Unum Group's (UNM) Management Presents at 2016 KBW Insurance Conference (Transcript)

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Unum Group (NYSE:UNM)

2016 KBW Insurance Conference

September 07, 2016 09:30 AM ET

Executives

Rick McKenney - President & CEO

Tom White - IR

Analysts

Ryan Krueger - Keefe, Bruyette & Woods

Ryan Krueger

All right, we are going to get started. Pleased to have Unum with us today. To my left is Rick McKenney, CEO and Tom White from Investor Relations to his left. So let's start in U.S. group disability. You've had continued improvement in the benefit ratio for several years and the first half of 2016 was particularly strong. Can you review the incidence and recovery trends that you've seen in that business?

Rick McKenney

Sure. Thanks, Ryan, and welcome everybody. Good to have you here today. We saw in our long-term disability line a very good first half. Actually, we saw it across the Company. So I’d step back a little bit. Our first half of the year across all of our lines, across the Company were in very good shape, some very good results that we saw and so we look forward to what the second half holds as well, but in very good position. Particularly to long-term disability, as you talked about, I think we’ve had good stability there in terms of overall incidence trends that we have seen has been favorable.

Our recovery rates as people get back to work have been favorable now for several years and those have been consistent on that level. But as we run the business over a period of time thinking about where we price, how we disciplined in terms of how we underwrite business, we have seen that benefit ratio come down. We’ve seen that now over several years. And so we’re very happy with that performance and we think that’s ultimately good for our customers, that stability that we’ve brought to the market through our book of business.

We will see that benefit ratio at least as far as we could see right now, right around those levels. We will see it maybe improve a little bit, but I wouldn’t expect a lot more improvement. But like I said, incident levels, our recovery levels, working with our customers, persistency has been very high in that book of business as customers have stayed with us. We are very happy with how that’s gone.

Question-and-Answer Session

Q - Ryan Krueger

On the recovery piece, specifically the actual to expected recoveries, it seemed like they’ve been much-much stronger than you would have typically expected over a long period of time. I guess what do you attribute that to and how much longer do you think that can continue to improve?

Rick McKenney

Sure. Well, one is your expectations change overtime, so our actuals to our expectations are much closer to where they’ve been. But I would tell you the improvement in a lot of that, and I give credit to our team that works very closely with our customers to get people back to work. And so it’s a fundamental thing about our disability book of businesses, people go onto claim, their greatest desire is to get off of claim and I think with some of the specialists that we have, with the nurses that we have and the doctors we have on staff we get these people back to work as quickly as they can, to give them the information they need to become productive back in the workplace is something that they appreciate. It’s good for us, it’s good for them, and ultimately, we think that that’s what we do best in the industry.

Ryan Krueger

In terms of the disability discount rate, in 2014, on the new claims discount rate you lowered it 50 basis points. Last year, you kept it flat. Interest rate is obviously lower now. How do you feel about the discount rate as you head into the end of the year when you review it?

Rick McKenney

Yes, the discount rate is something we look at every year on in the fourth quarter and we’ll look at it again this year. The way we manage our discount rate is we try to do it on a perspective basis. So one of the things that we have had over the last several years is a good margin within relative to our earn yields, relative to what our discount rates are. We take that every year we look out over the horizon a little bit to say how do we expect that we are going to invest and keep our discount rates in lockstep, or not in lockstep, but with a reasonable margin there.

And so this year is going to be another perspective look in the fourth quarter in terms of where we see we can invest today relative to our discount rate. So I can’t give you more than that other than it is something we are going to be looking pretty hard at, but the investing environment has gotten challenging post late June and that’s a reality that we are going to have to incorporate into some of that forward-look.

Ryan Krueger

Shifting -- sticking with the U.S., Unum U.S. is shifting to sales, you had a couple of really strong years of sales that’s come down a little bit there you’ve talked a little bit about increasing competition. Can you just review kind of what the current market dynamics are in that business for the new sales?

Rick McKenney

Right, and I think it’s really a good question Ryan and I’ll put it into a couple of different categories when you step back and we have seen some very good sales over the last several years. We’d tell you that in that period of good sales, we maintained our discipline throughout and so when you get into an environment where people are -- other competitors are less disciplined from a pricing perspective, we’ll write less than this and this is on the new business side by-the-way because we should also mention that our existing business, our renewal rates, our persistency rates are incredibly high, customers that have chosen to work with us have stayed with us.

When we get into a new pricing environment, you can have competitors as we’ve seen over many-many years that can be overly aggressive in that period of time and those are cycles that come and go and I think this is a cycle where we see some aggressive competitors out there, we see some entrants to the marketplace that may not be as experienced in how they price business and that’s a reality, we’ll work our way through that with a disciplined perspective and a lot of that business that we may not win today because we have higher prices it may come back to us in the future in a different environment. So we try to take a longer term focus to that, but it’s been a little bit more competitive, although our premium line is going very well.

And one of the things to be clear as you are talking about a group disability space, we’ve seen good growth coming in a lot of our other areas of our relationships, particularly on the voluntary benefit side continue to see good sales growth. So even in a period where we’re not selling as much in the group lines of business we can make up for that in selling voluntary lines, we can make up for that by going into a customer we have today and renewing and adding new more of their employees on to our roles as well. So there is a lot of work we can do to still drive the growth even if we aren’t seeing that new core sale being as successful as we want to be at this -- at the current moment those cycles will change, we believe that will come back but discipline has been something that we have continued to exercise over many years.

Ryan Krueger

Do you attribute the higher competition more to some of the bigger companies that have already improved their results and now they’re getting more competitive again or is it there is a new entrance or there is a some of each?

Rick McKenney

It’s some of each and I think that one of the things that if you look at our business it is a high returning business and in an insurance world that’s kind of challenging, it is less interest sensitive I think tan many other lines of business in insurance. And so as people want to do more and more of our business, they come in a couple of different forms. One our new entrants which will come in and one of the things is because of our stability and our long participation in these markets, we have a strong data set, we know the customer base very well we know how to price this business. Someone new to the business might get that wrong and they’ll learn that overtime and often times they could be more painful. Some of those players are in the market today.

You also have people that have been in our markets that have been aggressive on pricing and has had to reprice their book of business and sometimes after you heal that book of business you can make a mistake to get back in and be aggressive again, we see that when some of our competitors and that’s the reality, that’s the nature of the markets and we’re not going to be one of those that goes out and chases on a price perspective because ultimately I think it’s not good for our customers to see that volatility. We want them to see our price today that they can count on where we renew at tomorrow they can maintain a longer term relationship with us.

Ryan Krueger

You mentioned the renewal rate increases. Can you talk more about kind of what level of renewal rates increases you’ve been targeting and actually achieving over the last few years and what you’re trying to do going forward?

Rick McKenney

Yes, we’ve seen low single-digits low to mid single-digit rate increases for a number of years now and so as you go into it and the way a customer would see that might be very different because the customer will be able to see what the overall performance of their book looks like. And so although on average that’s what’s going to be going into the book of business, it will change by customer partially based on their experience as well. And ao as we think about that overtime, our customers are willing to take that on. The reality is, as they come in as a renewal customer, their book is aged. Their workforce is one year older and so they should have a higher price to begin with, and so we work on that very carefully with our customers to make sure that once again they stay with us, because of the great service we provide, because we have great capabilities and they will see that. And the number to look at there to see whether that’s been successful in that environment is our persistency rates, which have been very high for several years now. So there is that recognition as we renew our books of business.

Ryan Krueger

And on the persistency side, when you talk about increased competition is that something we should think about more as just impacting sales or should we or could that also potentially impact persistency to some extent?

Rick McKenney

It could. I mean it could impact persistency. We haven’t really seen that.

Ryan Krueger

Okay.

Rick McKenney

But if somebody comes in and wants to take over a case for an unrealistically low price, they could actually leave you and your persistency would go down. We haven’t seen that because that’s played out overtime. So if somebody has experienced in a human resource organization making this, they’ve seen this movie before as well and so they could go to lower price this year knowing that they’re going to feel the pain two years from now when that rate goes up by tens of percents. And so often times they will look for a stable pricer are out there, which they’ll look to Unum to be that person.

Ryan Krueger

In terms of premium growth, you’ve been growing down mid single-digits in Unum U.S., which is up a lot over the last few years. I was curious at this point, how much is kind of the natural growth from the in-force from employment and wage increases contributing to that.

Rick McKenney

Yes so we have over the last several years probably more recently, we had seen some of the employment growth coming into what we talk as the natural growth level, so think about 1%-1.5% coming into just the natural growth of the business and that’s as employers take on new employees and just enter them into the plan and we will see some benefit from that. But we really haven’t seen much of this wage inflation. So I think that’s been true. You hear a lot about wage inflation in the economy at large. The people that we insure for the most part, we have not seen the type of wage inflation we would have been accustomed to going back several years ago, which would have been more in that 2% type range, similar to a GDP type growth. We haven’t seen that coming through, but we are optimistic that we will see more of the wage increase coming in. I mean it’s a kind of a volatile world, so hard to predict at the moment. But I think that that is something we will count on in the longer term we will get both that employment growth, as well as wage inflation consistent with a GDP type growth.

Ryan Krueger

In I guess moving over to Colonial you’ve had very strong sales growth there for a few years, much better than some of your competitors. Can you talk a little bit more about what’s driving that on an underlying basis?

Rick McKenney

Sure. And the sales growth in Colonial Life has really been extremely good. If you look at the first half of the year, almost 15%-type sales growth, and I think there is a lot of little things that have come together within that business that have allowed us to do that. And I don’t think essentially that it is the competitive environment, I think it’s getting more feet on the streets, getting people productive, working with more employers that we have out there. There is a lot of really good things going on in our salesforce today that will allow them to continue to grow. The need has always been there the need for voluntary benefits has always been there and it’s probably been increasing over the last several years given some of the things that have come in with the high deductible plans with ACA and some of those things. So the need has increased and I think our salesforce across the board is just kind of hitting on all cylinders to capture that opportunity to protect more people, and I give a lot of credit to our team at Colonial Life that has executed extremely well for several years and even more so we’ve seen here in the first half of the year.

Ryan Krueger

I guess are you seeing a material impact at this point you think from ACA on growth and voluntary benefits and then as related to that, I guess it got pushed out but when the Cadillac Tax is implemented, do you think that will be an additional driver of growth?

Rick McKenney

Yes, and so there is couple of things. One is the ACA in and of itself hasn’t been a big driver of growth, we would have said a few years ago it created a lot of distraction in the markets of delivering employee benefits, I think as that has calmed down at least it has over the last several years, I don’t think that it has been the big driver but what you have seen is a shift as we’ve seen overtime of more of the cost burden and you see that in high deductible plans being shifted more to the employee. And that environment is a growth opportunity for voluntary benefits. If you think of that high deductible that people will be dealing with the voluntary benefits offering is a great fill in the deduction so that people can make sure that’s not a pocket expense, it’s one that you can pay for coming out of every patient.

Ryan Krueger

And then have you seen more competitors try I mean you’ve obviously had very good sales growth so it hasn’t impacted you but have you seen more competitors trying to come into the voluntary space given it is clearly an attractive market for returns and there is a fair amount of optimism on growth going forward?

Rick McKenney

Yes. And the voluntary benefits comes in different forms too, so you have what our Colonial Life does, bread and butter which are small employers and taking that out to people that don’t have access through necessarily large group plans but they do that at the medium size level as well and then Unum U.S. business on the voluntary side will bring that into the core business that we talk about the 500 to the 2,000 employee-type businesses and even larger in our large case business. So that world has continued to evolve out there. A lot of competitors have talked about getting into that space and making that a bigger focus, rightfully so it’s a very good business and it serves a important need but we haven’t seen them crowding out that space. So I think there has probably been although we see more people on the street maybe but it is not as very quick to get into the voluntary benefit market it is something that needs to be administered well, needs to be enrolled well and so it is more complex than just saying you’re in the business. So we think that we’re still capturing our fair share of that market.

Ryan Krueger

Moving to the UK, you had a few years of kind of doing some repricing actions to improve margins, margins have improved and now they’ve stabilized. If you think about the opportunity there at this point more about kind of stable margins but with more growth and if that’s the case what are you doing to restart growth?

Rick McKenney

Yes, I think that is exactly right Ryan, I think that our margins have stabilized and we’ve been in that mode for a couple of years now. The team has done a good job of repricing the business, getting our persistency levels up, so we really like the customer set that we have there today. The growth in that market, the growth for us is going to be about expanding the market. We still, there is not as many players out there and so how do you grow the market where more people in the UK have income protection. And that’s where we spend a lot of our time, we talk about there is income protection there, it looks similar to a long-term disability policy here but that income protection business over there still has lower penetration rates. A third of the penetration rates we see here in the U.S. so there is great opportunity to grow in theory but how do you get to more people to recognize that need that they need to protect for.

And so that’s what we’ve been working on, we work with Parliament, we work with other constituency over there to raise the awareness level as a long term trajectory, but we ultimately think that’s where the growth is going to come in. In the meantime, we are taking some of our strong distribution capabilities over there and we just acquired a year ago a dental company which is still pretty new in the UK in terms of how we experienced it here in the U.S. and that dental business that we have there which we just rebranded July the 1st to Unum Dental is one where see growth opportunity where we can take the excellent relationships we have with the salesforce, the brokerage community and actually expand dental coverage to more Britons.

Ryan Krueger

Actually I want to ask about dental, I mean you did the UK acquisition and you also did an acquisition in the U.S. and you have done dental acquisitions in both key markets. Can you talk more about what attracted you to dental specifically and what do you see as the outlook there?

Rick McKenney

I think it’s really a strategic point which says as we’re at the employer and the employer have to or would like to provide a different coverages to employees both either they’re going pay for it or they’re going to ask their employees and just provide the opportunity for that. We think about healthcare savings and then all of the other employee benefits that are out there. And we’re not going to play on the savings side, the 41k type side we’re not playing in the healthcare side. But all of the other ancillary benefits that are provided at the workplace, we want to be a key provider there. So from a human resource department, it’s kind of a one stop shop.

Dental is a coverage that is very much appreciated by the employees here in the U.S. and becoming more so in the UK as well and we found it was something in our portfolio that we needed to offer. So we’ve had a joint venture with over the last several years and we’ve now acquired our own platform where we can growth that, leverage the relationships, leverage the scale of our salesforce and provide coverage. And I think that that’s something that really fills out the portfolio and will be a bigger part of what we do in the next several years. We’re very excited about it.

Ryan Krueger

I can’t think of anything but are there gaps within our portfolio at this point that you see or is this pretty much complete the full offering?

Rick McKenney

I think we’ve got the suite of the things that the employers holistically are looking for. When you look at the as I mentioned ancillary benefits the other things if you go employer by employer, there might be other things offered at the work side which we would look at as opportunities to infill but I think we’ve got the major product lines covered there.

Ryan Krueger

I guess on expenses, expense management has been a good story for you guys, I guess what are you doing to control expenses but while also kind of investing in technology and the rest of the business?

Rick McKenney

Yes, and we think about those in different sides as well. So first you think about how we’re going to continue to invest to grow the business. And so that’s where our funding goes first. And then when it comes to the efficiency, I think that’s the only embedded in the company to just think of what does continual efficiency looked like. And one of the things that we focus on is clearly our expense ratio. So for every dollar premium we’re taking in, how much are we spending and keeping that very much in check.

It’s something we do protracted over a longer period of time, so you’re not going to see any big waves of efficiency we pull out it is just being more efficient and using better things and more productivity tools every single day and whether that is new process efficiencies we bring in, it’s using partnerships that do things better than we do today to leverage that. Those are all the things we’re going to look at and we’ll bring that in overtime. So you won’t see a radical shift in our expense ratio, it would be very consistent but if we can continue to grow the company and keep our expenses relatively flat, they’ll be real benefit for ultimately for our shareholders and that’s just, that’s how we talk about it with all of our team and making sure that it is part of the daily task.

Ryan Krueger

On technology specifically I mean a lot of life insurance companies probably more in the individual lines perhaps have been talking about needing to invest in technology. I think you guys are ahead on this, so can you just provide a little bit more perspective on what you’ve done and kind of where you are on that?

Rick McKenney

Well technology for us comes in a couple of different forms. You have kind of the underlying technology that is going on in the operations then you have the technology that connects you better with customers and I think that’s where all we’ve been putting up more of our investment is making sure we have good connections with our customers from a technology perspective, so they can bring it to their clients effectively whether that's in the large group case all the way down to the core case. So that's been a good positive investment in technology. And we'll do it in the home office as well. More often for productivity means and making sure that we have the latest in technology, we just went through a large work data implementation and some of those kinds of things. So technology is something that's as I said on the expense side is the efficiency is in our daily task so is technology and it is something we'll continue to invest in and we have over the last several years.

Ryan Krueger

And then on, I guess this is kind of a related question though, there was a lot of talk about exchanges for a while, private exchanges that is died off at least with investors, that's died down but you've always talked about kind of using enrollment technology already that's like an exchange. But can you give us an update on both of those because our?

Rick McKenney

Well I think that everything got painted in exchange for a period of time, so you're not hearing that because not everything was necessarily an exchange. There was definitely changes in how data was transferred, information was transferred and that will continue I mean it's not a rapid shift to an exchange or not. And I think what we said at that point in time is the thing we didn’t see taking as much hold would be the exchanges where it becomes just a sea of choice for ultimate consumers which is not effective for the ultimate consumer. They actually need some type of pooling at the workplace where a human resource department is helping to channel to a specific product. They get better pricing as a result of it, better risk transfer and all those different things. So those were kind of things we talked about which would not take place, but I don't want to minimize the data transfer has been changing over the last 15 years. And so even as exchanges came in that world was changing that world will continue to change just as technology changes and that gets back to your earlier point which is we have to continue to invest in those connecting technologies which take us closer to our customers ultimately.

Ryan Krueger

Moving a little bit to the closed block and capital management aspects of the company, you talked about a potential capital relief solution to your closed individual disability block. And can you give a little bit more of the sense on how meaningful that could be and how we should about the timing?

Rick McKenney

Sure. I think that when you look at our individual disability block almost 10 years ago it was actually a securitization done on that which is called Northwind, which extracted a fair bit of capital from it at that time. As the structure has run on it has perfumed very well and I think that as time has gone on is the ability to look that structure and effectively reload a little bit. And I think how big that is and meaningful is in the eye of the holder I think that from our perspective we could definitely extract some capital there it is probably not as meaningful as people would think in terms of its sheer size, but it's still important that we look at that. And so timing I wouldn't give you a sense of what that looks like but it's something we're working on across our closed block, to look at capital effective solutions to extract capital smartly to be able to channel that back to our shareholders.

Ryan Krueger

Then moving long term care, can you review how the claim trends and also your rate increase approvals have gone since you kind of took a charge in 2014 and kind of laid out some updated assumptions?

Rick McKenney

Yes sure, back when in 2014 we set out a series of expectations around rate increases we’d have over the next several years I would tell you it is tracking very well to our expectations. I think it's something that we worked very hard at to make sure we are working with our customers and our regulators to make sure that process is well orchestrated and make sense. So I think that the team is working on that has done a good job and we will continue on that front and not just look at rate increases but also look at how we can adjust benefits as well to make sure that those are equally as effective to a consumer without actually having to initially pay more in premium. So offering those choices are very important to us.

And then when you look across our other assumptions, I think in aggregate we feel reasonably good about all of them as has transpired. Obviously, we will go through and then reassess those as we do every year. And then from an interest rate perspective, we isolate that quite often as well. The first two years since we’ve done that here in our three quarters, we’ve invested very well relative to our expectations and we’ll continue to update as we go forward on that front. So things are tracking reasonably well to our expectations at that point in time.

Ryan Krueger

In terms of the rate increases, I guess, and/or reductions to benefit, I guess can you just remind us what you’ve assumed kind of how many years of rate increases, you’ve assumed in your reserves and if there is an opportunities that get more beyond what you’ve assumed at this point?

Rick McKenney

Yes. So when we actually went through the process of establishing our reserve assumptions back in 2014, we incorporated into that price increases that we had filed for. And so that’s kind of the limit. Now it’s not a time but it was actually things that we had filed for with regulators assuming there’d be a process to go through to get some percentage of that actually implement and I think that’s the process we are talking about is tracking relatively well to those expectations. In terms of what it looks like kind of after that and the opportunity to continue to work with our customers and regulators and whether it’s warranted for more rate increases, it’s something we’ll look at, as we continue to manage that block out over the next several years.

Ryan Krueger

And then interest rates, I guess more specifically, I know you’ve talked about getting, you assume 5% new money rates I believe for, I think five years and then grade up to a, and can you talk about, I guess, what you’ve been able to achieve so far and then any sense of kind of where things stand now that post Brexit kind of interest rate levels?

Rick McKenney

Yes. So the first 18 months since we made those assumptions right here, it actually exceeded those expectations relative to that. Our team on the investment side did a good job of picking markets to deploy a lot of cash into. The good news is through the first half of the year as they deployed cash, it was prior to what we saw in the UK and as well as credit spreads have really grinded in since that point in time. So that is something we’ll have to look at in the second half of the year. Like I said, we’ve been kind of ahead of our expectations up until this point. And so do we give back some of that? It’s hard to tell in the fourth quarter and so I would leave it until when we go through quarter-by-quarter, but it clearly is a harder investing environment today than it was even four months ago. And so that’s something that we will continue to work at and keep everybody up to date on in terms of how we are doing towards those assumptions.

Ryan Krueger

And then just last on long-term care I guess where do you -- I guess what’s the difference between statutory reserves and GAAP reserves at this point?

Rick McKenney

Yes. We haven’t talked about specifics around that, but it’s a sizeable difference relative to north of $500 million in terms of our stat to GAAP difference that we have out there. And for those that aren’t familiar with that, it is just that as we are holding the higher levels of stat reserves today the way that worked its way through previous times when we actually had the increased reserves is we changed our GAAP reserves without impacting effectively capital, because we had excess stat reserves. And so will that play out in the future that way? We would have to see, but I think that’s probably our expectation.

Ryan Krueger

And then moving to capital management, you had really strong statutory earnings year-to-date. I guess what drove the big increase on the statutory side? It is bigger than your increase in GAAP earnings. How should we think about that?

Rick McKenney

Well, stat can be a little bit more volatile. Things will come through in different timeframes than it does. We were quite happy with our statutory results in the first half of the year. The biggest thing that drove that was just very good benefit performance. As we talked about a little bit, which helped us as well on the GAAP side it kind of came through even larger probably on the statutory side. And so as a result of that the capital generation has been very good through the first half of the year. We haven’t changed our capital plans as of yet but it gives us more flexibility to do different things from a capital plan perspective over the course of the second half of the year.

Ryan Krueger

And you have for a while talked about 550 million to 650 million of free cash flow before common dividends and buyback, how are you tracking relative to that assumption?

Rick McKenney

I think we’d be right in that range.

Ryan Krueger

Okay.

Rick McKenney

So we’re happy with how that is going on I mean if you look at how we have deployed capital this year, I think through the first half of the year we have bought back roughly $200 million of shares, we have committed to buy a company for over $120 million and so we’re actually deploying capital that is pretty steady it is good rate and at the same time we’re generating capital on the frontend and probably as you know the first half of the year will be more towards the top end of that range, we will also to see how the second half of the year for us go.

Ryan Krueger

And I guess how do you think about buybacks versus dividends I think the life insurance industry has increased its dividend payout ratio overtime, but it’s still probably could be higher I guess how have you thought about the two versus each other?

Rick McKenney

Yes and I think we’ve probably been similar to the industry. We look at our payout ratio and we’ve been increasing our payout ratio over a number of years and which has allowed us to increase our dividend on a pretty steady basis kind of double-digit type rate increases. Last year was a little bit less than double-digit though over the last several years we think that is important to actually continue to payout dividend given our steady free cash flow generation but at the same time we do that on a very stable basis of increase because we also think about buying back our shares and having the flexibility to buyback our shares particularly when the shares trade down relative to the things going on in the world, not things that we see in the overall value of our business. So when the share prices across the sector, across the financial sector came down we were very happy buyer of our shares and we think we added a lot of value to our shareholders at buying those shares back well below book value.

Ryan Krueger

And you did issue some debt earlier this year and where do you and you have some maturing I believe, so I guess post all that I guess where do you kind of stand on a debt capital basis and versus where you’d want to be longer term?

Rick McKenney

Yes, so what happened as when went and issued debt so we issued a little bit more debt in the, I guess it was back in the May timeframe.

Ryan Krueger

Yes.

Rick McKenney

And the reason we upsized a little bit, one we got at the time thought we were at incredibly good rates, the rates have come down since then and we also pre-funded or pre-issued both the debt maturity we had this year as well as what we wanted to do next year. And so our leverage ratio came up just a little bit we’ll see that burn down quickly here over the next 18 months so our debt to capital was right around where we want it to be and in longer term we’ll be down a little bit lower than it is today but only because we just won’t be issuing any debt, we don’t expect for the next couple of years.

Ryan Krueger

And on M&A you did the dental acquisition, post that there is M&A something you are so interested in and I guess what would we see the focus is there if at all?

Rick McKenney

Well I think the dental acquisitions were very good in terms of we were able to do them on a for a platform type deal to fill in to the portfolio as we talked about a little bit earlier. Those would be things we’ll be interested in, where can we actually buy things that we can leverage what we’re very good at today from an overall competency perspective and we will continue to grow and so we’d like to acquire more as you look at bigger deals that we look at we think we bring something special to what we do in terms of managing our group lines of business, if those came to market, certainly those would be things that we will look at. As we said earlier, there is more people coming into the market and getting out of that market and so we would continue to look at that but I think that it's going to be one where platforms are probably something that is more important to us today than it has been in the past.

Ryan Krueger

Are there any questions in the audience for Unum?

Unidentified Analyst

Can you talk about your energy exposures and how you've managed that through the volatility?

Rick McKenney

Sure. It's a great question I guess there is a microphone so everybody heard the question around the energy exposure. So we came into the year talking about our energy exposure. It actually goes all the way back to our Investor Day about the sectors that we are more exposed to and less exposed to we've been much more involved in energy and the infrastructure sector is much less than in the exploration side of the business and the services side of the business. So as we came into the beginning of the year and energy was under pressure it is something that we looked at our portfolio dug in deep and actually felt reasonably good about most of our portfolio even under the stresses that we're seeing at $25 a barrel and stresses that would go lower than and most of the portfolio and actually the vast majority of the portfolio was in very good shape. And in fact there was an unrealized gain position through most of that process it did grow slightly at the trough.

And so we kept most of our explorations, we lined up in a few areas of names that we didn’t like, but there wasn't any wholesale move within the energy sector. And as we saw that come back we saw our energy values recover which you would have seen in our second quarter results so an unrealized gain somewhere in the neighborhood of $500 million to $600 million and we will continue to look at that. So we do feel that, but we didn't feel that bad about our energy exposures, last December, we didn't feel that bad about it when we went through the beginning of the year we felt that we did good credit work and as we sit here today with energy in the 40s and 50s a lot of the companies that were probably most exposed had fixed a lot of what they have done at least the ones that we are invested in because we aren’t invested across the sector. And so we feel fine about our energy exposures today and what we realized in losses in the first half was quite de minimis kind of in line with what we told people we thought the exposure might be.

Ryan Krueger

Are there any other questions from the audience? Actually just a related investment question, you don’t have much in the way of alternative investments at all and is that something you'd ever consider in given the low interest rate environment a small piece?

Rick McKenney

We do have some alternative investments that we have for a period of time it doesn't really move the meter and we barely see them when you look across our portfolio. So those are areas we will look at alternative investments when you think about them for us they will have more debt like characteristics and they will kind of appear to your private equity type construct but those are things we work with outside partners to originate some of those. And so it still won't move the meter but we're probably investing a tiny bit more in that area than we have in the past. But nothing of note it is not a strategy of ours as once again we look at assets that back our liabilities very well that takes us into asset classes and sometime the alternatives fit in that asset class and most of the time they don't.

Ryan Krueger

And then I guess private placements have also been a way for you to get better yield, how has the market been for new issuance and private placements is there still a lot of opportunity there?

Rick McKenney

There is still a lot of private placements going to market. The pricing looks very similar to what you see in the public front.

Ryan Krueger

Okay.

Rick McKenney

So the difference in the private to public spread if you will has really narrowed quite a bit and so it is just like every other asset class there is a lot of buyers out there for these type of assets both from the public and private side and so we're just not getting that much of a differential. But it's a good market for us who like privates it has been something that has been a core asset class of ours we like the structure around them. We have good folks that are doing the underwriting on those and so that would be a key part of the portfolio but there is not like a there is a dislocation where we can cloud more of that area, it's coming from a credit spread perspective just like everybody else.

Ryan Krueger

And lastly I want to just circle back on one thing. You talk about high -- in the Unum U.S. you talked higher group disability competition, but still not seeing as much competition. You’ve seen good growth in voluntary. What about on the life and AD&D side? I guess does competition there tend to follow disability, or is it somewhat differentiated?

Rick McKenney

No, I think it’s usually, I mean life and group disability are usually hand-in-hand to go through that process. I think you’d have a hard time if you wanted to just come in to one of those markets without the other, particularly in the core space. These are smaller companies which you can’t bid out every line of business. You might see it in the large case because they can bid out effectively every line of business. And so often times you think of group coverages hand-in-hand.

Ryan Krueger

All right. Well, I think we will wrap it up there. Thank you very much for attending. We appreciate it.

Rick McKenney

Thanks for having us, Ryan. Thanks for everybody that joined us today.

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