Jack Matten

Jack Matten from BMO Capital Markets asked about Unum Group's capital management strategy post-assumption review, specifically if share buybacks could increase next year given healthy excess capital, and what other uses of cash might be considered. He also inquired about the sustainability of Unum US's 3%-6% underlying premium growth and any observed changes in natural growth rates due to potential labor market softening.

Answer

CEO Rick McKenney outlined consistent capital deployment priorities: investing in core operations, pursuing selective capability-focused M&A, and shareholder returns (dividends, share repurchases), noting they are at the top end of their 2025 share repurchase range. Regarding premium growth, McKenney confirmed natural growth around 3%±. Chris Pyne (EVP of Group Benefits) cited strong persistency and strategic investments. Tim Arnold (Heads of Colonial Life and Voluntary Benefits Lines) highlighted double-digit sales growth for Unum US and improving momentum for Colonial Life. Mark Till (CEO, Unum Group) reported strong international growth and record UK persistency. CFO Steve Zabel emphasized that 3-6% premium growth translates to significant new premiums at good margins.

Jack Matten asked about Unum's capital management plans, specifically if share buybacks could ramp up next year given the healthy excess capital after the assumption review, and if other uses of cash might come into play. He also inquired about the sustainability of Unum US's premium growth outlook (3%-6% underlying) and any changes in the natural growth rate due to potential labor market softening.

Answer

President and CEO Rick McKenney reiterated consistent capital deployment priorities: first, investing in core operations growth; second, selective M&A (capability acquisitions); and third, shareholder-friendly actions like increasing dividends and share repurchases. He noted they are at the top end of the $500 million-$1 billion buyback range for 2025. Regarding premium growth, Mr. McKenney confirmed natural growth around 3% plus or minus. EVP of Group Benefits Chris Pyne highlighted strong sales and persistency for Unum US. Tim Arnold, Head of Colonial Life and Voluntary Benefits, noted improving sales momentum and strong persistency for Colonial Life. Mark Till, CEO of Unum International, reported strong growth in Poland and the UK, driven by customer satisfaction and technology investments. CFO Steve Zabel emphasized that 3-6% growth translates to significant new premiums at good margins.

Jack Matten asked for details on the elevated claims incidence in the Closed Block (LTC) segment and the reasons for management's confidence that it would moderate in 2025.

Answer

CFO Steve Zabel explained that while Q4 incidence was elevated, it was consistent with Q3 and is expected to normalize in 2025, a view supported by claims inventory levels. He noted the 2025 earnings outlook for the block is higher, driven by this expected moderation in incidence as well as better anticipated yields from the alternative investment portfolio.

Jack Matten inquired about Principal Financial Group's expectations for continued strong margin expansion, particularly if market performance remains robust, and asked for details on areas where the company is accelerating or expanding growth investments.

Answer

CEO Deanna Strable and CFO Joel Pitz affirmed expectations for continued margin expansion through expense discipline. President Chris Littlefield highlighted investments in modernizing recordkeeping and individual customer capabilities. President Amy Friedrich detailed multi-year investments in front-end acquisition systems and data exchange for group benefits. President Kamal Bhatia noted investments in new private and public market investment capabilities and optimizing sales distribution for asset management.

Jack Matten followed up on Principal Financial Group's free capital flow conversion, noting its healthy levels above 90%, and asked about the key drivers and expected trends in the near term.

Answer

CFO Joel Pitz explained the strong capital position, capital-efficient business mix, and ability to organically invest while freeing capital for shareholders. He highlighted $1.6 billion in excess capital, $400 million deployed in Q3 (including $225 million in share repurchases), and anticipated even further elevated deployment in Q4. CEO Deanna Strable added that growth in fee-based businesses provides tailwinds to the free capital percentage.

Jack Matten of BMO Capital Markets asked about the drivers of healthy loss ratios in group life and disability and the state of pricing competition for non-dental lines. He also questioned if RIS margins could exceed the target range given market tailwinds.

Answer

President of Benefits & Protection, Amy Friedrich, attributed strong disability results to favorable incidence trends, partly driven by hybrid work arrangements, and described competition in life and disability as 'relatively stable.' For RIS margins, President Christopher Littlefield stated that while they are confident in operating at the upper end of the target range, they do not expect to exceed it as they balance expense discipline with investments for future growth.

Jack Matton inquired about the drivers behind the muted life sales growth at Globe Life's exclusive agencies in recent quarters, specifically asking if it's due to customer demand or agent productivity, and sought confidence for reaccelerated life sales growth in upcoming quarters.

Answer

Matthew Darden, Co-CEO of Globe Life Inc, clarified that muted sales are not due to weakening consumer demand, noting an improvement in premium per sale. He attributed the challenge to agent count growth, explaining that years following significant growth often see a tempering as new agents are onboarded and move into middle management. Darden highlighted a 17% increase in hires for American Income Life as a positive leading indicator for future agent and sales growth in 2026, also mentioning incentive programs and middle management focus on recruiting.

Jack Matton asked about the drivers behind muted life sales growth in exclusive agencies, questioning if it's consumer demand or agent productivity, and sought confidence for future reacceleration.

Answer

Co-CEO Matthew Darden clarified that consumer demand is not weakening, with an improvement in premium per sale. He attributed the challenge to agent count growth, noting that new agents require onboarding and training. Darden expressed confidence in future growth based on increased hires (up 17% for American Income Life) and focused incentive programs for middle management. Co-CEO Frank Svoboda added that the decline in premium growth is linked to past sales declines, with current positive sales growth expected to turn premium earnings around.

Jack Matten of BMO Capital Markets inquired how the higher earnings guidance for 2025 translates to statutory earnings and future cash flows, and asked about the timeline and rationale for achieving the projected $200 million incremental cash flow benefit from the new Bermuda affiliate.

Answer

Executive VP & CFO Thomas Kalmbach clarified that favorable mortality experience directly boosts statutory income, whereas GAAP assumption changes do not. Regarding the Bermuda entity, both Kalmbach and Co-Chairman & Co-CEO J. Matthew Darden stated it was premature to provide a specific timeline for the cash flow benefits, promising updates once plans are finalized with regulators later in the year.

Jack Matten of BMO Capital Markets inquired about the translation of higher 2025 earnings guidance into statutory earnings and cash flow, questioning if the benefit is from a one-time remeasurement gain or ongoing favorable experience. He also asked for details on the Bermuda reinsurance affiliate, including the timeline to achieve the projected $200 million in incremental cash flow and the rationale behind the target of ceding one-quarter of life reserves.

Answer

Executive VP & CFO Thomas Kalmbach clarified that ongoing favorable mortality trends directly boost statutory income, while the large assumption changes are primarily a GAAP-related event with no impact on statutory income. Co-Chairman & Co-CEO J. Matthew Darden added that a more detailed business plan for the Bermuda entity will be finalized in Q3, providing more clarity on timelines in upcoming calls.

Jack Matten of BMO Capital Markets inquired about how the higher earnings guidance for 2025 would translate into statutory earnings and future cash flows, and sought details on the timeline and scope of the new Bermuda reinsurance affiliate, including the target of moving a quarter of life reserves.

Answer

Executive VP & CFO Thomas Kalmbach explained that favorable mortality trends directly boost statutory income, whereas GAAP assumption changes do not. He noted it was premature to provide a specific timeline for the Bermuda entity's full financial impact. Co-Chairman & Co-CEO J. Matthew Darden added that an updated business plan for the Bermuda affiliate will be finalized in Q3, allowing for more detailed updates on future calls.

Jack Matten of BMO Capital Markets asked about the specific incentives that drove strong July recruiting and the trend in recruiting pressure during Q2. He also questioned the strategy behind maintaining a high RBC ratio of 490% and plans for deploying excess capital.

Answer

CEO Glenn Williams detailed that a discount on the licensing fee for new recruits drove the strong July numbers. EVP & CFO Tracy Tan explained the high RBC ratio is partly due to statutory limits on dividend capacity but also reflects a strategic desire to maintain a strong rating and support future growth. She added that all options for capital deployment are being evaluated.

Jack Matten, on for Michael Zaremski, requested further detail on the adjusted EBITDA outlook, asking if the change was mainly due to the smaller under-65 business and the margin profile of new P&C supply partners.

Answer

CFO Patrick Thompson confirmed the primary driver of take rate compression was the reduced mix of the under-65 business. He noted that within P&C, take rates were also modestly impacted by a spend shift to top carriers and the onboarding of a large, lower-take-rate supply partner. He emphasized that the conversion of contribution to EBITDA continues to improve due to operational efficiency.

Jack Matten sought more detail on the adjusted EBITDA margin outlook, asking about the relative impacts from the shrinking under-65 business and new P&C partner wins.

Answer

CFO Patrick Thompson explained that take rate compression is primarily driven by the reduced scale and lower margin of the under-65 business. He noted that within P&C, a spend shift to top carriers and a new, lower-take-rate supply partner also contributed. However, he highlighted that the conversion of contribution to EBITDA has been improving due to operational efficiency.

Jack Matten of BMO Capital Markets followed up on the Individual Retirement business, asking about the duration of the RILA roll-off dynamic and confirming the Q3 baseline assumptions. He also asked if the Bermuda entity could lead to a higher long-term payout ratio.

Answer

CFO Robin Raju explained the roll-off of the older, pre-2020 RILA book will continue for the next few quarters and confirmed the Q3 baseline of $220M-$225M excludes any MVA benefit. Regarding Bermuda, he stated its primary benefit is ensuring cash flow consistency by aligning with their economic hedging framework, rather than unlocking a material amount of new capital for a higher payout.

Jack Matten of BMO Capital Markets questioned if the consistent remeasurement gains would lead to changes in actuarial assumptions during the upcoming Q3 unlocking and inquired about capital deployment priorities, including potential M&A, given the high cash balance at the holding company.

Answer

An Aflac executive confirmed that the 2024 assumptions already included a small improvement in Japan's hospitalization trends and that forward-looking assumptions will be updated in Q3. Regarding capital, the executive reiterated Aflac's disciplined approach, prioritizing organic growth and shareholder returns through dividends and buybacks, which have demonstrated strong IRRs, over immediate M&A.

Jack Matten questioned whether the persistent remeasurement gains in both the U.S. and Japan might lead to assumption changes in the upcoming annual unlocking. He also asked about capital deployment priorities, particularly regarding potential M&A to accelerate U.S. group business growth.

Answer

An unnamed executive explained that while they true-up experience quarterly, forward-looking assumptions are unlocked in Q3. They noted that the 2024 assumptions already included a small improvement trend for hospitalization in Japan. Regarding capital, the executive reiterated Aflac's philosophy of prioritizing organic growth at good IRRs, followed by tactical deployment to shareholders via dividends and buybacks, which have yielded strong returns.

Jack Matten asked for an outlook on commercial real estate trends for Aflac's portfolio in 2025 and inquired about any other product launches in Japan that could affect the sales cadence.

Answer

Global CIO Brad Dyslin described the CRE market as having potentially bottomed but facing a long, slow recovery, with 2025 expected to resemble 2024. Koichiro Yoshizumi of Aflac Japan noted that beyond the major cancer launch, sales will be supported by a recently rebranded medical product and a growing force of newly hired agents from 2023 and 2024.

Jack Matten inquired about the drivers of the car insurance loss ratio improvement, the full-year IFP guidance not implying further acceleration, and the nature of a one-time tax refund.

Answer

CFO Tim Bixby highlighted a notable 20-point loss ratio improvement from a car policy's first term to its renewal and noted a trend of reduced frequency but increased severity. Co-Founder, Chairman & CEO Daniel Schreiber added that improvements are across both new and renewal business. Regarding guidance, Bixby cited seasonality and the ongoing 'clean the book' effort in the home business as headwinds tempering acceleration. He also confirmed the tax refund was a one-time ERC credit and is not expected to recur.

Jack Matten of BMO Capital Markets asked if lower statutory earnings in the first half affected the full-year free cash flow outlook. He also requested an update on opportunities with CNO's Bermuda company and its potential for ROE accretion.

Answer

CFO Paul McDonough affirmed confidence in the full-year free cash flow guidance of $200M-$250M, explaining that the first-half shortfall was due to the timing of tax payments and that cash flow is often lumpy. CEO Gary Bhojwani stated that the Bermuda operation is developing well and discussions with the Bermuda Monetary Authority are progressing positively, but declined to share further details until those discussions are more definitive.

Jack Matten asked if the lower statutory earnings in the first half changed the outlook for full-year excess cash flow generation. He also requested an update on CNO's consideration of additional opportunities with its Bermuda company.

Answer

CFO Paul McDonough explained that free cash flow is often lumpy quarterly and reaffirmed the full-year guidance, noting that first-half results were impacted by the timing of tax payments which are expected to resume in the second half. CEO Gary Bhojwani stated that CNO is pleased with the development of its Bermuda entity and is in ongoing discussions with regulators, but will not provide further details until those discussions are more definitive.

Jack Matten from BMO Capital Markets questioned if the lower statutory earnings in the first half would impact the full-year free cash flow outlook. He also asked for an update on CNO's consideration of opportunities with its Bermuda-based company.

Answer

CFO Paul McDonough reaffirmed the full-year free cash flow guidance, explaining that the lower first-half result was a timing issue related to tax payments that are expected to resume in the second half. CEO Gary Bhojwani commented on the Bermuda entity, stating that development is progressing well and discussions with regulators are ongoing, but declined to provide further details until those discussions are more definitive.