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Unum Group (NYSE:UNM)

Q1 2012 Earnings Call

May 02, 2012 9:00 am ET

Executives

Thomas White -

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

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

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

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

Randall C. Horn - Executive Vice President, President and Chief Executive Officer of Colonial Life and Colonial life & Accident Insurance Company

Analysts

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

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

Edward A. Spehar - BofA Merrill Lynch, Research Division

Jay Gelb - Barclays Capital, Research Division

Thomas G. Gallagher - Crédit Suisse AG, Research Division

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

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

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

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

Sean Dargan - Macquarie Research

Ryan Krueger - Dowling & Partners Securities, LLC

Operator

Good day, ladies and gentlemen. Welcome to the Unum Group First Quarter 2012 Earnings Results Conference. Just a reminder that today's program is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to the Senior Vice President, Investor Relations, Mr. Tom White. Please go ahead, sir.

Thomas White

Thank you, Lisa. Good morning, everyone, and welcome to the First Quarter 2012 Analyst and Investor Conference 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 section 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, 2011. Our SEC filings can be found in the Investors section of our website at unum.com.

I also 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.

Participating in this morning's conference call are Tom Watjen, the President and CEO of Unum; Rick McKenney, Executive Vice President and CFO; and also the presidents of our 3 business segments, Kevin McCarthy for Unum US; Randy Horn for Colonial Life; and Jack McGarry for Unum UK. And now I will turn the call over to Tom Watjen.

Thomas R. Watjen

Thank you, Tom, and good morning. While our overall results were somewhat below our expectations, the vast majority of our businesses met or exceeded expectations, and I sum up the quarter as follows: First, we grew operating earnings per share by 4.3% with solid performance in our Unum US and Colonial businesses, which was off somewhat by -- offset somewhat by the lower-than-expected performance in our Unum UK and Closed Block segments. While this quarter's growth and operating earnings per share was below our outlook, we expect growth trends to improve throughout the year, and we are therefore are maintaining our 6% to 12% operating earnings per share growth outlook for 2012, though at the low end of the range.

Second, our core business segments generated healthy returns on equity of between 13.5% and 17.5% for the first quarter. Additionally, we are seeing signs of improving growth trends across these businesses. At Unum US, we saw solid sales results in the 2 segments targeted for growth, our core group and voluntary benefit lines, which were up 14% in the first quarter, an improvement over the 8.3% growth rate in 2011.

Colonial Life sales were somewhat below our expectations, but we are seeing positive trends in the core commercial market, a targeted market for us, and our overall premium grew almost 6% in the quarter. Finally, with firming in the pricing environment in the U.K., we are seeing better new sales opportunities in that market.

Thirdly, I'd point out that our capital position remains strong, with risk-based capital of 406% and holding company cash and marketable securities of $575 million. This gives us significant financial flexibility, flexibility that allowed us to repurchase $175 million of stock during the first quarter. Since year-end 2007, we have repurchased over $1.8 billion of stock and reduced our shares outstanding by over 20%.

And lastly, with our relatively consistent cash flow generation from operations, as you know, we have also established a pattern of returning capital to our shareholders through regular dividend increases. You saw yesterday that we announced a 23.8% increase in our quarterly dividend, which brings our cumulative dividend increase since year-end 2007 to over 73%.

So in summary, in spite of the results in our Unum UK and Closed Block businesses, we continue to feel good about where things stand at the company. We are growing operating earnings per share, generating attractive returns on equity and maintaining the financial flexibility needed to continue to consistently return capital to our shareholders. I can assure you that we will be very focused on improving the performance of those areas not meeting our expectations, while also building on the momentum we have established around the rest of the company.

Now I'll ask Tom to provide an overview on our operating results. Tom?

Thomas White

Great, thank you, Tom. As we discuss our financial results this quarter, I'll first remind you that prior-period results have been adjusted for our retrospective adoption of the accounting standards update for deferred acquisition costs and also for our treatment of the nonoperating retirement-related gains and losses which we now exclude from the operational performance of our businesses.

Adjusted prior-period results are available on our website in an 8-K and supplemental exhibit, which we filed on April 17. As a benchmark, for full year 2011, our after-tax operating income per share -- this is adjusted for the retrospective adoption of the DAC accounting standards update and excluding the after-tax nonoperating retirement-related losses, after-tax realized investment gains and losses and certain other items was $2.98 per share.

As you can see from our press release yesterday afternoon, we’ve reported net income of $213.9 million for the first quarter of 2011 or $0.73 per diluted common share, compared to net income in the year-ago quarter of $223.6 million or $0.71 per diluted common share. Included in net income for the first quarter of 2012 are after-tax nonoperating retirement-related losses of $7.6 million and net realized investment gains of $8.3 million.

Included in last year's first quarter are nonoperating retirement-related losses of $5.2 million and net realized investment gains of $9.7 million. So excluding these items, after-tax operating income was $213.2 million for the quarter or $0.73 per diluted common share compared to $219.1 million or $0.70 per diluted common share in the year-ago quarter.

Now turning to the operating segments. Operating income for the Unum US segment increased 5.8% to $205.9 million in the first quarter; and premium income increased by 4%, driven by positive comparisons in all 3 lines of business within this segment. Operating income in the Group Disability line was $74.7 million in the first quarter of 2012 compared to $73.8 million last year, as a 1% increase in premium income helped offset a 1 percentage point increase in the benefit ratio. The increase in premium income, which is the first year-over-year increase in several years, resulted from the recent favorable sales trends, solid persistency and also a slight benefit we experienced this quarter from employment and wage growth in our in-force customer base.

The group disability benefit ratio increased to 84.9% from 83.9% in the year-ago period, due primarily to unfavorable risk experience in the short-term disability line of business and the impact of the new claim discount rate adjustment that we made during the third quarter last year.

Within the group life and AD&D line, operating income increased 1.6% to $52.4 million in the first quarter, benefiting from an increase of 7.1% in premium income, which offset an increase in the benefit ratio to 72% from 70% last year. The increase in the benefit ratio was due to higher incidence rates.

In the Supplemental and Voluntary line, first quarter income increased 13.7% to $78.8 million. The year-over-year improvement was driven primarily by solid growth in premium income and favorable risk experienced in each of these product lines. Premium growth grew by 6.4% this quarter.

Moving to Unum UK, operating income in this segment declined to GBP 24.7 million from GBP 30.4 million in the year-ago quarter. The benefit ratio increased to 72.4% from 69.3% in year-ago quarter, while premium income in local currency increased by 4.2%. And Rick will examine the U.K. results in greater detail in his comments.

So concluding our core operations, Colonial Life reported an increase in operating income of 4.8% this quarter to $69.7 million, driven by premium growth of 5.7%, which offset a slight increase in the benefit ratio to 52.1% from 51.4% a year ago.

The results for the Closed Block segment this quarter showed a decline in operating income to $15.4 million from $31.9 million in the year-ago quarter. The interest adjusted loss ratio for the Individual Disability block was 83.1% compared to 84.7% last year, while the interest adjusted loss ratio for Long-Term Care was 91.2% compared to 83% last year.

Premium income declined by 2.9% due to the ongoing wind-down of the Individual Disability block.

For the Corporate segment, we reported an operating loss of $20.6 million in the first quarter compared to a loss of $21.8 million in the year-ago quarter. Net investment income is lower due to the lower asset levels, a lower proportion of assets invested at long-term interest rates and an increase in the amortization of the principal amount invested in tax credit partnerships. Interest to debt expense declined to $32.5 million in the quarter compared to $34.9 million a year ago, due primarily to last year's first quarter debt maturity. And expenses are lower than the prior year, primarily due to decreases in expense accruals.

As previously noted, our after-tax nonoperating retirement-related loss for the first quarter of 2012 was $7.6 million. And for your modeling purposes, you can expect this loss to continue at this quarterly rate for the balance of 2012.

Now I'd like to call over to Rick McKenney for further analysis of this quarter's results. Rick?

Richard P. McKenney

Thank you, Tom. In my comments this morning, I'd like to cover the margin trends we experienced in our business segments this quarter, a view on the growth trends, and we'll also provide an update on our investment results and capital position.

First on operating results in the first quarter, I'll start with Unum US. It was a very good quarter for the Unum US segment, with operating earnings growth of 6% and generally solid risk experience. Sales growth and persistency trends were also encouraging, and I'll cover those in a moment. For Group Disability, the benefit ratio remained within the range we've seen over the past 2 years with a benefit ratio in the first quarter of 84.9% compared to the fourth quarter ratio of 84.7% and 83.9% in the year-ago quarter.

Submitted new claims incidence trends for long-term disability were slightly higher, but paid incidence trends were actually slightly lower. Claim recovery trends continued their favorable performance over the past several quarters. These trends were offset slightly this quarter by weaker results in our short-term disability claim experience, as we experienced higher paid incidence rates and higher average weekly indemnities. We've already begun taking action which we believe will firm up the result in short-term disability, and we don't expect to see this trending through to our long-term disability results.

Additionally, the new claim discount rate adjustments we made in the third quarter last year negatively impacts the benefit ratio by approximately 65 basis points. We made no additional changes in new claim discount rate this quarter, and the interest reserve margin remains stable at a spread of 97 basis points. Overall, we were pleased with the performance of the group disability line, which generated over a 13% return on equity for the first quarter.

For the group life and AD&D line, the earnings contribution this quarter remains stable at $52.4 million, up 2% from a year ago. Premiums grew by 7% this quarter due to the recent improvement in sales trends, as well as higher premium persistency. The benefit ratio at 72% was higher than we've seen in previous quarters, primarily due to higher incidence in group life. The overall margin for this line remains very healthy, generating an ROE north of 15%.

Moving to the Supplemental and Voluntary line within Unum US, we saw very good overall earnings results again this quarter, which increased 14% due to solid risk experience and strong premium growth. Premium growth was 6.4% in total and 9.2% for the voluntary benefits product line. The benefit ratio improved to 50.1%, primarily driven by favorable risk experience in the voluntary benefits life product line and the Individual Disability recently issued product line. The ROE for this business line stands at 13%, and it remains an attractive growth opportunity for the company.

Turning to the U.K., results were lower than we expected, with operating earnings declining to GBP 24.7 million, with lower net investment income and unfavorable group life experience. We attribute the results in our group life business this quarter to volatility, as the increased claims are not concentrated in any single customer or time period when the business was underwritten or sold. To give some context, this is a relatively small block of business at roughly GBP 130 million of annual premium income, so it's subject to variations in claim activity. We anticipate that these results will return to more normal levels of profitability as the year progresses, which would be more in the GBP 30 million of quarterly earnings and an ROE of around 20%.

Colonial Life produced another solid quarter as operating earnings in the first quarter increased 5%, with premium income increasing almost 6%. The benefit ratio was slightly higher this quarter at 52.1% compared to 51.4% in the year-ago quarter and was up slightly in each of the lines. The ROE for Colonial Life remains a very healthy 17.4% for the quarter.

To round it out, this is the first quarter after loss recognition that we’ve reported our Closed Block with the inclusion of our Long-term Care business. The results came in lower than a year ago and below our expectations due to higher claim incidence in Long-term Care. We attribute this to volatility this quarter, but we still need to establish a firm run rate in this business under its Closed Block status.

So turning to our sales trends, we were very pleased with trends we're seeing across our business lines. Sales at Unum US continued the strong trend we've seen for the past few quarters, with total sales for the first quarter increasing 12%. For the group disability and group life and AD&D combined, sales increased 11%, with sales in the under-2,000-life core market increasing 11.5% and comprising just under 70% of the sales mix. Voluntary benefit sales were also strong, increasing almost 16% for the quarter, with positive contributions across all product lines and market segments. And persistency for Unum US was also strong at 91.7% for Group Long-term Disability and 91.3% for group life.

Given these strong trends, along with a very slight benefit from the improving employment picture in the U.S., we produced 4.4% premium growth for the Unum US segment, its highest growth rate in several years.

In the U.K., we also continue to see better pricing trends in the U.K. market. And as a result, new sales activity has rebounded strongly against relatively low sales volumes from a year ago. In addition, persistency is firming up for the Group Long-term Disability line at 86% compared to 83.5% last year, as price is absorbed into the market. Given these trends, premium income in the U.K. in local currency increased just over 4% in the first quarter.

Finally, in Colonial Life, premiums grew 6%. New sales in Colonial Life were relatively flat, with new accounts increasing 3% but a smaller average case size impacting the total new account sales volume.

Moving on to the balance sheet and the investment portfolio, we continue to be pleased with the trends we're seeing. The credit quality of our investment portfolio remains excellent, with a net unrealized gain position of our fixed maturity securities portfolio at $5.5 billion at quarter end and our watch list of potential problem credits continuing at historical low levels. Net realized after-tax investment gains and losses excluded -- excluding the embedded derivative in the reinsurance contract was essentially breakeven this quarter.

The ongoing low interest rate environment continues to be challenging. And additionally, the tightening of credit spreads throughout much of the quarter made for an even more difficult quarter to put money to work. By being selective in our asset purchases, we were able to achieve new money rate, which is hedge-adjusted for 5.4% for the first quarter. As a result, the overall portfolio yield held up relatively well at 6.62%, comparing to 6.67% at year end. Given the environment we saw in the first quarter, we did run a cash balance higher than usual, which creates a drag on our net investment income. Given lower amounts of cash flows in the second quarter, we'll look to catch up in the second quarter while continuing to be opportunistic.

Our capital position continues to be strong. While statutory net income for our traditional U.S. life insurance companies was down slightly from a year ago, our run rate continues to support our capital model that generates about $500 million of free cash flow per year. The weighted average risk-based capital ratio for our traditional U.S. life insurance companies remains at approximately 406%, above our 2012 target range of 375% to 400%. Holding company cash, marketable securities total $575 million at quarter end. And we continue to expect it to be within the range of $500 million to $800 million by year-end 2012.

During the first quarter, we took advantage of a lower share price, and our share repurchases totaled $175 million of our planned total of $500 million for the year. We also announced yesterday that we increased the dividend for the fourth straight year, and this year, notably, at a more rapid rate. We see this as reflective of our cash flow characteristics and a positive way to return money to our shareholders.

In closing, with a comment on our outlook. Despite the volatility we have described and pressure on the investment side, we continue to see 2012 operating earnings per share growth in the lower end of the range of 6% to 12%.

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

Thomas R. Watjen

Thanks, Rick. In closing, despite the unfavorable results in a couple of areas which we recognize we must address, we continue to grow operating earnings per share, generate solid ROEs in our core business segments, grow our business in our target markets and generate capital, which has allowed us to continue to buy back stock and raise our dividend. And as Rick said, we're maintaining our outlook, which continues to call for operating earnings per share growth at the low end of our 6% to 12% range.

This completes our prepared comments, and operator, let's move now to the question-and-answer session.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Chris Giovanni, Goldman Sachs.

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

I wanted to see -- regarding Long-Term Care and the incidence levels that you guys talked about, I believe your book is at a relatively younger age maybe versus some of your peers. So curious if we should be worried that this higher incidence levels, this early on could lead to the need to maybe strengthen reserves in the future.

Thomas R. Watjen

Two questions embedded in there, Chris. Why don't we sort of ask Kevin to speak a little bit just to some of the incidence and claims trends? And obviously Rick can speak to our confidence in the reserves.

Kevin P. McCarthy

Yes, you're right. Our average age is probably lower than our competitors, primarily because we have about 50% of our book of business in the group Long-Term Care business. And that average age is in the mid-40s. The expected levels of incidence at that age would be quite low, so even small upticks in incidence would generate the appearance of a fairly significant higher percentage. That said, the block of business isn't sizable enough to not have volatility, and I think this kind of volatility that we experienced in this quarter isn't atypical of this kind of business.

Thomas R. Watjen

Rick, you want to speak to the financial side of that?

Richard P. McKenney

I will. As I noted in my script, what we saw in the higher loss ratio in the first quarter is a reflection of the quarter. With regards to claim incidence, we saw in LTC and not what we would expect longer-term in these businesses, as Kevin just referenced. So if you look at the Closed Block in aggregate, we were running around $30 million if you look over last year. It's come down a little bit as we look into this year, and we're running in probably the $25 million to $30 million range. And we were lighter than that by $10 million pretax. So I would chalk that up to volatility. You mentioned the reserves. We did take action at year-end, but those actions were much more about our long-term assumptions. And as Kevin said, this incidence we saw in the quarter is not our long-term expectation.

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

Okay. And then Kevin, the commentary in the release was pretty positive around the competitive environment in group disability, and you talked about some pickup from employment and wage increases. So I wanted to see, one, if you could talk about sort of -- expand on the competitive environment. And in the past, you've talked about sort of $80 million in premium from sort of natural growth from expanding wages and payrolls. So wanted to see how much of this you think you're capturing today.

Kevin P. McCarthy

First, let me address maybe the competitive pricing environment. I would say that, generally speaking, a number of companies over the last year have announced in one way or another, either price increases or renewal programs. I think we've seen some uptick in premium for life across the industry, which is a good solid trend. I mean, there are always a few competitors that, that's not the case. But in general, there's been an uptick in PPL [ph]. And in general, we've seen fairly stable pricing, especially in the smaller case end of the marketplace through the end of last year and into the first quarter of this year. In terms of a 4% of earned premium growth overall in Unum US, very little of it is from natural growth. I think there are encouraging signs in the economy, other than maybe this morning's payroll -- unemployment report. But in general, I think the signs have been encouraging. But that only accounts for sort of less than 0.5% of the overall growth. The primary driver of growth was solid sales here in 2011 and really solid persistency levels.

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

Okay, then one just last quick one on capital management. Back at the 2010 Investor Day, you talked about potentially being able to do up to $900 million of share repurchases a year, and you backed away from that last year due to some of the economic headwinds. But curious if you would be willing to upsize your buyback this year in order to achieve your EPS growth target?

Thomas R. Watjen

Rick, you want to take that one?

Richard P. McKenney

Yes, I would like to talk about that one. I would agree with those numbers we laid back out in 2010. We got off of that track last year as we saw challenges over the course of the summer with what was going on in the Eurozone, et cetera. As we came into this year, our 2011 investor day, we talked about $500 million of repurchases over the course of the year. We did a little bit more than that run rate in the first quarter, but we're sticking to the $500 million for the full year. And to your last point, we don't think about it from an EPS perspective. We think much more on the capital management side as returning capital to our shareholders, doing it as a good use of the excess capital that we've generated, and we'll continue to do it that way. The last point I would make is, a lot of the numbers we put out back in 2010 still hold. So when you think of the excess capital that we still have out there on the balance sheet, both in terms of cash as well as RBC in excess of our expectations over the longer term, that dynamic still exists, but we're going to wait until we see a better market and a better environment on the horizon before we bring out some of that capital.

Operator

Up next, we'll hear from Mark Finkelstein, Evercore Partners.

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

To get to the low end of the range of 6% to 12%, does that assume full recovery in U.K. and LTC earnings?

Thomas R. Watjen

Rick?

Richard P. McKenney

Sure. When you think about the lower end of the range, the 6% to 12%, we've talked about 2 dynamics there. We’ve really mostly talked about one, which is the pressure we've seen from the lower interest rates and the higher cash balances that we're holding. I think our expectation, as we've said in our earlier comments, is that over the course of the year, that the volatility that we saw in both LTC as well in the U.K. will dissipate. So when you take those together and a whole lot of other things that will happen over the course of the year, it leads us to the conclusion that we're still within our range of 6% to 12%.

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

Okay. I guess, just going back to the incidence on LTC, I mean, the interest-adjusted loss ratios really did pick up quite a bit. Are there any metrics that you can give us that just show that it really was a blip in incidence and just not kind of a continuation of a negative trend, albeit much more magnified this quarter? I mean, are there any sequential actual expected type metrics or anything that can kind of tell us just how much of an anomaly this was?

Thomas R. Watjen

Kevin, you want to talk about it a little bit, because you guys obviously monitor the business on a fairly regular basis?

Kevin P. McCarthy

We've seen this kind of hiccup in incidence before in disability lines and Long-Term Care lines. The claim volume was a little bit elevated in the first quarter. We've seen other quarters that were somewhat similar. We typically see some seasonality in the business as well, particularly after the holidays in the first quarter. But like I said earlier, this kind of volatility, we track it, and we see it from time to time. From a claims management standpoint though, we're pretty active about making sure that we understand where claims are coming from and what we can do about it. I mean, we can't do much about the incoming mail, but from there, we can actively manage the claims. And we've taken a couple of actions since the end of the year to shore up and strengthen our Long-Term Care active management. I'll give you a couple of examples. We did appoint a new senior financial executive to oversee the business. We did put in place sort of an internal, regular internal audit-type peer review of claims activity. And we did put in place an inventory management system around claims, similar to what we executed in long-term disability that's served us so well in that line of business. So I think as Rick said, we would expect this volatility to happen from time to time, and we would expect it to dissipate.

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

Okay. And then just finally, with you, Kevin. I think Rick made an opening remark suggesting that the STD incidence shouldn't travel over to LTD. I guess, what gives you that confidence?

Kevin P. McCarthy

A couple of things. We track something that we call the flow-through rate, the rate at which STD claims become LTD claims. That's not moving at all. In fact, if anything, it's slightly declining. Secondly, duration days, the length of time that STD claim would stay on-claim, it has been incredibly stable over a long, long period of time. So when I take a look at what's going on in STD, I think again we've got an uptick in incidence. We're addressing that with pricing actions, and we don't see any flow-through to LTD.

Operator

Up next, we'll take a question from Ed Spehar, Bank of America Merrill Lynch.

Edward A. Spehar - BofA Merrill Lynch, Research Division

I have 2 questions. I guess the first would be, if the earnings run rate continued for Long-term Care at the 1Q level, so I think you said about $10 million less than what you thought, what, if anything, would that imply for reserves?

Thomas R. Watjen

Rick?

Richard P. McKenney

Yes, well, I think that what you're talking about though is, and it is a little bit speculative, that, that higher incident rate persists for a long period of time. And so if it's a long period of time, it's something you have to address. But I'd very quickly say that we don't expect that, as Kevin said, and as I've said. And so I think that it does not have the impact on reserves. It is more volatility intra-quarter, which is an income statement issue and not a balance sheet issue.

Edward A. Spehar - BofA Merrill Lynch, Research Division

Okay, I appreciate that. But if there's -- I mean, if it did, I mean just sort of sense as to how big of a deal it would be if this number was $10 million a quarter worse than what you're thinking. I mean, is it a reserve issue at all? I guess my point is, is it a reserve issue at all, or is it just that earnings would be coming through $10 million less a quarter every quarter going forward?

Richard P. McKenney

Well, I think we're speculating a little bit here, so what we're…

Edward A. Spehar - BofA Merrill Lynch, Research Division

We have to do that though, unfortunately, Rick.

Richard P. McKenney

What we're talking about is short-term trends versus longer-term trends. And we're saying this is a short-term trend, and it will be earnings impact in the current quarter, which we've shown you. If it happens again, it will be earnings impact in that quarter. And then longer-term, if we see that as a trend, we'll have to reflect that into our reserving processes. But that's a long way out from where we sit here today.

Edward A. Spehar - BofA Merrill Lynch, Research Division

Okay, and then a related question is, have you considered that there's any possibility that there was an acceleration of submitted claims in Long-term Care, simply because of your decision to exit the line? Is there any reason to think that, from either a customer or distributor standpoint, that you might have had some upfront-ing of claims?

Thomas R. Watjen

Kevin, you want to take that actually? Because we've looked at that right there…

Kevin P. McCarthy

No, I think -- first of all, I think it would be way too soon. We didn't make the announcement until the first week of February, something like that. So it would be way too soon for that sudden influx of mail to sort of come in. So no, I don't think there's any evidence to that. Like I said, we do a lot of internal review of incoming claiming volume. We want to make sure whenever we see an uptick in incidence, that there's nothing -- there's no sort of new thing happening to us. And we didn't see any evidence of that. Like I said, I think it's just volatility.

Edward A. Spehar - BofA Merrill Lynch, Research Division

Is there any reason to think that, that could have an impact in subsequent quarters, just the announcement that you're getting out?

Kevin P. McCarthy

I don't think so. I mean, when you think about the definition of disability, I am hard-pressed to see people deciding that they've got multiple ADL losses, activity of daily living losses, just because we made an announcement. I mean, either they have it or they don't.

Thomas R. Watjen

I think, Kevin, you mentioned, too, one of the things we have done since the announcement is shore up a lot of our resources actually supporting this business, made a number of adjustments in personnel and things like that. So to the extent we do get a higher level of claims, we've got the resources to be sure that we're only paying the ones that should be paid.

Kevin P. McCarthy

Absolutely.

Operator

Our next question will come from Jay Gelb, Barclays.

Jay Gelb - Barclays Capital, Research Division

What's the sensitivity to Unum's sales in the U.S. from a pickup in improving wage numbers and employment?

Thomas R. Watjen

Kevin, do you want to take that one?

Kevin P. McCarthy

Sure. I don't know if I could quantify it for you, Jay, but I mean, certainly an uptick in wage inflation, if you will, would increase covered payrolls, which in turn would increase the dollar volume, if you will, of sales, pretty linearly. And then I think an increase in employment would be similar. I mean, we start -- if companies started to grow, instead of covering 100 people in the company, we'd be covering 105. So I think it's a very linear relationship. And if we see an uptick in wage inflation and we see an uptick in employment, we'll see an uptick in the dollar value of sales in premium.

Thomas R. Watjen

Jim, I might say that we're not expecting significant improvement in the economic environment actually. So the growth that you've seen in the last year or 2, which we reported here in this past quarter, is more driven by basic fundamentals. It's either a combination of competitive dynamics improving. Obviously, our reach and touch in the marketplace continues to expand. We've had great stability in this company in terms of our sales and service organization. I think, Kevin, which actually is probably more behind the growth that we've seen, and probably what we're expecting the rest of this year.

Kevin P. McCarthy

The other thing I'd say, Tom, is that any improvement in the economic environment with respect to wages and employment probably reflects itself more in what we call NBOC, in-force customers beginning to grow again. And we did see an increase in NBOC during the end of last year and into this quarter. And it reflects confidence.

Jay Gelb - Barclays Capital, Research Division

On a separate issue, the drop-off in Unum UK net investment income quarter-over-quarter was pretty significant. Was there any specific driver to that? Or is that the right run rate going forward?

Thomas R. Watjen

Tom, you want to take that one?

Thomas White

Yes. Jay, basically, what happened is in last year's first quarter, we had a bond call. I think it was about GBP 2.7 million. And actually, it's a little unusual for us to have that. So we had that working against us. We didn't have any on-call premium this year. So about a $2.7 million swing year-over-year because of the bond call last year.

Jay Gelb - Barclays Capital, Research Division

It was down from $50.5 million in the fourth quarter of '11, so…

Thomas White

The other thing is we'll get some adjustments and some noise with the inflation. Keep in mind, with our group disability policies over there, about 30% or so have an inflation rider, so as inflation moves up and down, we'll have some movement in the net investment income, which actually gets offset on the reserves and flows through the benefit ratio. So it doesn't have any impact on overall income, but we can get some noise with how inflation moves around in the U.K.

Thomas R. Watjen

Their indexing guild [ph] so we're invested in over there.

Jay Gelb - Barclays Capital, Research Division

So what do you feel the right run rate is for net investment income in Unum UK?

Thomas White

It's going to move around. You have to -- we can probably -- I can take you off-line, and we can kind of talk through what some of the trends have been. But it's going to be heavily dependent on the direction of inflation and how that kind of flows through the investment income line.

Kevin P. McCarthy

Tom, maybe also to point out too that, that also affect -- the movement in the rates in inflation affect also the benefit cost. So there's a linkage sometimes. So actually just focusing on the investment income is a piece of it, but it's also a benefit cost connection as well.

Jay Gelb - Barclays Capital, Research Division

Okay. And then on the Closed Block, the impact of the Long-term Care business going forward, I know you're trying to figure out what the run rate is there, but maybe you can give us a bit more sense in terms of how we should think about it.

Richard P. McKenney

We are trying to establish a run rate there, as I mentioned. But I think I also mentioned in my earlier comments, we'd expect that 25% to 30% range is probably more realistic for this Closed Block going forward. As I mentioned, that's slightly down off of the run rates we were seeing last year as we've taken the entire business through the Closed Block process.

Jay Gelb - Barclays Capital, Research Division

And that would be considering no other unusual impacts, correct?

Richard P. McKenney

That's our expectation.

Operator

From Crédit Suisse, we'll hear from Tom Gallagher.

Thomas G. Gallagher - Crédit Suisse AG, Research Division

I just wanted to come back to Long-Term Care for a minute. And Rick, I just want to make sure I'm doing the math correctly. So if I take -- if I kind of overlay your interest-adjusted benefit ratio with what I think is reasonable other expense line, it looks like you lost a slight amount of money in Long-term Care in this quarter and you made money in the Closed Block Individual Disability. Is that correct?

Richard P. McKenney

I think that's pretty close. We don't split out those results, but I think that’s directionally correct.

Thomas G. Gallagher - Crédit Suisse AG, Research Division

Okay. And if I sort of extrapolated, and again, I know this is assuming -- making an assumption, but if I assume that claims do remain elevated and I had just a moderate loss on a GAAP basis for the next 3 quarters heading into year end, would that precipitate another reserve charge, to kind of get back to Ed's question, if you had -- if you strung together 4 quarters in a row? Or is that still too early to determine that the reserves are inadequate? Or you just can't make a determination? I'm just curious how you would think about that.

Richard P. McKenney

Sure. I think I'd point you back to the underlying causes that brought that into a lower-earning position over the next 3 quarters. And then we have to take those causes, which in this quarter would be claim incidence and whatever that cause might be. And you’d take those new levels and put that through the reserves and see if you're adequate on that basis. And there's other offsets going the other way that will change over the course of the year as premium -- new premiums come in from pricing and things like that. So you take all that together and then evaluate your reserves in that process. But I think you have to go to the underlying causes, not to what the earnings run rate is. The earnings run rates can differ from what your long-term expectations are of claims incidence or any other factor behind the business.

Thomas G. Gallagher - Crédit Suisse AG, Research Division

And then I guess my other question would be on a related note. Even though you did take a Long-term Care reserve charge on GAAP, there wasn't much of a statutory impact from it last year. So it really has had minimal impact on capital management, which you've been able to still do in a fairly robust way. If there was a Long-Term Care issue on claims incidence, would that also be a stat issue? And would that potentially change the outlook on capital management? And then just a related question, has there been a corresponding statutory impact now that you've seen some softening on GAAP on Long-term Care this quarter?

Richard P. McKenney

Okay. Lots of questions in there. If you take what happened in the quarter from a statutory perspective, we did see higher incidence. We're paying on more claims, and so we'll have a little bit less of a run rate on the statutory side. Once again, we don't expect that to continue. So we'd expect our statutory earnings to go right back to our model that we're expecting longer-term in the company. We mentioned at year end that our GAAP reserves are similar to our stat reserves today, but those are 2 fundamentally different bases of accounting. So you’d have to build up from the underlying assumptions and how that might change your view around both GAAP or stat. So if we do see pressure in this business, ultimately we could see pressure on the statutory side as well, but we don't see that today. And so we'll have to see how that plays out.

Thomas G. Gallagher - Crédit Suisse AG, Research Division

Understood. Last question, just on the U.K. I think last time we had a blip in the U.K., you guys had talked about in the month following the close of that quarter, things had gotten a bit better. Do you have any early read on how things are playing out thus far into 2Q in the U.K.?

Thomas R. Watjen

Jack, do you want to cover that? Maybe even just step back a little bit and just sort of again, in your own words, describe a little bit what we saw here this past quarter.

John F. McGarry

Yes. It is different that the blip in the U.K. in the third quarter was a disability blip. This is clearly a group life and dependence blip. So we don't have a read on where it is in the second quarter. It is more volatile. To kind of put it in context, our entire group life block in the U.K. is smaller than 1/4 worth of group life business in the U.S. And actually, average sizes, because the standard plan design here tends to be 4x, salary tends to be even higher. So we expect volatility in it. We don't have a good read, but we've had blips. In the past, the first quarter tends to be a little worse than other quarters. And we put some solace in the fact that we had very good group life quarters in the 3 quarters leading up to this one.

Operator

Our next question today will come from Steven Schwartz, Raymond James & Associates.

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

A lot of follow-ups, but thanks for that on the U.K. in April. I'm wondering if you could talk about maybe April, and if it's possible to talk about April in Long-term Care and STD. And also with regards to STD, you're raising prices. Is that going to take a couple of years to get through, like it might in Group Long-term Disability?

Thomas R. Watjen

Kevin, you want to pick up on both of those? Obviously...

Kevin P. McCarthy

Yes, I'd hesitate to say anything really about the second quarter right now. I mean, just as we say the first quarter's volatility, and one quarter doesn't make a trend, I'm reluctant to speculate on one month being a different trend. So I think we'll just have to let it play out. As Rick said and as I said earlier, we expect volatility. It's happened before. We expect it to dissipate throughout. But I'd rather wait to sort of see it happen than speculate about it. With regard to STD, in terms of renewals, yes, it'll take -- it would take about roughly 2 to 3 years to have it run through the block as long as [ph] that business has either 2- or 3-year rate guarantees. We're talking about a mid-single-digit kind of rate increase. But of course, new sales would flow through right away, and we're raising prices on new STD sales as well, also in the mid-single digit range. And so as sales flow through, that'll help the block as well.

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

Okay. I'll leave that dead horse there. If I could, a couple more questions. Rick, you mentioned cash drag in the quarter. I was wondering if you could possibly put a number on that since it sounds like you'll be fully invested at least some point during the second quarter. That seems to be the plan. And then I was also wondering, a competitor mentioned this, and I was wondering if you had seen this. Social security administration delays, maybe a lengthening in the time it takes for a decision. And if you'd seen that, how that affects you.

Thomas R. Watjen

Rick, why don't you take the cash piece, and then Kevin on the social security offset piece?

Richard P. McKenney

Sure. On the cash side, what we saw in the quarter is a few hundred million. So you're looking $300 million-ish type range of excess cash that we wanted to put back to work. As we look out at how much we actually did put to work, it was a fair bit. Second quarter is a lot lighter in terms of incoming cash flow that we have coming in. So even if we do slightly less than we did in the first quarter, we'll be caught back up. But sitting on that cash, even for a short period of time does cause a little bit of drag. And we'll just have to work our way through that. But we expect to be caught back up, mostly because of the volumes that we see of cash coming in, in the second quarter and our expectation that our team will continue to be opportunistic and get that out over the course of the second.

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

Okay. And then on social security?

Kevin P. McCarthy

With respect to social security, there's been a trend of higher rates of approvals by Social Security over the last several years, and that's reflected in our strong offset performance. We haven't seen really anything with respect to generally delays in awards and the recognition of those awards. And in any event, from a pricing and reserving standpoint, we plan for that anyway. So even the awards were delayed, they would be awarded retroactively. And as long as that occurred according to our pricing assumptions, it would make no impact at all on our financials.

Operator

Our next question today comes from Randy Binner, FBR.

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

I wanted to hit on STD again. I guess I haven't heard in all these questions if there was an explanation of kind of what the dynamic was with the higher claims there. And then also I was curious beyond raising pricing if there's any actions you're taking on the claim side to try and mitigate whatever the trend there is.

Thomas R. Watjen

Kevin?

Kevin P. McCarthy

Yes. A couple of things. What we've seen is a general creep in incidence and prevalence in STD over the last several years. So it was a little bit more visible this quarter. As I said, the length of STD claims hasn't changed at all. Flow-through to LTD has not occurred. And so I guess what I would conclude from that is that it's maybe a higher volume of very short-term, short-term disability claims. Those -- that makes it somewhat harder to manage, because we're not trying to manage recoveries. A lot of times, we get short-term disability claims that are so short that by the time we find out about them, the person's already back to work. That said, we are taking a look at whether or not we can do something around the very, very front end of short-term disability claims to monitor the incoming to see whether we can get our arms around whether or not there's anything we can do about that. At the same time, I think the more practical answer is we just need to raise prices to reflect the incidence and prevalence level we're seeing.

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

Okay. And that's kind of across job classes, across geographies? There's no trend in that?

Kevin P. McCarthy

No. No trend that I can point to at the moment.

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

Okay, that makes sense. And then just one more kind of higher-level question on net investment income. I think people have hit it in different areas. And it was a little bit light versus our model, and I appreciate the comments on putting cash back to work. But I guess there's -- just to kind of clarify or make sure, there's no -- there's nothing you're going to do in the portfolio to take additional action, kind of different investment strategy, different asset allocation? It's the same asset mix and strategy you're looking for in the portfolio, just trying to get more cash to work. Is that right?

Kevin P. McCarthy

That's absolutely the case. I think we know the asset classes that we like, and on a relative value basis, we'll shift from one asset class to another, whether it's private placements or corporate bonds or commercial mortgage loans, and we'll go where we see relative value. But you won't see a move in the overall portfolio. It's been stable over the last several years, and you can expect it to stay there. It'll be marginal moves in each of those product lines or those asset classes depending on what the environment looks like.

Operator

From Barclays, we'll take a question from Eric Berg.

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

Actually, I used to be at Barclays. Now we’re at RBC. All joking aside, I wanted to return to the Long-term Care area. And I guess my first thing is, I wanted to clarify that the incidence, the pickup at incidence that you experienced in the March quarter is different from the issue that you addressed fundamentally in the large reserve increase that you took to exit the business. In particular, my understanding is that when you booked the large charge to exit the business, that was fundamentally about how long older people are living in or remaining in nursing homes -- essentially, they’re staying alive -- before the claim ends due to death in the nursing home, that this was really about the length of stays in nursing home. And so my question is, first, are we really talking today about a new aspect to the claims? People entering nursing homes, the number of claims as opposed to the length of claims? That's my question.

Thomas R. Watjen

Rick?

Richard P. McKenney

Sure. We think about -- I'll take you back to year-end. There were 2 fundamental things that we highlighted: one which you referenced which was termination rates, how long people are staying on-claim and what our long-term view is of that. The second is interest rates. So we did adjust for what our perception is of interest rates drifting down here over the next 3 to 5 years, and those are the 2 big aspects of that. What we saw this quarter is different than those items on the incidence side, and it's different than what we've seen over the last several years. So if you look back to some of the increasing loss ratio we had in the past, it was much more about lapse-ation or persistency of people staying on their parts [ph] as opposed to the utilization and incidence which we're seeing here. So we did see that blip up in the quarter, and we'll certainly keep a close eye on it. But at the moment, we think it's volatility.

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

And let me just ask a second and final question on this topic. It is sort of the same question but asked differently from the one that was asked I think by Ed and Tom, and it's this. Let's say you continue to experience elevated incidence. I know you don't. You've said that repeatedly. You're calling this volatility. But let's say you did experience it. My question, what would be the case -- what would cause you not to have to take a reserve charge in the face of ongoing elevated incidence? Others -- the other fellows asked you, wouldn't that lead to a reserve charge? I'd like to know what would be the set of facts and circumstances under which, faced with higher incidence on a continuing basis, you wouldn't take a reserve charge?

Richard P. McKenney

Sure. I think that incidence is one attribute of the product line, and so we’d have to look at all the other pieces, including the ones we adjusted at year-end to see if they play out that way. And the other thing that's important is we are able to increase prices in this line. And so we are actively continuing to raise rates in this line to reflect the characteristics of that block. And certainly an increase in incidence and utilization is brought [ph] would correspond with us continuing to raise rates. And so I think that's -- you mentioned what's the one offset. I'd probably highlight that as an important factor.

Thomas R. Watjen

And Rick, bringing into that the fact that we've really brought in some people into this exercise to be sure we've got resources behind this, including a very senior addition to the team. So Eric, I mean we just aren't taking this issue of how we reprice and rethink that block of business casually. There's an active process in place, as Rick said, to be sure that we're being as aggressive and as appropriately aggressive as we can be on pricing and repricing.

Operator

From Sterne Agee, John Nadel is up next.

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

I guess to beat the Long-term Care horse to absolute death, can you just update us -- Rick, you mentioned pricing. Can you update us on where you stand with respect to the pricing actions? Maybe guys give us an update on state-by-state approvals, the expectation for impact to premiums over what period of time again.

Richard P. McKenney

So I'll take you through what we've seen with regard to our filing process on individual Long-term Care. The plan's still on track. I wouldn't give you much more update than take some time to implement those once they've been approved, and they have to go through the process of notification, et cetera. I would say going forward, we're going to see where price stands. But it'll be on a much more -- on a continuum. These aren't going to be initially weighted to pricing. These will be ongoing to be ongoing discussions that we have with states with regard to the particular block of business that they have there. And so to go through a process of kind of an update and a status check, I think, will be different. We'll certainly let you know as the premium starts to flow in and what our expectations are around that going forward. But so far, we're still on track. I'd take you back to the metrics we saw in the fourth quarter, and they look very similar to that.

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

Okay, helpful. I guess, separately, the change in your definition of operating earnings and treating these I guess pension-related costs as nonoperating item could -- I'm just curious, what precipitated that? And why are you making that adjustment? I'm just trying to understand the theory.

Richard P. McKenney

When you look at the operations of our business, we certainly try and be consistent across the board. And I would say this item that we're talking about -- we're not talking about our total pension expense. We continue to have the service cost running through, which reflects the increasing level of our pension. What we're talking about here is the movement in the actuarial gain or loss, which is very similar to capital gains and losses in the portfolio in that it will get marked and it will change and we'll see gains. And that today comes through the income statement, although over a longer period of time. But we think it looks much more like capital gains and losses. And we have seen other companies out there that do something similar, and we thought that was appropriate for our business.

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

Can you give an example of couple of companies that you've seen do this?

Richard P. McKenney

GE, IBM.

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

Okay. So nobody in the peer group, though? I don't believe there's anybody that I cover who has done this.

Richard P. McKenney

No. I don't believe there is. And so we're looking at it, but I would say there's an awful lot of folks out there that do look at capital gains and losses or things that are similar to that as nonoperating items and we put this in that category.

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

Understood, okay. And then 2 quick ones then. Did you see any benefit in the quarter from prepayment income? Was it in line with expectations, above, below?

Thomas White

Yes. I think, John, it was pretty consistent with what we saw on the first quarter last year and relative to the fourth. Actually, it was a little bit lower than last year and pretty much in line with what we saw with in the fourth quarter. The thing about it, it varies by line of business. It just depends on the bond that's called and what product line portfolio that we're holding it in.

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

Okay. And then the last one is more for Tom Watjen. Just looking at the sales results in Unum UK. And if I go back in time when you made the management changes there, I think at least in part, one of the things that you highlighted was you weren't all that pleased with the mix shift that had been occurring in the U.K. away from disability, toward group life, and yet, this quarter, I see dramatic increase in group life sales year-over-year, not that disability didn't grow either. But is there anything we can take away from the quarter's results in that regard?

Thomas R. Watjen

No, I don't think so, John. I think we said across all of our businesses, we -- obviously there are parts of our business that are opportunistic. And occasionally, we're going to see things that if we can price the business properly, we're going to be opportunistic. And I think you saw that to a degree in the U.K. results in the quarter. There are a few cases, for example, that were reasonably large, but ones that again we could obtain on a very attractive price. And as Jack mentioned in his comments, other than this quarter, we've had a pretty good run of 3 quarters of pretty good results in the group life line in the U.K. So I think that discipline you referred to, we're very much staying with. Across all of our businesses, we can see opportunistic things come along, which can cause spikes. In Unum US, for example, you'll see the spikes in large case when you see those kinds of opportunities. So nothing has really changed there. Again, our fastball and our presence in the U.K. is dominated by our disability franchise, and we really have, with Jack's leadership, I think really brought more focus to that. We're very engaged in the public policy debate in the U.K. about the role private disability can play in the broader sort of public policy arena. So please don't misread that quarter in terms of a shift back to some things that I think, as you rightfully point out, we were trying to move away from.

Operator

Up next, we'll hear from Sean Dargan, Macquarie.

Sean Dargan - Macquarie Research

Just following up in the U.K. I think the consensus now is that the U.K. is in full-blown double-dip recession. Does that change either the top line or bottom line guidance that was given for 2012?

Thomas R. Watjen

No. And Jack, maybe you can speak a little bit again to just how, if at all, you're seeing the recession impact your business.

John F. McGarry

Yes, clearly, the interest rate environment is having an impact on our business. Natural growth is weak in the U.K. as it is in the U.S. and isn't -- we didn't get the 0.5% lift in natural growth in the U.K. I think a full-blown double-dip recession is a little harsh. There was a small 2-quarter decrease, but it was like 0.2% dips. They expect low but growth for the remainder of the year. But actually in kind of getting back to John's question as well, I think the recessionary pressures are more than offset by a better competitive environment in the U.K. We felt much better about the 40% increase in our GIP sales than we did about what happened in group life, which was opportunistic. But those sales were actually across the board in all size, levels. We've seen in the U.K., particularly in the financial services industry, several major banks come out and request proposals to insure all of their bank employees, which is something that is new to the U.K. and a very positive sign for our business, because that's the direction our strategy is going. And a lot of companies look to what the banks and other major employers in the U.K. do, as they're thinking about their own benefit design. So we think that's a positive movement. We’ve begun to have some success in selling additional -- in selling and convincing in-force customers to insure additional employees under their schemes, which is a really positive sign, again, consistent with our strategy. And so in the U.K., our growth story isn't necessarily as focused on the economy growing as it's focused on expanding the number of employees that employers choose to provide coverage to in the U.K.

Sean Dargan - Macquarie Research

Okay. And then just one quick one on Colonial Life. The sales in Accidents, Sickness and Disability were maybe a little lighter than I was expecting. Is there some change in the competitive environment in that line?

Thomas R. Watjen

Randy, you want to pick up on that? And even just maybe, as Sean indicated, just talk a little bit on the environment in addition to that one particular product.

Randall C. Horn

Not seeing any significant change in the competitive environment. I mean, it's been intense for some time now. And our real issue in the first quarter was on the new account sales side of things, where we just had smaller average case size on average. We were very pleased with our sales in all of our product segments in terms of existing account sales. So those were up nicely. So we're staying very focused on our core commercial market, and in public sector, we have excellent opportunities there, Sean. And really not seeing anything new there that's causing us not to be optimistic about the future in those lines.

Thomas R. Watjen

I think actually, operator, we'll maybe move to our last question. I think we're bumping up against our time limit.

Operator

Our final question today will come from Ryan Krueger, Dowling & Partners.

Ryan Krueger - Dowling & Partners Securities, LLC

Sorry to ask yet another question on Long-Term Care. I'm not sure if you said this on the call. If so, I missed it. But was incidence elevated in both the group and individual businesses? Or was it more pronounced in just one area?

Thomas R. Watjen

Rick, you want to take that one?

Richard P. McKenney

Yes, certainly. It was actually on the individual side, which you would expect. We talked a little bit earlier about the age differential in 2 blocks, so that's what you’d expect. And it was primarily on the individual side.

Ryan Krueger - Dowling & Partners Securities, LLC

Okay. And then just a general question on statutory reserving. Outside of New York, when you look at reserves at the end of the year and run cash flow testing for any business, do you then always compare on a holistic basis the reserve adequacy of the company, taking into consideration shortfalls in some businesses and redundancies in another? In other words, if you could just confirm [ph] at the end of the year that you maybe should add to Long-Term Care reserves, but then you thought some of the other businesses were redundant, would that necessitate a reserve increase on a stat basis?

Thomas R. Watjen

Rick you want to pick up on that?

Richard P. McKenney

I don't want to end on that, but I think there's -- let me talk a little bit about that, which would be very similar to what we talked about at Investor Day, which is this is an entity-by-entity view of the business. In some entities, and the practices are slightly different, some of the entities, you are able to look across the company and when you do cash flow testing, as you would expect, because there are offsets that obviously happen. And some entities, you do it product-line-by-product-line in cash flow. So you would come up with different answers in terms of how you go through that. But I think as you look at our year-end results and how we go through, we're certainly feeling good about -- our statutory earnings are flowing across the board, and we expect that to continue.

Ryan Krueger - Dowling & Partners Securities, LLC

And just to clarify, is New York the only subsidiary where you do look at it on an exact line-by-line basis versus consolidated?

Richard P. McKenney

I hesitate to be sure in aggregate. But that's certainly one of the entities that they do look on a line-by-line basis. That's the regulation. That would be true of everybody.

Thomas R. Watjen

Thank you. And thank you all for taking the time to join us this morning. And this will complete the first quarter 2012 earnings call.

Operator

And again, ladies and gentlemen, that does conclude today's conference. We would like to thank you all for your participation.

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