow up to Ryan's question, you're funding $800 million to $900 million this year. You're not going to have to do that next year. So there's a lot of capital available. It sounds like hesitant to load it all into buybacks, which I get but could you talk about the M&A environment? What kind of opportunities are out there? What kind of transactions would you potentially look at?

Yes, it's a fair question. I think I would just talk about what we have, which are the capability type of acquisitions we have to fill in our core growth opportunities that we have out there. I would say that we'll look at other opportunities. We'll be very -- we'll take a very careful eye to anything that might be out there. We always would. We always have. So it's going to be much more about how we continue to grow the core franchise. So M&A, we have a team focused on that. So we'll be out there continuing to look. We're looking today. And so we want to make sure that the right capabilities can fit into the overall strategic profile that we have.

Tracy Benguigui, Barclays. Two questions. Can you discuss additional opportunities to add to your hedging program and what you anticipate this year?

Okay. I'll take that. Maybe -- first of all, Martha, maybe talk a little bit about just the capabilities that we have today and what we've done, and then I can follow maybe how we're thinking about it going forward a little bit more.

Yes. We really have, over the last several years, spent a lot of time in looking at our hedging program, our hedging capabilities as the environment has changed. We've updated our derivative use plans, our ISDA agreements, looked at our collateral and our ability for collateral management and that worked across the ALM teams, the finance teams, to be able to test what these hedges could do to the portfolio and make sure we're comfortable with the sensitivity. So we feel like we're in a good place to execute on these hedges. We think what we've done over the last year has really proven that out. So now we work closely with ALM as we look at rolling that program forward to make sure that we've got the capacity and the capabilities to manage the program.

Yes. And just how we're thinking about going forward. I've mentioned this past is we think about the projected cash flows in the business. And clearly, there is some stability to that, but there's still some uncertainty, and you need to get that right when you think about the size of the program. Because for us, and many others, it comes down to getting the right hedge accounting treatment for those types of programs. We want to make sure we get hedge accounting. It's very important for GAAP, just so that we don't have a lot of volatility in earnings. But on the statutory side, it actually can drive some pretty bad capital outcomes if you don't get that hedge accounting correct. And so I'd say we're taking a pretty conservative view laying into these. We're not going to set a target of the size of the program. What I will say is we do want to continue to expand it. Our intent is to continue to expand that program and continue to push to a point that we're comfortable that the accounting treatment is going to be consistent with what we would, what our expectations would be.

My second question is for Martha. I thought it was a really interesting comment that you said that the C1, C2 charge have a pretty high covariance benefit. Can you quantify that for us?

It differs by statutory entity. But rule of thumb, I think it's about a 40% to 60% allocation we would get from the higher capital charge versus not having a benefit from covariance.

Maybe the other data point to -- would be back when the new C1 on factors were implemented, how those turned out for us is a pretty much completely diversified way. And I think we might have had 1% to 2% to 3%, something like that RBC impact from that. So it ended up being pretty de minimis for us. So we can take on quite a bit of C1 risk and manage pretty well.

Suneet Kamath from Jefferies. So on LTC, I think morbidity improvement has been 1 of the variables or statistics as there's been some differences in opinion, I guess, across the industry whether we'll see it or not see it. So can you talk about maybe what your recent experience has been, what it's showing you? And then second, are you aware of any like industry studies, where they're aggregating information across carriers just to kind of benchmark how you guys -- your book compares to overall industry?

Yes. I would say a couple things. One is we look at our assumptions on an ongoing basis, all of our assumptions and our last couple of reviews have shown nothing really of note we're tracking as we would have expected. I would note, again, from an industry perspective, the industry has started to do better with intercompany experience, but it's still pretty slim. So it really gets challenging to say. And companies are still split as to how they handle that. And it's also split based on like how long they've been in the business, what kind of offering they had, type of underwriting they may have done and their capacity and the scale of that company to sort of tease it out. Widely variable.

Yes. The other thing I'd add, it's a little bit tricky to across on that assumption because it's really important to understand what the base incidence assumptions are that companies are actually using. Because it's really almost a comparison of how you are you're improving against your own longer-term count incidence assumptions. And so it just -- it becomes a little tricky to try to read across. And I just go back to what Steve said, we look at our experience over time on an annual basis.

Got it. And then maybe just a related follow-up. So a couple of years ago, we were surprised by Maine, they kind of came out this PDR thing. And I think you guys gave us what all the pieces were some was morbidity, interest rates, et cetera. How do they go about that process? I mean, is there going to be in a couple of years, Maine does another review, and then maybe we get another surprise? Or just what is the back and forth related to that?

We have very frequent dialogue with Maine as many companies do with the -- or almost all companies do with their regulators. We've been walking through this process with them, continuing to go through a cycle of dialogue and monitoring and exams. And again, over the cycles we've been through recently, nothing of note. So I think we've been keeping them updated, having a great dialogue with them, a very positive relationship, and we'll continue to have that cycle of dialogue, my mind, dialogue, monitoring and exams going forward.

And we will. I mean, we'll continue to have routine exams as a regulated insurance company.

Erik Bass with Autonomous. A question for Martha. I was just hoping you could go into a little bit more detail about your credit stress test and kind of what you're assuming in a potential downturn, and if there are any capital implications.

So when we looked at the most recent credit stress test, very focused on where we have our credits bottoms-up approach. Market gets hit, you have unemployment go up over 6%. You have a 2% decline in GDP for several quarters. Then we looked at the credits that we have that are most cyclical and stress that EBITDA between 30% to 50% depending on the industry and the company. And then we looked at our models and said, what does that mean for these companies in terms of their ability to pay their debt off over the next couple of years, their ability to maintain their rating or would they get downgraded or have other issues. We sum that up and put them into our tiered approach on credit monitoring analysis. Is it a heightened focus? We're going to these more regularly? Do we think it's a potential fallen angel or a fallen angel that's getting ready to happen? Then we looked at the watch list levels with respect to default. So we measured then what the impact would be to the overall ratings, our ability to withstand that additional capital that would be required. Fortunately, we have brought our high-yield exposure down. We did get the benefit from the covariance. So it was not a material impact to the capital.

And it sounds like a lot of the focus is on corporates and that obviously, it fits with your portfolio. But I guess as you look more broadly, are there any asset classes that are concerning to you at this point? And I guess you had mentioned pulling back for office CRE, for instance, a couple of years ago, but anything else that's sort of on your watch list?

So I am glad you brought up that point, because we did stress anything that was credit related to the portfolio. We also looked across some mortgage loan portfolio. What -- is there going to be an impact to any of these tenants? Do we see increased vacancies? All of our mortgage loans are performing. They performed well through COVID. We don't have any delinquencies. We have a couple of loans that are on the heightened focus list because they may have heightened vacancy, but we monitor those with respect to debt service coverage. The outstanding leverage, the worth of the building, we don't see any issues with the mortgage loan portfolio. Other asset classes, we look at the alternatives. Those will be volatile. They'll be volatile with the market. But we also have about 60% of the portfolio where we get an inflation benefit, whether it's floating rate loans that are adjusting up in the cycle or inflation index to real assets. So no concern across any of the asset classes.

So I think back in 2018, when you did your LTC update, you assumed $1.4 billion of future rate approvals. And it looks like you've already achieved on a net present value basis since '18, $1.6 billion. So does that mean that you've exhausted your assumption or within your assumptions, are you expecting further rate approvals?

Yes. I think the best way to think about it is think about the statement, I mean, I made. As we see experience as the book pivots we continue to seek anywhere we see actuarially justified rate increases. So we're just going to go at it and keep working where things are justified for us to bring forward. So we have had good experience. I do think we take a healthy view when we invent things in reserve assumptions. So we don't get far out over our skis. And I think we'll continue to work that process.

Yes. And just I guess just to put a point on the question. If you go to the chart, those are cumulative both kind of assumptions that we've built in as well as what we've achieved. So our achievement is still below kind of the cumulative assumption that has been built into our reserves. But it's converging fairly quickly. So I would say we haven't overshot it but we feel really good about where we are.

I just had 1 quick follow-up on the Fairwind capital. If you were to retain a bigger buffer in Fairwind, could you describe what would go on with the RBC ratio at Unum Life Insurance Company of America? As you have -- I think the phase in of the PDR reserve actually occurs in Unum Life Insurance Company of America. So I just wasn't sure whether we'd actually see the RBC ratio drift up as you hold that higher buffer in Fairwind or how that dynamic would work?

Yes. Actually, that liability is fully reinsured to Fairwind. So there's really no net impact to Unum America's RBC ratio. So it all be -- it's a close of circuit really within Fairwind as far as the capital requirements, the contributions and the kind of net reserve build.

Taking more questions. We have mic up here, too, to answer any follow-ups from earlier today. One on back.

Mike Ward with Citi. I did have 1 question just on LTC and sort of the idea that COVID continues as an endemic. And just curious, you've probably gotten this question before. If there's a way to sort of quantify the potential benefit to earnings those reserve leases over time?

Particularly long-term care of the questions. Steve, do you want to take that?

Yes. So I kind of take you back, and we definitely saw a very rapid increase in claim on mortality early on the pandemic. And that came down over time where really, I think, over the last probably a year since the first quarter of last year, it's been pretty de minimis as far as the impact COVID, we think, has had on the claim of mortality experience that we've had. From the beginning of the pandemic, though, we've pretty much said we know that this is probably not going to be our longterm experience. And so haven't really incorporated that into how we think about term experience. So I would say going forward, you can kind of come back to we think the benefit ratio is going to be back in that expected long-term range of 85% to 90%, which I'd say -- inherently would say that we think we'll be back to incidence levels and mortality level and those types of things that are more consistent with our longer-term expectation.

Okay. Super helpful. One last 1 before lunch. On ben admin is kind of phrase that's getting tossed around a lot more these days. I'm just kind of trying to think about, are you guys viewing the investment in these technologies, to what level are you viewing them as a potential offset to expenses that you already pay, external, platforms or software providers versus just a pure growth opportunity?

Yes. Mike, do you want to talk about how that all comes together?

Yes, sure. So just 1 point of content. So benefit administration or ben admin is kind of the short hand for think about as a portion of broad human capital management platform. So you're kind of thinking the entire of HR process front to back is managed on those cloud-based HCM systems, ben admin is the module typically within that, that's managing benefits over time. And then out in the market, you do have point solutions that just do benefit administration. And our kind of operating thesis is in the middle and large case market, HR teams are increasingly looking for 1 platform to manage all their people process. And Liz Ahmed our CHRO. She's here to be at lunch today. You can ask her about it. We're certainly true at Unum. So our bet there is the more holistic platform is going to be central to the strategy that we have. Ben admin point solutions, particularly down market, there is a revenue stream that's created there where carriers, including Unum are paying for those connections. It's not a significant part of our distribution expense. So I wouldn't think of it as a material offset in terms of our expense ratio. But we do like the opportunity to actually be bringing our own proprietary platform with Gallagher out through that Colonial Life distribution. That's small end of the market is, like Tracy was saying earlier, it's very profitable part of the market. It's an underpenetrated part of the market and having the capability to bring strong benefits. But then like Tim was saying, other HR functionality optionality is pretty exciting.

Great. I think we're going to move to close for the day. We really appreciate the group that's here in person. Certainly, those that have joined us on the webcast. Hopefully, you heard over the course of today, allowed us to go into some depth about why we're so excited about this business in 2023. As you look out over the course of the year, what you're going to see is the growth that we talk about quarter-by-quarter, removing some of that LTC uncertainty we've had as we go through 2023 and then certainly, the overall returns of the enterprise through the course. So we appreciate you being here today. Very excited about what the year looks like. And I'd ask you in person, this is -- we haven't done this in a while, a round of applause for our presenters today. Please have a good rest of the day. Thank you very much.