Unum Group's CEO Discusses Q3 2011 Results - Earnings Call Transcript

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Unum Group (NYSE:UNM)

Q3 2011 Earnings Call

November 02, 2011 9:00 am ET

Executives

Kevin P. McCarthy - Executive Vice President, Chief Executive Officer of Unum US and President of Unum US

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

Thomas A. H. White - Senior Vice President of Investor Relations

John F. McGarry - Executive Vice President, Chief Executive Officer of Unum UK and President of Unum UK

Thomas Watjen - Chief Executive Officer, President and Director

Analysts

Colin W. Devine - Citigroup Inc, Research Division

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

Thomas G. Gallagher - Crédit Suisse AG, Research Division

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

Randy Binner - FBR Capital Markets & Co., Research Division

Robert Glasspiegel - Langen McAlenney

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

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

Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division

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

Steven D. Schwartz - Raymond James & Associates, Inc., Research Division

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

Operator

Good day, everyone and welcome to the Unum Group Third Quarter 2011 Earnings Results Conference Call. Just a reminder, today's call is being recorded. At this time, for opening remarks and introductions, I'll turn the conference over to the Senior Vice President, Investor Relations, Mr. Tom White. Please go ahead, sir.

Thomas A. H. White

Great. Thank you, Debbie. Good morning, everyone, and welcome to the Third Quarter 2011 Analyst and Investor Call for Unum Group.

Our remarks this morning 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, 2010, and in our subsequently filed Forms 10-Q. Our SEC filings can be found in the Investors section of our website at www.unum.com.

Also I'd 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 on our website also in the Investors section.

So participating in this morning's conference call are Tom Watjen, President and CEO; and Rick McKenney, Executive Vice President and CFO; and also our business segment presidents, Kevin McCarthy for Unum U.S; Randy Horn for Colonial Life; and Jack McGarry for Unum U.K.

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

Thomas Watjen

Thank you, Tom, and good morning. Although a little choppy this quarter, actually, I'm pretty pleased with our quarter. Because despite the pressures that we saw in several of our product areas and most notably, in the U.K., our earnings per share grew 9% in the quarter.

Before I turn things over to Rick and Tom, I want to touch on actually a few of the highlights. First, despite continued challenging market conditions, our investment portfolio remains in excellent shape. Today's low interest rates remain a headwind. But our portfolio yields remain generally stable again this quarter. Despite this, we have already begun to reflect today's lower interest rates in certain of our businesses and reduced the new claim discount rate for our U.S. Group Disability business by 25 basis points.

Second, our capital position remains solid with a weighted average risk-based capital ratio of 396% at the end of the third quarter. Our holding company's cash and marketable securities position at over $600 million, providing a solid financial foundation for the company.

Third, with respect to our share repurchase activity. Given the weakness in our stock this past quarter, we stepped up our stock buyback activity with a total of $250 million repurchased this quarter.

Over the past year and a half, we have repurchased $975 million of stock and reduced our share count by 12%. And since the fourth quarter of 2007, we have repurchased almost $1.7 billion of stock, reducing our share count by 19%. Over the same period, we've raised our quarterly dividend by about 40%, while all of the same time remaining in a very solid financial position.

And finally, despite the difficult market conditions, I'm pleased that we continue to see modest growth in most of our target market. Unum US reported growth in new sales of 10% this quarter, with 12% growth in core market sales and 16% growth in voluntary benefits sales.

Sales at Colonial Life were up almost 4% in total and core commercial market sales grew 7%. Sales growth in the U.K. remains challenging, as we continue to raise prices on new and existing business.

In summary, despite the pressure we saw on parts of our businesses this quarter, particularly in our U.K. business, I'm generally pleased with our performance.

Looking ahead, we expect the environment to remain very challenging, with continued pressure from persistently high unemployment and low interest rates. We continue to believe that we are well-positioned for this environment and we will continue to take the actions needed to deliver value for our customers and solid financial results for our shareholders.

Now I'll ask Tom White to provide an overview of our operating results this quarter. Tom?

Thomas A. H. White

Great. Thanks, Tom. Net income for the third quarter was $205.6 million or $0.69 per diluted common share compared to net income of $220.8 million or $0.68 per diluted common share last year. Included in the results for the third quarter of 2011, our net realized after-tax investment losses of $15.9 million or $0.05 per diluted common share, compared to net realized after-tax investment gains of $0.9 million or less than $0.01 per diluted common share in the third quarter of 2010.

Net realized after-tax investment losses for the third quarter 2011, include an after-tax loss of $21.8 million resulting from changes in the fair value of an embedded derivative in a modified coinsurance contract compared to an after-tax gain of $1.1 million in the year-ago quarter.

Excluding these items, after-tax operating income was $221.5 million for this quarter or $0.74 per diluted common share, compared to $219.9 million or $0.68 per diluted common share in the year-ago quarter.

The income tax rate for the third quarter was lower compared to a year ago, due to the release of $6.8 million of income taxes, related to the enactment of a tax rate reduction in the U.K., and our increased level of investment and tax credit partnerships over the past year.

Turning to the operating segments, Unum US operating income increased 7.2% to $219.5 million in the third quarter as strong results in the Supplemental and Voluntary line of business and generally stable results in the Group Life and AD&D line of business more than offset a decline in operating income in our Group Disability line of business.

Within Unum US, operating income in the Group Disability line declined by 7.3% to $72.1 million in the third quarter of 2011, driven by a lower level of premium income and an increase in the benefit ratio. Premium income declined 0.9% to $508.9 million in the quarter, largely due to the ongoing effects of the weak economy on headcount and salary growth at existing customers. The Group Disability benefit ratio rose to 85.5% from 84.6% in the year-ago period due to a higher level of paid incidents for both long-term and short-term disability, as well as a reduction in the discount rate for Group Long-term Disability new claim accruals, and Rick will have additional comments about our risk results in his remarks.

Within the Group Life and AD&D line, operating income increased 0.6 % to $53.1 million in the third quarter, benefiting from slightly higher revenue in a slightly lower benefit ratio.

In the Supplemental and Voluntary line, third quarter income increased 27.3% to $94.3 million. The year-over-year improvement was driven primarily by strong results from the Voluntary Benefits business line, as well as solid growth in the recently issued Individual Disability line, the effects of which more than offset a decline in income from the Long-term Care business.

Premium income for this line increased 3.9% to $412.3 million in the third quarter, primarily due to higher sales in the voluntary benefits line of business. The interest adjusted loss ratio for Individual Disability recently issued, declined due to favorable claims performance. The interest adjusted loss ratio for Long-term Care was higher, primarily to an increase in active life reserves, as a result of continued favorable persistency levels, as well as an increase in loss trends.

The benefit ratio for voluntary benefits declined to 50.3% from 54.6% in the year-ago period, due primarily to a lower average paid claim size for voluntary life and lower paid incidents and prevalence rates for voluntary disability.

Moving to Unum UK, operating income in this segment decreased 26.1% to $34.9 million in the third quarter of 2011. Operating income declined 28.6% in local currency. So while premium income in local currency was up 4.8% in the third quarter, the benefit ratio was higher at 78.8% compared to 66.9%, reflecting unfavorable risk experience in the Group Long-term Disability product, primarily -- driven primarily by the increase in the average size and severity of new claims in the third quarter, relative to the year-ago period.

Concluding our core operations, Colonial Life experienced a 5.6% decrease in operating income compared to the year-ago period, as premium income growth of 5.3% and slightly higher net investment income were more than offset by a higher benefit ratio. The benefit ratio rose to 52.6% in the quarter from 49.9% in the same period last year, due to a higher level of incurred claims in the accident, sickness and disability product line and an increase in the level of cancer claims coming from an older block of cancer products.

Individual Disability — Closed Block operating income was $14 million in the third quarter of 2011, compared to $9.8 million in the year-ago quarter. This was driven primarily by lower operating expenses and a decline in the interest adjusted loss ratio which more than offset a decline in both premium income and net investment income due to the expected runoff of the Closed Block. Premium income declined 5.8% to $196.4 million, while net investment income declined 1.9% due to a lower level of on call premiums, a decline in prepayment income on mortgage-backed securities and a decrease in the level of assets. The interest adjusted loss ratio was 84.9% this quarter compared to 85.5% in the year-ago quarter, reflecting favorable mortality experience.

And finally, the Corporate and Other segment reported an operating loss of $21.5 million compared to a loss of $10.8 million in the year-ago quarter. The higher operating loss was driven primarily by lower net investment income, resulting from lower short-term interest rates and investments in low income housing tax credit partnerships.

So with that overview of the operating results, I'll turn the call over to Rick McKenney for further analysis of this quarter's results.

Richard McKenney

Great. Thank you, Tom. A couple of themes to take you through. First, I'll highlight the key drivers of risk results, a little bit on our top line growth in our core business segments and then update on our investment portfolio, with a particular view to rates and conclude with an update on our capital strategy.

I'll begin with a review of risk experience for our primary lines of business, starting with Unum US. For Group Disability, the benefit ratio of 85.5% increased by roughly one percentage point in the third quarter compared to the second quarter of 2011, as well as the third quarter of 2010.

Focusing on the change from the prior quarter were 2 primary drivers. First, we elected to reduce the discount rate we use on new claim incurrals this quarter by 25 basis points. This had an impact on our earnings of $3 million or about 65 basis points on the benefit ratio.

We felt that this was an appropriate move, given today's low interest rate environment. I would note that our portfolio rate remains very robust. In fact, the margin widened by 2 basis points to 98 basis points this quarter. Despite that, we did feel that the magnitude of the recent drop in interest rates warranted the move to adjust slightly.

Second, as we have commented in the prior few quarters, we have seen a higher level of volatility in our new claim incidents. And this quarter was no exception to the trend. New claim incidents was slightly elevated again this quarter and had a negative impact on the benefit ratio of approximately 0.5%.

As we have seen in the past, our claim recovery experience remained solid again this quarter. Looking ahead, we will continue to monitor these 2 trends closely and look to take the appropriate pricing actions to maintain profitability.

For the Group Life and AD&D line, results continue to remain stable. The benefit ratio of 70.2% for the third quarter is very consistent with the results we produced over the past several quarters, and the earnings contribution remains very consistent in the low $50 million range.

Looking to the Supplemental and Voluntary lines within Unum US, we saw a very good overall earnings results driven by strong performance in the voluntary benefits and Individual Disability recently issued lines of business. Risk results in these lines are favorable compared to the year-ago quarter.

We also saw lower amortization of deferred acquisition costs due to favorable premium persistency in certain product lines, as well as an unlocking for favorable mortality experience in our interest-sensitive voluntary life products.

Turning to Long-term Care, the loss ratio was higher both on a year-over-year and compared to the second quarter driven by the continued growth of active life reserves for this quarter due to the trend we've seen for both persistency, as well as loss trends.

As we have discussed on prior calls with you, we are working to offset this by filing for rate increases on certain of our LTC policies. These filings have been completed in all 50 states in the District of Columbia. So far, we have received rate increase for approval in 35 states and have achieved 88% of the requested rate action in those states that have reached a decision. The additional premium from this rate increase will emerge over next year and into 2013.

Looking across the business, loss pressure was most acute in the U.K. We saw an unusually large increase in the average size and acceptance of new claims and the Group Long-term Disability line in the third quarter which drove an increase in the benefit ratio to 78.8%, compared to 69.8% in the second quarter and 66.9% in the year-ago quarter.

While year-over-year, new claims volumes were broadly in line, the percentage of approved claims went up resulting in an increase in reserves associated with these new claims. In addition, the average size of these approved claims was also elevated. This compounded the effect of the higher acceptance ratio. As we've analyzed the results, we can't point to any external causal factors, but we will obviously continue to watch closely to determine if it's truly just volatility.

And finally on Colonial Life, the benefit ratio for the third quarter was 52.6%, slightly higher than our expected range of 50% to 52%. This quarter, we experienced less favorable risk results in the accident, sickness and disability line and also in the cancer and critical illness line.

The primary driver or adverse results for cancer and critical illness came from unfavorable risk experience on older policies that we no longer actively market and have been taking pricing actions on.

Our newer policies do not have the policy provisions that have led to the volatility that we've experienced in this line. Given these results, as well as the mixed shift towards slightly higher benefit ratios associated with a new accident product, it is likely that the Colonial Life benefit ratio will continue around these levels into 2012.

Overall, we still like the profit of margins we see this business produces and the growth opportunities we see going forward.

I'd like to now turn to the top line for each of our business segments, beginning with Unum US. We saw a good momentum for new sales in Unum US, again this quarter, increasing 10% for both the third quarter and the first 9 months of 2011. Group LTD STD and Group Life and AD&D combine to shows sales growth of just over 4%. But importantly, 80% of those sales were generated in the core market. Voluntary benefits continues to be a positive growth opportunity for us, with sales this quarter growing 16% and growth of overall premiums in this line at a healthy 10%.

While new sales trends remain encouraging, we have stable persistency trends in our primary Unum US business lines. The challenge continues to be the slight drag on our overall premium growth from a weak economy and lack of employment and wage growth.

At Unum UK, the top line trends we experienced in the third quarter were largely consistent with what we experienced in the first half of the year. While new sales trends remain difficult, declining 30% compared to the year-ago quarter, we have seen that persistency is holding up well and premium income continues to firm up, increasing 4.8% compared to last year's third quarter. So while gaining new business remains challenging in the U.K., especially the large case market, we are encouraged by the progress we're making on renewals on our in-force business.

Finally, sales in Colonial Life segment increased 3.6% in the third quarter, primarily driven by higher sales activity in the core commercial sector which is up 7.1%. Recruiting trends at Colonial Life remained positive, with new rep contract growth of 5% this quarter and 6% year-to-date.

If we now turn to the investment portfolio, we continue to be very pleased with the results. The credit profile of our investment portfolio remains in excellent shape. With a net unrealized gain position in our fixed maturity securities portfolio at $5.7 billion at quarter end. This quarter, we reported a net realized after-tax investment gain, excluding the amount of derivative impact of $6 million, and our portfolio watch list remains quite small.

So while the quality of the existing portfolio continues to be quite strong, the challenge remains in investing new cash flows at attractive rates. This is not a new topic. But so far, it's only had a marginal impact on our portfolio yields. We benefit from having a low level of new cash flow to invest, relative to the size of our existing portfolios, as well as the hedges we have in place on our long-duration LTC portfolio. This allows us to pick our spots as we did this quarter by investing early in the quarter. As a result, our portfolio yields continue to hold up well with our aggregate portfolio yield of 6.68%, down only 3 basis points from the beginning of the year.

The yields on the investment portfolios backing our various products lines also showed some more stability. As I mentioned previously, we did move the new claim discount rate down by 25 basis points in the Unum US Group Long-term Disability line this quarter to begin to recognize the drop in interest rates. The portfolio yield net of our discount rate for this line expanded by 2 basis points in the quarter to 98 basis points, so we continue to remain well-positioned, but we're also taking actions on some of the challenges we see on the horizon. We'll spend more time in our upcoming Investor Day meeting dissecting the impacts of the current environment on our portfolio.

Our balance sheet and capital position remain in a very healthy position. Book value per share continues to grow, increasing 15.2% from September 30, 2010, to $32.36 at September 30, 2011, and leverage remains stable at 29.2%.

Statutory operating earnings for our traditional U.S. life insurance companies declined somewhat to $139 million from $157 million in the year-ago quarter, reflecting some of the loss pressure that I mentioned.

The weighted average risk-based capital ratio for our traditional U.S. life insurance companies remains strong at approximately 396% at quarter end at the upper end of our targeted 375% to 400% range.

Holding company cash and marketable securities totaled $647 million at September 30. With lower stock price in the third quarter, we stepped up our share repurchase activity and bought back $200 million in the quarter. Which brings the total year-to-date number to $620 million.

Finally, as we look to the fourth quarter, we're confirming the outlook we provided going into 2011, which calls for operating earnings per share growth of 6% to 12%. We'll discuss our outlook for 2012 at our Investor Day on November 16 in New York, and look forward to seeing you there. I'll now turn it back to Tom for his closing comments.

Thomas Watjen

Thanks, Rick. In closing, despite pressure in a few areas, especially with our U.K. business, I'm generally pleased with our overall results and the 9% increase in earnings per share. Our investment portfolio and capital position remain significant assets in this environment and position us well for what is likely to remain a very difficult environment. Operator, this completes our prepared remarks and let's move to the question-and-answer session.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first today to Randy Binner with FBR.

Randy Binner - FBR Capital Markets & Co., Research Division

So just jump in, I guess, to the U.K. The higher loss severity there, the paid incidence that was described, can we get more color around what's driving that. And is that the result, potentially of lack of return to work ability by workers there?

Thomas Watjen

Good morning, Randy. Jack, do you want to pick up on Randy's question?

John F. McGarry

Yes, it really wasn't a result of a lack of return to work. In fact, during the quarter, our recoveries were very solid, so the return to work -- it was around the initial claim decision. We get claims in the door. We go through the process of deciding whether the claim meets our definition of disability or not. As we went through that process, we had an abnormally high level of approved claims and a lower level of declined claims. So it's sort of mix of approved and declined. And the average size on the approvals was elevated whereas the average size on the declines was abnormally low. So we think it's pure volatility. It's not a reflection of the economy or any claim trend that we can see. We'd liken it to throwing 4 coins in the air and they all show up on tails. It doesn't happen very often that all the variants go in the same direction and it doesn't really say much about what we expect in the future.

Randy Binner - FBR Capital Markets & Co., Research Division

Okay, that's helpful. But it's not, I guess just to be clear, it's not an issue of increased claim incidents. It's just same number of claims that skewed more towards high cost non-denial situation?

John F. McGarry

Yes. In fact, year-to-date, our submitted claim incidents, or the incidents of claims coming through our door is down year-to-date. In fact, in every quarter of 2011, submitted incidents has been below the year-ago quarter in 2010. So the submitted claim volumes are behaving very well. It's just a fluke around the ones that were provable versus declinable?

Operator

We'll go next to Jimmy Bhullar with JPMorgan.

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

I had a question for Kevin. If you could maybe talk about pricing trends. We've heard from several of your competitors that they intend to raise prices in the disability market. I'm wondering if you have actually seen pricing improve? And then second for Jack, if you could just talk about how competitors are behaving in the market. You've obviously been raising prices. Have you seen competitors follow through or have you not seen that, because your sales results sort of suggest that other companies might still be at lower price points than where you guys are?

Thomas Watjen

Thanks Jimmy. Kevin, take the first piece of that?

Kevin P. McCarthy

Yes, I'd say prices seem to be maybe hardening a bit, particularly in the core markets. A number of carriers have expressed the need to either adjust their discount rates or to raise their rates to adjust for claim volatility. And I think we've seen some of that coming through during the third quarter. I wouldn't say it's a significant element, but it's at least, I think, useful to us, in terms of maybe some hardening in the marketplace, making it a little bit easier to place renewals and to maintain existing business. So yes, a little bit harder in the core market I'd say.

Richard McKenney

Thanks, Kevin. Jack, do you want to pick up on the U.K. piece of that?

John F. McGarry

Yes, I think it took a while to happen, but I think we're showing some signs of hardening in the market, although our sales were down for the third quarter, they were pretty much in line with what our expectations were. The other positive note is we're continuing to accelerate our renewal program. Since it's getting stronger and so has improved throughout the year and you've seen that reflected in our earned premium line. We've also heard of a couple of different competitors that have recently announced to the brokerage community that they're rolling out their own renewal programs, so there are signs that the pricing environment in the U.K. is reacting to the economic environment and improving.

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

And then if we think about -- I think, you've just recently started an ad campaign, but penetration rates in the U.K. market are actually pretty low. Are you expecting that to move up over the next few years, and have you seen any move in that direction as you've started to like, raise awareness of the product?

John F. McGarry

We just started the ad campaign, It's been very favorably received by the market. If people haven't seen it, it's on backup plan Unum on YouTube. We have seen -- we have been deepening penetration, a larger portion of our sales coming -- is coming from deepening penetration on existing customers which is consistent with our strategy. We're also encouraged by our interaction with the brokerage community because more and more of our key brokers are talking about that as a key growth strategy for 2012.

Operator

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

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

Just wanted to see if you guys could comment just a little bit more, in terms of lowering the discount on the new claims. I guess, given the margin you guys still have and the cushion relative to the target?

Thomas Watjen

Rick, do you want to pick up on that?

Richard McKenney

Yes, when you look at what we did on the quarter, one of the things that we would've talked about this last quarter, we do have a pretty significant margin. It gives us a lot of flexibility, in terms of how we go through that. When we look at pricing in the marketplace, we have to be reflective of the environment that we're in. And we chose this quarter to actually lower the discount rate by 25 basis points, notwithstanding the fact that we still maintain a significant margin. In fact, on the quarter, it went up by a couple of basis points. But as we take it into our new claim discount rates and as we ultimately take it into the market, we do need to reflect what's going on in the environment with regard to interest rates. So the flexibility has not changed at all, but I think that we are reflective of the severe drop we saw, even since the second quarter.

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

Okay, and then I guess in terms of interest rates in sort of the ILTC book, you guys pointed to sort of persistency remaining high, loss trends higher. I mean, how should we be thinking about the reserves you have set aside for that book of business, a potential need to maybe strengthen those or write-off back? And then along those lines, what's the opportunity, given that you're not writing any more new business there to maybe move that to a closed block?

Thomas Watjen

Rick, you want to take on that?

Richard McKenney

Sure. Just a few thoughts in LTC. I think it's important to paint the whole picture. I think we've been pretty open about the challenges in this business. Like the rest of the industry, we have seen low loss rate in the product. It caused us to build reserves faster than we would have initially thought. And that is mostly in the individual LTC product line which I think you did specify. We stopped selling that a few years ago and we've been taking pricing actions as I mentioned, to stabilize that loss ratio and I gave you through those details in my prepared comments. What we have been seeing over the last couple of quarters, there's some pressure on the loss trends which we'll handle in the same way, with regard to pricing actions. But it will take time for those pricing actions to take hold. I think the bigger change we saw in the quarter was the sharp move down, particularly 30-year treasuries dropped almost 150 basis points. In this line like any line that makes it more tough on a long-tailed insurance-type product. So the product is still profitable, but I think we've been clear, it's going to be a difficult product to manage in today's environment.

Operator

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

Steven D. Schwartz - Raymond James & Associates, Inc., Research Division

Just a few, Jack, I guess, maybe this is a semantic issue, but I'm just trying to figure this out. I mean, you're talking about severity being up. That's -- in my mind, that's usually an indicator of just being one of those things. You take claims submission, the acceptance is -- the actual submissions are down, the acceptances are up. I mean, like I said, maybe it's semantic, but that, to me, would seem to indicate that frequency is actually up. What could drive that difference?

John F. McGarry

I wouldn't suggest actually that frequency was up. Severity was up this quarter. Year-to-date, our acceptances are down. Our paid claims are down and our submitted claims are down. So we had volatility this quarter. The severity was a combination of just as you're working through the claims, more of the claims were medically justified. We had a lot of cancer claims during the quarter that are pretty clear cut. And actually, I'd suggest that it's just the opposite of what you would expect with an economically-driven trend, because if you had an economically-driven trend, you'd expect submitted claim volumes to rise as economic pressures rose. You'd expect more of the claims that you've got were actually declinable and not medically justified. So although your submitted claims would rise, your paid claims would rise less quickly and your acceptance rate would actually lower. What we saw in this quarter was just the opposite of that. Submitted claims were down year-over-year and our acceptance rate was up because the claims that we did make decisions on in the quarter were justified medical claims. So I do think a lot of it is just a lot of things lined up against us in one direction. Some of them go back and forth. It's unusual to have them all point in the same direction like that at once. And we saw that begin to subside toward the end of the quarter and don't expect it to continue into the fourth quarter.

Steven D. Schwartz - Raymond James & Associates, Inc., Research Division

Okay, great. And then if I could add just a couple of more quickies. Rick, maybe you could talk about what should we be thinking about the tax rate on a go forward basis or at least for the fourth quarter? And maybe, Randy, I think you touched on -- there was a benefit that you had in some older policies that you no longer have. Was that unlimited chemo?

Thomas Watjen

Rick, why don't you pick up on the tax rate and then maybe I'll do the question about the Colonial one, we may move that to Randy, which ever, I'll let you handle that.

Richard McKenney

Yes. On the tax rate in the quarter, we reported just over 30%. We did benefit from a tax rate that was affected in the U.K., which had an impact on our deferred tax liabilities which brought that down. So the 30%, if you back that out, right around 32%, I think is probably a reasonable number. That's down from where it's been in the past because we do have some low income housing tax credits, but 32% is a pretty good range as you look going forward. And then your question specifically around the policies affected, yes and that was correct. It was the unlimited chemo and those type of products.

Operator

We'll go next to Mark Finkelstein with Evercore.

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

Maybe just a clarification in the U.K. I guess, based on what you're seeing in early Q4, and I guess, Jack, how you're describing the claims. I mean, is it your expectation that the U.K. normalizes and we should be thinking about loss ratios kind of in line with what we've seen in the past or is there anything that you're seeing whether its severity or what have you that maybe it's going to be elevated?

John F. McGarry

That would be my expectation.

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

Okay, so normal then. And I guess the only -- just a clarification, I know -- I mean you're relatively new to the U.K., you've obviously kind of made some changes over there. Is there anything that's changed in the claim handling practices that may have driven that ratio of accepted versus submitted claims to change at all?

John F. McGarry

No, there really hasn't. In fact -- I think, we've made changes in our claims organization that has gone in the other direction, in terms of shoring up the claims organization. We actually, for the quarter, had a pretty strong recovery quarter. So our ability to get people back to work was actually pretty solid for the quarter. This was all around that initial decision about accepting or rejecting liability.

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

Okay. And then just finally, one follow-up on Long-term Care. The interest adjusted loss ratio on kind of a rolling fourth quarter average has trended up pretty meaningfully. And I know you're putting in place, rate increases. I guess the real question is, are the rate increases that you've been filing, are they enough and what is the strategy around that if they aren't?

Thomas Watjen

Rick, do you want to pick up on that one?

Richard McKenney

Sure. When you look at where our loss ratios, interest-adjusted loss ratio is in the quarter, it is a little bit higher than what we expected going into the process. I think the expectation was certainly around the persistency causing some pressure and that's really what the pricing actions were targeted towards. We'll have to continue to look at what the right pricing level is for these policies, given what we're seeing both on persistency, as well as the loss trends and reflect that going forward. I think it's going to be an ongoing discussion when we look at this block of business.

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

When would be the next opportunity, I guess, to try to submit additional rate increases if the decision was that it's not purely a persistency issue, but also an incidence issue?

Thomas Watjen

In case we have to breakdown every specific stay. I think there's a regular process with each day that are actually going through, so I don't know, Mark, what's the real theme around that. There's an ongoing strategy, I think, Rick as you said, and I think Kevin has said in previous calls, they just continually move through the book and almost once you've been through it, you start again actually. So I think that strategy, I think, remains the right one with that individual Long-term Care block.

Operator

We'll go next to Bob Glasspiegel with Langen McAlenney.

Robert Glasspiegel - Langen McAlenney

You're still using a 6% to 12% EPS range for the full year which is very wide, given that we've had 3 quarters in, and suggests if my math is right, sort of a $0.68 to $0.84 range for Q4. I mean, $0.84 seems challenging. In prior years you targeted like lower middle part of the range or give us some color. Plus the fact that you haven't suggested that there are a lot of wildcards going into Q4 and you just want to make sure the visibility -- the signal at the visibility is a little murky going into the fourth quarter?

Thomas Watjen

I would say -- Rick, why don't you pick up on that. I think, less than that and actually, I think, as you know, Bob, really a couple of years ago, we began the practice of getting off a quarterly guidance and getting to an annual guidance. So every Investor Day, as you know, we break down our business into component pieces and share some outlook for the component pieces as well as the bottom line. So I think what you're seeing is a continuation of staying with an annual sort of set of target. And really, I don't think you should interpret that as being having lack of confidence in the fourth quarter. I think we've got some pretty good visibility into the fourth quarter.

Robert Glasspiegel - Langen McAlenney

Okay, but one follow-up, could you just expand on what the claims incidence increase was within Long-term Care?

Thomas Watjen

Sure, Rick, you want to pick up on that?

Richard McKenney

Yes. I look at it in terms of the lost trends that it did increase. So incidence is one piece of that. We've had a couple of quarters of building incidence. I think we've also had lower mortality in that block which goes back to almost a persistency-type element. So it was really multiple areas, nothing specific that I'd point to. I would note that this is a block of business where we actually have very low amounts of claims that come through. It's still fairly early in the block, particularly as you get to some of our newer policy years. So we're dealing with the data that we are seeing today.

Operator

We'll take our next question from Jeffrey Schuman with KBW.

Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division

A clarification. I think, Rick mentioned something about [Indiscernible] voluntary and I didn't catch that. What was that the case and [indiscernible] amount please?

Thomas Watjen

Sure. Rick, why don't you pick...

Richard McKenney

The dock and lock [ph] that we saw was involuntary in our Interest-Sensitive Whole Life business, FAS 97 unlocking was roughly $5 million in the quarter.

Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division

Was that pretax or?

Richard McKenney

Pretax.

Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division

Pretax, okay. And then elsewhere in the company, where there are any other that, kind of balance sheet-type adjustments like that in the quarter?

Richard McKenney

There was, actually, I should mention in that line, in the same -- supplementary and voluntary line IDI block recently issued, also given some higher persistency in the block, we actually had slower amortization in there. And that was $4 million to $5 million as well.

Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division

$4 million to $5 million, okay. And I'm wondering in terms of what should be the expectation for U.S. group disability, in other words, we had a number of years where there was a clear guidance about loss ratio improvement and you delivered on that. Then we transitioned to a period of kind of a flat loss ratio expectations and you delivered very clearly, against that. I think last year, the loss ratio was flat as a pancake. We seen a couple of quarters now, very slight sequential deterioration even if you x out the change in the discount rate. Are we entering into a period now, where we should expect a little movement there or are we still in the flat period?

Thomas Watjen

Rick, you want to pick up on that, maybe ask Kevin also to supplement of that?

Richard McKenney

Yes, I think that what you said is right. The discount rate was the biggest move that you saw in the quarter. I think we've been saying all along, there has been volatility, so we saw a little bit of that in the quarter. We'll have to see how that settles back down as we head into the fourth quarter. But that slight uptick is probably something that we'll continue to see in that range. But we're still talking about pretty small movements within the overall loss ratio.

Thomas Watjen

And Kevin, you might want to pick up on that too, because I think the big difference today versus where we were in the past was that the profile of our book of business is very different and obviously, with a lot more core market business in there.

Kevin P. McCarthy

All right, thanks. Jeff, yes, I think our expectations around the loss ratio is still fairly flat in an -- plus or minus in around the 85% range. We're a little bit above that now, primarily because of the discount rate move. We'll be moving prices up in the mid single-digit range on both in-force and new business and that will mitigate that effect and actually get back some of the cost of the discount rate. For 3 consecutive years, we've had kind of a submitted incidence spike in the third quarter than then, has flattened out and declined during the subsequent fourth and first quarters. And that happened in third quarter of '09, third quarter of '10 as well. And so as we saw it happen here in third quarter of 2011, I think we felt it appropriate to bake into our price increases and renewals for next year, not only the discount rate change, but also the expectation that we might see that same flow. We've also had a little bit of volatility, upward volatility in incidence and prevalence on the STD line. And although we haven't seen much of that change, in terms of flow through to the LTD line, we're cautiously watching that as well, and we think right now, in this marketplace, is a good time to move our rates upward, much in the same way that our competitors are. So you put all that together and I'd say, we're really effective at placing our renewals as you know. We're effective at adjusting our sales forces' attention towards where we go hunting if you will. Making sure we pay attention to sales and lower volatility segments. And also, as you know, we've been ramping up our voluntary sales which don't have the same economic impact or risk as the LTDs. So all in all, I think we're well-positioned, both on the growth front and mix of business front as Tom mentioned. But also, I'd say, the loss ratio ought to stay, it's pretty stable in and around that 85 plus or minus range.

Operator

.

And we'll go next to Eric Berg with RBC Capital Markets.

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

My first question relates to the U.K., I'm trying to understand still, I mean, we talked a lot about it, but I'm still trying to understand the outlook here, and the reason that I don't fully understand yet is that I believe Rick said we'll have to take a wait and see attitude. And I believe Jack expressed optimism about a return to a lower loss ratio. I guess my first question is, which one is it. Are we going to take a wait and see attitude or are we thinking we've got to go back to normal in the fourth quarter? And relatedly, if you are optimistic about a return to a lower loss ratio, what's the basis for that optimism? In other words, I understand that you sort of ruled out the economic considerations. But because it may be something else, maybe there's a morbidity issue that you're not fully understanding. Why is it the right answer here we're just going to have to wait and see and it's too early to declare victory?

Thomas Watjen

Let me make a comment then I'll ask actually Rick to pick up a little then. I think both of you have heard Rick and Jack as they spoke about the performance in the U.K., use the word volatility. And I think you can't ignore that actually. This is -- the U.K. business is our smallest of our 3 businesses, whether you measure that by capital, whether you measure that by premium, whether you measure that by earnings contribution. And what that means is obviously, you can have months, quarters and weeks obviously, given the nature of this business, which just simply affects your overall results for the quarter, because of the relatively smaller block of business that operation is. And so again, I think what you're hearing us say first and foremost, is when you have a quarter like this and as Jack went through some of the assessment in that quarter, I think we clearly view it not being sort of systemic. We clearly believe it's not a carryover to some of the European issues. We clearly don't see any significant trend here. And for the moment, we stated that more of volatile issue which again, I think, as Jack alluded to, we began to see the October results begin to tap back quite nicely actually. So I guess I want to put this whole thing in context which is when you see a smaller business like this, our business does have elements of volatility from time to time. Some of our bigger operations like the Unum US for example, you're not going to see as much because it's a bigger base of business as opposed to the U.K., which is dramatically smaller. So with that, I'd ask maybe Rick or Jack, if anything you'd like to add to that?

Richard McKenney

Well, I'll actually probably clarify because this is my comments which I think was off. And I think that I share very much what Tom and Jack was saying, and I do believe it would be volatility, and that volatility I expect -- it's not a wait and see attitude, I expect to see that come back again in the fourth quarter. So I'd be very clear about that.

Operator

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

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

I have 2 questions if I could. You've talked to us in the past about the natural growth of your business, normal employment, reasonable wage growth environment. Can you just update us on what you think you're seeing, in terms of pressure given sort of stubbornly high unemployment levels and I think most recently, a lack of really any wage growth?

Thomas Watjen

Yes, thank you, John. Kevin, do you want to pick up on John's question?

Kevin P. McCarthy

Yes. John, we're seeing the same pressure we've seen in each of the last couple of years. I think a few years ago, we said that we typically saw something in the 2-plus percent range, in terms of upward help tailwind if you will, on the top line from wage inflation and employment growth, as well as growth in our in-force accounts from NBOC. And during 2009 and 2010, we actually had a negative impact. I think in 2009, it was like a minus 2% effect, in 2010, it was maybe a minus 1% or so. Coming into this year, we thought we might be on the plus side. And it started out that way, but as the years gone on, it's basically flat, even trending slightly negative perhaps. So we've got that same kind of effect of a loss of tailwind in -- no headwind at the moment, but no tailwind either.

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

Okay, so -- and I guess my -- I guess, the way to think about that with some mid single-digit sort of price increases for next year, at least on a good portion of your book, and sustained reasonably strong persistency levels that we still see some premium growth in 2012, despite the lack of any help from this particular item?

Kevin P. McCarthy

Yes, I think we'll see some very modest -- very modest, one percentage kind of earned premium growth, something like that. I think, primarily driven by solid persistency. Some effective renewal placement that gooses it a little bit, and then a strong sales year during 2011, that will contribute to 2012.

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

Okay, that's helpful. And then just turning to the long-term care business and the rate increases that you've gone through. I mean, you gave us some good data on the States and the percentage of expected. Can you just remind us of how that should earn through your book of business, and if 88% of what you've been filing for, can you give us a sense for what that is in percentage terms on the rate?

Thomas Watjen

Rick, would you pick that up, please?

Richard McKenney

Yes, It is our intention though is that rate increase we expect to see somewhere in the $25 million to $30 million range of premium that will ultimately come through, it's like you'd just sense that 88% is of those levels. And we're new, it's still not done yet, and so we'll have to see how that actually play out.

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

And what's the timeframe that we should think if we're getting to -- if we've got right now, 88% of $25 million to $30 million, does that all come through in 2012, does it come through over a longer period than that?

Richard McKenney

No, it's going to be over a longer period and it will probably come through mid -- starting 2012, and through the middle towards the end of 2013. It takes some time.

Operator

We'll take our next question from Thomas Gallagher with Crédit Suisse.

Thomas G. Gallagher - Crédit Suisse AG, Research Division

Just wanted to ask a quick one on the U.K., and then circle back on Long-term Care. So the expectation for the U.K., just so I'm clear, is that we get back to roughly around 2Q levels, call it low to mid $50 million range, or is there just some uncertainty, volatility expected there just based on what you're seeing, more just looking out, what should we expect for 4Q?

Thomas Watjen

Rick, you want to touch the U.K. outlook?

Richard McKenney

Sure, I'd just give you a sense such as, as that volatility comes back in with loss ratio, it'll come back down. We're around the 70% range. And you would see it kind of ticking up closer to that $50 million number.

Thomas G. Gallagher - Crédit Suisse AG, Research Division

Got it, okay. And just on the Long-term Care, just so I'm clear as to how we should be thinking about it. If you look at where the interest adjusted benefit ratio has gone up to 86% now. If we assume claims remained kind of where they are today, just a natural increase in the interest adjusted loss ratio based on low lapse rates. And assuming interest rates remain where they are today approximately, I would expect the interest adjusted benefit ratio to climb toward high 80s to 90% maybe. Is that a level with which would precipitate a reserve charge? So that's question number one. And then question number 2, assuming that this is a potential scenario to think about, are you guys still comfortable moving ahead with your buyback. Because I assume that if there was a GAAP reserve strengthening, there might also be a statutory impact. But any light you can shed on that would be appreciated?

Thomas Watjen

Rick, do you want to touch on that?

Richard McKenney

Yes. I think when you look at the -- where the loss ratio will trend towards, and I think we said last quarter, we expect kind of mid 80-type level. I did mention we had some loss pressure. We'll have to see how that plays out next quarter. We don't expect that necessarily, that we'll continue at that level. And then it would be offset by the pricing increases, so you've got a few dynamics going on in terms of what's going to impact the loss ratio. That product line is still profitable. And so as a result of that, we'll have to continue to monitor how it continues to go and even as we head into the fourth quarter and go through experience studies, it's one that we pay very close attention to.

Thomas Watjen

And Rick, I think, as it relates to the share buyback, I think we expect to be in the market in the fourth quarter. Just to remind everybody though, fourth quarter last year, we have fewer opportunities to purchase given the staggering of Investor Day and things like that, the volumes are going to be down but I think at this point, we fully expect to be in the market and continue to buy.

Thomas G. Gallagher - Crédit Suisse AG, Research Division

Okay. So I shouldn't be thinking about this from the standpoint of being a potential large statutory drain, at least not over the near term?

Thomas Watjen

Yes, we'll lay it out at Investor Day in a couple of weeks our capital plans and even to result of all that. But I would probably save that discussion for then, but we don't expect any radical change around our statutory cash flow.

Operator

We'll go next to Mark Hughes with SunTrust.

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

Any -- do you think you'd care to venture in terms of customer end markets, where you might have seen an uptick in frequency either in the U.S. or U.K.? And then secondly, any change in behavior out of the Social Security Administration, in their willingness to approve disability claims?

Thomas Watjen

Kevin, do you want to just talk a little bit about the U.S. piece, including maybe the Social Security side, and then maybe Jack can connect on the U.K.?

Kevin P. McCarthy

Yes, will do. Mark, nothing particularly noticeable on a by industry segment basis. This quarter, manufacturing incidence rates were up a little bit, transportation incidence rates were up a little bit, retail was up a little bit. Education was down a little bit. Data processing was down a little bit. That's the same kind of volatility we see every quarter, we didn't see anything sort of radical and I don't expect really, to see anything too significant either. We always keep our eyes on it, anyway, we adjust our prices accordingly for those segments that seem to be behaving a little bit out of line. We either increase rates or shift our sales focus away from it or both. And on the Social Security Administration, no, I haven't seen much change at all, our offset levels continue to be at very strong levels.

Thomas Watjen

Jack, do you want just to talk also from the U.K. side?

John F. McGarry

Yes, I think from the U.K. side, we haven't seen anything from any consumer markets. U.K. is a little bit different market than the U.S., and note that we are -- we don't have the same penetration in customers that's largely senior executives and senior managers. So our book tends to be a little bit more homogeneous, even though -- even if it is split by industry, because it's largely covering upper management and so I think that's one of the reasons why we have tend to seen more stability through economic downturns than perhaps, the U.S. market has.

Operator

We'll go next to Colin Devine of Citi.

Colin W. Devine - Citigroup Inc, Research Division

A couple of questions. I guess, first, for Kevin. You had some very strong voluntary sales this quarter. In fact, I think your third quarter was a record. But first quarter is being obviously, the strongest one but very strong third quarter. That thing's applied in the face of all the other trends you're seeing for your business and perhaps you can telling us what's selling so much? Second, and I don't want to beat a dead horse here on Long-term Care. Rick. I appreciate you said it's profitable but I think it'd be helpful to know just how profitable it is. We're getting really close to the line here? And following up on Tom Gallagher's question, is not just reserves but it's also, what's the size dock asset backing that line, and how close are we getting to having to impair that because certainly, I assume, you're projecting we're into a period of a lower long-term rates, given that the discount rate action you took on group disability. So I'd like to understand a little bit more, just the outlook on that? And then finally, for Tom Watjen. Unum, there was, I guess, chatter in the media that you might have been a bit around the RS Life property, they're just out there, looking at some M&A as well, or do you have any comments on that?

Thomas Watjen

Sure. Will do. Kevin, you want to pick up the first one on voluntary. But maybe also, if I could just maybe ask you to speak to the small commercial market too, because there are pockets of growth that are quite visible in your business?

Kevin P. McCarthy

Thanks, Tom. Colin, on the VV side first of all, I don't think it's any particular product on the portfolio. I think it's the whole portfolio. And I think what it reflects maybe, is a combination of things. Our strategic emphasis, our continued strategic emphasis on ramping up the voluntary market given the trends that we see in employee benefits in general. And the shift from, if you will define benefits, to define contribution at the employer level, I think it also reflects our expanded field focus. If you recall, over the last 2 years, we've expanded the portfolio of all of our core market reps to include both group and voluntary products is part of our Simply Unum initiative. And in fact, during this quarter, 70% of our group sales included an attached voluntary sale. So really strong integration and strategic emphasis on the part of our field force, and I think that's, for the most part, what's driving it. And you couple that with a strong 13% growth in our core market group business with -- if you think about that growth in 13%, you think about voluntary growing and you think about the increasing integration. I think that's what's driving the growth in voluntary.

Colin W. Devine - Citigroup Inc, Research Division

What sort of ROE targets are you pricing for? It's hard to sort of parse that out, given IDI and LTC within that segment?

Kevin P. McCarthy

We priced voluntary low to the mid-teens.

Thomas Watjen

Thanks, Kevin. Rick, do you want to pick up on the Long-term Care piece of Colin's question?

Richard McKenney

Sure, I'll try -- Colin, I'll try and give you a couple more dimensions to that, when we talk about the business, it is profitable. I would tell you that the returns on that business are kind of a low single-digit type ROEs. I think we've talked about that in the past. And given the pressure that's -- it remains at those levels which we'll try and combat with pricing actions. It's around the sizing of it, you have a reserve balance on that line of about $4.5 billion and the deck[ph] asset is about $300 million. And so those are all the pieces that we watch, in terms of going through and analyzing the changes that we're seeing.

Colin W. Devine - Citigroup Inc, Research Division

Okay, and that would be your most Interest-Sensitive line right now, right?

Richard McKenney

I would say yes, the most challenging line to put new cash flows behind, given the long-term nature of it, yes.

Thomas Watjen

And Colin, to your last piece. As you know, no surprise, we really can't talk about specific acquisitions. But I do think, just a couple points I'd make and certainly, we look forward to embellishing these at Investor Day. But I think first off, we like the 3 businesses that they were in. We see good growth opportunities. Kevin talked about the growth we're seeing in the small commercial and voluntary. Randy had good small commercial growth in his market and obviously, the U.K. is going through some adjustments. But I want to always start, when we talk about the M&A, was the fact, we actually like our 3 businesses. I think we've got some good prospects, especially if you look beyond some of the economic challenges that I think everybody is facing right now. Having said that, as you know also, we've got a pretty strong financial foundation from which, to not just support our businesses, but we generate a fair amount of excess capital. And we have, over the last couple of years, been much more active looking at acquisitions that could fit within our framework of how we assess risk, how we think about where we want to play in the marketplace and not get too far afield from the things that we know well. Which means we're looking at things that extend our product focus, extend our geographic focus and I would say, especially in this environment, even though there's not a lot of things out there, I think the marketplace views us as one of the people who frankly, are a player and therefore, we do get a chance to look at some things. As you can see though, we haven't done anything which means we have a very high bar that we've set for ourselves, in terms of doing things that could complement the things we do in place right now. And frankly, measure any acquisition against our existing standalone plan with redeployment of capital which creates a pretty high threshold. But we're in the flow and it's always better to be able to look at things and say no and walk away than it is to miss something that maybe it'd be a nice complement to our business and our financial goals.

Colin W. Devine - Citigroup Inc, Research Division

Okay, and by geographic, since you mentioned it. That does mean that you would consider outside of the United States?

Thomas Watjen

We would, absolutely, yes. Provided it's got the characteristics that we are looking for, in terms of the products and the marketplace dynamics that obviously, we're very comfortable with in the U.S. and the U.K. So it's got to have those characteristics, but we would look outside the U.S., yes.

Operator

We'll now take a follow-up from Chris Giovanni with Goldman Sachs.

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

Just 2 quick ones. The sovereign exposure, the $1.5 billion or so that you have in the portfolio, can you maybe just maybe break that down by geography, particularly focused on Europe?

Thomas Watjen

We can, Chris and was it with Tom, scans through his document here so we can get that in a second.

Thomas A. H. White

Why don't you ask your second question while [indiscernible] Tom, just real quick.

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

Okay. And then Tom, you made some comments in terms of sort of the open window period for share repurchase in the fourth quarter being smaller than other quarters. And if you look at, you mentioned in the release, the attractive share price kind of taking advantage of that in the third quarter. Is there potential to maybe do an ASR or something like that in fourth quarter, given where shares are today?

Thomas Watjen

Chris, let me pass that to Rick and ask Rick to speak to that.

Richard McKenney

Yes, I think that all tools are available to us, in terms of how we buy back our stock. It does come back to the attractiveness of where the price is. We have the capital and the ability and as we showed in the third quarter, we'll take advantage of those windows. I think that we prefer to be in the open market buying back our shares. And so with a limited number of windows, that may in fact be the case. But any big movements, ASRs are certainly available to us.

Thomas Watjen

Chris, on the international exposure, looking at the aggregation of Portugal, Ireland, Italy, Greece and Spain, we have no direct sovereign exposure. We do have, on a book value basis, about $545 million of corporate exposure. And just looking through the list, there are only 2 securities of the probably 20 or so that we have positions in, that are below investment grade and both of those are in the BB range. And those 2 together would be about $30 million, again, of the $545 million, so everything else is investment grade corporates in those countries.

Operator

Our final question today will be a follow-up from John Nadel with Sterne Agee.

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

You guys were the only ones on the docket today. And by the way, I can't tell you how much I appreciate that versus tonight. The follow-up question I have for you is about the U.K. Just thinking about the economic backdrop there, maybe setting aside the volatility of the quarterly submitted and that sort of thing. Just given the increasing pressure, downward pressure potential for the U.K., to fall back into recession, unemployment rates seem to be rising, not stabilizing just quite yet. Can you give us a sense, maybe Jack can give us a sense for the pricing environment there? I know you guys were first movers. You said maybe you're seeing the market move now, but can you give us a sense for sizing the pricing actions that you've been taking?

Thomas Watjen

Jack, do you want to pick up on that?

John F. McGarry

Yes, I would. One of the things I'd point out is that the public sector is driving a lot of the unemployment in the U.K. currently, and we are not involved in the public sector. We don't currently ensure it. So we're a little bit immune to some of that driver. From the perspective of the pricing environment, the market had been softening through 2008 to 2010. We turned the corner on it in the second half of last year. We paid some price for that from a new sales perspective. And initially, particularly early in the year from our persistency perspective, that persistency outlook has improved. There are competitors in the marketplace with renewals as well. People are reacting to the low interest rate environment. And I think there are even some small signs that perhaps picked at the large case. The market may be getting firmer there as well. So we're encouraged by where we are. We've accelerated our renewal program through the year. We've had better results in the second half of the year than we did in the first. And so I think there are some pretty positive signs going into 2012. Not that it's going to be easy mind you, and there's still pressure from a growth perspective with the lack of natural growth and salary increases. But we're positive about that direction the U.K. market is going.

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

Jack, maybe just relative to Kevin's comments on mid-single digits. Pricing in the U.S., any ballpark figure you can give us at least in terms of the U.K.?

John F. McGarry

I would say a similar level in the U.K.

Thomas Watjen

Actually, thank you all for taking the time to join us this morning. And we certainly look forward to seeing hopefully, many of you at our Investor Day meeting on November 9 to 16 in New York, and please contact Tom White or anybody from the Investor Relations staff if you have any questions about our Investor Day meeting.

And with that, operator, this will conclude our third quarter call.

Operator

Thank you, gentlemen. Ladies and gentlemen, we thank you for your participation. This does conclude today's conference.

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