Welcome to the Unum Group Third Quarter Earnings Results Conference. Today's conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to Senior Vice President of Investor Relations, Mr. Tom White.

Great. Thank you. Good morning, everyone and welcome to the third quarter 2015 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 SEC 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, 2014 and our subsequently filed quarterly reports on Form 10-Q. Our SEC filings can be found in the investors section on our website. I remind you that 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. As we discuss the financial results this quarter, I'll remind you that our prior-period results have been adjusted for our retrospective adoption of the accounting standards update for tax credit partnership investments and qualified affordable housing projects. Adjusted prior-period results are available on our website in a supplemental exhibit. 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 website in the investor section. Participating in this morning's conference call are Unum's President and CEO, Rick McKenney; and our CFO, Jack McGarry; as well as the CEOs of our core business segments, Mike Simonds for Unum U.S.; Peter O'Donnell for Unum UK; and Tim Arnold for Colonial Life. And now I'll turn the call over to Rick.

Great. Thank you, Tom and good morning, everyone. I'm very happy to take you through what was a very good third quarter. Our operating earnings per share of $0.91 increased just under 6% from the year-ago quarter. These results were very well balanced showing continued momentum building in premium income for our core business segments as well as stable benefits experience. This drove solid margins across our businesses. In addition, it was an active quarter from a capital management perspective. We deployed our capital for growth both organic and through acquisitions. This did not slow us from consistently returning capital to our shareholders through steady repurchase of our shares as well. Fueled by strong statutory earnings this quarter, our capital position remains very healthy providing excellent financial flexibility as we wrap up 2015 and look to 2016. I will cover a few key highlights for the quarter and then I'll turn it to Jack to provide an analysis our results in greater detail. I'll start with sales where we had a very good third quarter as well. Unum U.S. sales increased by just under 10% with favorable results in the large case market particularly in the group disability lines. Voluntary benefits sales were flat for the quarter but we did see improved trends in our core market segment. In workplace market, individual disability sales were very strong this quarter, up 47% as we had very good success in large case market. At Colonial Life, sales growth continues to be quite encouraging, increasing 11% with very good performance in both commercial and public sector markets. And finally, Unum UK sales in local currency were flat in the third quarter but we were pleased to see stronger activity in the core market segment as well as in new-to-market cases. Second, these sales…

Thank you, Rick and good morning, everyone. Rick gave you a high-level view of what we believe was a very good third quarter and now I'd like to review in more detail the operating and growth trends we saw in the quarter. I'll start first with Unum U.S. where third quarter operating earnings were $218.7 million, an increase of 3.1% from the year-ago quarter of $212.1 million and a very favorable improvement over the second quarter operating earnings of $202.8 million. Premium income growth was strong, increasing 6.8% over the year-ago quarter. The benefit ratio for the U.S. segment improved 69.8% in the third quarter compared to 70.4% in the year-ago quarter and 71.2% in the second quarter. Our benefits experience improved nicely from the higher level of volatility we experienced in the second quarter. Within the Unum U.S. segment, operating income in our group disability business was $70.8 million, an increase of 3.2% from the year-ago quarter of $68.6 million. While premium income continues to build momentum, increasing by 7.9% over the year-ago quarter, we continue to see pressure on net investment income which declined by 2.5% compared to the year-ago quarter. Benefit experience improved in the third quarter relative to both the year-ago quarter and the second quarter of this year. The benefit ratio was 80.5% for the third quarter compared to 82.1% a year ago and 83.4% in the second quarter, driven primarily by lower claims incidents rates and favorable recovery experience in our group long-term disability product line. Group Life and AD&D operating income was $60.2 million for the third quarter, a decline of 2.6% from the year-ago quarter. We were pleased, however, to see that our third quarter operating income improved strongly from the second quarter income of $52.5 million. Premium income growth continues to…

Great. Thanks, Jack. I think you'd agree the quarter represented a good balance between top-line results and stable benefits experienced across our core business segments. As a result, our consistent capital generation allows us the flexibility to invest in the growth of our business while also returning capital to our shareholders. It's the type of quarter we like to see. We'll now move to your questions so I'll ask the operator to begin the Q&A session.

[Operator Instructions]. We will go first to Erik Bass with Citi.

A question for Mike. I was hoping you could provide some color on the pipeline ahead of January renewals. And also any update on price competition relative to what you saw at this time last year in the first half of 2015.

Thanks, Eric, and good morning. I'd say I'll take your second question first in terms of the marketplace. What I would say in general is we're seeing a pretty rational pricing environment out there, not as favorable as perhaps 2014 when we saw a number of carriers need to reposition their blocks. I'd say the current situation is there's still some carriers with work to do. We see a few carriers that are getting a little bit more aggressive in terms of underwriting that sort of balances out into what I would describe as a pretty typical pricing environment across the group insurance line. So that's what we're seeing externally. And then that sort of feeds into what our pipeline looks like. I think your question was with respect to the renewal block. We continue to build modest single digit, mid single-digit increases into our renewal plans to account for the interest rates that Jack referenced. And our persistency of clients through that program has been right in line to slightly ahead of our expectations. Plenty more work to do as we push all the way through the end of the year and through the one-one cycle that you referenced but at this point I feel good about it.

One question, you mentioned low interest rates. I think it's come up a couple times on the call and I realize this may be a topic for your outlook meeting in December. Any comments you can provide about the potential for a reduction in the new claims discount rate just given the level of interest rates?

Just in terms of the overall industry, I think it is a topic we can continue to discuss across the board and I think, as Mike mentioned, we're taking price and we're doing -- taking the actions necessary to deal with it. It will be a topic I'm sure with all investors or all companies as we get to that but more specifically to your question, let me turn it over to Jack about our specific discount rate.

Erik, we're in the throes of our reserve adequacy studies right now. We tend to do those late in the third quarter with a ramp up in the fourth quarter. And so clearly we're going to wait until that work is complete before we make a decision but with that said, I would say spreads have widened. It's a little bit more favorable investment environment than we have seen for the past couple of quarters. On top of that, our interest rate margin in our long term disability line is at the top end of its range. We do believe we're going into the final quarter with some flexibility.

Can you just remind us what the sensitivity approximately would be if you were to make a change?

The last 50 basis point change that we made last year I think was about $7.5 million a quarter.

We will take our next question from Ryan Krueger with KBW.

First, I was hoping you if could give an update on some of the underlying sales trends at Colonial where growth has been pretty strong over the last couple of years really.

We've been pleased to see strong growth from almost all customer segments and from almost all product lines. We're obviously seeing heavier growth in our products than our individual but we have healthy growth in both. From a geographic perspective, we're seeing strong growth in all four of our major regional markets. Feeling very good about where we are from a growth perspective in the results. Our sales team is producing

Could you give some color around the energy portfolio at this point where fair value is relative to costs as well as how concerned you are at this point about rate migration?

The energy portfolio, it remains in the gain position. It's about 12% of our invested assets. 85% of the portfolio is at investment grade. It still has a unrealized capital gain in the portfolio. We've done some pretty rigorous testing of the portfolio at current oil prices, and believe that we have time in the portfolio. If current oil prices stay at the level they are at for another year or two, we don't anticipate big problems in the portfolio. It would get worse, however, if it goes on for an extended period of time.

We will take our next question from Suneet Kamath with UBS

I guess for Jack on the statutory earnings. I think it's up about 18% or so from where you were running on the first half of the year. Two questions related to that. One, what drove the increase in 3Q versus first half? And then secondly, given your running at a pretty nice clip so far this year, how does that influence your guidance for the lower end of the $400 million to $600 million buyback plan for this year?

Statutory earnings were very strong for the quarter. That's a reflection of the favorable risk results that we had in the quarter. Second quarter was worse from a statutory perspective in first quarter. It's driven by the underlying risk results. Certainly statutory earnings helped our capital position and our financial flexibility. I don't think the bump that we saw in the second quarter will have a material impact on our stock repurchase plans. Our capital plans remain pretty much intact with where they saw them. We're up a little bit relative to the 400 pace that we had been on but a lot of that is just being opportunistic with the stock price dip we saw in the third quarter.

And then I guess for Mike. I think in Jack's comments, and please correct me if I got this wrong, I think he said that Unum US core market sales were up only 1% suggesting that most of the growth in the quarter came from the opportunistic large case. Could you give us, if that's right, can you give us some color in terms of what's going on in the core market? Is it increased competition? I would've thought that that 1% number if right had been running higher in prior quarters. Thanks.

That is correct. It was much more modest growth. Two things I would highlight. One, a very strong prior-year comparison. As I mentioned earlier, the competitive environment was probably a little bit more favorable in 2014. We had a very strong 3Q in the core in particular. It was actually 4Q 2014 was quite a good sales quarter for us as well. If you unpack the core results, what you see is some of our toughest competitive market was in what we call the mid-market. Those are employers between 500 and 2,000 lives. That tends to be a space where large players will come down and more small case players will move up. That was reflected in some of the close ratios we had. As you know, we're going to stay very disciplined from an underwriting point of view. Down to the smaller end of core, we saw a little bit better growth. We also saw good growth with existing clients. All in, feeling pretty good about it. We're going to watch it very closely. As I mentioned before, both in the renewal plan and on new business pricing, particularly with disability, we put in some mid-single-digit type price increases. We were going to watch and see how the market responds. It should be a universal issue around interest rate that people are dealing with. So provided the market continues to move upward to reflect that pressure, we would hope to see continued good growth in the core.

We will take our next question from Yaron Kinar with Deutsche Bank

Wanted to talk about US group life and AD&D business. I think we saw a second consecutive quarter there with higher average paid claims size. Could you maybe offer a little more color on what's driving that and are you taking any action at this point or do think that any action is necessary at this point?

Again, we think it's volatility with a pickup in average claim size. Actually, a lot of that pickup was in the AD&D line. We had a bunch of really large accident claims, which is pretty unusual. Clearly, that is the most volatile and random of the lines that we write. A lot of that increase in loss ratio was driven by AD&D. The group life line actually was very stable with where it was in the third quarter of 2014. As a result of that and what drove that, I don't think we're contemplating any pricing actions.

Okay. You talked about M&A a little bit and the Dental Plan acquisition. Can you remind us what your thoughts and plans are or expectations are for contribution from Dental Plan going forward? And also maybe where you continue to see pockets for additional M&A activity whether it's by geography or market segment?

Sure, let me take that for you, Yaron. This is Rick. So when think about the overall, so we'll start on first on the National Dental Plan, which we talked about being relatively small, $50 million roughly purchase price. The contribution of that will be quite small. We'll talk about that as we get to investor day. When we think of just the relative to the purchase price, we're going to have a reasonably good return on that so it's going to be day one profitable which I think is a good thing. We've got take to take you through some of the details. It's not going to be a big contributor day one, however, what I would say it's very good strategically. When we think about building out our UK business, it was an area of the portfolio that we did not have. It's a growing market in the UK, and so I think that across all fronts we feel very good about that transaction. When you rewind that to the broader M&A market and what we want to do, you'll see some things out there trading in market today. I should say over the course of the summer. Some of those are more difficult for us because first and foremost, we would like to fill in the US product lines we don't have a large presence in today. Secondly, we would like to consolidate blocks that we think we can run well and generate good profits. And so you've seen some of those out there, but I think one of the things that's challenging here in the US is pricing. We're going to remain a disciplined acquirer. We're always said that and we will continue on that front. The other place that we would continue to go is looking for different jurisdictions. The National Dental Plan, although we have a good presence in UK, would be one of those. What else can we do in those type of markets? When we get outside of the US, where are there other opportunities for us to do what we know very well? Those have been things we've been looking at for several years now. We'll continue to look on that front, and make sure that we're a very nimble acquirer. The National Dental Plan deal that we did, as we said, we purchased and closed within a quarter, and that's the kind of creativity we want to have as we go out there as of the same kind of nimbleness to make sure we can execute quickly on those type of transactions. I bring all that together and it's got to be in the right strategic context of making our Company bigger, being focused at the workplace, and doing what we know very well. National Dental Plan was a good example of that on all fronts.

Would you consider markets or jurisdictions outside of North America and the UK?

Yes.

We will take our next question from Jay Gelb with Barclays.

The persistency in Colonial Life has ticked up quite a bit relative to the first half. Could you give us a bit of insight on that?

Yes, first of all clearly the marketplace is becoming more competitive and we recognize that. However, after looking at our persistency results in the third quarter, we believe it's normal volatility driving those results. We don't believe that this is the new normal. Also when you compare our persistency results to those in the industry who report on their voluntary persistency, we continue to have industry leading results even at the level we reported in the third quarter.

So should we look at the first half as a better indicator of persistency as opposed to the third quarter?

Yes, we believe so.

Okay. The other question I had is with regard another question on share buyback. The amount of free cash flow generated at the overall operation continues to be quite strong. I'm just wondering why given the good continued earnings power, why the share buyback pace is at the low end of the initial guidance you provided for this year.

Certainly, we've had good cash flow. I would say one of the pieces is in the quarter, we bought National Dental Plan. That was a $54 million price tag. If you add that to the $150 million of share repurchase or the $326 million year to date, we are about in the middle of that range. And so I would say statutory earnings are maybe modestly better than we anticipated but not dramatically better than we anticipated and so I think we continue to be pretty comfortable with where we are in the capital plans we have in place.

Okay. I would just point out that with the stock at the current valuation either PE or price-to-book, it still looks like a good opportunity to buy back more stock.

Yes, Jay, I think when we think about our overall share repurchase, we do notice the stock price and where it is. I think even if you look at what we did earlier in the year versus what we did as the share price or I should say the market, not just our shares, but as the market came down, we did a little bit more. We'll do that on the edges. I don't think you'll see wholesale moves in and out of the market relative to where the price is but it is something that factors into our overall plan.

We will take our next question from Humphrey Lee with Dowling and Partners.

Just a follow up on the Colonial Life sales. Obviously, the cancer and critical illness products has been pretty strong. Can you talk about in terms of pipeline that you are you seeing and [indiscernible] it with some of the other group insurance companies recently launched their own voluntary benefits platform. Can you just talk about in general the overall voluntary benefits market competition?

We believe the market is growing rapidly itself. Even though there are new entrants coming in, we still believe there's plenty of opportunity to drive strong growth in the market. As you pointed out, we had good growth in a few products that you mentioned but we really had strong growth across almost every product line. And as I mentioned earlier, across all of our geographies. We still believe the marketplace is very attractive. We think there's very strong opportunity for the market itself to continue to grow. We have a tremendous brand. We have a very effective field force. We feel comfortable that our growth prospects remain in the range that we shared during investor day last year of 6% to 8% sales growth.

Okay. Maybe a question for Tim and Mike. With the ACA, the government was talking about being high in 2016. Do you see any impact to your enrollment for the current open enrollment periods in terms of the amount for your supplemental health type product?

We clearly see an opportunity there on the Colonial Life side. Part of our value proposition is to conduct what we call core enrollment so we actually in many cases enroll the medical portion of an employer's plan. And as we do that, we certainly gain insight into the places where an employer may be making changes in their medical deductibles that create opportunity for our products to fill a gap that the consumer would otherwise experience in their overall financial protection picture. We see that as a pretty significant opportunity currently.

I would to that you would see within the voluntary portfolio the strongest growth on the Unum brand side in products like accident, hospital indemnity, critical illness, which our supplemental health products that help fill those gaps that get created as employees are given more choice. It's pretty clear that they tend to buy down the health coverage so they will elect for higher deductibles to lower the premiums, that creates gaps that need to be filled in the short term. It's an opportunity for us.

It sounds like at least you continued to have some tailwind in terms of the supplemental and voluntary benefits sales in both Unum US and Colonial Life, at least in the near term.

I think that's a fair statement. I would take a step back and say it's part of a longer-term trend. And while the ACA certainly accelerated it to a degree, it's been a number of years that we've seen this shift towards more employee-centric benefit package that shift more toward more defined contribution and across the Colonial and the Unum Companies, we made that bet coming up on a decade ago to build out the products, technologies, and platforms to take advantage of that shift. I think we're seeing some of that pay off.

We will take our next question from Steven Schwartz with Raymond James

A couple here. First, Mike, maybe you could talk to the environment with regards to the brokers; there's been a lot of M&A action in that area. Is that having an effect on your business at all and maybe for Colonial as well, I guess?

It's Mike. I'll start it. They have Steven. We absolutely have seen the consolidation that you're speaking to, particularly in the up market. At this point, we have not seen it as dampening and in most of these transactions we've got really good relationships with both parties, and those are preserved through the combination. I would say in general, one of the things that we're watching is the number of smaller brokerage firms that tend to focus on the small case market. We would see fewer of those brokers today than what we may have seen three or four years ago. We are on the Unum brand side finding opportunities through alternative partners and we call digital channels where there are emerging technology players that are enabling us to distribute benefits down in the small end of the market. It also presents a really good opportunity for the direct distribution that Colonial Life brings. And with that, I'll turn it over to Tim.

Thanks, Mike. First of all let me say we enjoy very strong support from the broker market. We've seen very significant growth in our broker block of business over the last few years. And actually about two-thirds of our sales come from brokers. Next week, Benefit Selling magazine, which is widely read by brokers, will announce their annual survey results and awards that are given by brokers and although I can't share with you the results yet because they haven't been announced, I think Colonial Life will be very well placed. Very strong partnerships with the broker commodity. Having said that as Mike pointed out, there are fewer brokers operating in the small end of the market and that is creating opportunity for us on the direct marketing side. And we're seeing extremely strong growth in the less than 100 life segment as a result of that.

Okay. Back to Mike on this just as a follow-up. You mentioned alternatives. Are you talking about companies like Zenefits?

There are a number of companies that are popping up that provide a broader array of HR and HRAF type services and part of that can be benefits brokering. Often times it's done directly. Sometimes it's in partnership with firms as their small market strategy. It's too early to see how big of an impact it can have but that's certainly something that we're staying very close to and have made some investments in

And then a quick one for Jack. Jack, could you remind us with the target interest adjusted loss ratio is for Closed Block IDI?

Closed Block IDI has tended to run in the 81% to 83% range. It was a little more favorable this quarter.

Okay, but that would be the long term target?

Yes.

Okay. And then one more. Just as a point of information. How does dental work in the UK? Is that something not covered by the government?

There is an NHS support service for a dentist, but again like a lot of things in the UK, it's under a lot of cost pressure, and to get a good service, you need to get a private scheme and private dental. That's a growing market, the private dental market. As Rick referred to, we see the dental market is going to be very small at the moment. National Dental Plan is a corporate player. We've got 25% market share in the corporate market, which is in employee benefits. It's 75% employee paid, so it's one of those products that is moving us more into that voluntary market, which again strategically we like and think that's a good place to be. We see both the increase of private provision and also increasingly employees wanting to get access to that and it's a great employer benefit to give to your employees. We really like the growth prospects for that market.

We will take our next question from Jimmy Bhullar JPMorgan

I had a couple of questions. The first one is, if we look at the past few years, you've added a stat reserves for the New York entity for long term care. Given where rates are right now, assuming no dramatic changes through the end of the year, would you assume another addition? And in terms of quantity or magnitude, would it be similar to what you've done in the past few years or higher or lower?

Can you repeat the question?

Just the likelihood of additions to New York stat reserves, long term care stat reserves for New York. I would look to history in that. $150 million over the last couple of years. It's very sensitive to where interest rates are at the end of the year. Sure. If we think about what you've done in terms of buybacks, the last couple of years you bought back more in the first three quarters and less in the last quarter. Last year, you didn't buy anything in the fourth quarter and part of the reason was the New York stat reserve addition. If you do have to add to reserves, would you continue to buy back stock or is that something that could affect your ability to hit the low end of your share buyback guidance?

Actually, the fourth quarter of last year, as you recall, we were doing the long term care reserves. We ended up with a significant charge. I think that was more the driver of our stock repurchase, not feeling good being in the market with that information in hand. That was clearly a bigger driver then the New York funding.

I think it's important to know when you look at it, Jimmy, that anything in New York is contemplated in our current capital plans and everything we've talked to about up until now. I think that -- we'll talk more about that in December, but I think that that's not going to be a key driver in our capital management decisions.

Okay. And lastly on your results overall, obviously your margins have been pretty good relative to the rest of the industry but top-line growth has been fairly week. I'm wondering if you're starting to see the benefit of just higher pickup in hiring activity or better wage inflation or do you expect to see the benefit of that over the next few quarters?

Sure. I'll take, Jimmy, your questions in reverse order. From a natural growth perspective, it's actually been relatively muted, certainly better than a couple of years ago. But while we have seen some addition in job growth, we have not seen much by way of wage inflation. That tends to be a pretty key driver on the natural growth side. As of yet, it has not been a big contributor to the top line. I guess I would characterize top-line growth as actually building some pretty decent momentum, to be honest with you, over the last four to five quarters, actually. As I think has been mentioned a few times, on the Unum US side, earned premium growth is about 7%. What we've seen in the industry depends a little bit on the product but it's more than 2% to 3%, 3.5% range. We fell actually pretty good about the sustained level of top-line growth.

I would add to that too Jimmy, as you mentioned, we do have some very good margins and so when you combine those two together, it turns into a very good profit story as well as a capital generation story.

We will take our next question from Mark Hughes with SunTrust.

The UK benefit ratio, 68% this quarter. Is that more likely to stay in the upper 60%s or is this just unusually good?

Jack, you want to touch this?

It was a good quarter from a risk perspective in the UK. I would note that there's some volatility in the UK benefit ratio because it's affected by inflation in the index link portfolio. Inflation was very muted in the UK in the quarter. That helps out if you had a bigger spike in inflation or IDI in a given quarter, it can go the other way. But again, that aside the underlying risk results were very favorable for the quarter, and I would expect to see the loss ratio over time continue to hover above the level that it's historically hovered at.

There has been some discussion of tightening up eligibility for disability benefits. I think the new budget has some provisions for that. Did that mean anything to you?

You're correct. There was a series of changes around SSDI that were part of recent budget deals. To be honest, there's a lot of details to be worked out they're so pretty high level in nature, but even as we've taken those high-level comments and looked at them pretty thoroughly, we don't see a material impact. One thing we will watch pretty carefully is there is some additional pressure to increase the number of administrative law judges. We've got a big of backlog in SSDI currently, so should there be movement there, that would certainly be helpful to us. But as I look across the other provisions, I think we're going to be in reasonably good stead.

And then finally the tax rate. It looked like it was a little higher this quarter if I read it properly. What should we assume going forward?

It was a little higher this quarter. That was the result of the expiration of the active financing exemption. It was a three quarter catch up for that. That was about a 1% change in the tax rate. We'd expect that to normalize over time to be one quarter effect. But we would expect -- so that was a bump in the quarter, a one-time effect we didn't expect to drift toward that 31%.

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

First question was just on the large case sales growth you had in group. I know you de-emphasized that for the last few years, and should we view the pickup there as coming off the bottom? Or the pricing change in the larger case market, has it improved? Can you provide some color there?

I think Jack hit on this a bit. We did see very strong growth in the 13% in the pure quarter. We were down in the first quarter and the second quarter. I wouldn't look at it so much as down and then now we're up on a sustained basis. I would expect quarter to quarter just given the large size of the transaction in that market and the fact that we are opportunistic, and we'll only write it when we can do so at what we think are sustainable price levels. They will fluctuate over time. I would contrast the volatility that we see on the new sales front with what we see in persistency. That has been consistently very strong at 90% to slightly above 90% in the large case market. As well as the growth that we are able to achieve through the existing customer block. That's been a pretty persistent additive feature of how we client manage in the large case market. And the two net out to some decent earned premium growth there.

I wanted to shift gears onto long term care. I want to reference looking at this Moody's report which shows an analysis of long term care in Unum's and one of the companies in the peer group. And the one thing that stood out to me is Unum among these five companies is the only one that doesn't incorporate future rate increases into its reserves which would be obviously more conservative. As I think about the next few years, you've obviously had some sizable charges going back over the last several years. Are you able to change that at all? Because obviously that would offset interest-rate related charges or could offset interest-rate related charges. How should we think about that?

I would note and to be clear about that, we don't include the prospect of filing additional rate increases into the future into our reserves. However, we do include assumptions around currently filed rate increases in our reserves.

Yes, sorry. Right. They did specify that point. It's not yet filed rate increases.

Yes.

That are not included in your reserves. My question is, could you make a change or given that you have not done it to date or you are precluded from making an adjustment like that in the future.

We're not precluded from making those adjustments in the future. I would note that we are in loss recognition. Reserves are locked in. And so you would only make that change to the extent that you anticipated future losses. We feel good about where our reserve assumptions are. And so we're not feeling pressure around future losses in the forward. If it came up and we felt the need to file additional rate increases, we would look to include those if we unlocked the reserves.

Okay. But we shouldn't be anticipating that you would move to what looks like more of an industry standard where you begin to use not yet filed rate increases?

No. I would not anticipate us moving there. I think the other thing is when you look at that -- even with the industry, it's more around reserve adequacy studies than it is around actual reserve levels. Very few of those companies have actually unlocked their reserves.

Last question, can you comment at all about what's been some fears over Social Security Administration not having proper funding for disability and what you think about that and what that might mean for you over the next few years?

I think that you heard from Mike in terms of some of the things are going through right now but there is positive things, too, Mike, you want to touch on.

As part of the recent budget deal, what's happened 11 times prior happened for a 12th time which was reallocating a portion of the payroll taxes from SS retirement to the DI trust fund. That effectively pushes out insolvency from sometime late next year to 2022. It doesn't solve for the issue but certainly buys additional time. The silver lining around some of the pressure is obviously we've got time but it is an active dialogue in Washington and we do believe that the private disability market can be part of the answer. And so much as we expand coverage short and long term disability into the worksite, our return to work focus and emphasis gets out ahead of SSDI and lowers actually the burden on that program. In general, feel like we've bought a little bit of time here on the funding issue but want to keep the dialogue active. And then just as we mentioned prior, there were a series of other changes around SSDI and we don't see those certainly in the short to midterm as consequential to us.

We will take our next question from Eric Berg with RBC.

My first question relates to long term care. Interest rates did not rise so far this year. I would need to review where they are but they certainly haven't risen much. In certain parts of the year, they have fallen. How has the various factors that underlie your active life reserves in long term care in the closed block, how have they developed this year? Interest rates, claims, lapses, expenses, whatever else is critical to that reserve. How have they emerged relative to the assumptions that you reset in the fourth quarter of 2014? I guess, Jack.

You're right. Interest rates haven't risen this year but as you recall when we set the assumptions at the end of 2014, we did not anticipate a rise in interest rates. In fact, we communicated that we set that assumption assuming interest rates would remain relatively flat for the next five years and then gradually revert to more of a long term average rate over the subsequent five years. Our expectations there have been fulfilled for the first year. They've remained relatively flat. We have another three or four years left of anticipation of flat interest rates. That piece is fine. With respect to the rest of the reserve assumptions, I'd look to earnings. Our loss ratio has been pretty consistent this year. It's been right in our target range, and we are yet to fully complete our reserve adequacy study but there is nothing in the way the results have emerged that would cause us concern.

One separate question regarding voluntary market both for Unum US and for Colonial. It's interesting to me that your sales are as strong as they are. I say it's interesting because in the savings business, and I realize that you're a traditional insurer and not really in the savings business, if at all in the savings business. In the savings business, insurers that are in it have found it very tough to get line employees, middle income Americans, to save materially more. What I have read in surveys that I have read is that people say they often don't have the money at the end of the month with all their expenses to save more. Against that backdrop and that context, what's your best sense as to why voluntary sales are doing as well as they are since they are basically the same people who say I can't save more.

Let's turn to it Tim Arnold to talk about our Colonial Life business model and what you're seeing, Tim.

We believe that our model offering benefits counselors who help people understand the need and who really make it real for the person in a one-on-one benefits counseling session when they see the impact of a larger deductible in their medical plan or where they recognize that they have zero life insurance or almost no life insurance to help provide for their families if something happened to them. I think the benefits counselor plays an enormous role in this. I also think that economically, we're beginning to see some improvement in the unemployment rate. Certainly, lower gas prices don't hurt because the people who are buying our products are also putting gas in vehicles. And so I think there's some economic factors driving our success, but I also believe that the value of that benefits counselor and the opportunity to educate a consumer about the needs and gaps in their financial protection and the opportunities they have to protect themselves and their families for a very modest premium is extremely helpful to our sales.

We will take our next question from Ken Billingsley with Compass Point.

I did want to follow on the Colonial Life side, and more specifically, I realize one quarter does not make a trend but when you look at the persistency versus the strong sales growth, is there something in the quarter where there was pricing or product specific that it appears that new customers were really interested in the product but some of your older customers maybe didn't value it as much compared to prior trends?

It really wasn't that scenario. Again, we did a fairly deep analysis of the persistency trends in the quarter and we came away with the view that it is normal volatility. We were impacted by a couple of large case lapses, and there were some consumer level lapses that were a bit above average as well, but when you look back across the last 8 to 10 quarters, you'll occasionally see a little bit of volatility. This quarter was a little bit higher than most but we don't believe this is the new normal. We don't think this is a trend that will have us in the 78.5% persistency rate going forward.

Were there any changes in the product makeup for pricing in the last three or four quarters that may be impacting that decision?

Not really. The group products typically have a little lower persistency than the individual products, and we are seeing more growth in group products but we don't believe that that will have a long term depressing effect on our persistency overall.

Okay. The other question I have is on the long term care side. This is from the press release as well. Specifically to long term care, you mentioned that lower claim recoveries were an issue. What does that actually mean when you apply it to long term care? What does lower claim recoveries mean from a negative impact?

Lower claim recoveries, it's recoveries. People have a hip replacement or something, they're out for a while. They get better, and they go off of benefits or perhaps they were receiving one form of care that was covered and move to another form of care that may not. So it's people who had something happen, they've either gotten better or have changed their care location and as a result are no longer eligible for payment. I note in long term care, though, that recoveries in long term care are a much smaller portion of the pie than they are in light disability where most people do recover. The bigger driver of long term care results is mortality on disabled lives.

Okay. This is not a subjugation issue. It's specifically a recovery of a person?

No, it's a recovery issue.

Of the individual, okay.

Claim recovery.

We will take our next question from John Nadel with Piper Jaffray.

A couple of quick ones, one, I was really interested in some commentary, I guess it's a couple of weeks ago now at an industry conference where there was really the focal point was on M&A activity across the entire insurance space whether life, property, casualty, global, et cetera. There was some commentary at the conference that indicated that there was a pickup probably off of an anemic level albeit but a pickup in interest amongst potential buyers in long term care block. Have you heard that? Have you seen any incremental activity there? Are you starting to get a little more hopeful?

There has been a pickup in discussion around interest in long term care block. It's been building over the last couple of years. I would say most of the interest is related to the asset side of the balance sheet. I think there's still some trepidation on the liability side. We are in active discussions with people about alternatives for enhancing the capital efficiency of that block, but I wouldn't say that any kind of a big deal right now feels imminent. I think there still needs to be more work done on the liability side of the balance sheet in order to structure something.

I think, John, this is following a path we talked about even a couple of years ago which is it's going to go through a progression where there's more data coming into the industry, there's people getting more knowledgeable about what's going on in the industry overall, and so it will follow a cycle. And I think what Jack said is exactly right. It would take some time for them to get through the liability side and the reality is, as more data is coming into the industry, this block as an industry continues to age. So we're hopeful with it. There are some transactions out there. There are discussions out there. Those wouldn't have been having a couple of years ago. That's good progress. But as Jack said, I don't think there's anything imminent there but it's something we stay very active on.

As a quick follow-up and I guess this is more of an opinion question. If I gave you the choice between the portion of the curve, let's call it 20 to 30 years on the curve, if I gave you the choice between 100 basis points higher there or somewhat improving and more specific data, which one would you choose as the greater influence on something potentially getting done?

I can answer that. It sounds dangerous. It's a trick question. I think that when you look at it, I think--

By the way, I can't make either one of those happen.

I think when you think about interest rates, interest rates can be modeled. It's very clear, very straightforward, and can be priced. That side of it I think can be understood and much better known. People have opinions on both sides of that but that's the market. I think it is about the data. It is about the understanding of the liability. It is getting better but it's going to take time because data is still flowing in. It's not just because of better analysis. It's because real data is still flowing into the market. That's going to the unknown that when we get to that point where people are comfortable with that, things will take shape. Jack, you want to add to that?

The only thing I would add to that, John, is I'd take the 100 basis points hands down because that improves our position whether we come to a deal or not.

And not just for your long term care block. My other question for you, and I recognize and I think everybody on the phone recognizes that you'll give a more formal or a formal outlook for 2016 in another month and half or so. But a question for you is this. At least as consensus is currently formed, there is clearly an expectation that your EPS growth rate if we're looking at the lower end of the 2% to 5% for 2015, there is clearly an expectation that that growth rate will accelerate in 2016. I'm part of that consensus and I agree with it. I just wonder whether you can affirm at this point of view that given what you're seeing top-line trends slightly better, long term investment rates, the effect of your capital management program, et cetera. Is all of that enough to offset some of the continued downward pressure on investment income to accelerate the growth rate in 2016?

We appreciate that, John, as our last question, too of the day. I think there's too many moving pieces to do that in a quick snippet so I think that when we get to investor day, which is an advertisement for that, we'll take you through all the moving pieces. But I think what you can expect to hear is about growth trends, how the industry rate environment which we said multiple times continues to provide a little bit of pressure, and then how you weave capitalize management into all that. It's more than just a quick snippet answer. We'll take you through a lot of detail on that on December 17 and we'll leave it at that.

There are no additional questions in the queue at the time.

Thanks, everybody, for joining us this morning. Reiterate good third quarter. We're already working on the fourth quarter, and we'll see you at investor day on December 17. Thanks a lot. Bye, bye.

That concludes today's conference. We appreciate your participation.