Unum Group (UNM) CEO Rick McKenney on Q1 2022 Results - Earnings Call Transcript

Unum Group (NYSE:UNM) Q1 2022 Earnings Conference Call May 6, 2022 8:00 AM ET

Company Participants

Tom White - Senior Vice President of Investor Relations

Rick McKenney - President and CEO

Steve Zabel - CFO

Michael Simonds - COO

Mark Till - Head International Business

Conference Call Participants

Erik Bass - Autonomous Research

Alex Scott - Goldman Sachs

Tracy Dolin-Benguigui - Barclays

Tom Gallagher - Evercore

Ryan Krueger - KBW

Suneet Kamath - Jefferies

Jamie Buller - JPMorgan

Mark Hughes - Truist

Josh Shanker - Bank of America

Josh Esterov - Credit Suisse

Operator

Hello, and welcome to Unum Group First Quarter 2022 Earnings Conference Call. My name is Elliot, and I'll be coordinating your call today. [Operator Instructions]

I would now like to hand over to our host, Tom White, Senior Vice President of Investor Relations. Please go ahead.

Tom White

Great. Thank you, Elliot. Good morning, everyone, and welcome to the first quarter 2022 earnings conference call for Unum.

Our remarks today will include forward-looking statements, which are statements that are not of current or historical fact. As a result, actual results might differ materially from results suggested by these forward-looking statements. Information concerning factors that could cause results to differ appears in our filings with the Securities and Exchange Commission and are also located in the sections titled Cautionary Statement regarding Forward-Looking Statements and Risk Factors in our annual report on Form 10-K for the fiscal year-ended December 31, 2021. Our SEC filings can be found in the Investors section of our website at unum.com. I remind you that the statements in today's call speak only as of the date they are made, and we undertake no obligation to publicly update or revise any forward-looking statements.

A presentation of the most directly comparable GAAP measures and reconciliations of any non-GAAP financial measures included in today's presentation can be found in our statistical supplement on our website, also in the Investors section.

Yesterday afternoon, Unum reported first quarter 2022 net income of $253.5 million or $1.25 per diluted common share, an increase from the $153 million or $0.75 per diluted common share in the first quarter of 2021. Net income for the first quarter of 2022 included the after-tax amortization of the cost of reinsurance of $13.2 million or $0.06 per diluted common share and an after-tax investment loss on the company's investment portfolio of $10.6 million or $0.05 per diluted common share. Net income in the first quarter of 2021 included the net after-tax loss from the second phase of the closed block individual disability reinsurance transaction of $56.7 million or $0.27 per diluted common share. Also the after-tax amortization of the cost of reinsurance of $15.8 million or $0.08 per diluted common share, and a net after-tax investment gain on the company's investment portfolio, excluding the net realized investment gain associated with the reinsurance transaction of $13.5 million or $0.06 per diluted common share. So excluding these items, after-tax adjusted operating income in the first quarter of 2022 was $277.3 million or $1.36 per diluted common share, an increase from the $212 million or $1.04 per diluted common share in the year ago quarter.

Participating in this morning's conference call are Unum's President and CEO, Rick McKenney; Chief Financial Officer, Steve Zabel; Chief Operating Officer, Mike Simonds; as well as Mark Till, who heads our Unum International business. Tim Arnold, the heads of our Colonial Life and Voluntary Benefits business, is away with his family attending his son's graduation from law school this morning, which is a very exciting and proud moment for the Arnold family.

So now I'll turn the call over to Rick for his opening comments.

Rick McKenney

Great. Thank you, Tom, and good morning, everyone. We do appreciate you joining us this morning.

And let me start by saying our first quarter results were an outstanding start to the year. We saw dramatic shifts in the environment throughout the quarter which have been very favorable to our business.

Since we've last talked to you, we have seen COVID mortality levels come down consistently. Of the estimated 153,000 COVID deaths in the U.S. population in the first quarter, fewer than 30,000 were reported in March. And there was also a notable change in the demographic impacts by the Omicron variant relative to what we saw last year.

Additionally, we have seen positive impacts from the current inflationary environment, seeing 10-year treasury moved up nearly 140 basis points since the start of the year. These are welcome developments and helped our recovery accelerate faster than we anticipated.

As a result, we saw first quarter after-tax operating earnings at $1.36 per share, which was up 31% over the previous year. There was broad-based solid performance on both the top and bottom line. And taking that into account, we now look to an expected operating EPS growth rate for the year of 15% to 20%, up from the 4% to 7% previously expected.

To set the broader context of how we stand in the current environment, the three elements most being discussed in the financial markets are all on a positive trend for us.

First is how COVID has lessened and shifted its age demographic. It is not making the same headline, but COVID-driven mortality is still one we need to monitor as our life lines look to get back to pre-COVID claim levels.

The second is the full employment and inflationary environment we're operating in. For employers, there is pressure to increase wages as they look to find workers in a very unique time. This creates top line growth for us as these workers look to protect their higher levels of income.

And third, our interest rates, which play very positively for our new investments backing our product lines, both in our ongoing core business lines and new cash flows coming into our closed block.

Before getting further into the results, I do want to take a moment to reflect on how our purpose of helping the working world thrive throughout life's moments continues to guide all that we do. As the effects of COVID continue to lessen, our employees have stepped up in new ways, and I would like to highlight our colleagues in Poland who have shown uncommon resilience as they continue to demonstrate compassion, outreach and support to the growing Ukrainian refugee crisis. The situation remains heartbreaking, but we take the utmost pride in our team's caring spirit in this time of need.

So turning to our operating trends for the quarter. There are a few areas I'd like to highlight. First, we are pleased with the growth in premium income that is emerging in our core business segments. In the first quarter, we recorded 1.7% growth year-over-year in premium income from our core business segments combined. This compares to a growth of 1.2% for all of 2021. For the rest of 2022, we are anticipating growth to accelerate so that we are at just over 2% for the full year, and we are well on track to accomplish that.

Adding to our confidence is a solid start to the year for new sales, with year-over-year increases of 7% in Unum US in total and 15% for Colonial Life as well as 55% for Unum UK and 35% for Unum Poland in their local currencies. Persistency levels are solid across the company, and we are making good progress with our renewal plans as we look to continue to prudently implement targeted rate increases.

Second, benefits experience was generally positive as we look at our benefit ratios for the first quarter compared to the fourth quarter of 2021. The Unum US group disability line showed substantial improvement at 73.8% for the first quarter as our claim recoveries and long-term disability were very strong and short-term disability results improved sequentially. The Unum US group life and AD&D line showed significant improvement as well, declining approximately 10 points from the prior quarter as the age demographic shifted, lessening the mortality impact for working age individuals. And also related to that age shift, with COVID-related mortality impact in the elderly population more significantly this quarter, we saw the LTC interest-adjusted loss ratio declined by 12 points to 70% in the first quarter.

And finally, to highlight the improved benefits experience in Colonial Life, which generated its lowest benefit ratio in some time at 49% in the first quarter.

A third operating trend I'd highlight from the first quarter was on expenses. At our outlook meeting earlier this year, we indicated that we expected to see increased pressure on expenses this year as we manage through increased people costs, pandemic-related costs and a normalizing environment. We still see this emerging later in the year. The reality is our teams have done an excellent job of managing through these pressures so far in 2022 as we have been working hard to fill open positions. Each of our core business segments reported an improved operating expense ratio in the first quarter compared to the fourth. We don't believe that these pressures have gone away as we will continue to invest in several major initiatives to connect with customers, to improve our efficiencies and to catch up on staffing, but I am pleased with the discipline we have shown in managing expenses in this inflationary environment.

In addition to these strong operating trends, the current business environment remains very favorable for us. Rising interest rates and widening corporate credit spreads so far this year have been very beneficial in new money yields.

In addition, it is particularly beneficial to the LTC line. To the extent rates remain at current levels, it would strengthen our ability to fully fund the premium deficiency reserve for long-term care ahead of the original schedule.

Rising wages and strong levels of employment across the economy also provide a tailwind for us to top line growth as the natural growth created by these forces helps drive growth in the premium income for many of our business lines.

And looking at our capital position, just as we showed strong GAAP earnings this quarter, our statutory results were also quite favorable, increasing by over $60 million on a year-over-year basis to $200 million for the first quarter of 2022. This helped drive the risk-based capital ratio for our traditional U.S.-based insurance companies to approximately 400%.

With holding company liquidity at approximately $1.3 billion, leverage is 25%, which is the lowest level we've seen since 2014. And with our contingent capital structure in place, we are in great shape with our capital position to execute the deployment priorities we outlined at our recent investor meeting, including the ability to fund the LTC premium deficiency reserve by the end of 2024, repurchasing $200 million of our shares annually as well as increasing shareholder dividends which we will discuss when our Board meets later this month for our Annual Shareholders' Meeting.

In summary, I'm very pleased with our performance in the first quarter and the optimism it creates as we move forward.

Now I'll ask Steve to cover the details of the first quarter results. Steve?

Steve Zabel

Great. Thank you, Rick, and good morning, everyone. As Rick outlined for you, the first quarter was a very strong quarter for the company as we benefited from both a favorable shift in the COVID-related trends this quarter and strong operating performance in many parts of our business.

As I cover our first quarter results, I will primarily focus on a discussion of our first quarter results relative to the fourth quarter of 2021, which will allow us to demonstrate how the company's business lines have been progressing through the pandemic.

To start and provide some broader context on the quarter, there were two significant shifts in the COVID trends this quarter that had important impact on our first quarter results. First, COVID-related mortality increased in the U.S. in the first quarter of 2022 compared to the fourth quarter of 2021 and was also higher than our estimate coming into the year. Additionally, the shift in the age demographics of the mortality back to a greater relative impact on the elderly population and less in the working age population had important implications on our business. If you recall, for most of 2020 and the early months of 2021, COVID-related mortality impacted the elderly population more so than the working age population.

In the second half of 2021, the age demographic shifted and COVID-related mortality showed an increased level of impact amongst the working age population and less so among the elderly population. In the first quarter of 2022, the age demographic shifted back and was more consistent with what the U.S. experienced in 2020, that is less impact among the working-age population and more in the elderly population. This shift is significant to our business at the lower mortality experience in our group life block, which primarily covers working-age individuals. This is evident both in terms of the percentage of the national COVID-related mortality that we see in our book and the average benefit size. In addition, the higher mortality among the elderly population resulted in higher mortality in the claimant block for our long-term care business, which drove a lower interest adjusted loss ratio in the first quarter of 2022.

The second trend we saw was a rapid decline in COVID infection rates and hospitalization rates through the first quarter. This had a favorable impact on our short-term disability results which helped drive the improvement we saw in our Unum US group disability benefit ratio this quarter.

I'll dig into these two trends more deeply as I discuss the performance of these lines, but the age demographics of the mortality and the declining infection rates were important factors in our first quarter results.

I'll begin my review of our operating performance with the Unum US segment. Adjusted operating income showed a sharp increase to $171.6 million in the first quarter of 2022 compared to $81.4 million in the fourth quarter of 2021, primarily driven by strong sequential quarter improvement in the group disability and group life and AD&D lines as well as continued high levels of operating income from the supplemental and voluntary lines.

So within the Unum US segment, the group disability line reported a strong rebound in adjusted operating income to $62.6 million in the first quarter from $34.1 million in the fourth quarter. The biggest driver of the earnings improvement was the benefit ratio for group disability, which improved in the first quarter to 73.8% compared to 78.3% for the fourth quarter of 2021. This improvement was driven in large part by strong performance in the long-term disability line as claim recoveries were very favorable. Additionally, new claim incidents for LTD declined on a sequential quarter basis, while this was offset somewhat by higher average claim size.

As I mentioned previously, results in the short-term disability line also improved relative to the fourth quarter.

So looking forward, we expect the group disability benefit ratio to average in the mid-70% area, consistent with the range we provided at our outlook meeting.

Adjusted operating income for Unum US group life and AD&D also showed strong improvement, with an operating loss of $9.4 million in the first quarter compared to a loss of $71.7 million in the fourth quarter. This quarter-to-quarter improvement was primarily the result of an improvement in the benefit ratio, mostly driven by the shift in the age demographics of the COVID-related mortality which I described earlier.

In the fourth quarter of 2021, COVID-related mortality in the U.S. population was an estimated 127,000, with approximately 35% of those deaths among the working age population. In the first quarter of 2022, while the mortality count increased to approximately $153,000, the impact to the working age population declined to approximately 24%.

For our group life block, we estimate that COVID-related mortality claims declined from an estimated 1,725 claims in the fourth quarter to an estimated 1,400 claims in the first quarter. Accordingly, our results reflect a lessening of our exposure to the national mortality count to slightly less than 1% of the reported national figures in the first quarter compared to approximately 1.4% in the fourth quarter and 2% in the third quarter of last year.

Looking back to 2020, we saw similar exposure to national mortality count of about 1% when the age demographics were generally similar. In addition, we also saw a lower average benefit size, which declined to slightly less than $55,000 in the first quarter compared to around $65,000 in the fourth quarter of last year.

Finally, non-COVID-related mortality did not materially impact results in the first quarter relative to the experience of the fourth quarter.

Over the course of the pandemic, account and age demographics of COVID-related mortality heavily influenced our group life results. In our plans, we have assumed that national mortality related to COVID will decline significantly in the second quarter and remain at lower levels for the balance of 2022.

For the second quarter, we can see the group life and AD&D benefit ratio decline further to around 80%. However, these measures have historically been very difficult to predict, so we suggest that you follow the national trends as a basis for your projections and estimates.

Now looking at the Unum US supplemental and voluntary line, earnings remain at very healthy levels with adjusted operating income of $118.4 million in the first quarter compared to $119 million in the fourth quarter.

Looking at the three primary business lines. First, we remain very pleased with the performance of the individual disability recently issued block of business which have generated strong results throughout the pandemic. The benefit ratio was slightly higher on a sequential quarter basis but remain well within the experience we have seen over the past two years.

Like client, the voluntary benefits line reported a strong level of income as well, with the benefit ratio declining slightly on a sequential quarter basis, primarily reflecting strong performance across the A&H and disability products.

Finally, utilization in the dental and vision line increased relative to the fourth quarter, and the average cost per procedure was also somewhat higher, leading to an increase in the benefit ratio for that line on a sequential quarter basis.

All in all though, the supplemental and voluntary lines continue to perform very well and remain a strong income generator for us.

Then looking at premium trends and drivers, we were pleased with the additional momentum building for Unum US, with growth in premium income of 1.3% in the first quarter on a year-over-year basis. For full year 2021, premium income for Unum US increased by 1% compared to 2020.

Looking at the group disability line, growth in premium income is closely tracking our outlook, increasing 1.9% on a year-over-year basis, with increasing levels of natural growth as we benefit from high employment levels and rising wages, solid business and persistency trends and careful management of our renewal programs.

Sales growth for Unum US was encouraging, with growth of 6.8% year-over-year as growth in the group lines and individual disability offset softer sales in voluntary benefits.

Overall, we are pleased with persistency trends this quarter which showed some variation by line of business, but our total group loss was stable at 89.6% in the first quarter. Natural growth continues to develop as a tailwind for us, increasing 3.5% to 4% year-over-year as we continue to benefit from strong employment levels in the U.S. as well as higher wage levels, particularly in our core market segment.

And finally, we have been encouraged by the progress we are seeing with our pricing strategy, particularly in the large employer group disability, group life and services market where pricing action is appropriate.

Then moving to the Unum International segment, we had another very good quarter with adjusted operating income for the first quarter of $27.2 million, in line with the $27.1 million reported in the fourth quarter. The primary driver for our international segment results is our Unum UK business, which generated adjusted operating income of GBP 19.2 million in the first quarter compared to GBP 18.7 million in the fourth quarter. The reported benefit ratio for Unum UK was 80.7% in the first quarter compared to 81.4% in the fourth quarter.

As we have outlined in the past, inflationary trends in the U.K. will impact our reported benefit ratio and can mask the underlying claims experience we are seeing. For the first quarter, excluding the impact of inflation, our overall benefits experience was slightly unfavorable compared to the fourth quarter, with favorable experience in group life offset by unfavorable experience in the group disability line.

All in all, we are pleased to see that Unum UK results continue to improve towards the GBP 20 million per quarter goal.

Similarly, benefits experienced in Unum Poland trended slightly higher on a sequential quarter basis, though adjusted operating income was generally consistent quarter-to-quarter.

So the year-over-year premium growth in our International business segment was very strong this quarter, increasing 7.7% on a year-over-year basis in dollars. On a local currency basis, to neutralize the impact from changes in exchange rates, Unum UK generated growth of 11% year-over-year, the strongest rate of growth in Unum UK in several years, driven by strong persistency, improving sales trends and the continued successful placement of rate increases on our in-force block.

Sales in Unum UK were very strong in the first quarter, increasing 55% over the year ago quarter. Unum Poland generated sales growth of 35% in local currency, a continuation of the strong growth trend this business has been producing.

Next, results for our Colonial Life were also very strong with adjusted operating income of $90.1 million in the first quarter compared to $80 million in the fourth quarter. One of the primary drivers of these results was an improvement in the benefit ratio in the first quarter to 49.3% compared to 52.5% in the fourth quarter. This was largely driven by very favorable experience in the cancer and critical illness line as well as improved performance in the accident, sickness and disability line.

We are pleased to see a continuation in the improving trend in premium growth for Colonial Life, which increased 1% on a year-over-year basis after declining 1.3% in full year 2021. Driving this improving trend in premium is the rebound we have seen in new sales over the past four quarters and generally stable persistency.

For the first quarter, sales for Colonial Life increased 15.3% compared to the year ago first quarter, following an increase of 16.1% for the full year 2021.

Persistency for Colonial Life was 78.7% for the first quarter compared to 78.4% for the year ago quarter. It will take a couple of years to return to pre-pandemic level with premium growth in the Colonial Life segment, but we are encouraged that the level of absolute quarterly premium income has recovered for Colonial to pre-pandemic levels.

In the closed block segment, adjusted operating income, excluding the amortization of cost of reinsurance related to the closed block individual disability reinsurance transaction, was $94.1 million in the first quarter compared to $76.7 million in the fourth quarter. The increase in the segment earnings was largely driven by higher earnings in the long-term care line as a result of favorable benefits experience. The interest adjusted loss ratio for LTC declined to 70.2% in the first quarter from 82.2% in the fourth quarter, primarily driven by higher claim and mortality, which was approximately 10% higher than we expected on a seasonally adjusted basis by claim count and by favorable new claim incidents.

For the closed block individual disability line, the interest adjusted loss ratio increased to 78.7% in the first quarter compared to 75.4% in the fourth quarter but remain within our long-term expectations.

Healthy levels of miscellaneous investment income continued to contribute to the strong adjusted operating income we have seen in the closed block segment over the past several quarters. In the last two quarters, however, we have seen some moderation in the contribution compared to the recent peak levels we were experiencing in 2021. More specifically, total miscellaneous investment income in the closed block declined by approximately $4 million in the first quarter compared to the fourth quarter. As a reminder, we saw a reduction of approximately $10 million in total miscellaneous investment income from the third quarter to the fourth quarter, driven primarily by a lower level of on calls. The current level of miscellaneous investment income remains well above what we expect to generate on an ongoing basis as the retune and alternative investment portfolio continues to outperform our long-term expectations.

Wrapping up my commentary on the quarter's financial results, the adjusted operating loss in the corporate segment was $40.4 million in the first quarter and $45.1 million in the fourth quarter. Going forward, we anticipate quarterly losses in this segment to be consistent with this quarter's results.

Moving now to investments and net investment income. We are seeing a much better environment for the new money yield opportunities given the rise in interest rates and widening in corporate balance spreads so far this year. In the first quarter, our new money purchases

exceeded our fourth quarter purchases by 110 basis points. While current new money yields remain below our portfolio yields, the gap has narrowed significantly so far in 2022.

Miscellaneous investment income in the first quarter for the company overall totaled $41 million and this compares to approximately $58 million in the fourth quarter and was below what we saw in 2021. Miscellaneous investment income from bond calls declined by about $10 million on a sequential quarter basis, with most of the decline impacting net investment income in our core business lines. We expect income from bond calls to remain below the elevated levels we experienced in 2020 and 2021 as higher interest rates reduces the economic incentive for many companies to refinance their outstanding debt. While this will likely have a negative impact on current net investment income, it will help support the current portfolio yields as we retain the higher-yielding securities in the portfolio.

Income from our alternative investments portfolio remained well above our long-term expectations but declined to $32.4 million in the first quarter compared to $39.4 million in the fourth quarter. Our current run rate expectation for quarterly income from alternatives is in the low $20 million range. So our current results show continued strong outperformance from the portfolio.

The closed block segment continues to be the primary beneficiary of the favorable performance in our alternatives portfolio. For full year 2022, we expect total miscellaneous income to run below the very strong results generated in 2021.

So then moving now to capital. The financial position of the company continues to be in excellent shape, providing a significant financial flexibility. The weighted average risk-based capital ratio for our traditional U.S. insurance companies improved to approximately 400% and holding company liquidity was $1.3 billion at the end of the first quarter, both well above our targeted levels.

In addition, leverage has again trended lower and ended the quarter at 25.1%. Statutory after-tax operating income was $200.5 million for the first quarter, which is a sharp improvement from the first quarter of 2021, which was $136.7 million. Similar to our strong GAAP performance, statutory results benefited from improved results in group life, group disability, Colonial Life and LTC.

So then looking at capital deployment in the first quarter, we executed a $50 million accelerated share agreement and continue to anticipate repurchasing approximately $200 million of our shares for the full year.

Capital contributions in the parent subsidiary were $215 million in the quarter, with favorable performance in the LTC block and the rise in interest rates this quarter, we are trending favorably within the range of full year capital contributions to Fairwind of $550 million to $650 million that we guided to at our investor meeting.

So then wrapping up with a comment on our outlook for the year. We initially set our expectation for growth in after-tax adjusted operating income per share in a range of 4% to 7% for 2022. We are raising our outlook to an expectation for growth in the range of 15% to 20%. This improvement reflects our strong performance in the first quarter and our expectations for additional upside to our original outlook for the balance of the year which will be really focused in the second quarter of 2022.

We told -- at our investor meeting in February, we also provided an outlook for after-tax adjusted operating income per share to increase within a range of 45% to 55% by 2024 or 2021 earnings per share of $4.35 per share. We are not, at this time, changing that outlook.

Now I'll turn the call back to Rick for his closing comments, and I look forward to your questions.

Rick McKenney

Great. Thanks, Steve. I'll just wrap up by reiterating we are very pleased with the performance of the company as we continue to deliver for our customers throughout the pandemic. We believe we are very well positioned in today's business environment and remain very encouraged with our outlook going forward.

The team is here to respond to your questions. So I'll ask the operator to begin the question-and-answer session.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question today comes from Erik Bass from Autonomous Research.

Erik Bass

Since the time of your outlook call, interest rates are up significantly. And based on your disclosure, this should materially reduce the outstanding long-term care PDR balance. So does this change your thinking at all about the cadence at which you plan to fund remaining deficiency? Would you consider hedging interest rates to lock in some or all of the benefit?

Steve Zabel

Eric, this is Steve. I can take that one. I think there's a couple of things to think about it. I go back to the Investor Day conversation that we had about the premium deficiency reserve. I think there's two things to keep in mind.

One is just how the interest rate assumption works for creating deficiency reserve. It's based on a trailing three-year average. And so although we're really encouraged with where rates have gone early in this year, we do still have a little bit of past interest rates that we need to work through in just the construct of that calculation as we saw the '21 and '20 prevailing rates in there. So that's one dimension of it.

The other is we do amortize that in over a period of time. Originally, it was a seven-year period of time. And so that amortization will decrease a little bit the current period impact of any reduction in the overall PDR.

So as we sit here today, we're very encouraged about where rates go. We obviously want those to continue and even potentially go up. I'll say that the contribution or the impact on our 2022 capital deployment plan will be somewhat modest because of those two dimensions. And so we'll just see how this plays out over the year, where we end up in our year-end calculation, we'll calibrate our Fairwind contributions at that point and then we'll think about go-forward capital deployment opportunities.

On the hedging front, that's definitely something that we look at. We're continuing to evaluate our hedging strategy. I do agree with you that where rates are now it makes that look more attractive. We have not executed on anything to date this year, but it is something that we are looking at.

Erik Bass

And then if you could just provide maybe a little bit more detail on what assumptions are embedded in your EPS guidance range for both additional COVID tests and variable investment income over the course of the year?

Steve Zabel

Yes. Let me start with the variable alternative investment income. And probably where I would start there is we have a little bit over $1 billion portfolio. And our expected yield on that is between 8% and 10%. So you kind of do the math on that, that's $80 million to $100 million annually of income, which breaks down about $20 million to $25 million per quarter. That is what we would expect for the remainder of the year. So somewhere in that range, in the low $20 million range. But as we've seen that, that can be fairly volatile. So we'll just have to see how that plays out quarter-by-quarter.

And then when you just think about the general pattern for 2022, we've obviously locked in the first quarter results that we've seen. We believe that second quarter is going to be an improvement from what we originally had in our expectations. So probably the simple math to do for the remaining three quarters is somewhere in the 1.25 per quarter range. I think that's pretty consistent with what our expectations previously were for the third and fourth quarter, but would be an increase to what we had originally thought the second quarter might be. So that's probably a pretty good range to calibrate to.

Operator

Our next question comes from Alex Scott from Goldman Sachs. Please go ahead.

Alex Scott

I just wanted to follow up on the response on the hedging consideration. And I know you mentioned the backward looking sort of rolling aspect of the way the rates work and the actual premium deficiency calculation. I mean is that an issue or a hurdle with potentially putting on ahead? Or do you think the powers that be might be receptive to the idea that this would be a pretty significant risk management action that I think will be very beneficial. Would they work with you to maybe change that practice to help you align something with the economics and allow us to significantly change your view of the cost of equity of your company?

Steve Zabel

Yes. I would say it's not a hurdle. It's obviously something that we'll work through with our regulator. I do agree with you that they will view that as a very positive from a risk management perspective, and I think they'll be very willing to work with us and incorporate that sort of risk management in how we think about forward-looking interest rates. That is part of those we're going through and evaluating, how we might approach a hedging strategy that we will work through with our regulator.

Unidentified Company Representative

Yes. I think it's important, this [Indiscernible] David. It's important to look at the premium deficiency reserve. This is about how we manage the book of business, right? So the construct of how it gets measured is not something we hedge. We're with the hedging and the risk management for the overall book of business. The construct will take care of itself over a period of time. So any hedges that we look at are about an overall risk management of interest rate risk around our long-term care business.

Alex Scott

And then maybe just high level, as we think through some of the group benefits businesses, any update on thinking just in terms of premiums and -- you've got some tailwinds between the labor market inflation, so the rate you're taking. Any update now that we've gotten through the first quarter on just what the combined impact of those things will look like as we progress through the year?

Mike Simonds

Alex, it's Mike. Thanks for the question. And we are really pleased with the start that we've gotten off to here in the first quarter sales up for Unum US, as Rick was highlighting, by 7%. Colonial, 15%, international, and maybe I'll flip it to Mark in just a second to talk about the market over there, where we've seen the market grow and our position in that market improve, which is a good story overall.

So as we continue to see those sales improve and come up in relation to the block, paired with strong persistency and, as you said, some tailwind on natural growth, we would expect to see our overall top line or premium growth continue to move up sequentially as we work through 2022. We talked a little bit about it last quarter and the outlook meeting. We do see a need to gradually increase rates, as we talked about, probably most pronounced in the fee-based businesses. Those are where we've seen that increasing complexity and serving our clients with state, municipal, corporate and federal level, leaves integrated with disability. That's also, given the nature of fee-based business, where wage pressures are most acute, so we want to stay a little bit ahead of that.

Placement of rates for that all important January 1 date were right in line with expectations. We're in the midst of another again, sort of a moderate single-digit type program on the insured side, a little bit higher on the fee-based side for 1/1 of 2023. And it's too early to say, but at this point, doing the client relationships we've got and the strength of our distributions kind of allow us to deliver that renewal program pretty successfully.

So as I look across the brands, the products in the segment in the U.S., we've certainly got a long way to go here in 2022, but encouraged by the start that we've got on the U.S. side.

And maybe, Mark, you've got a couple of thoughts on international?

Mark Till

Yes, Mike. Thanks. I mean, I think Poland and U.K. are both good markets. Poland has been a double-digit growth market for some little while. Actually, the U.K. market has definitely been improving. I think it's reflecting increased demand for employee benefits after the value through the pandemic has been proven quite clearly. I think we have been working hard to improve our value proposition for the brokers, for the employers and for the employees. And we are, therefore, very pleased with the sales results, which are up 47% across the two businesses.

We have also been actively seeking selective price management opportunities at renewal. And it is, therefore, pleasing to see that with -- even with those price management opportunities, we've seen an improving persistency rate in the U.K. and have remained at about 98% in Poland.

I think if I look at the quarter-on-quarter growth we saw in the U.K., it was high, reflecting a good quarter. And although I hope that we continue to have good quarters, at the moment, we are fundamentally resetting our expectations here.

Operator

Our next question comes from Tracy Dolin-Benguigui from Barclays. Your line is open.

Tracy Dolin-Benguigui

Thank you for referring to the PDR balances at your February outlook date, Slide 23. Just based on my understanding, I think you shared the 10-year treasury illustration for simplicity. But really, since LTC risk is so long-durated, you're also using your formula, the 20- and 30-year treasury tenure, and you've footnoted an assumption of a 50 basis point spread between the 10 and the 20 plus 30. So with the yield curve flattening, even inverting, any thoughts on the sensitivity of those 20, 30-year tenure?

Steve Zabel

Yes. Tracy, this is Steve. And sorry, I stole your thunder, right? I caught that in your writeup, addressing the dynamics of how the PDR works, and I think that's a really good call out.

Yes, we are heavily weighted to the 20- and 30-year in that portfolio, so you're right. We use the 10-year as a guideline, but it is very important where the 30-year ends up. So I think that's a good comparison to make to where we are kind of in the current market.

The other thing that I would say is we do have allocation to an alternative asset class of investments that also backs LTC. But I think a good indicator is where the 20, 30 is. And although, obviously, the 10, 30 spread isn't at the 50 basis points, I would say we feel good about where the 30 actually is on an absolute basis.

Tracy Dolin-Benguigui

Because in a way, it becomes a mute point if you just land there on its own even if the shift of that curve might not -- look it's Steve, it's what he would have liked. Okay.

And on your updated 2022 outlook guidance, to be sure, you're simply accelerating the time frame. You're seeing normalization of pre-pandemic trends based on the first quarter results and what you're seeing so far in the second quarter. I mean you basically said yourselves, you're going to still land at that 45% to 55% EPS growth from '21 to '24. Just the shape to get there might look more level versus what you were thinking back in February. It might have been a steeper increase in 2023. So I just want to make sure I'm thinking about that the right way.

Also, it doesn't sound like you updated in your 2022 outlook a contemplation of higher interest rates. So is it fair to say the higher interest rates is more of a capital consideration for Unum, really will take a long time to impact earning?

Rick McKenney

Yes, Tracy, this is Steve. A lot in there, so let me kind of address each individually. You are right on how we're thinking about the 2022 forecast. It is really just an acceleration. If you go back to our Investor Day, we had several contributions to the longer-term EPS growth for the company, and one of the largest was just recovery from the pandemic. So for that component, I would say, yes, it's an acceleration back to kind of a normalized core benefit ratio in many of our lines.

We also, though, had other contributors to that, whether it's expense efficiencies, it's growth, it's renewal and rate increases or its capital management that also factored into that longer-term 2024 expectation. Those still hold. We still feel very good about those other contributing factors. So I think that's the right way to think about it.

And then as far as rates go, you're right. I would say we have not really incorporated much upside into our outlook right now for where rates are. I think there's two places that, that could show up. One would be around capital management and the implications for the premium deficiency reserve. As I mentioned earlier, though, the 2022 impact probably is not going to be all that significant. It will set us up though as we move through subsequent years, if rates stay where they are, for maybe more oversized implications to our capital deployment plan.

The other thing that I would say is just on closed block, because we do put so much money to work within the year, that could be potential upside to the closed block's earnings. But again, we just want to see how that plays out over the year.

I would say in a lot of our other lines, any upside to interest rates would be something that we would just probably incorporate into our thinking about pricing and really how that might play out versus actual upside to our earnings.

Operator

Our next question comes from Tom Gallagher from Evercore. Please go ahead.

Tom Gallagher

Just a few questions on long-term care. If you do end up locking in some interest rate hedges, would you see that having a material influence on the pricing that you might get on a potential risk transfer deal? And is that part of the reason that you'd be contemplating in?

Steve Zabel

Yes. I would say that there is some potential there. It would depend on the buyer and how the buyer views their own investment strategy versus our investment strategy. And that's something we just have to work through, how we settle the initial transaction. I do think though, obviously, higher interest rates are favorable to a deal overall, and that's obviously something that we're looking at. But it would kind of depend on the buyer and how they would view that as a risk management versus just their own investment strategy.

Tom Gallagher

And I guess my follow-up is when you think about -- and I realize you've indicated that a potential deal would take a while just given how much actuarial work and the like is required. But given what's happened in interest rates, any sense of bid-ask spread, whether you think the pricing would have improved meaningfully just given how much higher interest rates are today? And if so, if it has narrowed, I would imagine then putting on more -- putting on rate hedges would make sense. Or do you -- would you feel like you'd still need rates to go higher to see a continued narrowing where it would become attractive from a pricing standpoint?

Steve Zabel

Yes, Tom. I would say we have a lot of work still to do on any type of transaction. There's really nothing imminent. Again, rising rates are going to be a positive from a buyer's perspective what they're able to get it in the market. But that's something that we have to just work through the actual construct of the transaction to just see how meaningfully that would impact the buyer's view of the block.

Tom Gallagher

And then just one final question. When you -- if you were to strip out the favorable mortality experience from the LTC benefit ratio, where would you say you're trending right now? It sounds like there's still favorable claims trends. But is it very close to normal? Is it still somewhat favorable relative to historic averages? And then, I guess, relatedly, if we get through a favorable 2022, it's going to be three years of favorable LTC results. And the related question is, any sense that the regulators are changing the way they're thinking about improving rate increases following three years of potential favorability here?

Steve Zabel

Yes. I would say, in the quarter, we, as we mentioned, have higher claim payment mortality. We also had pretty favorable claims incidents. We do still think that during a kind of pandemic even if it's with pandemic for the remainder of the year, somewhere in that 80% to low 80% loss ratio probably makes sense. But over time, when we get back to a more I guess, stable given environment and an even abates more. We do think we'll be back up in that 85% to 90% range. But we'll just have to see how it plays out and whether there's any longer-term behavioral changes within the block.

Now when it comes to how we think about long-term assumptions and also how our regulator thinks about long-term assumptions, COVID is viewed as an anomaly. And so far, we really haven't had much debate on either side whether we should take a more favorable view when we look at things like the premium deficiency reserve itself or, on the other side, how regulators might view our rate increase requests. We haven't really incorporated some of the more acute claimant mortality that we've seen into either of those analyses. And I think the regulators are very supportive of that approach.

Operator

Our next question comes from Ryan Krueger from KBW. Please go ahead.

Ryan Krueger

Can you touch on the level of new money rates that you're getting at this point and how that compares to your portfolio yield?

Steve Zabel

Yes. Ryan, we haven't really disclosed a lot around what our new money rate is on a quarter-to-quarter basis and try to stay away from that. I'll tell you, we are really encouraged. If you just look at where prevailing rates are, they've gone up about 140 basis points from the beginning of the year. So clearly, we're closing the gap between new money yields and our portfolio rate, but they are still below the portfolio rate.

And so feel good about it, very encouraged about it. But we don't disclose that on a quarter-to-quarter basis.

Ryan Krueger

And then in the outlook call, you talked about some pressure on premium growth in the large employer market. I saw that your sales reps are pretty good there this quarter. I was just hoping for an update there and if the pressure on premium was more related to some potential persistency impacts or you had also expected lower sales than you kind of achieved in the first quarter there.

Mike Simonds

Yes. Ryan, it's Mike. Like you said, encouraging first quarter. I would say a lot -- in fact, nearly all of the growth in the first quarter was sales of existing clients, and it's not typically our biggest sales quarter in the year in that large case market. So we're right now in the middle of that large case selling season and that will be for the next 90 days or so.

What we were talking about at the outlook meeting was that's the part of the group insurance market in the U.S. that we are seeing as most competitive. And as we kind of lean into those rate increases we were talking about earlier, particularly around the fee-based and short-term disability businesses, we're at a bit more of a cautious outlook there.

And we'll see how the year plays out. I do feel good about the fact that both disability risk and interest rates have been better here in the first quarter than our expectations. That may give us a little bit more flexibility there. But as you've come to expect from us, we're going to be pretty long term in terms of our outlook around pricing growth trade-off.

So we'll be looking forward to updating you in the quarters to come on how this year is materializing, but feel very, very good about the value proposition we've got in the market, our ability to connect into our clients' HR platforms that we've been able to do on the lead front. So see how it plays out.

Operator

Our next question comes from Suneet Kamath from Jefferies. Your line is open.

Suneet Kamath

Just overall at a high level on group sales. I mean, we're seeing strength pretty much across the board for all the companies that have reported so far. And my sense is that's not a lot of competition, a lot of it is sales to existing customers. And so the thought is that most of the players are behaving and acting rationally. Just want to make sure that, that's consistent with what you guys are seeing in terms of the competitive environment.

Mike Simonds

Yes, Suneet, it's Mike. I think that is broadly pretty consistent. That large case end of the market is where we see it most acutely competitive. I think your read actually is right. We've seen pretty much across the board other carriers looking to retain their client first and foremost. And so that's certainly our lean and orientation as well.

The degree of rate underwriting competitive as kind of oscillate a bit year-to-year. I'd say we're in a period right now which is sort of solidly average in terms of what we're seeing on pricing.

Suneet Kamath

And then the other thing that struck me was Colonial. Unfortunately, Tim is not there to brag about the quarter, but the persistency improved and one note that one of your large competitors is seeing the opposite impact where the more mobile job market is leading to lower persistency. So just curious if that dynamic is affecting you guys as well and it's just being offset by something or where the improvement is coming from.

Mike Simonds

Yes. Really pleased to see persistency. That is our primary focus is making sure we're doing a good job for clients. And so it's at a great spot at 79%, and that's a really solid foundation for premium growth. And then you layer in the 15% growth in new sales, as that sales level continues to move up sequentially and get to the right spot relative to the in-force block, the overall earned premium will start to click in. And it's good to be back in the black from that point of view,

Pretty broad-based success for Colonial Life in the new business markets. In the direct small end of the market, really good growth. Great growth with existing clients. Good growth in the public sector. So all the places that we're trying to hit with our Colonial Life branded distribution, it's clicking for us. Tim is pretty happy about it as well.

Operator

Our next question comes from Jamie Buller from JPMorgan. Your line is open.

Jamie Buller

So most of my questions were answered, but I just wanted to see if you could discuss a little bit more detail on what's going -- what's been going on in the long-term care segment in terms of

strong results over the last few quarters. And maybe if you could be a little bit more specific on this quarter in terms of how much of a benefit you saw from lower incidents and then on mortality versus what you would have seen maybe pre pandemic. And I'm assuming, obviously, mortality will trend whatever happens with COVID, but do you think incidence pattern might have changed given the pandemic and the people's reluctance to visit nursing homes or other factors?

Steve Zabel

Yes, this is Steve. Yes, I'll just kind of go back and just lay out the trends that we've seen through the pandemic in long-term care and then just how that might project forward a little bit.

As you recall, very early on 2020 second quarter where everything hit more acutely, we saw claimant mortality up to like 30% by count, above what our seasonal expectations are. And as I mentioned about our life -- group life experience, it's, early on the pandemic, very focused on the elderly population and therefore very focused on those people that we ensure will get long-term care. You saw that kind of come down to the 15%, 10% range, down to 5%. And then really through the Delta variant kind of in the fall, its kind of claimant mortality, almost get back to our expectations on a seasonally adjusted basis.

What we have seen in the first quarter is that ticked back up, whereby count of claimant mortality is about 10% above what our expectations would have been. On incidence front, we saw very low incidents early on in the pandemic. The first quarter for sure, maybe the first couple of quarters. We saw that moderate fairly quickly, where people that were eligible for claim did move forward and [Indiscernible] claim and be put on claim. And you saw that pretty consistently through the pandemic. And I would say, on a run rate basis, we believe that will be pretty consistent with pre-pandemic activity. I think the first quarter is just a bit of an anomaly where we saw just some very, very good performance. But as you know, this block can be pretty volatile, so I'm not anticipating that to continue.

I would say for the first quarter, we were probably about 10 percentage better on a loss ratio than maybe what we would have expected. And again, I would say that is driven by both just normal volatility in claims incidents as well as the higher claimant mortality that we're attributing to COVID.

So again, I think going forward, probably for the remainder of the year, the 80% feels about right. Beyond that, we would expect to get back to kind of a more normalized expected loss ratio.

Jamie Buller

And then if I think about your guidance, obviously, there's a lot of uncertainty and lots of moving parts. But given the results in the first quarter, it would seem like you're going to hit the top end of the guidance even without any changes in expectations that the Street had in terms of future earnings. So it seems like the guidance is overly conservative. But do you agree with that? Or are there other things that might be headwinds like in future quarters that people might not be seeing?

Rick McKenney

Yes, Jamie, it's Rick. I would just say when you look at our first quarter performance, very happy with that. And when we look out over the course of the year, we increased our outlook just given what we're seeing in the first quarter, expect second quarter to be a little bit better and normalize over the second half of the year.

If you go back to our outlook in the second half of the year, we're expecting that to be pretty consistent with what we thought going into the year. So we put out a range to give you our kind of best view. It's going to be volatile. We'll have to see how it plays out, but we still think that's a pretty good range.

Operator

Our next question comes from Mark Hughes from Truist. Your line is open.

Mark Hughes

On the top line in Unum US, you've got a lot of tailwinds it seems like, the natural growth, pricing and good sales. You talked about 2% growth for the full year. As you exit the year and get into 2023, any sense you can give us of what the top line might shape up to be with these kind of tailwinds?

Mike Simonds

Yes, Mark, it's Mike. I guess, I'd answer it in two ways. One is pre pandemic for those businesses, we really like that sort of 4% to 6% or 7% growth. And I don't see any reason to expect that we can't get back to that. The exact timing for when the current 2% run rate can go way back up into that range, I can't tell you with a great deal of certainty. But a lot of -- as you said, a lot of reasons for optimism, really strong persistency, effectively placing rate increases, seeing new sales growth, another good jobs report this morning, all kind of pointing towards continued building momentum on the top line over the coming quarters.

Operator

Our next question comes from Josh Shanker from Bank of America. Your line is open.

Josh Shanker

I want to talk about, you have a lot of protection against inflation in the long-term care block with caps and caps on the CAGR of the benefits. Can you talk about the percentage of claimants who are maximizing their JV benefit? And did that change from where it was at the beginning of the pandemic?

Steve Zabel

Yes, this is Steve. Probably the best way to answer that, just to kind of ground back on what our block of business looks like from the standpoint of indemnity versus reimbursement. Our block is about 98% indemnity. And so -- and just as a refresher on that, so if someone who's claim eligible and receive services on a daily basis, it's a contractual benefit that's hardwired into the contract that we pay them. So very small, 2% of our block is reimbursement where we're actually reimbursing for actual expenses. So I'd say that variable is really just de minimis on our block and it's not something that we really need to worry about inflation within the services provided themselves because the benefit amount inflates to whatever the contractual is. And that does not vary.

Josh Shanker

And then how is face-to-face interactions and Colonial Life comparing with where you were in February of 2020?

Steve Zabel

[Indiscernible] Yes. I mean I think -- yes, I got it. I appreciate it. So -- and it varies a bit as pandemic rears its head. But in general, that is a really good balance point where it is the continued book prospecting at the employer level and delivery of enrollment services on a face-to-face business, increasingly augmented by the digital capabilities that we've invested in the Colonial Life brand. Think of that as everything from being able to 100% digitally enroll through chat, through video, just really meeting the consumer where their preferences are from an education and communication point of view. We're actually really encouraged about the acceleration towards digital that occurred through the pandemic in terms of the ability for us to increase agent productivity. We saw really strong delivery on a productivity basis out of our new ages also our reach into the market and getting to places that geographically otherwise might be quite challenging for us.

Operator

Our final question comes from Josh Esterov from Credit Suisse. Your line is open.

Josh Esterov

I just wanted to follow up on the PDR funding question from a few minutes ago, make sure my head is in the right place. And I'm cognizant of the look-back period that plays in the PDR funding. But hypothetically, if rates were to stay the same or at least they don't decline over the next year or two and that you do ultimately make that $550 million to $650 million contribution of Fairwind that you previously guided to, then at the end of the day, the dabbing is somewhere less than roughly $500 million in total PDR funding that you would need to do by the end of 2026 or 2024, whatever cadence timeline with you.

Steve Zabel

Yes, this is Steve. I'll take that. The math becomes a little complicated and we need to make sure we're talking about apples to apples.

So when you think about the PDR itself and the sensitivities that we've given, that's on a before-tax basis. So when you look at capital contributions, those are going to be more driven by an after-tax recognition of the PDR.

The other thing to think about there is we do also have ongoing funding requirements outside of the PDR for Fairwind. If you go back and you look historically, that was about $150 million a year, give or take, in any one year. Those will continue at some level over time regardless of the timing of recognizing the PDR.

So I would just step back and say, we still feel very good about the $550 million to $650 million for this year. As I mentioned, rates aren't really going to impact all that much, the requirement for this year. But if rates do continue at the level they are, specifically the 20- and the 30- year, you can kind of see the sensitivities that we provided what ultimately, as we work through the next two, three, four years, ultimately that PDR could be under those scenarios. And obviously, that would impact how we think about capital deployment and the speed at which we can recognize the entire PDR. But it's still a little too early to call that, but we're very, very encouraged by where rates have gone over the last 60, 90, 120 days.

Operator

We have no further questions. I'll hand back to Rick McKenney for closing remarks.

Rick McKenney

Great. I want to thank everybody for taking the time to join us this morning. This will complete our call for first quarter 2022. We do look forward to seeing many of you in upcoming conferences and investor events and also welcome shareholders who join us for our annual meeting in three weeks. So with that, we'll end the call. Thank you very much.

Operator

Today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.