Unum Group (UNM) Q3 2026 Earnings Call Transcript

DATE

Nov. 4, 2026

CALL PARTICIPANTS

• President and CEO - Richard Paul McKenney
• Chief Financial Officer - Steven Andrew Zabel
• Investor Relations - J. Matthew Royal
• Group Benefits - Christopher Wallace Pyne
• Unum International - Mark Till
• President of Colonial Life - Steve Jones

TAKEAWAYS

• After-Tax Adjusted Operating Earnings -- $2.20 per share, including a $0.33 contribution from favorable notable items related to the annual reserve assumption review.
• Net Loss -- $419.7 million, reflecting a $853 million net investment loss primarily from impairment losses on assets identified for transfer in a reinsurance transaction.
• Core Operations Premium Growth -- 4.7% on a constant currency basis, driven by steady growth across Unum US, international, and Colonial Life segments.
• Full-Year 2026 Guidance -- $8.30 to $8.50 per share, updated to incorporate the results of the annual assumption review and first nine months performance.
• Group Disability Benefit Ratio -- 70.6% excluding notable items, increasing from 61.3% due to elevated claim submissions in long-term disability and paid family and medical leave.
• Long-Term Disability Claim Submissions -- 10% higher than expectations, contributing 5 percentage points of pressure to the loss ratio.
• Short-Term Disability and PFML Experience -- 2 percentage points of pressure on the benefit ratio, reflecting utilization that exceeded original pricing assumptions.
• Unum UK Benefit Ratio -- 80.5% excluding notable items, driven by a higher number of submitted claims in group income protection.
• Colonial Life Benefit Ratio -- 47% excluding notable items, improved from 48.2% in the prior year due to lower cancer claims.
• LTC Reinsurance Transaction -- $3.8 billion of statutory reserves ceded to Fortitude Re at a 12% net cost relative to best estimate reserves.
• Total LTC Exposure Reduction -- 40% cumulatively, including the latest transaction with Fortitude Re and previous de-risking actions.
• Share Repurchases -- $200 million in the third quarter, bringing the year-to-date total to approximately $800 million.
• Risk-Based Capital -- 485% at quarter end, remaining well above the year-end target range of 400% to 425%.
• Holding Company Liquidity -- $1.4 billion at quarter end, with a year-end target of $1.5 billion to $2 billion.
• Closed Block Net Premium Ratio -- 98.1%, representing a 30 basis point sequential increase driven by group-based LTC terminations.
• Group LTC Case Exposure -- 14% reduction year to date, as 150 employers terminated group coverage following the company's decision to stop new enrollments.
• LTC Rate Increase Program -- over $100 million of gross present value approved in the third quarter, representing achievement of over 25% of the current program.
• Unum US Premium Growth -- 5.2% to $1.8 billion, supported by strong sales in prior periods and healthy group product persistency.
• Colonial Life Sales -- $132.6 million, an increase of 6.4% year over year.
• Book Value Excluding AOCI -- $76.73 per share, a 0.9% decrease from the prior year.
• Alternative Investment Yield -- 10.1%, exceeding the long-term expectation of 8% to 10%.
• Unum Poland Premium Growth -- 10% on a constant currency basis, reflecting continued international expansion.
• Group Life and AD&D Benefit Ratio -- 69.7% excluding notable items, with 3 points of pressure from waiver of premium experience related to disability claims.

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RISKS

• McKenney stated, "It was driven by elevated disability claim submissions in The US and UK," regarding the quarterly earnings shortfall.
• McKenney warned that utilization in the paid family and medical leave business has been higher than originally priced, necessitating double digit rate increases.
• Zabel noted that long-term disability claim submissions in the third quarter were approximately 10% above expectations, specifically concentrated in behavioral health claims.

SUMMARY

Unum Group (NYSE:UNM) reported a third quarter performance characterized by elevated disability claim submissions in the U.S. and U.K. that offset growth in supplemental and voluntary business lines. Management completed a significant long-term care reinsurance transaction with Fortitude Re, which reduced statutory reserves by $3.8 billion and improved the risk profile of the company's closed block. Despite the earnings shortfall in group insurance, the company maintained its full-year capital return target of $1.3 billion and revised its earnings guidance to reflect updated reserve assumptions and year-to-date operational trends.

• McKenney noted that higher submission rates, rather than changes in the competitive environment or adjudication processes, were the primary cause of pressure across disability lines.
• CFO Zabel indicated that the behavioral health claims driving the increase in long-term disability tend to rise alongside other claim types during periods of labor market uncertainty.
• Christopher Pyne stated that pricing actions are already in motion for short-term disability and PFML, with double digit rate increases being implemented for new business and renewals.
• Management reported that 15% of group long-term care cases have been removed from the block since the company stopped allowing new enrollees a year ago.
• Zabel noted that the GAAP result included a $744 million impairment loss on assets identified for transfer in the Fortitude Re transaction, a figure contemplated at the time of the agreement.

INDUSTRY GLOSSARY

• AOCI: Accumulated Other Comprehensive Income, which includes unrealized gains and losses on investment securities.
• Closed Block: A segment of an insurance company's business that is no longer actively sold but continues to pay out claims on existing policies.
• LTC: Long-Term Care insurance, which covers services for individuals with chronic illnesses or disabilities who cannot care for themselves.
• PFML: Paid Family and Medical Leave, a state-mandated or employer-provided benefit for employee absences.
• RBC: Risk-Based Capital, a method of measuring the minimum amount of capital appropriate for a reporting entity to support its overall business operations.
• Waiver of Premium: A policy provision that allows an insured person to stop paying premiums if they become disabled.

Full Conference Call Transcript

Operator: Thank you for standing by. My name is Jordan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Unum Group third quarter 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. I would now like to turn the call over to Matt Royal, Investor Relations. Please go ahead.

J. Matthew Royal: Thank you, and good morning. Welcome to Unum Group's third quarter 2026 earnings call. Today's call may include forward-looking statements, and actual results may differ materially and we are not obligated to update any of these statements. Please refer to our earnings release and our periodic filings with the SEC for a description of factors that could cause actual results to differ from expected results. Yesterday afternoon, Unum released our earnings results and financial supplement for the third quarter of 2026. Materials are available on the Investors section of our website. This quarter's reported results for our core operating segments include the effects of our annual reserve assumption review, and refinements. Which we refer to as notable items.

These items are recognized in the quarter However, they reflect experience and changes in expectations spanning multiple periods. Therefore, we will discuss benefit ratios excluding these items to provide a more comparable view of quarterly benefits experience. Also, as a reminder, references made today to core operation sales of premium, including Unum International, are presented on a constant currency basis for improved comparability period to period. Participating in this morning's conference call are Unum's President and CEO, Richard Paul McKenney and Chief Financial Officer, Steven Andrew Zabel. Following the remarks from Rick and Steven Andrew Zabel, additional members of management will participate in Q and A.

Including Christopher Wallace Pyne, who leads our Group Benefits business Mark Till, who oversees Unum International and Steve Jones, president of Colonial Life. Now let me turn the call over to Rick.

Richard Paul McKenney: Thank you, Matt, and good morning, everyone. Thank you for joining us today as we report our third quarter results. It is a quarter where we saw many positives in growth in portfolio management but ultimately fell short of our earnings expectations. It was driven by elevated disability claim submissions in The US and UK. We will unpack the drivers and the actions we are taking, and we will continue to closely monitor and act on this important business. Many of our strategic initiatives remain on track. And our experience, discipline, the breadth of our franchise and our ability to reprice give us confidence that we can manage through a range of environments.

Looking more broadly at the quarter, after tax adjusted operating earnings were $2.20 per share. This result includes $0.33 of favorable notable items. Primarily from our annual reserve assumption review. Outside of group insurance, earnings results across the rest of the franchise were solid. With good results in Colonial Life, and in our supplemental and voluntary lines of business. These results demonstrate the balance and earnings power of the broader franchise, but they were not enough to overcome the disability headwinds. From an overall returns perspective, the core business is still returning a high ROE. From a top line perspective, our underlying growth drivers remain solid.

Core operations premium grew nearly 5% on a constant currency basis, with growth across Unum US, international, and Colonial Life. And customer retention in our US group businesses remained strong. Overall sales declined year over year against a very strong performance in the third quarter of 2025, but remain up 4% year to date. Our strategy and purpose center on helping employers solve workforce challenges while supporting employees at important moments in their lives. This is as relevant as ever as employers are managing a dynamic workforce environment balancing growth, productivity, talent development, and employee well-being. Our investments in connectivity leave solutions and experience are helping employers address these challenges while strengthening our relationships and competitive position.

We continue to believe strongly in the business model with our group franchise as the key to delivering broader solutions to employers and their employees. So let me take a moment to dig into the challenges and the results we saw this quarter. The disability claims dynamics in US group insurance and international warrant different tactical responses based on the experience in each business. But ultimately, it is addressed by some form of pricing action. In US group insurance, the entire group portfolio of disability products saw higher submitted claims. Was the primary driver of the elevated benefit experience.

This was particularly pronounced in long term disability, similar to last quarter, we also saw elevated short term disability and paid family and medical leave experience. On long term disability, we are evaluating a rapid increase in submitted claims and have not concluded that a represents a sustained change in underlying claims experience. What we have seen so far has been concentrated in behavioral health claims. Where submission levels have fluctuated with external conditions in prior periods. In the meantime, and as we always do, we will continue to make pricing changes on a customer by customer basis where we have seen poor performance. In PFML as we noted previously, the industry experience is still developing.

But utilization has been higher than we originally priced. We see the PFML experience as more rapidly addressable as the pricing structure generally does not include multiyear rate guarantees. This allows us to incorporate emerging experience in new pricing for both new business and renewals. And we are implementing double digit rate increases. In international, UK group income protection experience remained elevated. Driven by a higher number of large claims and increased overall submitted claims. Last quarter, we noted that we are already taking actions to address this. And have done so through adjustments to new business pricing, the phased implementation of higher pricing at renewal, disciplined underwriting, and expense actions.

Some of these actions are already reflected in our expense performance while the pricing actions will take longer to work through the block. We remain confident in the franchise, its market position, and the expertise of our team. And we have seen steadily rising performance in our other lines of business in The UK. Importantly, what we are seeing across all disability lines is not being driven by changes in the competitive environment, or in how we adjudicate claims. It is being driven by more people submitting claims. We have an experienced benefits team that combines deep technical expertise with empathy for the people we serve.

That expertise and judgment have served us well over time and give us confidence as we position the business for continued success. We will take the action necessary to address the pressures we have seen in our disability lines and we remain well positioned over the longer term. While this was a challenging quarter, it is also a quarter that the importance of our diversified business model. Certain products, segments, or geographies will experience pressure from time to time, but the breadth of the portfolio provides balance, and supports attractive returns over the long term. Moving to the closed block, I am pleased to announce that yesterday, we formally closed our latest LTC reinsurance transaction with Fortitude REIT.

This is another important milestone in reducing our LTC exposure. Together with our prior transaction, this represents a cumulative reduction in our LTC statutory reserves of approximately 40%. Another important step in reducing risk and improving the profile of the business that remains. In addition, we continue to pursue organic actions across the retained block. In the third quarter, close to another 5% of group cases closed, and we achieved more than $100 million of rate increase approvals. The annual assumption update resulted in a negligible change in reserves for the block. And significant protections remain in place at our Fairwind entity. Our LTC position is in a very different place than it was just 18 months ago.

Turning to capital. We repurchased approximately $200 million of shares in the third quarter, bringing year to date repurchases to approximately $800 million for the year, we have returned more than $1 billion in share repurchases and common stock dividends. And we remain on track to return approximately $1.3 billion to shareholders for the year. Our capital position remains strong. And we continue to expect to finish 2026 with $1.5 billion to $2 billion of holding company cash, and a risk based capital between 400%-425%. When you look at the overall franchise, there are clear bright spots. Premium growth is steady. Year to date sales remain positive. US group persistency is attractive, and capital deployment remains on plan.

We also continue to make meaningful progress derisking the closed block. While we saw elevated benefits experience in group insurance, and international, we are monitoring and responding to the specific dynamics in each business, and we will continue to adjust our approach as the experience develops. At the same time, we continue to see evidence across our business that the investments we have made in our people, technology, and processes are resonating with customers. We believe we have a clear path to value creation through continued execution of our plan, and we are confident in the strength of the franchise. The durability of our capital generation, and our ability to create long term value.

And with that, let me turn it over to Steven.

Steven Andrew Zabel: Great. Thank you, Rick, and good morning, everyone. As Rick described, third quarter after tax adjusted operating earnings per share were $2.20 per share, including a $0.33 contribution from notable items compared with $2.81 last year which included a $0.75 contribution from notable items. From a top line perspective, results sustained the positive trends we have seen all year, we are well positioned to meet our 4%-7% full year outlook. We continue to see strong levels of persistency in our U. S. Group businesses, which increased nearly 2 points year over year and helped drive core operations premium to increase 4.7%.

Our annual reserve assumption review completed in the third quarter resulted in an overall net decrease in reserves of $28.7 million pretax across our product lines. Including the closed block, compared to a net increase in reserves of $478.5 million in the prior year. In our core businesses, the impact of the assumption review was favorable, with reserve releases totaling $83.7 million pretax. This compares to the pretax decrease in reserves in our core businesses of $162 million in 2025. The reserve assumption update in the closed block drove a $55 million increase in reserves, reflecting higher incidence and lower mortality expectations partially offset by favorability from the continuing rate increase program.

The vast majority of this reserve strengthening was ceded as part of the reinsurance transaction that closed yesterday with only $9.5 million remaining in the retained block. Then moving to segment results, Unum US adjusted operating income was $315.3 million including $51 million in notable items. Apart from these items, earnings were lower year over year reflecting the dynamics noted in group disability and group life. Partially offset by solid performance in supplemental and voluntary. Group disabilities adjusted operating earnings of $94.8 million declined from the prior year and included $28.6 million in notable items. Excluding these items, the benefit ratio was 70.6% compared with 61.3% a year ago.

This quarter's results reflect long term disability submissions that were higher than our expectations. With approximately 5 points of pressure and elevated short term disability, including PFML with approximately 2 points of pressure. While the trend in PFML was largely expected, the increase in LTD submissions was not. As Rick mentioned, we are not ready to conclude that these trends will continue, but we would call out a few considerations around them. First, the related impacts of higher LTD incidents across group disability and group life in AD&D emerged in the third quarter, rather than throughout the year. Second, the increase we have seen is in claim submissions which do not necessarily translate into paid claims.

Most notably, the behavioral health claims driving the increase in LTD tend to rise along with certain other claim types during periods of labor market uncertainty. All things considered, we remain cautious about the increase in submissions this quarter and are prepared to take further corrective action if these trends persist. At the same time, we continue to see favorable underlying recovery trends. Which have supported our strong results over the last few years. And we are confident in a long term benefit ratio of around 65% for a group disability business. The increase in disability submissions also had a impact on group life. Group life and AD&D adjusted operating income was $78.2 million including $5 million of notable items.

The benefit ratio was 69.7%, excluding the notable items, with nearly 3 points driven by waiver premium experience where premiums are waived while a group life insured is on a disability claim. Beyond this related impact from disability claim submissions, underlying life incidents continues to reflect the favorable mortality trends we have experienced recently. Together, when excluding notable items, total group benefits generated a benefit ratio of 70.3%, While this result is higher than our expectations, nearly 8 points of it was attributable to the impacts across group disability and life related to submitted LTD incidents and PFML we are actively managing and repricing.

Our Unum US supplemental and voluntary lines generated adjusted operating income of $142.3 million which includes $17.4 million of notable items. Apart from these items, underlying results were squarely within our outlook range, with a benefit ratio of 49% driven by favorable claims experience in individual disability and dental. Then wrapping up the discussion on Unum US, premium and sales were within our outlook range. Unum US premium grew 5.2% supported by strong sales in prior periods. And healthy persistency in our group product lines. Third quarter sales declined 8.5% mainly on lower group large case sales. The third quarter is typically our smallest sales quarter, and year to date sales have grown 8.6%.

International adjusted operating income was $200 thousand which included $27.3 million of notable items. Excluding the notable items, the benefit ratio was 76.9% compared with 71.3% in the prior year, driven primarily by The UK product lines. Unum UK reported a loss of £1.4 million, including approximately £18.6 million of notable items. Without these items, The UK benefit ratio was 80.5% compared with 73.8% a year ago driven by a higher number of submitted claims in group income protection. Regarding premium growth, UK premium grew 3.5% and Poland premium grew 10%. As we discussed in the second quarter, we are taking thoughtful pricing and underwriting actions to restore the business to its target profitability.

While these actions will affect near term sale and persistency, they will ultimately position the business for long term success. So Colonial Life adjusted operating income was $169.4 million, including $42.5 million of notable items. After adjusting for those items, earnings were also higher year over year. Driving these improved earnings, the benefit ratio, excluding notable items, was 47% compared to 48.2% a year ago driven primarily by lower cancer claims. This is a continuation of the strong benefit trends that Colonial has exhibited all year. In addition to the strong margin trends, Colonial's top line also continues to exhibit strength and growing momentum.

Sales in the quarter increased 6.4% bringing year to date sales growth to 4.7%, which compares to 2.8% a year ago. With this, premium grew 3% and is positioned to meet its full year premium growth outlook of 2%-4% with year to date premium growth of 3.2%. Finally, the corporate segment produced an adjusted operating loss of $45.7 million and was within our expectation of a loss in the mid to upper $40 million range. Before turning to the close block, I would like to address our full year outlook.

We have revised our definition of after tax adjusted operating income based on discussions with the staff of the Securities and Exchange Commission during an ongoing comment letter process, regarding our use of non GAAP financial measures. The revision does not impact our GAAP net income. As a result, our full year 2026 after tax adjusted operating earnings per share will now reflect the impact of our annual assumption review. Incorporating the annual assumption review and refinements, our results through the first 3 quarters and our fourth quarter expectations for the core segments, we now expect full year 2026 after tax adjusted operating earnings per share of $8.30 to $8.50 which includes $0.33 from notable items.

I will now turn to the Closed Block. As Rick mentioned, we have successfully closed our set second external LTC reinsurance transaction, ceding $3.8 billion of statutory reserves to Fortitude Re at a 12% net cost relative to our best estimate reserves. This cost is consistent with our previous transaction and reflects the economic benefits we realized from the transaction including the required capital release, and tax benefits. Through the transaction, we have meaningful meaningfully reduced exposure to LTC reserves and materially improved the risk profile of the remaining LTC block. Paired with the first transaction last year, we have reduced our exposure by over 40%.

The upfront loss associated with the transaction will be amortized and reported within the closed lock gap results. Consistent with prior transactions. With the transaction now closed, we expect increasing amounts of noncontemporaneous reinsurance impacts reflecting the ongoing recognition of earnings associated with the reinsurance transactions completed both in prior periods rather than current period operating performance. Earnings impacts from both the amortization of upfront costs and noncontemporaneous reinsurance impacts are expected to be approximately $30 million to $40 million per quarter. Combining that with our prior closed block reinsurance transactions, the total impact from these items is expected to be approximately $90 million to $100 million per quarter initially and then will gradually decline over time.

Our third quarter GAAP result includes an impairment loss of $744 million on assets identified for transfer in the transaction. Reflecting the difference between their amortized cost and fair value. This impairment and the other gap impact associated with the transaction were contemplated in our original evaluation at signing and did not change the overall transaction economics that we described at announcement which remain intact through closing. Outside of the transaction, Closed Block earnings remain volatile. Largely reflecting employers continuing to terminate group LTC coverage. In the third quarter, approximately 150 employers made this choice and closed their closed their cases. This year alone, these terminations have reduced our group LTC case exposure by 14%.

The net premium ratio increased 30 basis points sequentially from the second quarter to 98.1% with most of the increase driven by group based terminations. Other key indicators that we monitor for the health of the block remain solid. Fairwind protection stands at approximately $2 billion following the closing of the LTC reinsurance transaction. We have now achieved over 25% of our current rate increase program, with over $100 million of GPV approved this quarter. Alternative investment portfolio that primarily supports LTC generated an annualized yield of 10.1% above our long term expectation of 8%-10%. I will end by covering our robust capital position Holding company liquidity stood at $1.4 billion and traditional RBC at 485%.

We remain on track to end the year within our full year outlook of 400% to 425% RBC, and $1.5 billion to $2 billion of holding company liquidity. Our robust capital position is supported by statutory after tax operating income of $298.7 million in the third quarter when adjusting for the effects of preparations for the reinsurance transaction. Year end capital expectations remain unchanged. We continue to expect to finish the year within our stated range for both RBC and holding company liquidity, and we are generating capital as expected from our strong businesses. Finally, during the third quarter, we repurchased approximately $200 million of stock.

Paired with our common stock dividend, capital return to shareholders was approximately $280 million in the quarter, bringing our year to date deployment to over $1 billion This positions us well to end the year at our goal of returning $1.3 billion to shareholders through dividends and share repurchases. I will now turn it back to Rick for his closing comments before we move to your questions.

Richard Paul McKenney: Thank you, Steven. This quarter's earnings shortfall does not diminish our confidence in the underlying franchise with growth, persistency and capital generation intact. Monitoring and understanding the increase in US disability claims submissions remains a priority. And emerging experience will guide where and how we respond We continue to strengthen the profile of the Closed Block through completed reinsurance transactions and ongoing actions across the retained business. Overall, we remain confident in our business and our ability to create long term value. And with that, let me turn the call over to Jordan. We are ready for your questions.

Operator: As a reminder, if you would like to ask a question, simply press star followed by the number 1 on your telephone keypad. Your first question comes from the line of Ryan Krueger from KBW. Your line is live.

Ryan Krueger: Thanks. Good morning. I have a, I guess, a multipart question on the LTD incident. Hoping to get more details on when if started, Has it continued through October? It. You know, is there a concentration in any particular industries? Or job types? And then can you just give more. Any more detail on what is on the behavioral health component of all this? Is that the vast majority? Of the 500 basis point adverse impact, or are there other things going on as well? Thanks.

Richard Paul McKenney: Good. Thanks for the multipart question there, Ryan. You know, I We do need to step back a little bit and look at the strength of the franchise overall. Strong business, built on serving customers well and delivering products and capabilities. For employers and their employees You know, we have managed through periods of elevated submissions before, the circumstances are never exactly the same. But we have a deep understanding of this business and the capabilities to respond as conditions evolve. We are a company of discipline, and so you will hear more as we go through that. And we can start to unpack.

You had multi-part question, a lot of dimensions to it, and I will turn it over to Steven to start to do that.

Steven Andrew Zabel: Yeah. Great. Thanks, Rick. And yeah, as we described earlier, third quarter, we did see a sharp increase in submitted long term disability claims. And I think it is good to ground a little bit on just what our reserving process looks like and when we. When a claim is submitted, we set up the reserve based on just historical experience of the probability of what type of claim it is, the probability that it will actually go to payment. And then we go through an adjudication process on that claim. And when we prove that it is valid, we pay it, and we adjust the reserve accordingly. that is appropriate to do.

So I will take us back to the end of the year. We originally had an outlook coming into the year for our benefit ratio of 62% to 64%. And in the first 2 quarters, we did see pressure in our short term disability and PFML business. That drove about 2 percentage points of pressure on the loss ratio with some other puts and takes. But what we did see also was recoveries continued in LTD at the rate that we would have expected saw a little bit of volatility in incidents there, but really nothing that was beyond our expectation. Then we come into the third quarter, we saw the following.

First of all, STD and PFML experience was really consistent with the first 2 quarters, and it did pressure earnings by about the same 2 percentage points. Our pricing strategy to address is already in motion. And that is out there with our clients already. that is mostly annual renewable business, so work is underway there. What we saw that was different was our long term disability claim submissions. Created about another 5 percentage points of additional pressure on the loss ratio. Just the size it up a little bit, that. that is approximately a 10% increase in submitted claims above what our expectations would have been for the period.

This increase was focused on behavioral health type claims, and that is really a subset of claim types we have seen that may fluctuate when you have different market and uncertainties out there, whether it is economic or labor related. We have seen in prior cycles, we have seen an increase in environmentally sensitive claim type submissions. That does not necessarily translate to an increase in paid claims ultimately, but we have to monitor that. We have to take it through the adjudication process. That will take some time, which Christopher can talk about.

What we have seen, though, is really pretty decent stability in the employment levels within our enforced block, and I think that would mirror what you are seeing out there in the environment just around unemployment. And so we are we are we are thoughtful about that, but we really continue to see pretty good strength in the labor markets. What I would say is every cycle can be different. You know, historically, when we have seen this type of spike, you know, it does resolve over time, but it is unclear what that is gonna look like this time, and we are just gonna have to monitor it.

Well, the other thing that I will hit on, Brian, that you asked is just about the trend. And I will I will just ground a little bit with every quarter, we can see intra period volatility. So not every month, look, the same. And so incidents can bounce around a little bit on this. I guess what I would say is year to date through second quarter, submissions were pretty much right at our expectations. So this was definitely a third quarter change in the volumes. The other, I think, to mention on this is LTD claims volumes, they are much lower than some of our more high volume claims like short term disability.

So they can be a little bit volatile. So what I would say is during the quarter, in third we saw, you know, this elevated size of claims. We go into the fourth quarter, you know, it will be volatile there too. What I will say, what we seen so far, is it has not reverted to lower levels. But I would also say it is very early in the quarter, and we have seen, these types of claims have a lot of volatility within a quarter. So we will just have to see how you know, how the quarter plays out, and then we will evaluate it.

But maybe I will turn it over to Christopher to talk, about the actions we are taking. And more broadly, how we think about the process of adjudicating these types of claims and what that looks from a business process perspective.

Christopher Wallace Pyne: Yeah. Thanks, Ryan. And then to build on Rick and Steven's comments, when you think about our response, it really does call on things we do very well and have done for a long time. 1 is we have got know-how around claims management. We have got a very thoughtful process around pricing. And we have those long term relationships with customers where they understand that the combination of services we provide for them and the need to make sure we are setting fair and stable prices over time. So when experience emerges, like it did with STD and PFML we are very clear with the data. We are very upfront of it as we have been already this year.

And we will be talking about the long term disability experience and what we are seeing. Inside of the claim operation, which is important, we have some very deeply specialized teams, think doctors and nurses in addition to other members of the claims organization. Who have real expertise in these areas. Behavioral health is something that has been a reality of our business for a long time. And we are very well staffed. To make sure that we can go through the process that is appropriate for these claims. It takes expertise to work them through. And you have got to it is very important to us that we do not shortcut those.

We do all the work relative to restriction and limitations evaluation, conducting the appropriate medical research, giving guidance toward return to work possibilities, The contracts do have limitations on how long behavioral health claims are paid. But we are working them well in advance of that. So think about that as part of the durable model that we have used, and we are deploying today. And then Steven's point, we do think ahead toward the pricing What will we do for pricing? This experience gets feathered into the renewal cycle immediately. And we take it through. A majority of our block is up for renewal every year, so we will be talking to customers.

We are in market talking to customers today, and we will continue to do that. And again, this is all part of the combination of things we do very well, combining claims management and appropriate go forward pricing actions. I think you did ask part of your question was around are we seeing any specific industry or segment of the business? And I would step back and say this is more broad based rather than coming from any 1 direct area. And we are going approach it with a broad view looking to move the meter forward. Thank you.

Operator: Your next question comes from the line of Alex Scott from Barclays. Your line is live.

Alex Scott: Hey. Thanks for taking the question. I wanted to see if you could talk about just the dynamic with you know, the elevated benefit ratio You know, paid family medical leave is in there as well. You know, contributing some to that. And I just wanna understand, is-- you know, if this potentially continues, but paid family medical leave begins to get maybe a little bit of relief quicker from pricing, You know, what does that cause of benefit ratio to do as we get into 2027? If you could just help walk me through that a little bit and the timing, it would be helpful.

Steven Andrew Zabel: Yeah, Alex. This is Steven. Maybe I will I will just kinda talk about the math a little bit and how we are thinking about that, and then maybe Christopher can hit on just pricing strategies. You are right. We have seen about a 2% elevation in benefit ratio throughout the year for the first 3 quarters around PFML and STD. The majority of that is vast majority of that is annual renewable. So if you think about just an annual pricing cycle, our expectation is that we would get that business back to our expected pricing levels within that period.

So that is much more shorter term actions that we can take, and so that will you know, that will feather in as we get into 2027 throughout the year as we go through the renewal cycles.

Christopher Wallace Pyne: But maybe talk more about just how we meet the market for pricing. Yeah. Yeah. Thanks, Steven. Good morning, Alex. The. there is no question Very data driven PFML slash STD type of renewals where you have highly credible loss ratios to show customers. They have seen the utilization in their own population. So they are not shocked when we are coming in showing the need for rate generally speaking, up double digit. Was kind of how we have been reflecting it. And we have been in those conversations with significant parts of the business already this year with oneone renewals and beyond. So you are exactly right.

That plays through fairly quickly, and we will be working that on a continued basis. Long term disability, again, this is the third quarter. This new experience is added into the experience review. We use a slightly broader kind of window for experience because of credibility on lower frequency type of products. We try and reflect what the emerging experience is doing. Because I think I think that is the most important relative to how we set price going forward. And customers want to know where it is headed. Ultimately, the goal is stable pricing, very transparent for customers where experience matters.

For any time we have, you know, customers where we are talking about PFML short term disability, other leave services, the depth of the relationship and what we do for them makes it sort of is a true partnership where we want to get the price right as a coordinated effort between our customers and us. And they are very receptive to these discussions.

Alex Scott: Got it. that is all helpful. As a follow-up question, I wanted to ask on capital deployment and just to what degree you know, all of this is gonna potentially impact redeployment of capital and things like buybacks? And then maybe also if you could comment just around your strategic options more broadly in the way you are thinking about the business?

Richard Paul McKenney: Yeah. So when you think about the capital generation, capital deployment, as we have said for a long time, we have had a good strong capital generation model that continues. You saw that even in this quarter. Continued strong capital generation. And so that gives us flexibility to what we are doing. As we have talked about utilization of that capital, I think we have been very consistent in terms of, you know, what we wanna do is put it back into our business, growing the business. And it is kind of growth rates that we have seen, how can we continue those for the right investments in our business that can come organically.

It can come inorganically too with some that we have out there. And then ultimately, you know, what we have done over course of this year, we kind of set in the range of redeploying capital to shareholders at about the level of which we are generating. And so this year, 1.3 billion still very much intact. And as we look to the future, we will have to look at what our overall capital plans are. But we think that is still a good mode for our shareholders to sit with a good excess capital position we have today and then return back what we are earning in the future. And I think that will continue, Alex.

I think you had a question Yeah. I think we are on our fourth question with Alex, so we gotta make sure we get through the queue here a little faster. I think Alex as well, strategically, how we are how we are continuing to think about it is our strategy is very much intact. And so we are not distracted, although we are focused on it, but we are not distracted by a quarter's event. We know how to run this business. We like this business very much, how it is placed, how it is positioned.

Our ability to reprice is a real plus And we will manage through that period of time, but our strategic priorities remain the same. Thank you.

Operator: Your next question comes from the line of Tom Gallagher from Evercore ISI. Your line is live.

Thomas Gallagher: Morning. First question is so the 70.6% loss ratio, you guys have emphasized that is based on claim submissions. Not necessarily claim payments. How do help us think through what does that practically mean? So you have seen a, I think, a 10% surge in submitted claims. Do you initial. Does it take a while to work through the inventory to determine, you know, what is what is a claim that gets approved? Do you initially put up a reserve just based on submissions? And then it needs to season? Like, what does this 70.6% mean, I guess, Is it is it also a reasonable estimate for what will be approved, or is there still some uncertainty?

In that relative to the 70.6?

Steven Andrew Zabel: Yeah. Tom, it is Steven. I will talk to you just about how the reserving methodology works. And then maybe Christopher can hit just on kind of timing of adjudication and to work its way through. So when we get a claim submission, we mark it up. We have, you know, diagnosis, different things that are attributes of the claim itself. And so we will set up the reserve initially based upon those, you know, those factors as well as probability that it will go to pay. So we do take that into account, what we think the probability that it will ultimately pay. When we set up the reserve to begin with.

Now that is a estimate based on you know, historical experience. And the actual kind of acceptance of that claim can differ over time. And what we have seen I. You know, this is not a forward looking statement, but what we seen historically when we have surges like this for these types of claims is sometimes the acceptance of those claims are a little bit lower. And not as many of them may go to paid. But we have to see. Every situation, every cycle is gonna be different. And so we will we will just have to see how that plays out.

Christopher Wallace Pyne: And then, Christopher, maybe you can just hit on kinda timing and what the cycle looks like. Yeah. Good morning, Tom. Yeah. I think it is important to think about, maybe I will just break it apart between short term disability and long term disability. Frequency on short term disability, claims are paid relatively quickly. there is Decisions are made with the information that we need. And we proceed and manage the claim. Long term disability slows down a bit. And I think it is important to note, when we get a claim in, volumes are significantly lower. There are multiple layers of discussion, again, specialized medical, are you getting appropriate care?

Are we talking to the right type of doctor? Do we really understand the ongoing restrictions and limitations, which means you have to understand the occupation, that the person's doing, what they are required to do, what the options are. And we measure that more in weeks than in days and hours. And so that is an ongoing process. And we certainly want to move expeditiously, but we wanna make sure we do our full review. And I think that is very important. We have got a strong history of making sure that we communicate well with claimants. We communicate very well with their medical team, we understand what their employer's needs are, and the occupation.

And then we arrive at a claim at the right time. And that is I think, the process we are in right now.

Thomas Gallagher: Gotcha. And then Steven, the. So with the 70%, you said, you have seen in the past, when it is you know, economically sensitive claims like this, that there has been somewhat of a lower approval rate. Is that what the 70.6% contemplates? Like, are you assuming a lower approval rate on this 10% increase, or are you assuming a normal and then there could be you know, the. I do not I do not wanna. I am not trying to ask you in a favorable development on these, but I just wanna understand what is in that 70.6 number.

Steven Andrew Zabel: Yeah. I. Does that contemplate the historic when you see a surge, you have had lower approval rates? Is that in that number already? Yeah. Tom, I will I will just answer that fact because you are right. I do not wanna give any kind of guidance on how this is necessarily gonna play out. But we do use just kind of our normal acceptance rate that you would see during normal levels of submissions. Got it. So you have not assumed you know, we will call it favorability at all on the. that is lower acceptance rates on the. on this particular moment. that is right. Okay.

Thomas Gallagher: Thank you.

Operator: Your next question comes from the line of Joel Hurwitz. From Dowling and Partners. Your line is live.

Joel Hurwitz: Hey. Good morning. Just quick follow-up on Tom's question.

Analyst: I guess, is there any early color on how the rate of these submitted claims moving to paid compares to your expectations?

Steven Andrew Zabel: Yeah. it is probably premature to give any sort of guidance on that. Like Christopher said, it takes time to work this through the system. We will know more as we get into the fourth quarter. Okay.

Joel Hurwitz: And then I guess at this time, are you able to contemplate the spike in LTD and pricing for 1/1/2027, or do you still anticipate that renewals will reflect some of the rate concessions that you have talked about in the past?

Christopher Wallace Pyne: Yeah, Joel. Thanks. And it is a good point if I were to step back and say that we have had some very favorable group disability years. And you have seen and we have communicated that there has been appropriate rate reduction if experience was really good for customers. And we have shared that. Actually a great setup for kind of where we are today, where we can go back to customers and say, new experience dictates a new pricing action, and we have the credibility to go and get those rates. That, in combination with the work we do, We are talking to customers all the time.

I have touched on the fact that short term disability and PFML discussions have been happening very directly, and that is been happening all year. Long term disability is always part of that conversation. We generally have a bundle of products. Larger cases, there is a timing where larger cases for oneone negotiations did start earlier in the year. And we still kind of communicate all the way through with them. Smaller cases are still in discussion right now, so the. That end of the block is still being kind of negotiated. So that is open for current experience.

And I will say, just maybe as a addendum, there is always a significant majority of our block that is outside of rate guarantees. So we will be actively working that through as dates come up beyond 1. So it is not like 1's a cliff and nothing else is in play. Got it.

Analyst: Thank you.

Richard Paul McKenney: Thanks, Sean.

Operator: Your next question comes from the line of Mike Ward. From UBS. Your line is live.

Michael Ward: Thanks. Good morning. I guess, I just wanted to dig in a little bit. Like, is there any sort of demographic or firm level kind of layer we can think about it through? Like, is it are you seeing the long term disability claim submissions at tech firms, or is it younger employees? Facing burnout? Like, I am just hoping you can help us understand it on the ground a little bit better.

Christopher Wallace Pyne: Yeah. Mike, it is Christopher. We are Of course, we are keen into all the different ways we cut the block and segments. I think it is appropriate to say at this point, any differences between size segment or industry or region are subtle enough that they really are not telling. And I think right now we are approaching it as there is claim activity in the market. Let's do our job and kind of keep focused on the elements that require claims management and the other elements that require pricing. Okay.

Michael Ward: And then on the strategic interest sort of topic, just to flip it around a little bit. So you know, there is there is growing discussion across the market around pent up M&A across the sector. And, you know, Unum, I think, is pretty clearly that much cleaner because of all of your efforts. But I do think, you know, a lot of people are sort of curious if this thought process makes sense and if we should include Unum in this debate. And so curious if you can opine on that and if you have had any credible strategic inbound interest.

Richard Paul McKenney: Yeah. I think, Mike, I just say that very clearly is that we would not speculate on anything like that. I would say that when we think about running our business, this is about growing the franchise, generating good returns, and making sure that we are building the value for our shareholders across the board. At the same time, we are also a company and our board of directors, we run the company well. I mentioned discipline. That goes right along with corporate governance and everything that we do that we have been known for. We continue to pursue those paths. But that is as much as I would say about that. This is about us.

This conversation today is about us building a really good or continuing to develop a really good franchise. Thanks, Rick.

Operator: Your next question comes from the line of Wesley Carmichael from Wells Fargo. Your line is live.

Wesley Carmichael: Hey. Thanks. Good morning. Hey, Steven. I think in your prepared remarks, you mentioned that your confident in the long term benefit ratio for group disability in the 65% range. Like there is gonna be some pricing actions taken, but also, you know, there is some near term elevated claim submissions. So I am just wondering how long you think it takes to get back around to that 65 percent.

Steven Andrew Zabel: Yeah. You know, there. there is a couple different paths that this goes down, I would say. You know, the spike that we have seen right now in claim submissions, we do not know how quickly that is going to resolve. You know, we. We have seen different cycles in the past and just different timeliness. Of how those surges, you know, might come and then abate. So we have to see how that plays out, and that will influence obviously, the performance of the block, what that looks like. But then also from a pricing perspective, you know, I think Christopher, you know, hit on it just we are able to get after this fairly quickly.

And so when we talk about 65% loss ratio, we still do feel confident. Like, we think that is the right level to underwriting margin for the franchise that we have, and that will be our pricing strategy to hit those levels. You know, the timing of how that plays through we are after it now. Christopher mentioned we have a lot of renewals that we are able to go after on an annual basis.

We will do that as appropriate And so, you know, we would hope to do that in, you know, the medium term, but we will just have to see how the experience plays out, just what the timing of that may be, whether it is kinda resolution of the spike or it is pricing or it is a combination of both.

Wesley Carmichael: Got it. Thanks. And I just wanted to follow-up on the group life and A&D impact from the disability submission. You maybe just walk us through just a little bit of the mechanics of how that works? I mean, I think I understand that if somebody goes out on disability, they are not paying their premium. You will establish a reserve for that. But I just wanted to know, is that do you expect that to kinda continue that 3 point or so impact into the fourth quarter as well?

Steven Andrew Zabel: Yeah. Again, it will depend on what the new submissions look like. And it is directly related to when we get a submission in for, long term disability and we also have a group life policy, we do immediately, in essence, waive premiums for that period of time that they are on disability. And we set up a reserve for that of what the expected death benefit would be on that. And that can be both from integrated policies where we have the group disability coverage. It can also be where they may have that coverage somewhere else, and we are notified of that.

And so what we find is it flows relatively consistent with the flow of the submissions themselves. And, you know, we did see that a little bit when, we saw the trends historically with our claim terminations. Increasing over time. Where during that period of time, it was not as acute, but we were releasing, waiver of premium on life at the same time. And if you go back and kinda check some of the, you know, comments that we have made, we have referred to that as well. So it works both ways. Got it.

Wesley Carmichael: Thank you.

Operator: Your next question comes from the line of Suneet Kamath from Jefferies. Your line is live.

Suneet Kamath: At the risk of being the devil's advocate here, I just wanted to ask a question around timing. Why would not this. If this claims trend stays the way it is, why would not it take years to fix? And the reason I ask is because when the benefit ratios were actually lower, you know, you guys were saying, well, we can hang on to this extra margin for a while because it takes while for the business to reprice because it does not always come up for renewal and all of those things, which I think were positive.

But now it is on we are on the other side of this, it sort of seems like you are telling a story where you can fix it, you know, relatively quickly. And so I just wanna make sure I am not misunderstanding that. And just curious about your comments there.

Richard Paul McKenney: Yes, Suneet, Let me let me just start and say, when we were talking about the margin that we were getting and how we are able to hang on to it, mean, part of that was actually the competitive dynamics. And the capabilities we deliver to our customers. And so we said from that perspective, perspective, relative to the rest of the competition, we feel like we could hang on to it. This is a very different dynamic. And so what we are dealing with here as it is increased is a customer driven submit. it is not competitive dynamics. it is not our ability to adjudicate the claims or knowledge about these customers. that is why it is different.

And so the pricing process here is different as well as we continue to reflect that. And, Christopher, maybe you can talk a little bit about that. Terms of how we how we can increase price differently than what we talked about before.

Christopher Wallace Pyne: Yes. Good morning, Suneet. there is no question that if I were to go back to that price stability desire for most of our customers, as you as you reflect on some of the good experience we had, and we would talk about kind of bringing rate down appropriately. The pressure on the way down is such that, you know, you do not have to go right to rock bottom because the desire is that they hold a more consistent kind of outlook going forward. So our discussions are jeez, here's where it is running. it is running really well.

We think the prudent thing would be to take a little bit off the top for you, but not go all the way down. So that would have been to kind of maintain those strong margins for a period of time and hopefully give employers the stability they need. On the flip, though, we do have now experienced data that says that the price needs to be different, and we will go and reflect back to a place where this is what we need, and we are doing a lot of services for you. We are we are providing great cover.

We are providing the right level of, you know, long term disability as well as some of the things we are doing around leave services and connecting to the HCM. But this is the price we need to run that. And that is part of the discussion and negotiation to get the right levels of pricing going forward. So they do operate a little bit differently depending on the circumstance.

Suneet Kamath: Got it. That makes sense. Thanks for that. Then my second question or maybe it is more of a comment on this whole long term 65 benefit ratio thing. I know how hard it is to have that out there because when you first gave it, I think you said it was gonna take a couple years to get there. And I think it took a couple quarters. And now we are well above it without a real sense of when we could get back there.

And as I have talked to investors about that, you know, I think providing ranges as opposed to this line in the sand you know, given that there is uncertainty in this business might be a better way to go. But that is just my initial thought when I heard that comment in your prepared remarks. I do not know if you wanna comment on that or not, but I just wanted to mention it.

Steven Andrew Zabel: Yeah. I can. I mean, clearly, Suneet, when we came into the year, we did think that was very consistent with what we saw in the experience and very consistent with what our pricing strategy was. So we did know it as Christopher said, that we were gonna have to give some price back. And so we thought that was you know, a very reasonable target to set and where we wanted to run the business. What. what is happened this year with some of the claims submission dynamics? It was obviously first name. And so we still feel committed that is the right place to run the business, over the long term.

But we are we are gonna have to, you know, we are gonna have to roll up our sleeves and take some action for us to get to that point, and we are prepared to do that. Okay.

Suneet Kamath: Thanks.

Operator: The next question comes from the line of Maxwell Fritscher. From Truist. Your line is live.

Mark Hughes: Thank you. Good morning. I am calling in for Mark Hughes. Is there any part of the higher incidents in The UK being driven by similar behavior health type claims that you are seeing in The US? I you know, you would called out the group income protection, but any similar dynamic in The UK?

Richard Paul McKenney: Mark, do you want to take that?

Mark Till: I did not quite hear the first part. Was it about. Yeah. So the question was the similar. Are there similar dynamics around behavioral health that we are seeing in The UK as well. So maybe you just talk about the dynamics that you are seeing in The UK. And Yeah. Sorry. I just wanna. I forgot about the word expense at the beginning. that is why I was just. I was slightly. You are you are entirely right. We have probably behavioral health has been the biggest increase in claims submission in The UK. So we have.

On that basis, we have a similar profile But, also, we have been having this for probably a little bit longer than The US business. So we have been able to see as that works through the claims funnel and into admitted and claims. And actually not that many of behavioral health claims in The UK turn into admitted claims. But it is a different environment in The UK than it is in The US.

Richard Paul McKenney: Yeah. And I would just say as we talked about, we talked about The UK earlier, So The UK has been taking price, you know, earlier as well. And so I think they are maybe a little bit ahead of The US business, but it is the same process, and it is the same mentality we have in The UK relative to what we are seeing in the market and then how do we address it.

Mark Hughes: Got it. Thank you. And then you had mentioned. You. Going off that, you would mentioned no changes in the competitor environment. I believe you were referencing the US, but and if that is the case, and what are your observations around the competitive environment in The UK? And would you also say that it is steady state there?

Mark Till: Yeah. The competitive environment in The UK is very. There has remained pretty consistent, over the last few years. Sorry. Forgive me. I got slightly disturbed at the door of the room that I happened to be in. That threw me slightly. Sorry. The market is consistent. The market's been consistent in The UK. We have seen claims. We have seen the claims profile change in the last little while. The behaviors of the competitors is pretty consistent. We continue to be a disciplined pricer of business in the market. And so we respond to the claim situation that we see.

We pass price on where that is appropriate and where we think it is sustainable, and we continue to compete for business where the. We consider the margins to be attractive. Great.

Mark Hughes: Thank you.

Operator: Your next question comes from the line of Joshua Shanker from Bank of America. Your line is live.

Joshua Shanker: Yeah. Thank you for speaking at the end. When you think about giving value to customers, in a higher interest rate environment, what is the right price or right ratios on the benefits you are targeting in The U. S for the business. I realized this was a. There were unforeseen claims, but the margins are still very, very good in the business. Certainly over a trailing 12 month basis. When you think about the right margin to target that balance the needs of customers and the needs of shareholders equally, what is the appropriate sort of range that the company should be targeting on the benefit ratio and disability?

Christopher Wallace Pyne: Yeah. Joshua, Christopher. Thanks for the question. We do talk about value we create for customers all the time, and it is quite frankly the focus of what we do. We want to be a very valuable partner, both in terms of the financial cover we provide to the covered employees, but also helping employers run their businesses, providing robust leave management services, tying into their human capital management program, mixing bundles of products that have employer and employee paid options so that people can get the covered. Coverage that is appropriate for them. I would say, depending on the services we provide, the range of profit expectation on every customer does vary. You know?

And when we are deeply engaged in, you know, what more and more of our customers need, around lead management and all the investments we have got to make in technology and all the investments we have got to make in people and process, we do feel like we should command a healthy margin that you are reflecting. In what you see in the numbers. And I think that gets into the financial stuff that Steven's outlined in terms of where we want to run the business going forward. But it is a value as opposed to just a target margin.

Joshua Shanker: And in a 5%, 10-year environment versus a 3%, 10-year environment, how much more value can you create for the customer without alienating shareholders?

Steven Andrew Zabel: Yeah. What I would say, the interest rate, our pricing is less sensitive to interest rate on this product. there is not a very big balance sheet necessarily. With these types of products. And so, do not think about a lot of value creation from interest spreads. On group products. So it. it is really about underwriting margin, and it is about expense management. Those are the 2 things that we have to be really good at. that is how we are gonna generate value.

Joshua Shanker: Thank you very much.

Operator: Your next question comes from the line of Jack Matten from BMO. Your line is live.

Jack Matten: Hey. Good morning. To follow-up on the kind of the macro environment and how it is impacting disability margins. Guess if you look at, like, headline unemployment still pretty low, and I think you even referenced some labor market strength earlier. I guess, given that, do you view there could be any risk of incidents, you know, remaining higher or even moving higher versus, you know, this quarter's levels if market conditions actually become more adverse. Any thoughts on kind of that historical relationship that you have seen?

Richard Paul McKenney: Yeah. Thanks, Jack. Appreciate that. I think Steven mentioned it in some of his comments as well, which is the unemployment picture actually seems pretty good at the surface level in terms of where unemployment is. We see it in our own results in terms of our payrolls that we are covering are steady and things like that. I think the question here is how much this is somebody that is submitting a claim because of something that is on their mind literally or an accident they may have had. And so that is the thing that is hard to actually predict. What that looks like.

We can look to history, and so it is the only thing we can do is look to history. Where we have seen periods of submitted incidents increase and how those played out over time. As we try to say, every scenario is a little bit different. This 1 might be different as well, so it is really hard to correlate specifically what is happening in a macro environment to what we are seeing here. I think we will look back at it, and we will probably have a better view. But as we look at it right now, now, it is very hard to use predictive analytics to help us tell us what that is gonna look like.

Jack Matten: Got it. that is helpful. And then, I guess, just looking at the disability benefit ratio, a little above 70%. Guess if you go back as many years, pre pandemic times, it was in a similar ballpark. If we are, like, at a, like, a high level comparing the ratio today versus historically, are the underlying drivers that are really just higher instance this quarter offset by the better recovery experience you have had over time, or are there other moving pieces you would kind of call out before thinking about drivers over a longer term perspective?

Steven Andrew Zabel: Yeah, Jack. That. that is the exact way to look at it. I mean, we still feel very good in the strides we have made in being able to get people back to work over the last 10 years. Those are sustainable. Those are holding even through the volatility that we have seen with incidents. So far this year. Our recovery performance continues to be kind of you know, historically best that we have seen in the block. And you even see it demonstrated our confidence in the sustainability. We have not really talked about the reserve assumption review. But we did release a little bit more reserve on our claim reserve for long term disability.

Due to our confidence in the level of recovery rates that we are seeing. So I. We view that as structural, we just need to work through what we have seen with the elevated incidents.

Jack Matten: Thank you.

Operator: Your next question comes from the line of Wilma Jackson Burdis from Raymond James. Your line is live.

Wilma Jackson Burdis: Hey. Good morning. I guess this is more a philosophical question maybe, but it seems like across pretty much every area that is exposed to health care trends, you are just seeing a lot higher cost. Especially for mental health. And, really, I mean, you know, there are other factors as well, but you know, I think what you are kind of seeing is just because costs are so high, more costs are being pushed back on employees. I just. And then, you know, some of these companies, it seems like their willingness to pay more is sort of declining a little bit. So how do you guys see this shaking out longer term?

I do not know if you can really answer it, but any color you could give would help. Thanks.

Richard Paul McKenney: Yeah. Well, I think it is more than just philosophical question. I mean, it is a it is a question of the business. We are at the employer You talked about a number of dynamics, and some of those dynamics very much play in favor in terms of our ability to work with employers to help them as they manage their workforce. But causal type things that you are talking about here, it is it is it is harder to see how those cause causal effects on what we are seeing specifically here. But, you know, it is important that the workplace is a very dynamic time.

The tools that we bring to help the employer, we think will certainly bear, well for us over time. And that is that is what we are focused on today is continuing to build those good, solid relationships with employers to help them through that period of time. Yeah.

Steven Andrew Zabel: Well, the only thing I would add is I think it does help parts of our business where employers are thinking about their health care costs and going to more high deductible plans and know, passing more of the cost to employees. Our voluntary benefit products are really engineered to help employees with that cost at a at a much lower cost to them. On an individual basis. So I think, you know, it works well with the construct that is being created around health benefits themselves.

Wilma Jackson Burdis: Thank you. And then, you know, very, very good progress really on the group LTC this year, first 3 quarters. I know that, you know, going into the 1/1 season's a big time where HRs are thinking about these products, and, you know, what they want to do for 2027. Maybe give us a little bit more color on how you see that season playing out, what you are seeing for 4 q, and, you know, what we can expect near term there. Thanks.

Richard Paul McKenney: Yeah. Certainly. I mean, I think when you look at the long term care, the work that was done, it was a year ago, basically, where we said that we were gonna stop new lives on group long term care contracts. that is caused a lot of employers to look at what their situation is today. it is not dissociated either from the question you just asked around the cost Employers are paying for this benefit for their employees, which they may or may not be utilizing. And so I think seeing some of those terminations through the first 9 months have been good.

I think it is a continuing conversation we are gonna have with employers about what makes sense for them, and we will have to see how that plays out. I do not wanna give any forecast for 4 q. Even into next year, but this is gonna be an ongoing discussion from here on in. In terms of why an employer is deciding to continue this type of product line where it is probably in their best interest not to. Yeah.

Steven Andrew Zabel: And when we have talked about this in the past, it is it is not that 1/1. The conversations we have now that we are not allowing new enrollees in is just kind of the equity or inequity of offering this coverage to part of an employed base and not all of an employee base, that is just gonna grow larger and larger as a difference between that experience for an employee and a single employer as people, you know, leave companies and we are not insuring the new people coming into the company.

So I do not think it is, you know, it is not a 1 year cycle having those discussions because I think it will be kind of a greater and greater issue. For employers when they think about just overall coverages for employees. Thank you.

Richard Paul McKenney: If there is any chance I could take 1 more in, do you No. Nope. I will not. You have you have to re. Still have 3 more. 3 or 4 more people we wanna get in, so we will have to come back to Wilma. I appreciate that. Apologize for the lateness of this.

Operator: Your next question comes from the line of Bob Huang from Morgan Stanley. Your line is live.

Analyst: Hey. Good morning. This is G. I am calling on behalf of Bob Huang. We have a question on the group disability loss ratio. So could you help us frame the outlook for the loss ratio heading to 2027? I think based on EPS guidance, probably 4Q is going to have a similar trend in. As in the third quarter. And understand it is still, like, we are ready to do forecast 2027 as you will have the pricing action and you are still monitoring the cases. But could you just give us some, like, upside or downside scenarios and, like, as the out-- And loss ratio on the PACE that, like, PFML and FTD might reset? Just anything helpful.

Yeah.

Steven Andrew Zabel: I would say we are we are not gonna comment on 27 at this point. You know, we will know more as we get through the fourth quarter and we go into our outlook meeting, which we will talk about in the first quarter of next year. I will say, in our outlook, we have assumed earnings levels overall very consistent with the third quarter. And so the implication there is the benefit ratios for the various lines, we think will be pretty consistent with what we are seeing right now in the fourth quarter from what we have seen in third quarter.

But beyond that, we are not going to give any other kind of forward looking guidance at this point.

Analyst: Okay. Understood. And the second question is, like, do you view the elevated LTD claim trend as, like, a cyclical trend or like as a normalization following, you probably have, like, lower claims in the past few years, or do you view it is just, like, more structural reflecting the changes that I can in work place behavior, mental health, Yeah.

Richard Paul McKenney: I would just say it is it is hard to predict whether it is cyclical or not. We are just telling you where we are right now relative to that, and it is elevated, but it is. Know, we will have to work our way through. We talk about what this looks like. I think cycles are hard to look at when you are going through it. I think cycles are things you will look back on. So. But where we are right now is kind of what we talked about throughout the call.

Analyst: Okay. Great. Thank you.

Operator: Thanks. Your next question comes from the line of Tracy Benguigui from Wolfe Research. Your line is live.

Tracy Benguigui: Thank you. A follow-up question on your reiteration of your long term 65% disability benefit ratio target. Just on a mechanical standpoint, does the 2 year limit on behavioral claims versus a longer tail on physical type of LTD give you more confidence in getting your benefit ratio back on track, or are these type of behavioral claims just too volatile in a way that it does not matter how long the tail is?

Steven Andrew Zabel: Yeah. How I would answer that, Tracy, is when we set up the initial reserve, we have a view of the type of claim it is, and so we are gonna set that claim reserve up understanding what the duration is probably gonna be. And so we take into account the limitations. On behavioral health type claims. And so you might still have some variation in what the ultimate duration of that is, but that is into account kind of upfront. Okay.

Tracy Benguigui: Just a follow-up. It was good to see another 5 percent of group LTC cases closed. That was a tad higher than the second quarter. I am just curious on a cadence perspective, was that a function of the timing of your annual letters that you sent out for your upcoming 1/1 renewals reminding folks they are no longer. You are no longer offering LTC policies to existing cases starting in February. I am just trying to figure out which period may be a bigger window to see those terminations. In the third quarter or fourth quarter.

Christopher Wallace Pyne: Yeah. it is it is a good question, Tracy. I think the with employers really go back a year, and they are ongoing. So when they get to their decision point, it is perhaps less about the calendar and more about when they have made that conclusion for their own employee base.

Richard Paul McKenney: So it is hard to at any particular quarter and say that is the window which we are going to see more. I just reiterate, we are very happy. 15% of our group long term care cases have come off from that announcement. So we will look forward to that continuing. And that is that is just part of the overall block of our closed block. And so that is 1 element of it. We have been happy with the action that we took last year. And the result that we have seen thus far. Thank you.

Operator: Your final question comes from the line of Pablo Singzon from JPMorgan. Your line is live.

Pablo Singzon: Hey. Thanks. I will try to be quick. So assuming that some portion of these mental health claims converted to paid, whether it is a normal or surge adjusted level, what do the recovery curves on these claims look like, and do you think it will be accretive, neutral, or diluted to your favorable recovery trends overall? Right? I think, that is what you said. Mental health claims are capped at 2 years, but perhaps determining claim resolution is less of objective than with physical injury claim. I am sorry, Pablo.

Richard Paul McKenney: I am going to have to back you up. We only got about a quarter of that question. So if you could just summarize Yep. The key point. Yep.

Pablo Singzon: It was just questions on recoveries on the. In these mental health claims. And whether or not you think the recoveries here. Expect the recovery to be accretive, neutral, or dilutive to the overall favorable recovery trends for the book. Right? And I think Rick had said you are normally capped at 2 years, but perhaps determining claim resolution is less objective than with a physical injury claim.

Steven Andrew Zabel: Yeah. I would go back to kinda how I answered, I think, Tracy's question. When we set up a reserve to begin with, we look at diagnosis and all those types of things, including the type of, you know, coverage that they have. And we set up the original claim with the expectations that we would have, including what the recovery rate may look like for that type of claim and, what the duration of the claim is. So it is it is really hardwired into just our claim reserve calculation to begin with. Okay.

Pablo Singzon: And then second question is on PFML. How long does it normally take for claims utilization in a population to season? I guess the genesis of the question is that if you look at some public data on PFML say, like in New York, it seems like utilization is just increasing year over year. it is more covered insureds, you know, become more aware of the benefits available to them. So I guess the question is, what are you seeing in your books now? And can we potentially be in a multiyear repricing process here as, you know, the PFML book seasons? Thank you.

Christopher Wallace Pyne: Yeah. Pablo, it is Christopher. I, you know, I think PFML is in the short term disability family relative to kind of that near term limited benefit period. Different states have different rules. And obviously, where there are parts which is the employee is healthy, but they are taking time it is compensated away from work for a variety of reasons. I spent some maturation in the process. That all goes into the experience. I would say we are watching it carefully. And I would not draw any conclusions as to future trends relative to utilization. But we have been very close to it and set prices appropriately going forward as new states come up.

Operator: That concludes our question and answer session. I will now turn the call back to Richard Paul McKenney for closing remarks.

Richard Paul McKenney: Great. Thank you, Jordan. Appreciate everybody's sticking with us today. And obviously, a lot of details to get into We will be out there and available and look forward to coming opportunities in the next couple of months of the year to continue to have that discussion. So appreciate you joining us. Appreciate your support, and that concludes the call for today.

Operator: That concludes today's meeting. You may now disconnect.

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