Unum Group (UNM) Q3 2013 Earnings Report, Transcript and Summary

Thomas White Thomas R. Watjen - Chief Executive Officer, President and Director Richard P. McKenney - Chief Financial Officer, Executive Vice President and Principal Accounting Officer Michael Q. Simonds - Chief Executive Officer of Unum US and President of Unum US John F. McGarry - Executive Vice President of Individual Disability & Long Term Care Closed Block Operations Peter G. O'donnell - Chief Executive Officer of Unum UK and President of Unum UK

Jay Gelb - Barclays Capital, Research Division Erik James Bass - Citigroup Inc, Research Division Suneet L. Kamath - UBS Investment Bank, Research Division Yaron Kinar - Deutsche Bank AG, Research Division A. Mark Finkelstein - Evercore Partners Inc., Research Division Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division Eric N. Berg - RBC Capital Markets, LLC, Research Division Steven D. Schwartz - Raymond James & Associates, Inc., Research Division Robert Glasspiegel - Janney Montgomery Scott LLC, Research Division Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division Sean Dargan - Macquarie Research Thomas G. Gallagher - Crédit Suisse AG, Research Division

Good day, and welcome to the Unum Group Third Quarter 2013 Earnings Results Conference Call. Today's conference is being recorded. At this time, for opening remarks and introductions, I'd like to turn the conference over to the Senior Vice President of Investor Relations, Mr. Tom White. Please go ahead.

Great. Thank you, Jason. Good morning, everyone, and welcome to the third quarter 2013 earnings conference call for Unum. Our remarks today will include forward-looking statements, which are statements that are not of current or historical fact. As a result, actual results might differ materially from results suggested by these forward-looking statements. Information concerning factors that could cause results to differ appears in our filings with the Securities and Exchange Commission and are also located in the sections titled Cautionary Statement Regarding Forward-Looking Statements and Risk Factors in our annual report on Form 10-K for the fiscal year ended December 31, 2012, and our subsequently filed Form 10-Q. The SEC filings can be found in the Investors section of our website at unum.com. I'll remind you that these statements in today's call speak only as of the date they are made, and we undertake no obligation to publicly update or revise any forward-looking statements. A presentation of the most directly comparable GAAP measures and reconciliations of any non-GAAP financial measures included in today's presentation can be found also on the website in the Investors section. So participating in this morning's conference call are Tom Watjen, the President and CEO; Rick McKenney, Executive Vice President and CFO; and Kevin McCarthy, Executive Vice President and Chief Operating Officer; as well as the CEOs of our business segments, Mike Simonds for Unum US, Peter O'donnell for Unum UK, Randy Horn for Colonial Life and Jack McGarry for the Closed Block. And now I will turn the call over to Tom Watjen. Tom?

Thank you, Tom, and good morning, everyone. The third quarter was another strong quarter for the company with growth in operating earnings per share of 6.3% to $0.85 per share and an increase of 10.4% in book value per share, excluding AOCI, to $31.63. And let me touch on a few items before turning things over to Rick. First, I continue to be very pleased with the strength of our core business operating results. Unum US had another very strong quarter overall with profit margins for this business segment continuing to improve as we stay focused on disciplined underwriting, pricing and risk selection, often at the expense of top line growth. These strong results were driven in part by another quarter of solid risk results in our group disability line, where the benefit ratio improved again to 82.9%. Colonial Life's operating results remain strong as well with solid risk results and sound expense management driving another good quarter for this business. Lastly, while still below our long-term expectations, Unum UK showed strong improvement over the third quarter of last year as the aggressive group life repricing and repositioning actions we began taking late last year have begun to have a favorable impact on our results for that line of business. I continue to feel very good about the results of our core businesses where our disciplined approach to the business has resulted in consistently strong margins, cash flow and operating return on equity, which was 14.5% for the quarter. Secondly, our Closed Block segment was also in line with our expectations this quarter. As we have said in the past, this segment, particularly the long-term care product line, will continue to be an area of focus for us for some time to come. I mentioned last quarter that we had…

Great. Thank you, Tom. As Tom mentioned in his comments for the third quarter, we reported operating earnings per share of $0.85, an increase of 6.3%, which brings our growth in operating EPS to 6% for the first 3 quarters of the year. As a result of this, we're refining our outlook for the full year to the higher end of the 0% to 6% range as we look to the fourth quarter. Again, in the third quarter, across the company, we continue to see positive trends. Drilling in a little bit deeper to the results, first on Unum US, operating earnings increased year-over-year with favorable experience in the group disability and group life and AD&D lines, offsetting slightly lower earnings in the supplemental and voluntary lines. Focusing first on our group disability business, we continue to perform very well with the benefit ratio at a tick under 83% for the third quarter of 2013, which compares favorably to an almost 85% in the year-ago quarter and 84% in the second quarter of 2013. The underlying experience continues to be strong with stable to lower overall claim incidents and continued strong claim recovery performance. We didn't adjust discount rates as the interest reserve margins remains comfortably above our target range and consistent with the margin in the year ago quarter. The profitability of this business also continues to benefit from the pricing discipline we show on new sales and renewals. We are very pleased with the performance of this business and the strong return it continues to produce. Group life and AD&D also produced good results for the quarter with operating income increasing by 4.3% to $58.5 million. The benefit ratio was steady in the quarter at 71.5%, reflecting favorable underlying risk experience. And finally, in Unum US, the supplemental…

Thanks, Rick. Before we move to your questions, I'll close by reiterating how pleased we are with our operating results for the third quarter. We continue to generate solid profitability and returns by focusing on the basics, disciplined pricing, underwriting and expense management, along with the sound risk management and managing our investments and capital. That focus on the basics will not change. This completes our prepared remarks. And operator, let's move to the question-and-answer session.

[Operator Instructions] We'll take our first question from Jay Gelb with Barclays.

A couple of follow-up questions. So the move for the Bermuda operation back onshore, how much capital do you feel that will deploy in the course of doing that?

Certainly, Jay. This is Rick McKenney. Just let me answer a couple of things. One is we're still working through the details. So we brought that out to you today. We do expect to have more details around that by Investor Day, but we're still working through the structure. What I would -- how I would highlight that is actually, we're going to be within the ranges of capital that we -- our outlook that we really put out to you over the course of this year. So we feel good about that and now we take it out. And as I mentioned in my notes, we'll also have the ability to buy stock in the quarter and get to those levels. So I think this is going to be a good move for us, and we'll give you more details as we get to Investor Day and the structure solidifies.

On that topic of buybacks, it's been running $100 million a quarter in the first half down to $75 million in 3Q. Just trying to get a sense of what a decent run rate is on maybe a quarterly or annual basis absent that shift?

Go ahead, Rick.

Let me take you through how we're thinking about our capital. First, I'd start out with saying our capital generation this year has been excellent. We mentioned even through 3 quarters, $500 million of statutory earnings, which is better than I think we've anticipated, certainly better than our run rate that we've had. As we've talked about before, we think about capital deployment in many ways, in terms of what are the best uses of our capital as we take that out. Now we've certainly have done it through share repurchase, and that is an important piece of how we deploy capital. But I'll also take you to other things that we've done in the course of the year, retiring debt in the first quarter, solidifying our pension position in the second quarter, and now we're talking about redomesticating our Bermuda business, which as I've just mentioned in my last comments, we'll adjust some of that capital that we take in. But we think those are all good uses, and certainly, we'll continue to do that. Specific to share repurchase, I think that as we mentioned in our comments last quarter, there are a lot of factors that are going into how much stock we will buy in a given quarter, when we will do that in the quarter and how we'll go through it. So I think that those still hold, but I'd take you back to how much capital we're generating, and we certainly will put that capital to work on an active basis.

Okay. And then finally on the strong recovery in group LTD sales in the U.S., what's changed relative to the prior 2 quarters? I know a significant focus by some benefit managers at large corporates on the looming Affordable Care Act implementation had been a drag in the first half. Did that ease off in 3Q? I'm trying to get a better sense of what changed.

Yes, Jay. I'll let Mike Simonds speak to that. Mike?

Yes, thanks. Jay, I'd say the headwinds that we've been feeling through the first half of the year are definitely still out there in the market when it comes to health care reform. That being said, we did see that abate just a bit as a number of health care decisions, particularly for large employees, get made around midyear, and so they can now turn their attention a bit to some of our lines of business. So we were encouraged to see the increase in disability. We're encouraged to see the increase, as Tom mentioned, in our core and in our voluntary benefits sales. But we're still cautious around the outlook given that employers still have a great deal to work through, particularly in the small end of the market. And with fewer prospects out there, fewer employers looking to make changes, we continue to see a pretty aggressive pricing environment as carriers are looking to meet sales goals with fewer prospects available.

And if I can add to Mike's comments, too, I think he said it well. I think the big challenge for us is still in the small end of the marketplace. And so I'm not sure we saw a real swing in sentiment over the course of the last quarter. We're still cautious as we look forward, and that obviously affects both the sales activity within Unum US but also in Colonial as well. But again, there were some encouraging signs. But as you see, we're not going to deviate from that more disciplined approach. If the business is there to be done at a profitable level, we'll certainly be getting more than our fair share. But if not, we'll sit on the sidelines. But I don't think there's been a real fundamental shift in the quarter, especially amongst that small employer piece, which is affecting both Unum US and Colonial.

And we'll take our next question from Erik Bass with Citigroup.

Just one follow-up on the Bermuda captive. And I guess how are you thinking about kind of the long-term care statutory reserves? And am I correct that as part of the redomiciling process, you might have an opportunity to increase those reserves?

Rick?

Yes. The way I'd answer that for you, Erik, is that when we bring it back onshore, we are expecting that we will have a company and a business that is actually similar in its reserving and capital processes that we have in the U.S. So that is a key part of that, and we'll take you through the details on that. But it will look very similar to our other practices we have for other U.S. businesses.

Okay. And would that be a higher level of reserves than today on a statutory basis?

I think, Erik, that gets you to some of the discussion around capital we just said. So we're going to have to bring you those details to you on Investor Day, but I think that those will all be coming to play in terms of how we look at what reserving levels look like, as well as what capital levels look like. But we'll give you more of those details at Investor Day, and quite frankly, when we're done with the process, which we aren't not done yet.

And Rick, if I can answer that, again, this is -- I think that you said this before, but this our decision to do this. This doesn't have to be done. But as we just look at just our own capital structure, the quality of our capital, looked at obviously some of the themes that are happening in our industry, we just think this is the right time to entertain this. And fortunately, we have the financial flexibility to do so. And I think you just said Rick, when the dust settles, we'll have this back onshore at a level most likely with reserves and capital equivalent to the other parts of our business.

Okay. And then you mentioned the increased resources that you've allocated to the Closed Block. Can you just talk a little bit more about -- specifically about what you're doing, particularly for the long-term care block?

Yes, let me turn things to Jack. But just to remind others, what we did talk about last quarter was the fact that this closed block, and especially the long-term care component of the block, is going to be with us for many, many, many years to come. And so this will be an ongoing focus that we're raising our focus, frankly, to be sure that we're managing that business for the long term. And we appointed Jack to run that business, and Jack has certainly added to its resources. Maybe, Jack, maybe take people through a little bit some of the early things that you've been involved in.

Yes. And the big piece of what we've done with the resources is we've really consolidated resources around long-term care. We're running it as a strategic business unit. So long-term care currently has basically all of the functions within it that affect its outcomes. In addition, we've significantly strengthened the actuarial resources that we're bringing to bear on long-term care. As many of you may know, I'm an actuary running the long-term care line. We have selected some of our best actuaries in the company to come into the unit and work on reserving, repricing and capital management. We're underway. It's going to be a process in terms of building the tools and doing the analysis, but we feel like we're off to a great start. And that really is the focus of the unit, continue to do the operating things that continue to produce stable results, but a big focus on reserving and financial modeling, a big focus on rate increases and making sure that we get those in the best way possible and then the final focus on capital management.

And then just finally, any updates in terms of how on kind of the repricing kind of the environment for getting rate increases through on long-term care?

Yes. In essence, for the last couple of quarters, I think we've been saying that we believe the environment is getting better for rate increases. We've had great success with our last round of rate increases. We are above kind of our planned level that we had built into our reserves. Previously, and one of the things that's happened, actually, is that there's been some movement at the NAIC, particularly at states that have awarded rate increases, understanding the inequity of them awarding rate increases where other states haven't. And there's been -- begun to have some internal pressure among regulators to have a more consistent approach to rate increases, and we think that's been a very positive development. We're very optimistic about the next round of rate increases that we're working diligently to get out there that we will continue to have good success.

And we'll go next to Suneet Kamath with UBS.

A couple of follow-ups on UPIL. Rick, in your prepared comments, you said that part of your decision to bring it onshore was that it was not producing the desired benefit that you were looking for when you originally set it up. Can you just talk a little bit about what you had expected it to do and why it wasn't producing what you thought it would?

Sure, Suneet. I'll take a shot at that. I think that in my comments, I also mentioned it was up in 1996. So I don't have a good insight in terms of those details. But when you look at it, where it is today and the environment that we're in today, there is benefit there in a sense, but I think from the way we look at it, as Tom mentioned, the quality of capital, the structure, the simplicity of the structure of the company, those benefits are outweighed by the simplicity that we can have by having it onshore, whether it's similar reserving and capital process we have for the line. So I think that's when we get to it. It's not dollars and cents benefit. I think it's much more about it had outlived its usefulness as a structure.

Okay. And then I guess as we think about your capital generation model, the slides that you typically show us excluded, I believe, UPIL because it was just the Unum US businesses. So I'm assuming that once you bring it onshore, we're going to have to roll in what is now UPIL into that capital generation model. And I think on a year-to-date basis, UPIL is losing maybe $30 million, $40 million of statutory earnings. So my question is, am I right in terms of rolling it in? And how should we think about the impact on that capital generation going forward once it's brought onshore?

Sure. I think we're getting a little bit out there, which is some of things we'll probably talk to you about at Investor Day. But I think that when you think about the consolidation of it, one, the UPIL results have a lot of factors that go into it. It is a reinsurance entity. So there's a lot of timing differentials, different treatments of how investment income, capital gains and losses are treated. So there's more noise in there than it would be actually onshore. If you think about that loss, I think you would be looking at $30 million relative to the overall capital generation, which has been $500 million year to date, it's somewhat immaterial. So I probably won't focus on that too much. But we'll give you better insight to that as we get to Investor Day.

Okay. And then my last question on this was I just want to follow up on Erik Bass's question because I think where he was going was to try to understand how this change might impact your prior discussion of statutory reserves on long-term care. So If I go back to last quarter's call, I think you had originally talked about sort of a 3- to 5-year time frame before you need to take a charge with a starting point of 2011. I think you said with the improvement in rates, maybe we're closer to the 4-year time frame. So I guess my question following up on Erik's question was, does this decision alter that guidance from a timing perspective or from a order of magnitude perspective? And I think you've talked about a $250 million after-tax kind of charge. So I know you said this is your decision to do, but how does that affect the prior guidance? Can we still rely on that? Or is that something we'll have to address?

Yes, certainly, Suneet. And let me clarify, we've never talked about a $250 million charge related to anything and certainly aren't going to talk about that. What you're talking about is GAAP concept, so when you look at the reserves that we've talked about in the past and what we're evaluating is purely GAAP. It's had 0 impact in terms of our GAAP processes. This is purely a structure, a capital structure, a statutory structure that we're dealing with here. So those 2 are not correlated things in terms of one impacting the other. They're very different things. And I said in my comments, to be very clear, this has no impact on U.S. GAAP, the structuring that we're doing here.

Yes, okay. All right, I'll follow up. I mean, I thought that now that GAAP and stat LTC reserves were kind of the same number, that changes in one would probably drive changes in the other. And I guess that's -- what you're saying is it's not the case.

That's not the case. I think the buildup on the reserve basis and how they move can be very different and have been very different. And so I think that was more of a guidepost to say where they were as opposed to one change will drive another change. That's not the case.

And we'll go next to Yaron Kinar with Deutsche Bank.

Maybe one other attempt at the Bermuda restructuring and then the capital deployment question. So if I hear you correctly, cash generation is tracking a little higher than you estimated at the beginning of the year and yet guidance for share deployment has come down a little bit. So would it be fair to assume that, that gap of, call it, maybe $150 million is roughly what you expect to invest in, as you think of redomesticating that business unit or that subsidiary?

Yes. Well, let me say I appreciate you trying to work backwards into details. But until we actually get to the year end, we still have more details to work through. We'll give you a lot of those movements as we get there. But when you think about capital generation and deployment, I want to reiterate capital generation has been quite good, and we've been very active deploying capital, including, I don't want to lose the fact we bought back $75 million in the quarter and I also mentioned in my comments we expect to probably buy back shares in the fourth quarter as well, depending on all the factors, including whereas we mentioned last quarter where the price is, what's going on overall in the company, we will buying back shares in the fourth quarter. So when you get through all those different pieces, we'll give you what we're doing as part of Bermuda structure and we'll also give you a view in terms of where we are from a capital deployment perspective, both generation-wise and what we expect to put back through multiple channels.

Okay. I guess I'll just have to be patient one more month. And then if we switch over to sales for a minute, if I understood the comment to Erik, it was that there was some uptick in the focus for management teams on benefit purchasing in the second half of the year. Do you think that's a temporary issue? Or maybe are we now past the most severe pressure period that we saw kind of in the first half of the year?

Mike, why don't you take one, please?

Yes, sure, happy to do it. So I'd say we did see a little bit of that particularly in the over-50 life market where you think about employers having a few more resources to be able to sort through decisions on multiple fronts. So we see that abate just a bit. I do expect that with things like the employer mandate being pushed out a year, that in the coming quarter and in actually, frankly, the next few quarters, we'll continue to have to swim upstream a bit as employers and their broker advisors help them sort through their ultimate health care decisions. That being said, what I would say is what's coming out of those health care decisions continues to be a couple of important things for us, one, the employer remaining very engaged in the overall benefits process and the other being a constant push towards a more consumer-driven benefits with more employee engagement, and that's the trend that we started to see 6 or 7 years ago that's been the basis of most of the investments we've made in our capabilities is this idea of choice products enrollment, education and communication. So even as I think we're going to continue to see some short-term headwinds, it plays into a longer trend that I think we're very well positioned, both actually the Unum and the Colonial Life brands here in the U.S.

And we'll go next to Mark Finkelstein with Evercore.

Maybe one last crack at the Bermuda situation. If I just look at it, nothing economically is changing. The risk is the same, kind of how you have to fund it, really doesn't change that much other than maybe just some cosmetic impacts of capital and reserving, et cetera. But just in that context, should we be thinking about maybe some easing of kind of holding company cash positions or even RBC down the road? Or should we be thinking about historical levels of margins, above margins that we've been talking about?

Yes, certainly. I'd like to take that one on, Mark, in terms of how we're thinking about this longer term, because I think that when you evaluate this structure and as we talk about simplification that we'll get is bringing this back onshore, it does get better clarity in terms of the different pieces that we have out there, the cash that we will hold at the holding company, throw into that as well the credit facility that we just put on, as well as our RBC levels. So all those come into play. And as we look forward and I think having that clarity and taking you through that is actually going to be helpful as we get out into 2014 and beyond.

Okay. So no real clarity at this stage on whether we can assume reductions or changes in how you've been thinking about it?

No, not even over the structure and I think that's more of an outlook-type conversation that we'll have in December.

Okay, fair enough. You should have some clarity, I think, on January 1 renewals. So I'm just curious in the light of maybe the prior conversation about kind of how employers are looking at the situation, are you seeing anything that fundamentally changes your outlook on what persistency is going to look like as you head into 2014?

Mike, I think it's directed to you.

Yes, sure. Thanks, Mark. We do have a pretty good line of sight, particularly towards the larger end of the market where employers are making decisions with a bit more lead time for implementation. And I think, on balance, actually feeling pretty good. As you know, we've been consistently, over the last couple of years, looking to modest rate increases in the 5 to 8 sort of mid- to high-single-digit ranges. We're having good success with that placement. Persistency is tracking well within our expectations going in. So feel very good about that. That's sort of the flip side of the malaise of health care reform, is when employees are sorting through health care decisions, it does add to the stickiness of existing programs, so it helps facilitate, I think, a pretty successful renewal approach here.

So I guess just maybe pushing on that a little bit, if I think about what this line might look like when we get to Q1 '14 earnings, you've been kind of trending in the high 80s percentile. Based on what you know today, you're not seeing anything that would fundamentally alter that to the downside?

In terms of persistency?

Correct.

Yes, but I think that's reasonable fit. I mean, there's still a lot of work to be done in our core markets, that's a big business for us, so we've got our heads down, working closely with brokers and with clients. Service levels are very strong for us right now, that usually correlates pretty well with strong persistency. So we're optimistic, but also want to be clear that we've got real work to do in placing January renewals yet to go.

Okay, fair enough. And then just one final quick question, U.K. persistency on group life kind of been 65%. Looks like if I average the second quarter and the first quarter, you're kind of a net level for the second quarter as well. I know you're going through a pretty exhaustive group life repricing process. Does that get better from here? How do we see that persistency level playing out? Because interestingly, you actually had better sales in group life in the U.K. as well.

Yes, I was thinking of Peter. Maybe you just step back a little bit, too, and just remind everyone what your renewal program and repricing program is, what you're undertaking actually at this point. And to Mark's last question, to where you're seeing the sales before we get into the persistency.

Yes, thanks, Tom. And so let's just take the sales, first of all. So just taking the group life sales, it's actually come through to selling to -- basically expanding coverage with group life schemes. So basically, we've been [indiscernible] in keeping, say, the order enrollment, which is a pension change in the U.K., means that more people are taking up pensions. We're seeing an uptick in group life sales off the back of that. So pretty comfortable about the profitability of the new business arising on the group life schemes, the new stuff coming in. So which business does remain competitive? So we haven't been successful in the large case markets. I think that's going to continue for a little while. We're waiting for some of our competitors to digest that business. And that indigestion problem, perhaps that will come back at a more amenable economic return from our perspective, but that will take a while to go through the system. In terms of renewals, thanks, Tom, what we're doing there is we're putting double-digit rate through the book. And so that is either getting the rate through, so we're repricing that to our appropriate hurdle returns or we are losing, particularly at the large end, some pretty large schemes. Again, to our view, it's a pretty rational pricing in general that's taking us. But our intention really is to come out of this with a smaller group life book but a more profitable group life book. So that will be the intention. I think the persistency you're seeing at the moment will continue this year, and we'll see a bit of an uptick next year because we've got through more of the books. So it's going to remain at lower ends of the long-term range through 2014 as well.

And we'll go next to Jimmy Bhullar at JPMorgan. Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division: On the buybacks, remember beginning of the year, you had mentioned something around a $500 million number, and you bought back a decent amount of stock but still lower than what you had expected at the beginning of the year. So just wondering if you could talk about what's changed since then, is it the higher stock price or is it other things that are dissuading you from buying back stock? Because your stat income's been fairly healthy. And then secondly, on U.K. margins, they've been pretty stable the last few quarters. What the drive -- how much of that is just better pricing and loss trends versus the benefit of the reinsurance transaction? And also, what your expectations are for renewing the reinsurance contract next year?

Rick, do you want to start with the stock repurchase?

Yes, certainly. Let me give you a little bit of a different angle on it, Jimmy, too. When you go back to the beginning of the year and you look at our capital generation model, which has actually been intact for the last several years, we talked about good steady capital generation and redeploying that in multiple means. So it's putting it back into our business. It's actually looking to acquire, which we haven't talked too much about but that's certainly a place where we'd like to deploy capital, raising our dividend, which we've been doing very consistently and then share buyback. We've talked about $500 million of capital generation. And I think given other choices and particularly given where our stock price was, going back even earlier in the year, share repurchase was a perfectly sensical thing to do at quite good volumes. As we've gotten through the year, we've seen other opportunities to use that capital to be redeployed wisely, whether that's retiring some of our debt, whether that's solidifying the pension, whether that's continuing to buy back shares. So we say when we're dissuaded from capital, I think we've just had other choices that we can choose to put that capital to work. Good choices, good for the overall company, good for our balance sheet, and we'll continue to do that. So I think that share price played into that. I think Tom talked about that last quarter pretty extensively, but there are other uses of that capital that we certainly will put to work. So we don't feel dissuaded about share repurchase. I'd remind you, $75 million that we bought back this quarter is 1% of our outstanding, so they're meaningful numbers that we continue to buy, and we'll always continue to do that in the future.

And Rick, if I could add to what you just said, I don't think any of our -- the way we think about the options that are available to us have changed at all actually. Those are the same options that have been in place actually since we began the aggressive share buyback program 5 or 6 years ago, over which time we've purchased over 25% of our shares. So those options are the same. It's always looking at relative value of each of those choices. And as you can see, we sort of rebalanced a little bit those priorities over the course of time just based on prices and other considerations. But those options are still the same. So no change there. As Rick said, we'll certainly provide a little more feedback on the upcoming investor meeting. Jimmy, as it relates to your U.K. question, Peter, you want to touch on that in terms of just not the margins but a little bit of the recent experience and then how that affects both margins but also some of your thinking about reinsurance?

Yes. Thanks, Tom. Thanks, Jimmy. So in terms of the group life book, we're getting through the renewal program. So you are seeing the benefit of some of the repricing and some of the shedding of the less profitable schemes, so definitely some of that coming through. There are 2 aspects to the reinsurance. One is the retention level, which we brought down. So any claim, we brought down to taking it from GBP 1 million per claim to GBP 0.5 million. That's been very helpful during quarter 3. We saw a number of large claims come through, which the reinsurer took their share of. So that's helped manage the volatility and made the margins more stable. There's also an element, which is the quota share, which is whilst we're repricing the book, what we found in the marketplace, the reinsurers were -- their appetite for this and what the returns they want to put on was competitive relative to what where we thought the book was priced. As we took advantage out in 2013, we're currently going through the renewal program in 2014. And looking at that, I'd expect to retain a bit more but we'll probably sell some of the quota share in place for 2014 given what we're seeing on quotes at the moment.

And we'll take our next question from Eric Berg with RBC Capital Markets.

While I understand your desire, and you've made it clear that you're not going to get into the details of this movement of the Bermuda operation back to the United States, one thing to me seems apparent and I just want to check whether you agree that this is apparent, because Bermuda accounting is essentially the same as U.S. GAAP accounting, and because U.S. GAAP accounting tends to be more generous, aggressive than statutory accounting, doesn't it stand to reason we don't need to get into any discussion, I don't think, that the statutory reserves that you will be establishing in the United States will be higher than the effectively GAAP reserves that you have established in Bermuda? And that rather than -- and that therefore there's going to be some sort of hit to your statutory capital in the United States on a sort of -- on an enterprise-wide basis? You will have less statutory capital and more reserves than would have been the case if you didn't make this move, given the difference, given the more conservative accounting in the United States than in Bermuda. Isn't -- doesn't that stand to reason? Isn't that obvious?

Right. Yes, Eric, if I could -- I won't repeat everything you just said, but I would say what you say very much holds true and I think that's why when we talk about the structure, we say that we take you back to where we were in the ranges of our capital outlook. But everything you say is true and logical and we'll take you through how that impacts us and the magnitude of those when we get there. But I'll just take you back to the answer, is that we'll be in line similar to our reserving and capital processes we have with other companies in the U.S. and we will also be within the range of the capital outlook we put out there while still having the ability to buy stock.

Great. My second and final question is -- could be directed to Jack or whomever feels it's -- that it's appropriate for that person to answer it. It has to do with long-term care. Because Unum has stopped writing new business, both on the group side and the individual side, I would think that you would be disadvantaged vis-à-vis regulators in the sense that I would think regulators would say, "Well, these Unum guys, they sold the business. They did their best to get the pricing correct. It's underpriced, but it's not our problem." And you don't have a lot of leverage because you can't threaten to quit the business because you already have stopped writing new business. Why isn't that the case? Why have you been -- I'm a little surprised to describe -- that you described your repricing results as excellent because, again, I would think regulators say, "These are old people. Unum made a mistake. That's his problem, not our problem." I would think that's how the discussion would go. Why hasn't it gone like that?

Jack?

It hasn't gone like that because we actually have the results in our repricing efforts. Again, we're ahead of plan in our actual approval. I think there's lots of reasons. I think that the flip side of that is some regulators are saying, look, you can make it up on new business pricing, but we're giving you the rate that you want on new business and are using that as an excuse not to approve rate increases on the old business. So that goes in both directions. We have not found that being in the closed block status has affected our ability to get rate increases. I think regulators understand that if you are in a closed block status, rate increases is your only option and they are aware of that and empathetic to it.

Conversely, too, Eric, just from a company point of view, I'd say, Jack, actually the fact that we don't have existing customers we're trying to sell business to or brokers we're trying to sell through actually makes it a lot cleaner as a decision actually as a company. Because we actually don't -- we can actually be very specific to experience and allow the rates to just fall out of the experience as opposed to thinking about the fact that we're also trying to sell new business at the same time.

And we'll take our next question from Steven Schwartz with Raymond James. Steven D. Schwartz - Raymond James & Associates, Inc., Research Division: Mostly asked and answered. Just quickly, maybe I missed this, where is the company? Where is the U.K. in terms of repricing the group life business? What percentage of the book has been repriced?

Yes, Peter, do you want to just touch on that briefly?

Yes. So briefly, we're about 3/4 of the way through. So we'll be finished at about midway through 2014.

And we'll go next to Robert Glasspiegel with Janney Capital Markets.

Quick question. Your RBC ratio looks like it's projected to be about 12 bps below where it finished in the third quarter at year end, if you take the middle of the range. Does that factor in the Bermuda impact? Or are there some other moving parts and dividends that are driving that decline?

Yes, Bob, just to give you a sense, that range has been consistent all along, so that doesn't give you a different view that we expect it to come down or move up. And I take you back to the different structuring pieces we've been talking about a fair bit on the call in terms of there will be movement and changes relative to that, but we expect to still be in that range on the overall.

Okay. Just hammering Mark's. Mark said he was the last question on Bermuda. I guess I'm going to be the last question potentially. The Bermuda transaction, did that at all impact the buyback? You mentioned pension and bonds and stock price as [ph] other use. Was that at all a factor in keeping a little bit more capital?

I think when we look at it in terms of the very good capital generation we've had, there's a use of capital that we've talked about with Bermuda without being too specific, but I think that that's fair that, that will be a use of our very good capital generation that we had this year, and we'll get more specific in terms of what that looks like in December.

Okay. So on the margin, it could have been a consideration of buyback?

Yes. No, I think it's very much a consideration on buyback.

And we'll take our next question from Jeff Schuman with KBW Investment Research. Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division: I want to go to the U.K. first. The business has been resized a bit. Premiums, local currency are down, I think, 18% year-to-date. Is there any slight benefit in terms of being able to maybe execute a bit of capital in the U.K. given that it's now smaller?

Yes. Rick, do you want to touch on that?

Yes. Certainly, Jeff. When you look at the U.K., that reduction in premium has been fairly from the quota share reinsurance that Peter mentioned in his comments, so that's kind of a onetime transaction. So we did it on a very short basis, so it was actually out there over a year. So it's something that -- we did free up capital as a result of that, but we didn't repatriate that capital at the moment. Our U.K. business, we don't talk often about the U.K. capital generation. It's been very consistent, very steady, very similar cash flow characteristics that we have in the U.S. and they've been very consistent in their dividend payments that have been upstreamed. We just didn't remove the excess capital that's created there because we wanted to have the flexibility to adjust that reinsurance structure at the end of this year and 2014. Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division: All right. And I know Glasspiegel declared an end to the Bermuda questions, but I don't think I'm going to yield to his authority on that. So I was wondering -- one sort of basic question. If part of the goal here is simplification, is one of the options to do -- maybe to do the ultimate simplification and just actually recapture the reinsurance? Or are there some basic reasons why you actually need to have another entity?

Go, Rick.

Yes, Jeff, it's a great question. I think when we look at evaluating our Bermuda entity, and it's one of the reasons we talk about this, it's been a structure that's been in place for quite some time, just a pure recapture is not a simple exercise to go through, so it is an option out there. It's not one that we preclude. We still could get to that point in the future, but I think that we won't be doing that as part of this step because of some of the complexities that are built into the structure. But in the future, that very much could be an option. And I think the important part about that, too, is because it will be on a similar basis with our other U.S. businesses, that would be, from a financial perspective, basically a nonevent. Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. And then, I know this is a fairly basic question here. Obviously, you're looking at different options, but is it reasonable for us to assume that many of these options might involve some third-party participation? Whether it's third-party reinsurance, letters of credit, third-party other financing, is that a reasonable assumption?

Rick?

I think that I'd highlight it a little bit different. Those are obviously options to us. This will not look so much like structures you've seen around the industry, so that have different letters of credit and financing. It's going to look pretty basic like a captive reinsurance. And quite honestly, Bermuda today looks like a very basic reinsurance company. So I don't think we'll look like many of the other structures that you've seen out there.

And we'll go next to Sean Dargan with Macquarie.

Just following up on Jeff's question about why you aren't recapturing. I think there's going to be continued noise around the use of cap. There's just something on the Freakonomics blog yesterday about shadow insurance. Is there anything changing your thinking about your use of the South Carolina and Vermont onshore captives?

Rick?

Yes, well, I'll start with our South Carolina captive, which is our -- mainly our Tailwind reinsurance company. We did buy in the bonds from that. So from a structural perspective, that is now a simplified reinsurance structure we have in South Carolina. And then our Northwind transaction, which sits out there, is still performing very well and so we have no need to bring in the bonds that were issued on that in 2007. I think it's something straightforward, so no anticipation of changing that structure at all. And then also from a reserving perspective, that's reserved on a similar basis that we do in our all other U.S. entities as well. So I don't see much scrutiny there.

Okay. And just one final question. There were some high-profile player groups who put large groups of their employees on private exchanges run by insurance brokers. I'm just wondering if you participated in that. And if you plan on doing so, Unum is not a household name among consumers. I'm just wondering what your competitive advantage is on a private exchange.

Mike, why don't you take that one from Sean.

Yes, happy to. We mentioned it earlier, but exchange is very much a hot topic in the market. We very much see them as the latest manifestation of a long-term trend towards more employee-driven benefit. And so that really has been the thesis that our investments and capabilities have been based on. And so to your specific question, having made some pretty big investments in employee choice products and technology, people and process to sort of facilitate empowering employees has put the Unum and the Colonial Life brands in a really good spot in the marketplace. So as these private exchanges are coming on, actually, the demand for us to be involved has been pretty good, pretty consistent. It's resulted in us being connected into 40-plus different exchange mechanisms. And I think also importantly, it's allowed us to play in those -- on those exchanges where the employer remains very much involved. So to your specific question, where we've seen a lot of the activity on our front and in our product lines, the employer wants to stay involved. There is an element of funding that they're providing in many cases. So that actually positions us pretty well given a very strong brand amongst the brokerage and employer client community.

And if I could, Sean, just to add a little to what Mike said. I mean, the themes that you're seeing today in terms of more focus on consumer, as in giving people choices, didn't just start today or just didn't start as part of the Affordable Care Act or exchanges or the government website. This started a decade or so ago, moving from a defined benefit to a defined contribution environment. And frankly, we've realigned our resources and investments very much to participate in that. And if you look at our group business today, the vast majority of our group sales actually have some level of employee contribution. If you look at our voluntary benefit business, which is both Mike's and Randy's voluntary benefit business, the earned premium compound annual growth rate over the last 8 or 9 years is about 7%. A lot of that growth is, frankly, coming by providing GAAP products. Let's just use one example, high deductible health plans, I think has doubled between 2010 and 2013. That's presented great opportunities for our group hospital indemnity products, our accident products, our critical illness products, our medical bridge products. Just as Mike said, there's an awful lot there that we've already begun to see where there's a way to play very effectively there in that consumer theme. And again, you're right, our name may not be as widely known as some brands, but we're very effective in getting with the employers' cooperation in front of the right people with the right set of products, and the benefit communication tools we have actually help accelerate that. So as Mike said, we feel pretty good about the outlook here. And obviously, the health care reform and exchanges and other things are going to be a topic that we're going to have to deal with here in the next -- probably next year or so, but we're finding very effective pockets in there to grow and build with both of our 2 voluntary franchises.

We'll take our final question from Tom Gallagher from Crédit Suisse. Thomas G. Gallagher - Crédit Suisse AG, Research Division: Just a question back on to beat the dead horse on Bermuda. How should I be thinking about what resources are available to you to fund it? And I realize you're not prepared to answer any questions to size it, but I know you mentioned the credit facility a few times. Is that something that might be used, U.K. capital? Or would it just be existing holdco cash current statutory surplus that would be used to fund that it and statutory surplus in the U.S. that is?

Rick?

Yes, Tom, that's a fair question. And I should highlight, the credit facility that we're highlighting here has nothing to do with the Bermuda process. We thought it was a good piece of structure to have in the company. So it's something we haven't had for a couple of years as we sat with high cash balances. But I wouldn't equate these 2 at all from that perspective. My U.K. comments around dividend there is just to remind people that it's a very, very strong high-margin operating enterprise. I'd take those 2 out of the discussion in terms of how we're looking at the process we're going through of making sure we're within the capital range of the outlook. So I take it back 2 points, which is holding company cash we're sitting on and then just statutory generation and capital that we have in our U.S. entities. Thomas G. Gallagher - Crédit Suisse AG, Research Division: Got it. And then the -- I guess, that entity has lost a little bit of money for the last few quarters. Is that -- when you recapture that, would you expect the earnings pattern to change there? Or are you still going to be using, in all likelihood, modified GAAP accounting because it'll be in the captive structure?

I'll try and answer that. It's a similar flavor to an earlier question, which is we have had some losses in that entity. If you look back over many periods of time, it's fluctuated a fair degree. Our reinsurance structures can be more volatile just by the nature of how the reinsurance treaties work. So I think that as we look forward, that's going to be woven into our overall capital view. And I think, Tom, you highlight a point, which is important, is as we've seen on this call, the Bermuda entity has caused a lot of questions. And quite honestly, we don't need to be answering those questions because it is a small piece of our structure. And then when we have it back onshore, the similar level of reserving capital or other onshore entities, we hope we won't be discussing those details in the future.

To that point, I think, Rick, we want to get ahead of things. This has obviously been a focus of the industry and others within the industry and will continue to be. So I think by doing the steps and taking the actions that we, I think, begun to share with you today, we're getting ahead of those sorts of things. But do it from a position of strength because we do have the financial flexibility, and we do have the sufficient cash flow and the cash generation that, frankly, allow us to be in this kind of position. But I think as you just said, Rick, in your comments, we can do all that and not do it outside of the range that we provided in terms of capital guidance nor actually affect our ability to buy back shares in the quarter. Thomas G. Gallagher - Crédit Suisse AG, Research Division: No, I applaud you guys for doing that, too, from a transparency standpoint. And my last question just relatedly is, so the entity that will then be filed going forward, will we have full access? Will that be -- so that will be U.S.-domiciled entity that we can then have a full set of blue books that we can then evaluate?

Yes. Tom, we haven't gotten to that point. So we'll have to evaluate a lot of different things here as we get to year end and all the details of that, which still have process steps to go through. We'll take -- hopefully, we'll have a better view of that at the Investor Day. But there's still a lot of work to do between now and then for our team.

Thanks, Tom. And thanks, all of you, for taking the time to join us this morning, and we look forward to seeing many of you at our investor meeting in New York on December 16, and this completes our third quarter earnings call.

This does conclude today's conference. Thank you for your participation.