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Unum Group (NYSE:UNM)

Q4 2013 Earnings Call

February 05, 2014 10:00 am ET

Executives

Thomas White

Thomas R. Watjen - Chief Executive Officer, President and Director

Richard P. McKenney - Chief Financial Officer, Executive Vice President and Principal Accounting Officer

Michael Q. Simonds - Chief Executive Officer of Unum US and President of Unum US

Randall C. Horn - Chief Executive Officer of Colonial Life, President of Colonial Life and Executive Vice President of Colonial Life

John F. McGarry - Executive Vice President of Individual Disability & Long Term Care Closed Block Operations

Peter G. O'donnell - Chief Executive Officer of Unum UK and President of Unum UK

Analysts

Mark D. Hughes - SunTrust Robinson Humphrey, Inc., Research Division

Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division

Erik James Bass - Citigroup Inc, Research Division

Suneet L. Kamath - UBS Investment Bank, Research Division

Eric N. Berg - RBC Capital Markets, LLC, Research Division

A. Mark Finkelstein - Evercore Partners Inc., Research Division

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

Thomas G. Gallagher - Crédit Suisse AG, Research Division

Ryan Krueger - Dowling & Partners Securities, LLC

John M. Nadel - Sterne Agee & Leach Inc., Research Division

Yaron Kinar - Deutsche Bank AG, Research Division

Operator

Good day, everyone, and welcome to the Unum Group 2013 Fourth Quarter Earnings Results Conference. Today's event is being recorded. For opening remarks and introductions, I will turn the conference over to the Senior Vice President of Investor Relations, Mr. Tom White.

Thomas White

Great. Thank you, operator. Good morning, everyone, and welcome to the fourth quarter 2013 earnings conference call for Unum.

Our remarks today will include forward-looking statements, which are statements that are not of current or historical fact. As a result, actual results might differ materially from results suggested by these forward-looking statements. Information concerning factors that could cause results to differ appears in our filings with the Securities and Exchange Commission and are also located in the sections titled Cautionary Statement Regarding Forward-Looking Statements and Risk Factors in our annual report on Form 10-K for the fiscal year ended December 31, 2012, and our subsequently filed Form 10-Q. Our SEC filings can be found in the Investors section of our website at unum.com. Also, I'll 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. 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 also in the Investors section.

So participating in this morning's conference call are Tom Watjen, our President and CEO; and Rick McKenney, Executive Vice President and CFO; as well as -- as well as the CEOs of our business segments, Mike Simonds for Unum US.; Peter O'donnell for Unum UK; Randy Horn for Colonial Life; and Jack McGarry for the Closed Block.

And now I'll turn the call over to Tom Watjen. Tom?

Thomas R. Watjen

Thank you, Tom, and good morning, everybody. Let me start by saying that I'm very pleased with our fourth quarter results and the strong close that we have for the year. Operating earnings per share, which excludes investment gains and losses, as well as certain pension and reserve adjustments, increased 3.7% to $0.85 per share, bringing full year operating earnings to $3.32 per share, an increase of 5.4% for the year, which is towards the upper end of both our plans and the outlook we had provided the Street at the start of the year. Importantly too, our book value per share, excluding AOCI, which I continue to believe is a strong measure of enterprise growth, increased 9.4% year-over-year to $32.32 per share, which is slightly above the 8.6% compound annual growth rate that we achieved in 2009.

Now let me touch on a few specific items before turning things over to Rick. First, we continued to generate strong results within our ongoing businesses, Unum US, Colonial and Unum UK.

Unum US had another strong quarter, driven again by favorable risk results across all of our business lines. For the fourth quarter and for the full year, each of our Unum US business lines reported improved benefit ratios, a result of our long-standing focus on disciplined underwriting, pricing and risk selection, sometimes at the expense of top line growth.

Colonial Life also delivered solid operating results with a stable -- with stable risk results and sound expense management driving another good quarter for this business.

And lastly, Unum UK continued to show solid margin improvement driven in large part by our aggressive group wide repricing and repositioning actions. Overall, these ongoing business segments are generating consistent solid margins, with an operating return on equity of 14.7% for the fourth quarter and 14.2% for the full year.

Secondly, the results of our Closed Block remained steady and were in line with our expectations again this quarter. The loss ratio in the long-term care line improved this quarter, and we continue to make good progress in our ongoing repricing initiatives in this line. There's still more work to be done, but I am encouraged by the work that our new team has done to bring greater focus and attention to this business.

Third, following on some improving sales trends that emerged from the third quarter, we saw strong sales growth in both of our U.S. operations in the fourth quarter. In Unum US, total sales increased by 5%, with especially strong results in our small and midsize employer markets, which are employers with under 2,000 employees. Group sales in these segments grew by 9.4% over last year, and our voluntary sales in these segments grew by 24%. We also saw a strong improvement in sales at Colonial, increasing 10.4% for the fourth quarter, which is up substantially from the levels we are seeing earlier in the year. We saw a generally good balance in our sales results, but that -- led by strong results in the midsized segment of that market, which are employers with 100 to 1,000 employees. Our commercial sector sales at Colonial grew 12.3%. We in the industry are still experiencing some challenges in the very small end of the market, but even there, there were signs of improvement in the quarter.

Lastly, our Unum UK sales declined 9.4% in local currency this quarter. Much of that decline though was attributable to tougher comparisons in the larger case market, and our group life sales were even, as you know, raising prices.

Next, moving to investments. Our investment results continued to be strong, particularly the credit quality of our portfolio. Interest rates and investment yields remain a challenge, with improving treasury yields in the fourth quarter mostly negated by tighter investments spreads. We have continued to -- maintain our investment quality standards and are continuing to adjust our prices in those products that are most interest-rate sensitive.

And finally, we closed the year on a very strong capital position. We estimate that our RBC ratio finished 2013 just above 400%, and our holding company liquidity position finished the year at $514 million, both well within or exceeding the outlook we provided for the year. I might add that these year end capital levels incorporate the completion of the redomestication of our Bermuda-based captive, which was not contemplated when we initially provided our 2013 outlook in December 2012. Even with this, we have retained significant financial flexibility and in the quarter repurchased $50 million of stock, bringing our total for the year to $319 million, and Rick will have more on this in just a few moments.

So to summarize, we are pleased with the overall results we saw in the fourth quarter and for the full year of 2013. As I discussed at our outlook meeting in December, we believe that we are in good businesses and markets, and we are well positioned to continue to deliver solid results in our ongoing businesses in 2014. We are also -- we also remain intensely focused on actively managing our Closed Block segment, both the operations and capital investment in this business. And our solid financial foundation continues to give us significant financial flexibility to invest in our businesses and return capital to our shareholders, all of which I'm confident will continue to allow us to create value.

Now I'll turn things over to Rick for a review of our operating results. Rick?

Richard P. McKenney

Great. Thank you, Tom. As Tom mentioned in his comments, for the fourth quarter, we reported operating earnings per share of $0.85, which is up 3.7% from last year. This brings our growth in operating EPS for the full year to 5.5%. It's a good conclusion to the year where we expected 0% to 6% going into it.

Looking first at Unum US, operating earnings increased year-over-year, driven by good experience in the group life and the AD&D line and the supplemental and voluntary lines. Group life and AD&D produced very good results this quarter, with operating income increasing by 13% to $62 million. The benefit ratio was improved in the quarter at 70%, reflecting favorable underlying experience. Also, the supplemental and voluntary line reported operating income of $85.8 million for the quarter, up from $83.6 million in the year-ago quarter. Here, too, the benefit ratios for the primary lines of business were also slightly improved from the year-ago results due to more favorable risk experience.

Turning to our group disability business, we did see lower operating earnings, but this was driven primarily by a reduced level of miscellaneous investment income, which was about $7 million lower year-over-year. The item to focus on is that the risk results in group disability remains quite strong, but the benefit ratio declined to 83.2% this quarter from 84.5% a year ago, as the underlying experience showed stable to lower overall claim incidents and continued favorable claim recovery performance. This has been a positive trend we have seen over several quarters. Overall, it was a good quarter for the Unum US segment overall, with operating ROE for the segment at 13.7% and good momentum going into 2014.

Moving to Unum UK. Operating earnings were GBP 22.2 million for the fourth quarter, improved from both the year-ago quarter, which was GBP 21.8 million, and up from the third quarter, which was GBP 20.1 million. We continue to be pleased with the progress we are seeing with our UK business, particularly with the repricing and repositioning of the group life business. The operating ROE for the U.K. has improved to 14% for the full year 2013. We still see room for improvement and we are encouraged by the direction of this business. In the fourth quarter, the Unum UK benefit ratio improved to 73% from 76% in the year-ago quarter. The improvement was largely driven by improved performance and margins in our group life line of business. Risk experience was slightly weaker in our group disability line, reflecting slightly higher claim incidents. But overall, I'm pleased with the momentum we're seeing as we go into 2014.

Colonial Life continues to produce solid, steady results, with operating income at $69.4 million for the fourth quarter. The benefit ratio was stable at 52.4% for the quarter as we experienced favorable risk results in the life product line, which offset some volatility in the cancer and critical illness and accident, sickness and disability product lines. Overall, the underlying profitability of this business continues to be excellent, with an operating ROE for the full year of 16.5%.

And finally, the Closed Block generated operating income in the fourth quarter of $26.8 million, consistent with our expectations for the segment. The improvement in the interest-adjusted benefit ratio for the LTC line was primarily driven by a lower level of new claim incidents. The increase in the interest-adjusted benefit ratio for the Closed disability block was largely attributable to a slight reduction in the claim reserve discount rate, which did not impact the bottom line.

I'd like to now move into a discussion of our sales and growth trends. The positive sales momentum that we began to see in the third quarter following the sluggish first half continued into the fourth quarter. We were quite pleased with the sales results we saw in the quarter in our U.S. operations. Beginning with Unum US, total sales increased by 5% in the quarter. The challenges we experienced earlier in the year from the political environment and disruption in certain sectors from health care reform implementation seem to be lessening but are still having some impact in the very small end of the market. Persistency for our primary U.S. business lines remain well within our expectations, but did decline slightly year-over-year. Overall premium growth for Unum US was up 1.4% for the full year. And similarly, our 2014 outlook calls for premium growth for Unum US in the 0% to 2% range.

In the U.K., sales were down 9% this quarter in local currency. Persistency in the disability line remained relatively stable at approximately 82% for 2013. However, persistency in the UK group life line continued to reflect the pricing actions that we're implementing. And what we have seen is that the lapses are skewed to more poorly performing cases. Also taking into account the group life reinsurance implemented at the beginning of 2013, our UK premium income was down 19% for the full year.

Our outlook for 2014 is for premium growth of 0% to 2%, with some improvement in persistency in the group life business and overall sales growth for Unum UK in the 4% to 7% range.

Finally at Colonial Life, we saw a very strong sales for the quarter, an increase of 10.4%, which brought the full year sales growth to 1.6%. Persistency declined slightly for our major business lines, but premium income increased by 3.2% for the full year. Our outlook for premium growth and for Colonial Life in 2014 calls for growth to again be in the 2% to 4% range.

Having covered our operating trends, I'd like to now review the 2 reserve adjustments we reported in the fourth quarter, beginning with the reserve increase for unclaimed death benefits. You've probably seen over the last several years discussion with regards to the use of the Social Security Death Master File and how insurers are using it. During 2012 and 2013, we began proactively addressing the use of the Death Master File to identify life insurance claims for death within the current year so that we can identify and pay owners of unclaimed life insurance proceeds. In 2013, we also looked at using the Death Master File to search for our potential claims from previous years. During the fourth quarter of 2013, we completed our assessment of benefits, which we estimate will be paid under this initiative and established additional reserves of $95.5 million for the payment of these benefits. Our earnings release details the allocation of these reserves by our various life insurance business lines with Unum US and Colonial Life.

The second reserve adjustment is a reduction of reserves related to the group life waiver of premium benefit. Again, for some background, within our Unum US segment, we offer group life insurance coverage, which often includes provision for waiver of premium if one becomes disabled. The group life waiver premium benefit provides for continuation of life insurance coverage when an insurer is no longer paying premium because the employee is not actively at work due to disability. Our emerging experience and that which continues to emerge within the industry, indicate an increase in life expectancies, and at the same time, reflects an improvement in claim recovery rates, which also lessen the likelihood of payment of a death benefit while the insurer is disabled. During the fourth quarter of 2013, we completed a review of our assumptions and modified our mortality and claim recovery assumptions, which resulted in a reduction of claim reserves of $85 million.

Touching now on the investment portfolio. The credit quality of our portfolio remains in excellent shape, and the watch list of potential problems continues to be quite low. In the fourth quarter, we saw treasury rates rise, however, that was largely negated by a continuing tightening of corporate credit spreads. So all in all, it continues to be a difficult investing environment, certainly better than this time last year, but we expect to see continued gradual pressure on our portfolio yields. As we have said before, we're not stretching our quality standards to reach for yields, but are working on careful asset selection while adjusting pricing on our liability to reflect the current environment.

Moving on to an update on capital management. Our statutory operating results continued to be strong. This quarter was impacted by the unclaimed death benefit reserve adjustment. But for 2013, after-tax operating earnings as of this item for our traditional U.S. subsidiaries was $680 million, consistent with our capital generation model. The underlying trend of solid statutory operating earnings remains very much intact. The weighted average risk-based capital ratio for our traditional U.S. life insurance companies was estimated at 405%, above the upper end of our target range of 375% to 400%. And holding company cash and marketable securities was $514 million at year end.

2013 was an active year on the capital deployment front. We bought back $319 million of stock, including $50 million in the fourth quarter, and raised the dividend by 12%. We also did some things that position us well for the future. This would include freezing the qualified pension plan, which is now in an overfunded position, and the redomestication of our Bermuda sub back to a U.S. domiciliary. This was all done while meeting or beating our capital targets we laid out at the beginning of the year.

And finally, our 2014 outlook for growth in operating earnings per share is a range of 5% to 10%. No change from our outlook meeting back in December, and many of the results of the quarter reaffirm these views.

Now I'll turn the call back to Tom for his closing comments. Tom?

Thomas R. Watjen

Thanks, Rick. Before we move to your questions, I'll close by reiterating how pleased we are with our operating results for the fourth quarter and full year 2013. We have good momentum going into 2014 with our ongoing focus on continuing to profitably grow our business through disciplined pricing, underwriting and expense management, along with equivalent to maintaining sound risk management and managing our investments and capital; capital that we will continue to use wisely to support our business and return to our shareholders.

Now this completes our prepared remarks. And operator, let's please move to the question-and-answer session.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go to Mark Hughes of SunTrust.

Mark D. Hughes - SunTrust Robinson Humphrey, Inc., Research Division

Can you give us an update on your exchange strategy, how many exchanges you may be on, and then maybe some discussion about how many other providers you might be competing with, how your pricing strategy, how you're approaching this distribution.

Thomas R. Watjen

Be happy to, Mark. Maybe I'll ask Mike to sort of lead that discussion. But certainly, obviously, Colonial is also part of that too because both businesses are certainly are connected to that whole developing area. But Mike?

Michael Q. Simonds

Thanks, Tom. Activity and interest in the private exchange market, which I assume you're referring to, continues to increase. But I'd have to say that actual volume of business that's coming through still remains relatively small to date. And the last -- so I think about it as regardless of the pace for the absolute level of adoption that it ends up occurring with our product line on private exchanges, actually, we feel pretty well positioned for a couple of reasons. The first is we've got about 40 plus connections into the benefit administration and enrollment technology platforms that are now forming the basis for the majority of private exchanges. So having put those in place over the last 3 or 4 years, we've actually gotten a good head start. So to your specific question, there's probably about 0.5 dozen to 1 dozen exchanges that we're either on or in the process of getting on.

A couple of important points. First, in each of those cases, the employer remains heavily involved in selecting the carrier and the types of benefit choices they're making available to their employees. That's important to us. And then, second, and to your question, the product forms and pricing parameters that we're using actually look very similar to what we've got through more standard channels. So we feel good about our ability to manage that risk on a go-forward basis.

Thomas R. Watjen

Randy, would you like to add anything further to that? Because again, I know we're working -- both businesses are working closely on strategy and implementation.

Randall C. Horn

Yes, sure, Tom. We -- first of all, I want to emphasize we are looking at this from an enterprise perspective. So my team is working very closely with Mike's on this in terms of looking at potential partners. A lot of activity, as Mike said, out there, but we are collectively being very selective, very strategic and looking at exchange partnerships. We have somewhere in 0.5 dozen to 1 dozen range actively underway right now. But again, it has to align strategically with our distribution and service strategies. I want to emphasize also, as Mike said, that we are staying very connected to the employer. And the employer's going to be making the selection of carriers and coverages. So again, a lot of activity. We think flexibility is the key. But we feel like we're well positioned in that area going forward.

Mark D. Hughes - SunTrust Robinson Humphrey, Inc., Research Division

And then a quick follow-up, Randy. On the Colonial commercial, a nice increase. Why is that looking so much more active lately?

Randall C. Horn

Well, I think it really is kind of a process, Mark, where we've been building momentum throughout the year, so really saw some good results in that 50 lives up to 1,000 lives segment in the third quarter. So really, it's just getting good results from the work we've been doing all year. Our field force is very active. I think things are loosening up a little bit at this point. In terms of the Affordable Care Act and implementation there, still some pressure in the very small end of the market, under 50 lives. But again, we're seeing things open up, a lot of interest in voluntary benefits. And I think a general awareness that voluntary benefits fit very well into longer-term benefit strategies.

Operator

We'll go next to Jimmy Bhullar of JPMorgan.

Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division

First, on just your comfort with long-term care reserves, obviously, you took the charge a few years ago in fourth quarter of '11. And at the time, I think you'd assumed that rates would be stable for about 3 years or so and then begin to go higher, but in fact, they haven't. So maybe talk about how you think about your long-term care reserves if rates are close to these levels around at year end this year. And secondly, on persistency in most business lines declined. I'm wondering whether that's because of price hikes you're trying to implement? Or is it just that activity is picking up and more business is being put to bed overall in the market?

Thomas R. Watjen

Rick, do you want to pick up on the long-term care piece first?

Richard P. McKenney

Sure happy to do that, Jimmy. I think when you look at -- one, we're just coming out of year end in terms of looking at the overall reserves, and so I think that's a marker we'd put out there. We talked oftentimes about interest rates and how we're managing through that across all of our business lines, including long-term care. There is pressure in that line. And if I took you back to 2011 when we first made those comments around interest rates, we talked about the horizon we'd have and the pressures we've seen out there. I think today, we've actually done probably better than we anticipated at that time, but those pressures are out there and real. And I think that what you see in the market today is reflective of that. But I'll also tell you that, I think, when you look at long-term care reserves and as we look forward, there are multiple aspects that we need to look at in that product line, both on some of the things that might be pressures. And you mentioned interest rates, as well as the things that we're doing from an operational perspective to actually mitigate that. And the biggest thing there is, is price increases. Jack, you want to make any comments around the operations in LTC and what we're accomplishing there?

John F. McGarry

Yes, so we continue to focus on the operations. We've actually strengthened the claims management process in long-term care, had a very successful year, which you saw are in kind of the steady loss ratio for the year. In addition, we've had great success on rate increase strategies. We're ahead of the goals we set for ourselves in the QTD when we set it up, in particular, that strong results on the group long-term care side, which is important because those premiums go on for a lot longer. And so getting an increase on the group side actually worked more to us over the long haul than getting individual. So we've made progress on the operational fronts and we're continuing to make progress. We'll be filing additional rate increases both on the individual side as well as the group side and are optimistic about our chances of continued growth there.

Thomas R. Watjen

And Jimmy on your persistency question, frankly, the answer differs a little bit by business and by product within business. Maybe what we'll do is just go around the horn a little bit and each ask -- each business had to speak to it. But Mike, you want to talk at first on the persistency trends in the quarter?

Michael Q. Simonds

Absolutely. So we saw persistencies in the high 8s, which, in an absolute sense, actually, we're pretty comfortable with. It did come down 1 point or 2 depending on the product line for Unum US from a 90% plus level. I'd say that was abnormally high. And it's a little bit the same -- different sides of the same cords -- coin where we saw a slow -- sales slowdown in the market, that hurt us a bit early in the year from a sales point of view. But it helped us from a persistency point of view as business was moving less frequently, played to our advantage in the renewal program. But if we look at it, persistency in the high 8s to us feels very good. As we look at our renewal inventory headed into next year, we feel good about maintaining to slightly improving that level. And I think, maybe the last point is, importantly, the business that is coming off the books is at substantially lower margins in the business that we're retaining. So in aggregate, we feel pretty good about it.

Thomas R. Watjen

And maybe, Randy, just to pick up on the persistency trends in your business.

Randall C. Horn

Yes, okay. We're continuing to see generally very stable persistency in all of our product segments. It's kind of staying in that high 70s, 79% plus to 80% range, ticked down just a little bit in the fourth quarter, but nothing we're concerned about. Again, very stable by each product segment.

Thomas R. Watjen

And I think lastly, Peter, I think, you have probably the most do with some repricing actions. And maybe just speak a little bit of how that's affected some of your persistency, especially in group life.

Peter G. O'donnell

Thanks very much, Tom. Yes, I would sort of put the persistency into 2 different categories. So I think on income protection, our persistency was bang in line, actually, a little bit better than we expected. We got the rate we wanted. We got the persistency we wanted, and that's gone pretty much almost spot on to plan. On group life, it's a different story. We had more to do on the discipline we had to apply there. What we've done is actually we've outperformed on rates, so we've done better than expected on rates. But our persistency hasn't quite made where we wanted it to get it to. But we have lost the schemes that were most poorly performing, and the competition has picked those up, pick up at the rates that they were going in the marketplace.

Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division

And the U.K. book, about 2/3 is repriced as of right now?

Peter G. O'donnell

I would say that's about right. I would say the income protection book is pretty much there. The group life book is about 2/3 priced.

Operator

We'll go next to Erik Bass of Citigroup.

Erik James Bass - Citigroup Inc, Research Division

Can you talk a little bit about the competitive environment for voluntary benefits, particularly as more insurers are focused on the voluntary opportunity and are introducing new products?

Thomas R. Watjen

Do that, actually, again -- maybe lead us off actually, Randy, as it relates to the things you're seeing your marketplace. And Mike, if could pick up a little bit what we're seeing in the Unum US marketplace.

Randall C. Horn

Sure. Good morning, Erik. Very dynamic marketplace without question. There is a lot of competition, a lot of new entrants into the voluntary space. But that just tells us it's important to stay more focused than ever, which we're doing on our core segments. And we just keep introducing the right types of product updates and new product introductions. Our pricing stays very stable. We're not changing that to try to meet competition or buy share. I want to assure you of that. So again, very, very dynamic market, a lot of competitive intensity. But still a lot of opportunity, especially in that smaller end of the market and not nearly as much competition there. So outlook in general is very positive, again, due to growth in the overall voluntary space, and we like our chances in our target segments.

Thomas R. Watjen

Mike?

Michael Q. Simonds

I would echo Randy's comments and you'll see that reflected in the numbers. So in the core market for us, we saw voluntary benefits sales up over 20% in the quarter. I think, importantly for Unum US, we're seeing 33% to 40% depending on the size segment of all our new voluntary customers coming in on top of an existing or new group insurance client relationships. So we feel like that's a unique position that we've got on the -- got in the market and it's helping us with what Randy said is an increasingly competitive market. We do feel though that the outlook is good. And as health continues to change and deductibles continue to go up, that creates the need and the demand for a number of these voluntary products, which is a trend that I think is here for the long term.

Thomas R. Watjen

And Erik, if I can just add one little piece to this, as you know, we certainly, like everybody, we worry about competition coming into marketplaces, and certainly, we do have some very strong competitors in our market today, and certainly, new entrants into our market. I'll just remind you, we made a commitment to really accelerate our development of this business 5 or 6 years ago and put significant resources into everything from product to distribution to communication tools that I think you're beginning -- you're seeing some of the benefit of that now. So again, not that we don't want to ignore the focus of increased potential in this segment, but we've also been at this for a while too. And we -- as I said, we built some pretty good infrastructure and capabilities in both Unum US and in Colonial. And yes, the reason we chose to focus more energy here back 5 or 6 years ago is we saw the movement from a defined benefit to a defined contribution world, which has very much has played itself out, and so a lot of our focus has been around a theme which has really played itself out and I think it plays to the strength of this company.

Erik James Bass - Citigroup Inc, Research Division

And I guess to follow up on that last point. As you're seeing more plan sponsors shift to a defined contribution model offering benefits, how does that affect how Unum has to think about both winning employer benefits contracts but also marketing its products to consumers?

Thomas R. Watjen

Mike, why don't you take that up? Because again, we spend a lot of time thinking about that. The focus throughout the company is because of what you just said and we believe strongly that, that is the case. That needs to be a much greater focus on understanding consumer and consumer tendencies both buying and why they don't buy actually. And so we're playing that out in both of our U.S. businesses. And Mike, you want to speak a little bit to that.

Michael Q. Simonds

Yes, the 2 points I'd make are, it actually calls for more active engagement with employers. So when you have a simple DB or employer-funded plan, it can be of more of a transactional business, particularly in the core. As you move to defined contribution, you involve the employee. It means you've got to have stronger relationships. So we've made pretty big investments in our client management team to make sure we're actively consulting with employers on how to design each plan, how to put the right resources in place to educate and handle enrollment. And a big piece of that is what Tom was referring to, which is investments that we've made on understanding consumers in the different segments, putting together product packages and hitting price points that play through those various groups of consumers. So that's probably the biggest stream of investments that we're making is in those enrollment, education and consumer capabilities. I think we're starting to see some of the benefits of that.

Thomas R. Watjen

I'll just add one more piece. So the other part of it is too -- and this is, again, where we can -- we have 2 avenues to get to those customers. We're also investing very heavily in that benefit communication and enrollment capability. Because obviously, the more the consumer is being asked to make choice and make decisions for themselves as opposed the employer making them for them, that's an important part of our deliverable too. And so that's actually one of the key things that differentiate, I think, both of our voluntary efforts in the marketplace from some of the new competitors that have come into the market.

Operator

We'll go next to Suneet Kamath of UBS.

Suneet L. Kamath - UBS Investment Bank, Research Division

So I just wanted to follow on a similar line of questioning as it relates to exchanges. I guess in the past on these calls, from time to time, you've talked about the more traditional health insurance companies being more aggressive in terms of price in group life, group disability, et cetera. And as we start to think about the role exchanges may play in group life, group disability, and maybe voluntary benefits, I guess I'm trying to figure out, is there a risk that we might start to see some of the health insurance companies try to bundle a lot of these products on the exchanges and maybe offer a discount to customers or something like that in order to get demand and essentially take some of the business away from companies that don't have sort of a bundled approach?

Thomas R. Watjen

Mike, you want to take the lead on that one?

Michael Q. Simonds

Sure. I think there's always a risk that -- you got a new technology or new distribution platform that you want to stay close to and understand a couple of things. First, it's easy to go quickly to how could this displace current distribution channels. So I think it's important to note that in the lines we're in, it's a very underpenetrated market. So today, our industry is only getting to about a coverage level if you take income protection of about 1 out of every 3 workers. So as exchanges come on and they enable you to get to different parts of the working population, I think about hourly workers, I think about part-time workers, those are largely new opportunities and are growth opportunities for us. So there is an interesting angle around overall industry growth through some of these exchange platforms. But to your specific question around health carriers, I think what we're working to do is be part of the major exchanges as they come up, including those that are coming up through health insurers. So we've got a well-established partnership with UnitedHealthcare, for instance, and staying close to developments on that front is a big part of our strategy. If you think about the group and voluntary benefits between Colonial Life and Unum, you've got major market players in major share. And so as exchanges are being constructed, they're looking to the industry leaders to be a part, and that puts us in pretty good stead.

Suneet L. Kamath - UBS Investment Bank, Research Division

Understood. I guess, I'm just trying to -- and I know we're learning about these exchanges more and more each day. And so, if we don't know the answer to this, then that's fine. But is there anything that prevents a health insurance company, let's say, from just offering a bundled product that does everything, right, health insurance, group life, group disability, voluntary benefits and sort of -- because of volume discounts or something like that, essentially can undercut pricing in the market because they make it up on volume? I just don't know if that's even possible on these exchanges.

Michael Q. Simonds

Yes, good question. So first thing I'd say is health carriers have always done that. And now, we're talking about a consumer frontier and, but we've been at the employer frontier over several decades. And yes, there is always an interesting sort of bundling story on the health care front. But specialist carriers like us have been very successful in pointing out a superior value proposition. I think, the second point is having a big database that includes a lot of information about how different employees buy and helping to sort of also shape the offering on the front end, but also managed the risk on the back end is a big advantage. So while you could sort of simply discount, if you don't have a good line of sight to okay, for this type of an employer with this type of employee base, you're going to have a hard time. I think, building the right product combinations and managing the risk on the back end.

Thomas R. Watjen

And Mike -- if I can add to what Mike just said. I think, if you look back to history, there's been time and again discussions of bundling. As Mike said, even today before the exchanges were developed, group carriers -- group health carriers on occasion were getting into the market very aggressively, trying to come in market with in many -- in retrospect, very underpriced offerings to their customers with a set of bundled products, and it just doesn't work actually. And so not that we don't worry about those things, when we think about the competitive landscape. It's obviously a changing competitive landscape. I think you've heard us talk about this on previous calls. We do believe, we need to have a plan for how we've actually connect with the exchanges. As both Mike and Randy mentioned, we certainly do have plans for those. But we also can't ignore the fact that this is probably is not going to substantially change the landscape for distribution, how we communicate with employers and the individual employees. And if it does we're in a good spot, but also we don't want to miss the fact, as Mike said, there's an awful lot of good connections we have right now into the marketplace through distributors, through employers. And frankly, those conversations are continuing businesses as usual, and there's not a fundamental shift actually in how that business is being done. If there is, I think, we're going to be in a good spot. But also, I wouldn't overplay the fact that this is going to be a dramatic change in how things are done in the next several years.

Suneet L. Kamath - UBS Investment Bank, Research Division

Got it, that's helpful. Just wondering if you can just shift gears to capital, maybe for Rick, just reviewing your 2014 outlook specifically around RBC. Can you just remind me, why the expected RBC ratio in 2014, is expected to come down versus 2013? I think, you actually were a little bit above the high end of the range you provided at Investor Day. And then second, you have mentioned that you've done some creative things in terms of capital deployment, in terms of pension plan, UPIL, et cetera. Are there any other big sort of ticket items that you might consider for 2014 that might compete with share buybacks?

Thomas R. Watjen

Rick?

Richard P. McKenney

Sure. The -- In terms of the RBC coming down, I wouldn't pay too much attention to that. We've kind of been stable in our outlook of 375 to 400 over the last several years and that's our outlook for 2014. We actually outperformed a little bit. I think, this year with some better statutory results than we had going into the year. So we we're kind of still in that range, not much to read into that. I think at 375 to 400, we feel very good about the overall RBC position. But with regards to new items coming out there, it's a dynamic world. And I would have told you going into last year some of the things that we did, were not necessarily on the docket and similar to this year, and we're going to react to that, including the amount of share repurchase, we've got a range out there of $300 million to $600 million, and it means that we'll be nimble with whatever the market is giving to us. So we're going to be flexible on that front. The good news is, we do expect a significant amount of capital generation, and we will have opportunities to react to whatever environment, we see.

Operator

We'll go next to Eric Berg of RBC Capital Markets.

Eric N. Berg - RBC Capital Markets, LLC, Research Division

You reminded us in your end of year presentation that, that the Closed Block remains an important user of capital, and it's really depressing the ROE of the entire Unum group. Could you give us an update on the following: and we'll talk about the -- whether there's going to be a long-term -- or several analysts, myself included, have talked about whether there's going to be a long-term care reserve increase. What about looking at this from another perspective? Is there a possibility at this point of either releasing capital in any way from this business or enjoying somehow, notwithstanding it being in the Closed Block, a sharp increase in earnings from there?

Thomas R. Watjen

Rick, you want to start that one? And we'll get Jack involved as well in that response.

Richard P. McKenney

Yes, sure. I think, when you look at the -- Eric, when you look at the Closed Block, I think, those points you mentioned around how it will evolve over time, I think are very good ones in terms of how we build the block, how Jack and team are managing it without stealing much of his thunder in terms of -- as those opportunities provide themselves to relive capital, similar to the way we did with our disability block going back several years. And we want to make sure that we are positioned, structured and ready to take advantage of those opportunities, where we can extract capital from this block. I will tell you that we don't see that right now. And as you look out over maybe the next couple of years, probably don't see it. But Jack is definitely positioning the team to be ready for that.

Thomas R. Watjen

Jack?

John F. McGarry

And so, UPIL being redomesticated was a good example of taking our first step and positioning that. We -- the block is still very immature. It's a young block, particularly on the group side. Results are -- can go up and down, I would say. And I think, we would be cautious, given the long-term nature of the block before we would take steps to recognize, I think, fluctuations in earnings or release capital in the block. But also the industry is maturing. So interest rates are getting steadier, more predictable. People are getting more comfortable with the reserve. So it's not happening today, but we're hopeful over the next 3 to 5 years as interest in the variable annuity block intensifies, that makes it over into the long-term care block as well. So we're going to position ourselves that if the capital markets ever do open up for long-term care, we'll be in a position to take advantage of it.

Eric N. Berg - RBC Capital Markets, LLC, Research Division

And just as a follow-up on the long-term care, and speaking in terms of a timetable for whether an action would be taken if any is taken, back -- as I recall, back at the end of 2011, when you add to this, I guess, it was the individual business following your exit from the group insurance business, you were making the points as I recall that, while you had a large block, the number of policyholders on claim was relatively small. The number of policyholders in later duration of claims was even smaller still. And therefore, concerns about the credibility of your data, you turned to I guess, it was a newly released study of the Society of Actuaries to help you set reserves. Now, 3 years later, have things changed materially? Do you have many more people on claims that the data is credible? Or to put it differently, as you assess the adequacy of your reserves, do you still need to look to the outside to understand the opening outlook?

Thomas R. Watjen

Jack, want to give -- pick up on that because I think, you touched on just very, very earlier. but a little more detail on just so the status of our in-force block.

John F. McGarry

The number of people on claims with us has been pretty steady actually. It's increased modestly. It's not expected to increase rapidly, over time, high-single-digit kind of increases annually. And a part of that is because old people go on claims. They have high mortality. There is younger people on claim who recover. So we will see steady growth in the claim block. We don't expect to see dramatic growth. We act different than most carriers because we have a big group business. Most of our lives are on the group side. They tend to be much younger. The average age is still under 50 on the group side. And so, we would expect to have a much smaller claim block relative to number of lives insured in the amount of premium we collect than people have written in the older age. And that gets back to that this is going to be a long run, that it's going to be around for a long time. It's going to grow gradually. We don't expect dramatic things to happen at that ages, and we're preparing for that.

Operator

We'll go next to Mark Finkelstein of Evercore.

A. Mark Finkelstein - Evercore Partners Inc., Research Division

Two quick ones. Incidence trends in group disability, how do they compare to kind of normalized levels? How do they compare to precrisis levels?

Thomas R. Watjen

Let me take that and Mike can add on to that. I think that's a good topic, I think from the incidence levels, so we have a little bit of claims of that actually come in and then claims that ultimately get paid and I think that, that paid side has actually been fairly steady over the -- even throughout the crisis. That's one of the things that we saw is that -- where they actually went through to a paid status was actually fairly steady, probably elevated, slightly through that period of time has probably coming down slightly through this period of time. And I think that's a trend line we like the looks of.

Michael Q. Simonds

Yes, just to build on, quickly, I'd say the fundamentals of the business are strong. So whether it's paid incidents, which is steady then modestly improved recoveries offsets, those are in very good shape. In the quarter, we had volatility and miscellaneous income but as we sort of think about the business on a go-forward basis on the pricing trajectory, I think, we're in good shape.

A. Mark Finkelstein - Evercore Partners Inc., Research Division

Okay. Rick, the New York company, any changes in asset adequacy provisions?

Richard P. McKenney

No. In the fourth quarter, we went through and actually did not raise any cash flow testing reserves that we have done in the last several quarters. So we think that, that's achieved. Though which was driven primarily in previous years from interest rates, and that's achieved stability around that, so we didn't put anything up in the fourth quarter.

A. Mark Finkelstein - Evercore Partners Inc., Research Division

Okay. And then, last quick one. Is if you look at statutory earnings for the quarter, you add back the social security database matching, you actually add back a little bit of an adjustment you made that is kind of is offset at UPIL. Stat earnings are actually pretty strong in the quarter. And I guess, I'm curious if there's anything that was phenomenalistic in that number, or whether, we should be thinking about that as a trend-able number? I know, you talked about kind of the year being kind of in a normalized level at $680 million. But the fourth quarter, if you make those adjustments, were pretty good.

Thomas R. Watjen

I think -- Mark, I think, you're exactly right. The fourth quarter was very good and when you adjust for those 2 things. And it reflects many of our comments, which are the risk results across the board are actually looking pretty good and that would generate stronger statutory earnings at the same time. So we're happy with the fourth quarter levels. I think, if you pull out those 2 items, we're -- we actually get up over 700 million for the year, which is moving up faster than we probably expected at the beginning of the year and certainly helps our capital generation model.

A. Mark Finkelstein - Evercore Partners Inc., Research Division

But there's nothing in that number that's going the other direction that we should be thinking through other than maybe just some seasonality?

Thomas R. Watjen

No, nothing that I would highlight.

Operator

We'll go next to Chris Giovanni of Goldman Sachs.

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

Wanted to see if you guys can talk about what products you're currently offering on the exchanges in the large national brokers? And then of those products, which are the ones that seem to be selling the most? And recognizing, we are still in the early stages here, which is trying to get a sense of the product offerings.

Michael Q. Simonds

Tom, I would reiterate, we're talking about small volumes that have come through to date. What we've seen most prominently is actually simple employee-funded things like group short-term disability offer on a voluntary basis, group term life insurance on a voluntary basis. To be honest with you, participation has been quite different depending on the employer and the situation. And just another reason to stay close to it as it evolves and I think, volumes pick up here over the course of 2014.

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

And then, you guys, to be certain, you guys don't have a dental or vision product offering on the large national exchanges?

Michael Q. Simonds

We do not on the large national exchanges. But we rolled out over the course of 2013, dental as part of a bundled package using a partner. So we're taking that into our core market. And to the extent that an exchange partner's looking for that, we have gotten it on a private label basis.

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

Okay. And then as your sense at the I mean, the dental and vision of those kind of the products that at least in the early stages seem to be leading the exchanges at least in conversations you guys are having with some of those brokers?

Michael Q. Simonds

Yes, those are always of interest. But no, I wouldn't sort of signal that there is a dramatic difference from a basic term life insurance or short-term disability that those sort of all kind of all fit into a similar package.

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

And then Tom, maybe as follow-up to Suneet question on voluntary as well. Curious if you think, we could see kind of some of the big maybe managed-care players that may or may not already have voluntary capabilities, look to make acquisitions. Or do you think, it will kind of look to build out platforms on their own?

Thomas R. Watjen

Yes, Chris, it's hard to say. I think, to start with what [indiscernible], lets face it, there's a lot of focus on voluntary for good reason. This is the direction of the marketplace, as I said earlier. This is a place, where we stake the claim out 5 or 6 years ago to make a much more significant commitment to this business. And it's certainly been, and we've been rewarded for doing so. It's also -- it is -- it's a little early to figure out what strategically is going to happen as the results for this, you sense that even with our exchange discussions. It's not real clear, how powerful or important its distribution channel exchanges are going to be. So all kind of struggling with a bit of a new world in trying to figure out, whether what's changed and what's not changed, because it may very well be that some things simply haven't changed. And just on the M&A front, I'd say Rick, it's safe to say, there's not a lot of voluntary businesses that are out there actually. And so, I think more likely than not, when people get in this business, they tend to actually have to build from within, develop relationships with some of the enrollment firms or some of the technology firms that have connections into those exchanges, because there just simply isn't a lot of M&A activity in this marketplace at all. We'll continue to be very active looking at things, but most of these things just don't fit that particular bill. But I don't...

Richard P. McKenney

Those that are in the voluntary space today are looking to get bigger. And so, I think that's a dynamic that we see across the board. And so, even if there was a desire to acquire in that front, they'd find scarce opportunities.

Thomas R. Watjen

And Chris, it might not seem as sexy, but I think, Mike mentioned it, we are actually looking at partnerships. Actually UnitedHealthcare is obviously one. But I do think in addition to people starting businesses, people looking to buy business, of which there aren't many, we're also going to see maybe more partnership link ups that happen as a result of some of these things that are happening in the marketplace. And I think, we crossed that cultural barrier frankly, because that often is not what companies like us in our industry do. But we're in a different spot right now. We developed, as Mike said, relationships on the dental front. We developed relationships with one of the largest health care companies in the country. And I think the partnership angle is also going to be the place you are going to see us continue to play, I think, as we kind of find people who have looked at this marketplace, concluded the cost of entry is too high, need to have it somewhere in their mix of products that they offer their customers, and we can be a very viable partner in a venture like that.

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

Okay. And then one last quick one for Rick. you mentioned the pension plan, the funded status there, the freezing of it. Have you explored any other strategies, risk transfer or any other risk management on the block?

Richard P. McKenney

Yes. So when we look at our pension plan, Chris, I think that those options are out there and available to us. So we set out there with a, as I mentioned, a slightly overfunded position. And we'll have to look at other ways that we want to de-risk that over time, but nothing on the docket today.

Thomas R. Watjen

Thanks, Chris.

Operator

We'll go to Tom Gallagher with Crédit Suisse.

Thomas G. Gallagher - Crédit Suisse AG, Research Division

Wanted to come back to Rick. The -- just following up on Finkelstein's question about the strong sort of core stat earnings. And if you run rate that, just considering, you're not -- top line's flattish overall, it would appear that, that would pave the way for a pretty strong capital return here, all things equal. And so, if we take the $50 million buyback in 4Q, I assume that was low just because you were dealing with the redom, et cetera. Can we assume a significant pickup in the pace of buybacks here just considering the stat earnings visibility?

Richard P. McKenney

Yes, Tom. This is Rick. I don't know if I'd put that one for one in terms of that. But I think, I'd reiterate what both you and Mark have said is that stat run rate is higher to the tune of almost $100 million faster than we thought it would be going into that. So that gives us a lot of flexibility to do different things. Once we have that, we have choices to make around how we redeploy that capital. Share repurchase has been one of the bigger ones that we've used over the last several years. I think, you're right in saying the $50 million in the fourth quarter had a couple of factors that weighed into it. One, we are going through a lot of restructuring with UPIL, et cetera. And so, the second piece, I put into that is we're also dealing with the share price that was a lot higher. As you look at this quarter and where we are, our share price has come down as the market has. Our capital generation has been good. And I think that we feel well situated for a share repurchase as part of our overall capital deployment this year, which puts us back in the $300 million to $600 million range. But it's still early in the year, and we'll see how that plays out. But share repurchase will be part of our plans.

Thomas G. Gallagher - Crédit Suisse AG, Research Division

And so no leaning toward low end, high end just in terms of what you know today?

Richard P. McKenney

I wouldn't give that to you yet, Tom. But it's only because we're just starting the year and we've been blocked out. And so, we'll start buying back stock when our windows open back up.

Thomas G. Gallagher - Crédit Suisse AG, Research Division

Okay. And then just a related follow-up. Is another potential use -- and I think, you've already commented on long-term care and that kind of is what it is. But the other thing I've been looking into is just IDI and whether or not that might be another use, just considering I think that's just more of an interest rate issue as opposed to any claims issue. But is that particularly, I think, it's Northwind, which is the larger Closed Block of IDI. Is that a potential use or need for capital if you look out over the next year or 2?

Thomas R. Watjen

Yes, Tom. On the IDI block, the Closed Block, I would say to take you back, we haven't really talked as much about it lately because as we structured that block and as we've seen how that's return over the last 7 years since we went into the Northwind structure, it's actually done quite well through a pretty rough period of time. It still continues to look that way, so I don't foresee anything that will cause us to put capital into that. One of the things you might be looking at is in the fourth quarter, we had some miscellaneous income that came in that area. As opposed to letting that flow through, we actually increased reserves for a similar amount, but that's a onetime thing. When you look at interest rates specifically, what we've got in that block is, primarily the cash flows that are coming off of our portfolio are paying claims. So there really isn't any interest rate risk. It's a very well-managed book. You might get the stray item that happens around miscellaneous income. But by no means does that denote that we wouldn't have a capital -- capital call as a result of that.

Thomas G. Gallagher - Crédit Suisse AG, Research Division

Okay. And then, you guys don't disclose it anymore on legal entity basis, you give a consolidated statutory numbers. But previously, you had showed Northwind legal entity results in that last quarter, I believe, had lost money. Can you comment on what that did this quarter, whether it's breakeven, lost money, quantum of either?

Richard P. McKenney

I can -- actually can't comment on that. I'd tell you it has been volatile. But there is nothing in the results, and I don't have it in front of me. But I think, there's nothing in our results this quarter, which has been or anything that I see challenging within the IDI Closed Block.

Thomas R. Watjen

If you step back actually look at Northwind over longer time horizon. I mean, we are what, we paid off roughly half of the outstanding debt associated with Northwind. The cash flows from that block have actually, when you look at it over that period of time, have come in remarkably close to what those expectations were. So again, I just ask us to step back from time to time and look that over that period of time. Its actually, that transactions performed pretty much in line with what we expected.

Richard P. McKenney

And we can see volatility quarter-to-quarter. But I think, the bigger things is that over the long term, it's performing as expected.

Thomas G. Gallagher - Crédit Suisse AG, Research Division

And again, just to reiterate, that's not a business or not a legal entity that you would expect to be a call on capital over the next few years?

Richard P. McKenney

That's correct. And actually, Tom pulled it up. It actually made $10 million this quarter. So you're going to see a little bit of volatility around that, but I think it's fine.

Operator

We'll go to Ryan Krueger of Dowling & Partners.

Ryan Krueger - Dowling & Partners Securities, LLC

I just have a quick one. When we look at the Closed Block segment, the $2.7 billion of GAAP allocated equity, how much of that is long-term care versus IDI at this point?

Thomas R. Watjen

Tom?

Thomas White

Ryan, this is Tom White. Roughly, of the $2.7 billion, round numbers, is about $1.3 billion for the closed disability block, $1.3 billion for long-term care, and the rest is a collection of other smaller runoff businesses.

Ryan Krueger - Dowling & Partners Securities, LLC

Okay, great. And on the long-term care piece specifically, as the block ages and reserves increase over time as a result, should we expect the allocated equity to grow? Or how should we look at that?

Thomas R. Watjen

Jack?

John F. McGarry

Yes. I mean, I would expect as reserves grow, the allocated equities are going to grow. So it will mature. It should be funded out of the premiums that the reserve piece. So there is a little bit of a bubble yet to come.

Thomas R. Watjen

I think going on the overall block I think, is as that's happening, the disability block as it continues to shrink down, the shrinking and there's capital being released as a result of that. I think you should said, Jack, when you take the 2 together at least for a couple years, it's probably more of an increase as a block. But we're getting to that point, where actually it starts to then flatten out at that point.

Operator

We'll go next to John Nadel of Sterne Agee.

John M. Nadel - Sterne Agee & Leach Inc., Research Division

So just wanted to come back to this idea of statutory earnings being in the slightly elevated pace, and maybe get at it a little bit more differently. Fourth quarter, I think, we've seen from just about every group insurance type company so far that results on the underwriting side have been pretty favorable. On an overall basis, especially if you just sort of strip out the Closed Block and look at your ongoing businesses, on an overall basis, was fourth quarter for Unum better than a seasonal typical seasonal good result?

Richard P. McKenney

John, this is Rick. If you think about this quarter, we actually had a good fourth quarter last year. And we can have good fourth quarters, so I don't know if I'd take that. I look at it more from a full year basis was actually quite strong. And we saw a little bit of the seasonality improvement in fourth quarter. We did last year as well, but I'm focused more on the full year type numbers.

John M. Nadel - Sterne Agee & Leach Inc., Research Division

Yes, okay. So on a full year basis again, just to clarify, so maybe a little bit to the good on the underwriting side on a full year basis

Richard P. McKenney

I think that's right. I think, we have been saying consistently all year long, we are seeing good underwriting results across all of our businesses.

John M. Nadel - Sterne Agee & Leach Inc., Research Division

And then just wanted to think about this. Obviously, you pointed out lower miscellaneous investment income in the disability line in the U.S. On an overall company sort of consolidated investment income basis, was miscellaneous income or maybe net investment income overall, was it low, in line, maybe slightly above? Can you characterize that?

Richard P. McKenney

Yes, I think, it was actually right in line, John. I think that it actually reported a little bit higher, but we mentioned the Closed Block and how some of that went straight to reserve. So if you net that out, we're kind of tracking right in line with what we usually get on average.

John M. Nadel - Sterne Agee & Leach Inc., Research Division

Perfect and then, last one for you is just. Obviously, so much to learn over the next whatever, the next intermediate term around health care exchanges, how the market shifts a little bit. I'm interested, you guys obviously have a great brand in the sort of broker space. Is there -- are you seeing any reason to invest in branding more from a retail perspective as you look at the opportunity and getting closer to the individual employee?

Thomas R. Watjen

Actually, John, let me ask both Mike and Randy to speak to that. But I think as you heard us talk even on call this morning, one of the things that we've began in a quite some time ago was really much, much better understanding of the consumer -- what drives consumer behaviors and things like that. And from which, then we can make informed decisions but I think about what you just said. And maybe Mike, just talk a little bit how that's relating to Unum US? And as I said Randy, just talk a little bit how that's relating to our Colonial Life operation?

Michael Q. Simonds

Sure, I like to say that a lots of play out, where we sit today, we look at it and say we see the employer very much involved and their advisers. So I think, you rightly call out the Unum an Colonial Life brand is strong with the distribution. Also strong with employers and professional benefits decision-makers, so that remains a strategic advantage for us. And then if we stack up investments that we can make, certainly brand at a consumer level as an investment that we can make, but actually, we're prioritizing investments in product and capability over that. So as we sort of think about was the next dollar and where is it going to go and where is the best return, we feel quite strongly that having better technology, better education and better product, which is where we are making the majority of investments is still the best ROI for us.

Thomas R. Watjen

Randy, would you like to add anything to that, Randy?

Randall C. Horn

Yes, Tom. I just I'd emphasize what Mike said about the employers still being in the driver's seat. So our promotional and advertising efforts are going to stay focused at that employer decision-maker. But that being said, there is going to be more branding type emphasis at the consumer level as time goes forward. We're in the process of kind of refreshing our brand here at Colonial life at the present time. And we'll be emphasizing that more strongly in the marketplace going forward.

Thomas R. Watjen

I think, with this point, we have time I think, Tom, for one more question.

Operator

We'll go to Yaron Kinar of Deutsche Bank.

Yaron Kinar - Deutsche Bank AG, Research Division

Question on the holdco liquidity. I think that last year going into 2013, the target was 1x to 2x interest and dividends. And it seems like the $500 million target for this year comes in or below the top end of that range. So curious as to what drove that lower.

Thomas R. Watjen

When we look at the holdco liquidity of $514 million, where we ended the year, we actually were in the $500 million to $800 million range. So we're actually within the range as we look at it going into last year. A couple of things to think about with holdco liquidity. One is, we talked in the past about 1x to 2x coverage, and that includes all cash uses, dividends as well as interest payments. And as we look at it now, one of the things that we did last year, which was we put on a credit facility as well for $400 million. so we have significant amounts of liquidity, that which sits in cash and that which is untapped in our credit facilities as well. So I think that probably is fine to drift down below that 2x, although, we can of look at that as part of our overall sources in terms of when we think about capital deployment. So you'll see that fluctuate. And I think the plan we put out there for next year would actually be in a similar range of that $500 million to $800 million.

Yaron Kinar - Deutsche Bank AG, Research Division

Okay. And then is there some sort of rule of thumb you could offer as to how to think of possible margin impact of decreasing retention rates and maybe higher sales?

Thomas R. Watjen

Not quickly.

Richard P. McKenney

Not quickly, yes.

Thomas R. Watjen

It's a broad question.

Richard P. McKenney

Yes. I mean, we obviously, throughout all our businesses, participation rates and voluntary plans, Mike, I think around here is incredibly important. So we look at it very carefully, but I'm sure sure if there is a good rule of thumb actually on that.

Michael Q. Simonds

Yes, I think in general, we look at, if the question is persistency versus new sales trade-up, what we'd say is that -- on persistency, where we've seen a point or two deterioration of the margins of that are significantly below the block, so it actually has, not a dampening, but an actually increase in the profitability of that block of business. And in terms of the new business coming on, we're pretty disciplined about the levels that we bring it on. So I wouldn't anticipate material changes in margin based on the mix between those 2 factors at least in group insurance for our business.

Thomas R. Watjen

And I would just add to, I think, we spend an awful lot of time on persistency. Because obviously part of the challenge is to obtain a new customer. But actually frankly, most importantly is keeping the right customers. And so, when Mike talked and Randy talked about the investments we've made in sales and services and infrastructures and people and training and things like that -- which by the way, we've been through some significant amounts with both of those organizations already this year. A big reason to do so is because is not just getting the sale, but actually the more we can keep business, that's incredibly important part of our ability to generate margins and consistency of our financial performance going forward. So that's very prominent, but there's just no rule of thumb unfortunately, I am afraid, that we can share.

Thank you all for taking the time to join us this morning. And we look forward to seeing many of you at our various upcoming investor conferences and events over the next several weeks. And this will complete our fourth quarter 2013 earnings call. Again, thank you very much.

Operator

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

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