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

Great. Thank you, Dana. Good morning, everyone, and welcome to the third quarter 2014 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, 2013, and our subsequently filed Form 10-Qs. Our SEC filings can be found in the Investor section of our Web-site. I remind you that the 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 in our statistical supplement on our Web-site, also in the Investor section. Participating in this morning's conference call are Tom Watjen, President and CEO; and Rick McKenney, Executive Vice President and CFO; 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 everybody. For the third quarter, we reported $0.87 per share in operating earnings, a 2.4% increase over last year and a result generally consistent with our expectoration. Our third quarter results reflect the continuation of many of the positive operating trends we have seen over the past few quarters, including continued strong sales growth, accelerating premium growth and stable risk experience, all of which are helping us to produce solid margins and profitability on our core business lines. For the first nine months of the year, our operating earnings per share increased 6.9%, which is consistent with the 5% to 10% outlook we provided you at last December's Investor Meeting. Book value per share excluding AOCI continues to grow nicely, increasing 9.1% from last year's third quarter level. Now let me highlight a few things before turning the call over to Rick for his more detailed remarks. First, we continue to see good sales momentum in our key business lines, a trend that emerged a year or so ago. Unum US sales increased by 13% this quarter with particularly strong results in our sales to existing customers. Colonial Life also continues to generate strong sales growth with third quarter sales also increasing 13%, reflecting solid results across all of our market segments and growth from both new account sales and sales to existing accounts. And finally, as expected, Unum UK sales rebounded this quarter increasing 15% year-over-year in local currency. I'm confident that these results did not come at the expense of future profitability but instead reflects the strength of our competitive position and today's generally more favorable benefit market conditions. Second, we are also seeing accelerating premium growth, with a 4.1% increase in premium in our core operating businesses. Premium growth has certainly been favorably impacted by the positive sales trends but also reflects the strong persistency in most of our lines and the targeted pricing actions we have taken in selected product areas. And finally, driven by our strong risk results, we continue to generate excellent operating margins and returns in our core business segments. As a result, we again reported solid statutory earnings in the quarter, which continues to give us the financial flexibility to support the expected capital needs in the business while also returning capital to our shareholders. Now looking ahead, while today's interest rates are certainly a challenge and are likely to remain a challenge, over the past few years we have successfully managed through a pretty low interest-rate environment and I am confident that we will continue to do so. More importantly, I do expect the positive operating trends, specifically our sales and premium growth along with our strong risk results, to continue into next year, and we'll have more on that at our Investor Day meeting in December. Now let me turn things over to Rick for a more detailed review of our operating results. Rick?

Thank you, Tom. Following on Tom's comments, I'd like to provide additional details on the drivers of our operating performance this quarter as well as a deeper look into top line growth and a view of our trends in our investment portfolio, and I'll close with an update to our capital management position and our capital management plans. Looking first at Unum US, we saw the continued favorable trends of improved premium growth, up 3.4% year-over-year and an improved benefit ratio which declined to 70.4% for the segment from 72% in last year's third quarter. This good product performance was not enough to offset the headwinds of the low interest rate environment and as a result operating earnings declined 2.5%. This general trend was consistent across the three business lines within the Unum US segment. Group life and AD&D results were favorable with operating earnings increasing 7%, driven by premium growth of 3.8% and lower claim incidents as the benefit ratio declined to 70% from 71.6% in the year ago quarter. In the supplemental and voluntary lines, operating earnings were relatively flat at $82.5 million. Premium income increased by 1%, while risk trends in both lines were improved relative to last year. Net investment income was $3 million lower than last year due to a decrease in yield on invested assets and lower miscellaneous income, partially offset by growth in the asset base. Operating income in our group disability business declined to $69.2 million from $78.6 million a year ago. Premium income increased by 2.2% and the benefit ratio improved further down to 82.1% in the third quarter from 82.9% a year ago due to continued strong claim recovery performance, both of which are very encouraging trends. The headwind in the quarter in this line was net investment income which…

Thanks, Rick. Before we move to your questions, I'll close by reiterating that I'm very pleased actually with our overall results for this quarter, including our continued strong sales growth and premium growth, and once again this quarter excellent risk results. These all bode well for our future. While the current level of interest rates and bond spreads are challenging, we have managed through periods like this before and I am confident we will continue to do so. Our focus hasn't changed. We are continuing to profitably grow our business, to maintain strong margins through our disciplined pricing, underwriting and expense management, and to generate capital which we'll continue to use to support the needs of our business including investing in growth opportunities we see in the market but also continuing to return capital to our shareholders. Now this completes our prepared remarks, and Dana, let's move to the question-and-answer session.

(Operator Instructions) We'll go first to Seth Weiss with Bank of American Merrill Lynch.

Can you give an update on the difference between your GAAP and stat reserves within the long-term care business?

Jack, would you like to take that one?

We said previously that the difference between GAAP and stat is over 500 million. It continues to be over 500 million. It gets wider as statutory reserves grow but it's in the normal course of things and it hasn't changed dramatically.

Okay, great, thanks. And apologies if I missed any updated sales goals guidance but can you comment on your goals for the full year in light of what's been strong growth across the businesses for the first three quarters?

Rick, you want to take that?

[Indiscernible] update our outlooks. We went back to the last year. I think what I'd tell you is, if you went back to our sales expectations going into the year, Unum US was 7% to 10%, we're handily outpacing that today and we feel very good. I think you would have heard that through the tone of all of our comments, so we can touch more on that. The UK is actually pretty flat year to date, so it's a little bit behind the goals but that's been one of the volatility from our life business, we've sold that, but third quarter results were pretty good and I think bode reasonably well for the fourth quarter. And lastly, Colonial Life has had great sales this year, up 9% on a year-to-date basis. We went into the year looking at 4% to 7%. So I think that Randy and team there are doing a great job in terms of sales front. So we're not going to update it for the fourth quarter, I think we gave you an indicator for the year, but needless to say I think we go on to the fourth quarter feeling pretty good about what we have accomplished thus far and how we see the year wrapping out.

Seth, if I could add something, once we adopted the format a few years ago of having a fairly open transparent sort of set of guidance tools and metrics that we put out there in December, we really haven't updated, I don't think Rick, any of these as we go through the course of the year. We stand by I think that guidance we provide for sales, for premium, for operating earnings and for return on equity, and I think that's kind of been our approach to this. So I think we don't do the updates as Rick said, not just by sales but by any of the elements of that and we stand by that outlook we provided earlier which we think was pretty comprehensive, it's pretty detailed, and as Rick said, I think if you go through all the measures we put out actually last December, you'll see for many of them we're certainly well within the range if not above the range. But again, I think we have always had a policy of just sticking with that guidance.

That's fair enough, I appreciate the commentary. It's just fair to say that the initial guidance, it didn't contemplate some sort of slowdown in the fourth quarter, is that right, is that fair enough to say?

Look, actually you're talking about sales, actually sales – I don't think we had any [procedure] (ph) slowdown, I think look at all the business has I think – again, we're staying with the outlook we presented but as you can see even at this point in the year for the year to date results across many of these, we are certainly leaning very much to the high-end of that guidance if not above that guidance and we see nothing as I said in my comments that gives us any indication that some of the things we have seen with sales growth, premium growth and risk are anomaly. These are things that we have seen to have great momentum in and we think are going to carry into 2015 as well.

Great, that's very helpful. Thank you.

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

So you're going through your annual review of assumptions in the fourth quarter. Can you help us just think about the potential impact of low interest rates and tighter credit spreads on your long-term care reserves?

Maybe we do. Rick, if you don't mind, just give an overall view of interest rate management, because obviously as Rick said in his comments and I did in mine, this interest rate environment, both interest rate and spreads, is not particularly positive for our industry, and so maybe start there and then we can sort of talk about some of the other branches of that?

[Indiscernible] into the process, I would tell you that across the Company we go through – as you started into the question, we do go through our assumptions in a more detailed way in the fourth quarter and that process will happen as normal. You mentioned specifically interest rates across the board and I'll flip it to Jack in a second, but when you think about interest rates in the Company and how we manage them, the majority of our product lines we actually are able to price for them. So that comes into how we look at the overall interest rate management. One of the lines that also is impacted by interest rates would be our long-term disability line and we think about the reserves around that, and our discount rates we have talked in the past about a margin or at least a differential that we have between what we are getting from our earned yield and our discount rates, last quarter it was 90 basis points and this quarter I think it ticked up a basis point or two to 91 basis points. So it gives you an indication of how we manage interest rates through those different lines, and I'll flip it over to Jack to talk more specifically about long-term care, but interest rates I think broader management [indiscernible].

And so clearly long-term care is very sensitive to the interest rate environment, but I'd remind people that there are other important assumptions within the long-term care business as well. Morbidity and mortality are important, the ability to get rate increases in the future to respond to interest rate pressures are important. And so we are in the midst of a comprehensive review of all the assumptions related to long-term care. We are making good progress on that review. It will be part of our annual normal reserve adequacy studies. And so we expect to have more clarity on that in the fourth quarter as those studies are completed.

Got it. And I guess, and you didn't mention the IDI-Closed Block, is there anything we should be thinking about as it relates to that from an interest rate component?

Sure. Let me bring up the IDI piece which is important because when you look at our IDI block it is a significant block from an asset level perspective. The important thing to remember there though is that we are now getting effectively new cash flows. So the cash flows we get in both from premiums, coupons and bond maturities basically goes to pay claims. So when you think of the interest rate environment, we are somewhat indifferent to the interest rate environment around that because there is now new cash flow there to invest. And then when you talk about the Closed Disability Block, it's also going through a similar process around our reserving processes at year-end, so I don't want to leave that piece of it out, but as Jack said, these are normal processes and we continue to watch interest rates but I think there's a couple of areas where we watch it probably a little bit more closely.

Thanks. And just one last follow-up, because you mentioned the discount rate, I guess how should we be thinking about the decline in interest rate on your new claims discount rate, and to the extent you were to make an adjustment, how much of an impact would that have on your pricing and potential competitiveness within the industry?

Sure. When you think about the discount rates of that line and we have adjusted discount rates in the past, and so I'd tell you that on an annual basis 25 basis point move is a $12 million to $13 million impact. And so that's something we always look at, but once again it's highly managed that our assets relative to that discount rate, that's something we do over longer period of time, we have a healthy margin today but we have to be reflective of where we are today as well and manage that through a period of time. So discount rates are something that we always look at in that line. Maybe I'll turn it over to Mike to talk about how we impact that from a pricing perspective.

Thanks, Rick. So we would be looking at discount rate, we'd be looking at turns and incidents and severity when we're building new business pricing into a plan. So to give you a sense in 2014, because I think it's indicative of where we sort of look going forward, we are able to put about a quarter of our core group insurance business through the renewal program, about a third of our large case business through thinking as we always do pricing forward for things like aging and interest rate. We placed prices in the high single digits, and as Rick hit in his comments, overall block persistency is just about 90%. So we feel pretty good about the track record and the current environment to take necessary actions. As we look forward, certainly low interest rates is something that we'll factor into our pricing plans and we'll probably mean a modestly expanded renewal program in '15, but again I think the environment is one where we feel pretty confident going into that.

Let me add to that a little bit too. We started a pricing discussion like this on the back of still some strong returns and margins. And so maybe like, kind of like some others in our industry, our margins and our profitability are pretty strong in that line. And so therefore, pricing actions can be more temporary because they are actually only dealing with the interest rate comportment. The other thing I guess I'd say, Erik, too is when we go through our outlook in December that Rick referred to, we'll have this all contemplated in that outlook actually. And so I think we're obviously thinking as all you are about the fact that it looks like 2015 is going to be a difficult interest rate environment and a difficult spread environment, I think you are going to assume we start to build that in a way we think about the business, and as we share our outlook it's going to be embedded in that.

Got it. Thank you very much.

We'll go next to Steven Schwartz with Raymond James.

Kind of asked and answered, I am kind of interested though on expense levels in general and what you're doing there, they did strike me as somewhat high this quarter. Did they strike you as high at all?

Rick, you want to touch on that at high level, and maybe we'll go to business units after that actually?

I don't think it struck me as high this quarter. I think it's something that as we continue invest in the business, the team here works very hard about balancing those investments with good productivity and what we saw. So you can see a little bit of volatility on a quarter to quarter but it doesn't strike me from an overall – one of the things I'd factor into that is, as we grow the business and we pay more commissions and compensation, you're going to see more expenses actually flowing through as a result of that. That's a good thing and so we can break some of that out in the future, but we feel fine about our expense there.

Michael, anything to that?

For you if you ask me that I think, Tom, Rick just hit on one of the key points, it's just as we've seen sales growth accelerate, the acquisition costs associated with bringing that business on is a [indiscernible] pressure there and that's pressure that we are happy to have and deal with. The second is certainly we continue to make some capability investments in the business. So we think particularly about employee pay, those will pay really good dividends as we continue to build scale on that business. And the last one is not new in the quarter, it's a little bit more long term, but as we shift our mix of business and grow our core insurance and voluntary benefits business a bit faster, those tend to be higher OE but lower loss ratio type businesses. So we would see just a little bit of gradual movement there just natural mix.

Okay. Rick, can you touch on the tax rate? It looked like it might have been a little bit low in the quarter.

Maybe a few checks. I think we have been right around 30%, Steven. I think if you go year to date, I think it's somewhere around 29.7%, 29.8%. So that's tracking within range of our expectations we would have gone for the year, so not much else to say there.

Okay. And then one more. I realize it's volatile but the miscellaneous investment income obviously a big deal this quarter, you gave us numbers for 2Q and 3Q last year. Do you know off the top of your head what 1Q might have looked like and maybe 4Q, and that way we will at least see a run rate for the year?

Sure. I have that, I can give it to you. 1Q would have been around $13 million, we had $13 million, $14 million, something like that. And then year ago fourth quarter I think was closer to $20 million. So like we said, it's volatile. With $7 million this quarter you will see that volatility coming through. And although it causes a little bit of volatility on the margin, I think when you look in the aggregate, you really have to look to the underlying ROEs of our business lines which continue to be very strong.

No, the risk results were very good. Okay, thanks guys.

We'll take our next question from Suneet Kamath with UBS.

Just want to start with the long term care review again in the fourth quarter. If I think back to the 2011 action that you took, part of the assumption change related to a Society of Actuaries study, I think it was lapse rates and persistency, my understanding is the next study from the SOA is not going to come out until 2015, but I believe you're getting some of that information currently. So I guess the question is, do you think that in your review this year you're going to have the updated information to take a good look at the lapse and persistency assumptions?

Let me object to this introduction. I think as you know, you have invested heavily in the infrastructure of your business actually. I would say today as we go through an analytical process like this, we're in a very different thought actually, and so obviously maybe we couldn't address any specific question, but let me just remind everybody what we've done to build a lot better sort of database and capability to do the work that we're doing right now actually.

Yes, and we've made a big investment over the past year and a half and the infrastructure supporting these studies, we built a state of the art modeling capability, we have invested in our data structures and our ability to access them to look at our actual experience. And so we are continuing to move forward. We are in a much different place today than we were even two or three years ago. We tend to be more reliant on our own experience, particularly related to things like lapses and persistency where we have a good exposure, we have credible data of our own. And so we will use it. There has been a recent publishing of preliminary SOA results on continuing some recovery trends. We have looked at that as part of our comprehensive process. We are taking that into account as we finalize our assumptions. But I would tell you it hasn't had a material impact on where we were and where we think we will come out.

Got it, okay. And then I guess for Rick, with interest rates falling again, seems like we're getting into this conversation around discount rates for group disability and comparisons to other companies that have a more formula like approach to establishing the discount rate versus I think what your approach is. So I guess the question is, can you talk about the approach that you take, why you take it? And I think the other issue that comes up a lot is the fact that you use a duration weighted yield in that 90 basis point margin that you gave us. So can you talk about why you use that and what it would be if you didn't use duration weighted yield, what that margin would be?

Just to give you a view of just a couple of things taken into account, one is how we think about running the business too and we think about it on a basis where we are actually out in the markets, we believe in stability with our customer base and that would bring price to market and how we talk about that. I think we look at the interest rate management on a similar way where we think about it over the longer term, and you would have seen going back a couple of years ago we've adjusted discount rate a number of times to try and make sure that we keep a good spread between what our assets are yielding and what our discount rates need to be. We'll continue to do that. We're not going to do that quarter by quarter, we do it on a longer-term trajectory and you can continue to see us do that. It all comes back to just our philosophy, how we take that back to the market and introduce it through our pricing models and everything else. I'd also refer you back to a point in time where we were investing assets at much higher returns than our discount rates, much higher, and that's in the credit crisis when we were actually investing at high yields, we didn't let that flow through earnings, where theoretically we could have, we actually let that build up in our reserve margin. And so it's true on both sides of the equation, when things are harder as they are today and when things are better we maintain a similar philosophy around that. Second part of your question on the average weighted – duration weighted yields, that's a non-event for this line. This line matches up actually duration very well. So I can't give you specifically what the duration weighted and non-duration weighted is for this line but when you think about our assets and liabilities, they are actually pretty well matched in this line. We actually as part of our supplement put out a duration weighted yield. The reason is because we have so many different lines, we're trying to balance that to give you a good indicator in our supplement around what that runs like, but in a specific line such as LTD, that's really not a helpful or a differentiable metric around that. So I won't spend too much time on that, Suneet.

Okay. So bottom line though, that around roughly 90 basis points or 91, I think what you're saying is if we looked at that without the duration factors, it wouldn't be dramatically different?

No, it would be the same. And when we actually go out and look at our 90 basis points, we actually look out over time and so we don't want to actually get to a point where we get – where that comes down too quickly and that's what you've seen us do over the last several years, is actually move on discount rate before we needed to in a sense, not getting down to a margin where we're uncomfortable. We'll continue to do that in the future.

We'll take our next question from Yaron Kinar with Deutsche Bank.

Three quick questions on sales, specifically the non-core sales. So I think you mentioned that 70% of these sales are coming from existing customers. So the questions are; one, is that kind of true across the board, in the UK, Colonial and the US; two, what is driving the sales growth in existing customers; and three, what's driving the growth in the remaining 30% sales growth?

Why don't we go around each of the CEOs actually to speak that? Mike, you want to pick that one to start?

Yes, sure. So we would have seen north of 60% of our sales for Unum US coming through and that's across lines of business and segments that we market under I'd point out, and Rick did as well, in the large end of the market it was actually a higher number than that, it was north of 70% that came from existing clients. So it's a big part of our strategy. To your question of what's driving it, it's investments in new lines of business, so building out our voluntary benefit in particular, it's individual disability line of business and it's capabilities around enrolment and re-enrollment. So we've got a good level of service delivery to those clients, they know us, know us well, and so our objective is to be there, be consultative and be able to grow over time. That growth we delayed for a couple of reasons. One is, it does tend to come in favorably priced to the new client acquisitions; two, it drives persistency for us. So we're quite confident that as we build out those relationships over time, it drives up our persistency. And I think that's reflected in the results that we're seeing here where any particular line we may need to take great action but we still see the overall relationship holding.

Randy, you want to give a little color on the Colonial rebuild?

You bet, tom. We typically average about 65% or so of our sales in any given quarter being to existing customers. So that has not really changed much over time, and that's just a big part of our business model where we have our agency system going back to service, enforce clients, talk to new hires, introduce new product lines, that type of thing. So that's kind of just normal course of business for us. That being said, we are seeing very strong growth this year in new accounts sales. We were up over 20% in the third quarter, and I think that's a matter of the market conditions improving. Again we have implemented some new products here and continue to grow our agency system. So very good sales results across the board, but again a big part of our model is to keep going back and seeing existing customers and generating increasing sales growth on that side of it. So it's about a 65-35 split for us.

Peter, you want to touch on the UK briefly? Peter O’Donnell: Thanks, Tom. So sales in the third quarter were good but there was some timing switches between quarter two and quarter three. So when I look at year-to-date, as Rick said, we're sort of pretty much in line with last year. If you look at our GIP sales though, they were up about 3% which is a nice bit of growth there, and obviously our persistency is pretty good there. About one third of our sales comes through existing customers and that's pretty much a standard metric for us if you look on quarter on quarter or year to date, it's around about one-third of our sales to existing customers.

Did we touch the things, the issue?

Yes.

We'll take our next question from Jimmy Bhullar with J.P. Morgan.

Just had a question on the UK business, maybe if you could talk about market conditions there and your success in re-pricing the group life block? And then also related to that, on the reinsurance contract, do you increase your redemption this year and given that the margins there have been stabilizing should we expect you to recapture more or increase retention further in 2015?

Peter, you want to pick up on the market condition? Peter O’Donnell: So the market conditions in the UK, so we have been very successful at re-rating the block and feel very good about the business that's in force now. We still have what I would call sort of small rate increases to put through in some schemes, but I would put that into the business as usual. We are also able to be opportunistic at times where we see schemes that come to market where the competition isn't chasing volume where we can write those at reasonable margin. So you will see group life I think be volatile quarter on quarter as we pick and choose the schemes that we want to play on. So that would be the sort of overall perspective. What was the second question, sorry Jimmy?

Just on the reinsurance contract, you increased your redemption this year, do you expect to do or increase it further next year given that margins have been stabilizing? Peter O’Donnell: So we're very happy with the reinsurance contracts the way it's performed. So it's exactly what we would have wanted it to do over the past two years. Really the question comes as an economic decision for us and we are right to market at the moment, we are looking at the prices, and I will discuss that with group and the Board and say, look what's the deal on the table, and depending on how those economics look, that will drive that decision. So we will be able to update you on that I think in December when we come with our overall view of 2015.

We'll take our next question from Colin Devine of Jefferies.

I've got three ones. Just first to clarify on the core large case, there hasn't been really any fundamental change in the strategy that Unum in any of its regions is going to become more aggressive in the large case market?

Mike, you want to take that one?

Sure. So actually I think Peter [indiscernible] up well. Where we see opportunities to write new clients in the [indiscernible] market here in the US, we will take advantage of it. If you looked back over six quarters, you'd see a fair amount of volatility up and down. We've put together a couple of good sales quarters here, but I would expect some volatility looking forward. I think to the heart of your question though, if you look at group sales in total for Unum US, you'd see that over three quarters of all our sales were in the core market. So while the variance was a little bit different here in the pure third quarter, we still are looking to grow the core at a faster rate.

Maybe I think I'd add to that actually, I think Mike, to the efforts of you and your team, we've actually got a very strong margin on our large case block now actually. So there's been quite a bit of work leading up to the last several years in terms of pruning the block. The other thing is again I think you used the statistic about 80% of our large case business was NBOC which we'll maybe speak a little bit to those two.

Yes, so most of the growth we are getting is through expansion of the client relationship, and that's helped us along with our disciplined underwriting actually to get to strong and consistent risk returns out of that large case business. And so we're confident that we can really [grow with our] (ph) market rate, but again it's going to be opportunistic on the new sales front.

With respect to IDI on the Closed Block, persistency seems to finally be trending down a little over last couple of years. What sort of [indiscernible] first, is that [indiscernible] just really been an aberration that we're seeing get a little weaker, we are finally seeing that block start to run off? And then I've got a final one on capital.

Persistency is an interesting term. Actually what's happening is as the block ages, people are retiring and [indiscernible] so they are no longer working, and we think that's going to continue to happen, that's been increasing pretty steadily over time, it will continue to increase as the block ages. So we think it's just part of the consistent maturation and runoff of the block.

Okay. And then the final one with respect to capital management, clearly the Company is not growing exceedingly fast here, the core business lines are producing ROE, so if they don't lead the industry or is as good as it gets, Tom, can you talk about the dividend policy? I know the buybacks are fine but I think the other part of the payout ratio, it would seem to me you could support a payout ratio probably double the level that you are currently distributing?

Let me introduce it, Colin, then maybe I'll ask Rick to pick it up. I think as you know, our strategy on capital management has always been to have a sort of a two-pronged approach to it. Part of it is actually buybacks, part of it is actually dividend increases. I guess I've [indiscernible] by the point but I think that's always going to be our view as both of those are going to continue to contribute to our return of capital strategy to shareholders. I do think, Rick, it's safe to say that dividend has been an important piece to the puzzle, we have been continuing to grow it, but maybe you want to embellish a little bit.

Colin, I think the way you're looking at it is right and we look at it the same day which is our dividend policy what you would've seen the last several years, we have increased that payout ratio because we can support a higher payout ratio. And so we've seen that grow at double digits over the last five years. And so we'll continue to have that be an important part of the strategy. And the balancing item with that is as we look at the growth and the investment we want to have, I hear you on the growth front but actually as we look at the core operations, premiums are up 4%, we're feeling better about that, I'd like to put more capital there overall, and then as we don't see use for that capital on those two fronts or a throw in the M&A market as well, then we'll buy back shares and you saw us do that this quarter and that's been our ammo for the last several years and I think that will continue. But I don't want to minimize the fact that we do see an increasing payout ratio on our dividends to be important as it has been over last five years and going forward.

We'll take our next question from Tom Gallagher with Credit Suisse.

First question, and I realize you are in the process, so there's not a lot you could say on it, but for the year-end review, I believe what I've heard you say over time is that expect this to be GAAP only, should not have a statutory impact. Is that still the right way to think about it?

Jack?

I don't think we've necessarily said GAAP only. We certainly would expect to the extent something happened it would be more of a GAAP event than a statutory event. We talked about earlier in the call, the difference between our statutory reserve and GAAP reserves and statutory reserves are considerably more conservative. Probably the note to that would be First Unum and some of their owners statutory requirements would be the only adjunct I would add to that statement.

And Tom, [indiscernible] First Unum is our New York subsidiary.

Yes, that's right. Okay, and then next question is, in some prior periods when rates have gotten pretty low, I know you all have harvested more liquidity in certain quarters and that's created some short-term NII pressure. I'm just wondering is that partly what we're seeing here as well right now?

So I think when you think about the overall interest rate environment, I'm not sure harvesting liquidity, but when you think about where we've been able to invest and things like that, they've been in tougher spots. So we've gone into some higher rated assets over that period of time, we've sat on some cash through some periods of time until we see the right investments out there. So that is part of what you're seeing from a net investment income perspective. And I think it just comes back to the choices that we have to invest in and where we've been able to in previous years find asset categories we like that maybe were out of flavor and we were able to get some good yields, that's been a much harder trend this year because most assets are in an overbid situation and that's just the reality of this year. So I'm not sure if it's as much liquidity, it's probably a little bit of that, I think it's just more that it's harder to find places to put money to work.

Rick, specific follow-up to that, so in the last few quarters here have you been investing in more short-term securities at present or has that not been the case, I just want to be clear?

Not materially, I'd say that's not the case, Tom. I would talk about higher-rated securities which can have a net investment income impact but we're looking at the relative value, and so that's all been part of this pressure that we're seeing from an overall perspective.

And [indiscernible] buying a lot of short assets.

Got you. And then last question just as a follow-up to Suneet's just on the duration adjusted yield, a little more just to understand how you think about this philosophically, so in the quarter duration adjusted yield went to 6.19%. If I look at cash yield or nominal bond portfolio yield, it's actually all the way down to 4.71%. So that's almost 150 basis point spread. Which one matters to you really? I know you have in the supplement this duration adjusted yield, but the 4.71% is the one that's actually flowing through the P&L. So anyway, can you talk through like why one matters or the other one doesn't to you?

I think that the duration weighted yield across the portfolio is an indicator in aggregate and the best way to represent what's going on across the Company. The calculation you're doing in terms of the shorter-term perspective of that, that's not really meaningful to me because we actually run it on a line by line basis, right. So whether I'm getting a higher yield than that for long-term care or lower yields from that backing some of our shorter lines, that's how we manage it. It's really a product by product perspective and it's hard to give you that in one metric. So those two metrics you have out there are right and the trend lines on those if you follow them would be similar, but we do manage this on a line by line, product line by product line basis.

We'll take our next question from John Nadel with Sterne Agee.

So I have a question about US traditional sort of group insurance sales, and I guess the question is sort of this way, you're not the first to report earnings results this quarter, there's been some that have preceded you, I recognize they don't represent the entire group insurance industry. However, it's just about everybody is demonstrating pretty strong sales growth, [indiscernible] talking about strong sales growth, smaller end of the quarter StanCorp, and just about everywhere in between with maybe one or two small exceptions. But the overall market certainly can't be growing at this kind of pace given what we're seeing economically, lack of employment growth or at least slow employment growth. I guess my question for you is this, who's losing the share? I'm not asking you to name names, just in general like how is this – it's so significant that it seems very stark?

Mike, just give a little more color again what you're seeing in the market and how we're competing actually in the market?

I'd say generally, John, we see a mix really across the board but certainly there are some players in the market that are re-pricing their business. We know that the industry return on equity, I think it came up to one of the questions earlier, is somewhere in the single digits, and so there's work to be done in terms of pricing. So there are actually a few carriers out there where their earned premium is down and they are shutting some business. That business shows up as new sales in other places. So there's a little bit of churn within. I think it's the combination of the economy improving and some market expansion paired with some carriers that need to do some re-pricing which is generating some churn, that spits out the total industry sales numbers. So the way we sort of look at it is we're comfortable with the returns we're generating in the business, we're sticking with our underwriting standards, and we feel good about having that 90% persistency. So we are not feeding a lot of the churn back into the market, but I think it's the sum, the total of the two that gets you to the sales number.

And I think, John, we are also benefiting from our investment in our service infrastructure. So I think the quality of our relationships, I'd say Mike, are pretty much at all time high in terms of customer satisfaction and that obviously plays well into being able to expand lines of coverage and do more business with existing clients. The other thing I think we benefit from is our sense of stability. I think as we talk about our results this quarter and talk about the outlook as we get to the December meeting for 2015, there's not a huge change in focus actually, and this has been the case for the last five or six years. So that consistency, that stability, those are the things that I think play very well I think, Mike, in terms of how we come to market now too whereas not everybody has that same set of circumstances.

I was just going to interject. That seems like a pretty good point because there are some who are going through some pretty significant change.

Just one more question following up on idea of miscellaneous investment income and bond call prepayments, I guess the question I'd ask is this way, to the extent that we see rising rates it seems to me in miscellaneous investment income would stay down or start trending down, obviously on the other side of the equation though you get the opportunity to invest at highly yields which is terrific, but I guess I'm thinking more about just overall portfolio size, I mean how long do you think bond call prepayments can persist? It seems to me there will be a limit to it given once a bond is called it can't be called again.

Sure, maybe I'll give you some comments on that, John. I have watched this cycle for the last decade and so they do ebb and flow in terms of cycles that they go through. One of the things that I would say is true of our prepayments is while some of them are structural in nature, so it's not just somebody taking advantage of a low interest rate environment, so we have private placements that have structures within them fees, structures within them that happen as a result of M&A as an example and people retire debt. So interest rate is not the only reason that there is restructuring in these portfolio, but as we said you would see volatility, we've seen a lot of consistency as you look over the last three plus years but that's not to say that that will continue on that pace forever and it's something we'll call out to you as we see it. But as I've seen the cycles come and go, it's I think that's something you will see across the industry and the portfolio but I don't want to remove the fact that some of it is structural in how we invest and those will not go away.

Okay. And then last one maybe just big picture, Tom. M&A opportunities out there, we have heard now for a very long time everybody wants to own it, everybody wants a group insurance business, nobody wants to give it up. Is that still the same thing that you are continuing to see or do you think there will be an opportunity for Unum to maybe bolt-on something over the course of the next 12 or 24 months?

It seems like it is a continuation of the theme of what you just said. There's a lot of people who want to be in the business and increase their scale and there doesn't seem to be many who want to part with their business. But as we said earlier, there's an awful lot of challenges for some carriers as they go through sort of trying to sort out how do you actually effectively do this business. It's one thing to say you want to be in it, but can you actually manage the business both operationally and financially. And so, I don't think, Rick, we're assuming any M&A activity but we're certainly staying very close to the marketplace. It feels like it's going to be more that there's not as more buyers than sellers, but we're going to continue hanging around the rim to use the basketball term. But I think the other side of that is we don't need to do M&A to fulfil some of the objectives that we have laid out. So if it happens, it's great, we do have the financial and operational resources to do things, we are also very, very careful to stay within the framework of the things we know well, and again we don't have to do it for us to achieve some of the objectives that we've laid out, but there's always hope.

Okay. And I guess fair to say too that maybe some of the higher level of sales is effectively a small version of M&A as some of these companies are maybe struggling and losing business?

Absolutely. And again, I think certainly again, if there is an M&A opportunity, we want to take a look at it, but there's another way also that sees on some of these opportunities which is just in the marketplace, and I think [indiscernible] several of our businesses.

We'll take our next question from Randy Binner with FBR.

I want to just dig into sales a little bit more and kind of I guess compare and contrast with some competitors who have had weaker sales this quarter. So kind of thinking of AFLAC and also CNO and Torchmark, a little bit different products, different distributions, but the sense I'm getting from them is a lot of challenges, and so this is really geared towards Colonial, a lot of challenges from distraction from ACA, kind of a better economy means it's harder for them to recruit, and I'm not sure if your independent contractor model shields you from that, hearing there's a lot of competition even for people who are selling life and supplemental health among new entrants into those markets. So I guess I was just kind of curious for more kind of understanding your texture on how you're getting better sales numbers as all these other folks are kind of struggling given all the items I mentioned?

Yes, Randy, we're always – as you are alluding to, we're cautious, not to speak to specific competitors, but maybe Randy, you could talk about lots of things we've been doing too because it's really more about I think the things that we've been doing that have been behind the results that you have seen from Colonial and maybe to touch on some of those things in response to Randy's question.

Happy to. I think it really boils down for us to just consistency and focus, and primarily having a focus on our agency distribution system, and this is the channel that we go to market with. We work through that channel on both the direct sales side and the smaller end of the market and then work with them in terms of partnering with brokers as they go upmarket, and we think very importantly, Randy, this helps us avoid any channel conflict. So we've not had to deal with any ups and downs and stresses and strains about distribution. It's just been a very singular approach for us and I think that's worked well. From there it's just really a sound execution of the fundamentals in that agency system. Our recruiting continues to be very strong, we're up about 16% with new agent recruits here in 2014, and I think more importantly we're seeing the production from those new recruits very strong, up over 40%. So we're very encouraged there, we continue to improve the effectiveness of our training programs and our overall sales support, and again that's led to a strong growth in the number of producing agents and the number of producing sales units that we have out in the field. So, all of that has just led to increasing activity levels, more appointments and a strong increase in the number of closed cases. As far as the market environment, Randy, we are seeing a gradual improvement in the economy. Still some pressure in terms of new hires in that small end of the market, but other than that we are seeing more and more employers opening up to changes in their benefit programs, introducing voluntary benefits. Most of them are moving beyond the Affordable Care Act implementation and in fact we're seeing strong growth in a number of our products that very much complement those changes to major medical programs, strong sales of critical illness for example in our accident products. So all of this has really led to very broad-based growth in sales force here in 2014, both on new and existing accounts. In all of our market segments we're seeing a very strong double-digit growth. So we're very optimistic about the fundamentals of our business and we have a very optimistic sales outlook. So hopefully that answers it for you, Randy.

Yes, it's certainly helpful. I guess the one follow-up would be, I mean so 16% on new agent recruits, that's also kind of a best in class number, at least among these publicly traded guys, have you changed the way you recruit at all including I mean like covering their expenses or sign-on bonuses or do you have a new IT systems or anything that's kind of changed, or is it all just status quo as far as the recruiting process goes?

I'd put it in the fine-tuning category, Randy. We're always tweaking a little bit around the edges in terms of new approaches and how we connect digitally as well as face-to-face, that type of thing, but in terms of financing or different commission rates or something like that really no significant changes, it's just staying focused on it. We of course have established goals for all of our sales managers to hit when it comes to recruiting, and then I think most importantly then providing a great opportunity with good training and the opportunity to make a great living, and I think the word spreads rapidly out in the marketplace.

If I could just add too, I think a little bit of what, as I answered to John's earlier question too, just the stability and consistency of the things we do actually is incredibly important in the marketplace and it's also important to Colonial's business. People know what we stand for, they know how we value the distribution system and obviously we continue to innovate and add new things as we go through time, and obviously for those who haven't seen it the sponsorship at Colonial with Shark Tank for example is a good example of those kind of things where we are stepping out. But still I think that stability and consistency is one of those things where I think our organization is certainly domestically is being rewarded for.

I think we're bumping up against the hour here. I know people have some other things to move to. So let me just say, thank you for taking the time to join us this morning and we look forward to seeing many of you hopefully in our mid-December Outlook Meeting in New York, and operators will conclude our third quarter operating earnings call.

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