普登 (UNM) 2010 Q4 法說會逐字稿

Good day and welcome to the Unum Group fourth 2010 earnings results conference call. Today's call is being recorded. At this time for opening remarks and introductions I would like to turn the call over to Senior Vice President of Investor Relations, Mr. Tom White. Please, go ahead, sir.

Great. Thank you, Gwen. Good morning everyone and welcome to Unum's fourth 2010 analyst and investor conference call. 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 & 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, 2009 and also in any subsequently filed forms 10-Q. Our SEC filings can be found in the investors section of our website at www.unum.com. Also remind you that statements in today's call speak only as of the date that 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 include in today's presentation can be found on our website in the investor section. Participating in this morning's conference call are Rick McKenney, Executive Vice President and CFO and our Business Segment Presidents Kevin McCarthy, Randall Horn and Jack McGarry. And now I'll turn the call over to Unum's President and CEO, Tom Watjen. Tom?

Thank you, Tom and good morning. Notwithstanding the shortfall we experienced in the Colonial Life segment, I'm pleased with our fourth quarter operating and financial results. Unum US posted another strong quarter with solid risk experiences and we're seeing encouraging signs of stability and progress in our Unum UK operations. The shortfall this quarter in result to Colonial Life relative to our expectations is clearly disappointing, but given its growth prospects, strong profit margins and healthy cash flows we continue to maintain a very positive outlook for this business.

Rick will provide more detail in Colonial Life's fourth quarter experience and outlook in his commentary. Now let me make a few comments about, about the quarter. First, while we reported flat earnings per share of $0.66. Our largest business, Unum US, continued to produce strong financial results with stable risk results.

Second our financials result and strong investment performance has allowed to us build a very solid capital position. Our weighted average risk-based capital ratio ended 2010 at approximately 398%, which is at the upper end of our target range and our Holding Company cash and marketable securities position exceeds $1.2 billion, which is over four times the annual need of servicing both our interests and common stock dividends. With the strength of our capital position and the confidence in our future, our Board has authorized an additionally $1 billion for share repurchases over the next 18 months.

Third, while we saw very little change in the competitive environment this quarter, we did see some marginal improvement in the economic environment. After several quarters of declining natural growth of our business, that was less of a drain this past quarter and we expect to see some continued benefit coming from slightly better employment -- a slightly better employment outlook and perhaps some future wage inflation.

Fourth, we continue to see good growth in our target markets especially the voluntary benefit marketplace.Our Unum US voluntary benefit business sales grew 10% in fourth quarter and 15.6% for the full year. And Colonial Life's commercial sales grew 5.3% for the quarter and 8.2% for the full-year. We expect growth in these markets will continue and with it you will continue to see our mix of business continue to shift to higher growth, more stable margin businesses.

And finally, our investment portfolio remains in excellent shape. Our credit quality remains strong and although new money raised remain challenging we're managing very effectively in this low interest rate environment. In summary, as we wrap up what was a strong 2010, our outlook going into 2011 is a very positive one, which I think was frankly reflected in some of the decisions -- the decision by AM Best last week to upgrade our financial strength rating. We have a solid business plan in place and a commitment to maintaining our disciplined approach to our market. The consistent, predictable operating cash flows we expect to generate will continue to provide us with tremendous financial flexibility. That financial flexibility remains an asset both to support our business needs, allow us to capitalize on opportunities in the marketplace and also take steps like we announced yesterday to return excess capital our shareholders. This will continue to be our playbook in 2011 and we have great confidence we'll continue to create value for our shareholders. Now I will ask Tom White to provide an overview of our operating results this quarter. Tom?

Great. Thanks, Tom. Net income for the fourth quarter was $225.8 million or $0.71 per diluted common share compared to net income of $199.4 million or $0.60 per diluted common share last year. Included in the results for the fourth quarter of 2010, are net realized after-tax investment gains of $17.2 million or $0.05 per diluted common share, compared to net realize after tax losses of $18.9 million or $0.06 per diluted common share last year.

Net realized after-tax investment gains for the fourth quarter, 2010 include an after tax gain of $16.1 million, resulting from changes in the fair value of an imbedded derivative and a modified coinsurance contract, compared to an after tax gain of $22.7 million in the fourth quarter of 2009. Also included in that realized after tax investment gains for the fourth quarter, are net realized after tax investment gains of $1.1 million related to sales and write-downs of investments compared to net after tax losses of $41.6 million in the fourth quarter 2009. So excluding these items after-tax operating income was $208.6 million for this quarter, or $0.66 per diluted common share, compared to $218.3 million or $0.66 per diluted common share in the year-ago quarter.

Turning to the operating segments, in total, Unum US operating income increased 1.5% to $206.1 million in the fourth quarter Within Unum US, the group disability line reported another solid quarter with income up 6.1% to $77 million, driven by strong persistency and improved risk experience on a year-over-year basis.

Within the group line and AD&D line increased 11.5% to $53.2 million in the fourth quarter. A solid improvement in premium income driven by strong premium persistency helped to offset a slight uptick in the benefit ratio this quarter. In the supplemental and voluntary line, fourth quarter income fell 8.2% to $75.9 million from a record-high of $82.7 million a year-ago. The year-over-year decline was driven primarily by higher active life preserves and longer term care and acceleration of amortization resulting from lower persistency for certain issue years and certain product lines.

Moving to Unum UK, operating income in this segment decreased 21.5% to $41, excuse me, $48.1 million in the fourth quarter of 2010. Operating income declined 18.9% in local currency. While premium income in local currency was down 2.1% in the fourth quarter, it has shown signs of greater stability as we managed through the competitive market environment. The benefit ratio of 71.7% was above the unusually low benefit ratio of the year-ago quarter, but adjusting for the impact of higher inflation on claim reserves associated with inflation index-linked group policies, the benefit ratio for the fourth quarter of 2010 would have been under 70%. So concluding our core operations, Colonial Life experienced an 11% decline in operating income, compared to the year-ago period, largely due to unfavorable risk experienced in the accident, sickness and disability line and Rick will elaborate on this in his analysis of the quarter.

The individual disability closed block operating income was $10.3 million in the fourth quarter of 2010, compared to $5.8 million in the year-ago quarter. The interest-adjusted loss ratio was higher at 84.7% this quarter, compared to 81.6% in the year-ago quarter, but down from the 85.5% in the third quarter 2010. Premium income declined 3.4% and net investment income was essentially flat year-over-year.

And finally the corporate and other segment reported an operating loss of $17.3 million, compared to a loss of $16.6 million in the year-ago quarter. Net investment income was higher, reflecting higher levels of invested assets and higher miscellaneous net investment income, while interest expense increased to $36 million this quarter compared to $31.1 million in the fourth quarter of 2009, reflecting the debt issuance from September of 2010. So with that review of our operating results, I will turn the call over to Rick McKenney for further analysis of this quarter's results.

Thank you, Tom. I'll touch on three topics for the quarter.The key profitability drivers of our business line, a snapshot of the investment portfolio and a view of our capital position and actions. So starting on risk experienced for our primary business lines, first within our Unum US operations, risk experience remained generally stable this quarter. Our group disability performance remains quite strong with benefit ratio dropping to 84.2% for the fourth quarter and 84.4% for the full-year. New claim incidents remain somewhat volatile and is up slightly this quarter, but is within the range we have seen over the past few quarters. At the same time, claim recovery experience remains favorable.

Looking forward we believe we'll see similarly consistent experience in the group disability benefit ratio with longer term improvement in profitability driven by the ongoing balance of our business mix to more core market and voluntary benefits. The group life and AD&D mortality experience was slightly elevated with a benefit ratio of 70.3% fourth quarter of 2010, compared to 69.9% in the year-ago quarter. And looking within the voluntary and supplementary lines, voluntary benefit margins improved relative to last year as risk experience was also generally stable and premium income increased by 7.3%.

We did see lower margins out of our recently issued individual disability business, as well as long-term care. The increase in the benefit ratio for the long-term care line reflects the ongoing increase in active life reserves caused by higher persistency. Incidents and recovery trends within the LTC business were consistent and within our expectations and past results. We're in the early stages of our ILTC rate increase filings that we announced back in November. So far we have received 13 state approvals with an average rate increase of 18%. What we're seeing is consistent with our expectations and our experience the last time we went through this process.

Moving to our Unum UK results, as we expected, we did see moment in our benefit ratio in the fourth quarter, to 71.7%. This compares to 66.9% in the third quarter, and the unusually favorable benefit ratio of 59.6%, in last year's fourth quarter. We did see unfavorable mortality experience within our group disability line and higher benefits in the group lifeline. But after adjusting for the impact of higher inflation on claim reserves, associated with the inflation index linked policies, the benefit ratio for the fourth quarter of 2010 would have been under 70%.

We're encouraged as well by the progress we're seeing in many of the operating initiatives that Jack McGarry and his team have been implementing. We're seeing positive early signs in our UK claims management process, most of which parallel the changes implemented in our US operations a few years ago.I will end on Unum UK by noting that our pre tax margin exceeded 30% and ROE exceeded 22% this year, a very healthily level of profitability. And finally results in the Colonial Life segment were below our expectations this quarter, primarily driven by adverse trends in the accident, sickness and disability line of business.

Based on what we saw in the fourth quarter we added $7.5 million of reserves to our AD&D claim reserves that were related to second and third quarter claims. Going forward, we expect that the Colonial Life's benefit ratio which was 50.7% in the fourth quarter once adjusted for the $7.5 million reserve addition and 49.7% for the full-year of 2010 will likely be in range of 50% to 52% consistent with our expectations of increasing loss ratio. Our outlook for Colonial Life remains very positive and we expect to continue to see Colonial Life drive strong profit margins and cash flows.

Now moving to the premium line, The challenges continue to exist in today's economic and business environments. At Unum US in the fourth quarter we began to see very modest improvement in the natural growth that we have discussed with you over the past several quarters. Our estimated that natural growth was generally flat in the fourth quarter and represented a headwind of approximately 1% for full-year 2010. This was better than the negative 3% we saw in 2009, but with high unemployment and low wage inflation within our in force customer base, the environment is still dampening our ability to grow our top line. We do see continued success within Unum US in the voluntary benefits marketplace, where sales increased 10% in the fourth quarter and 15.6% for the full-year.

In addition, we were able to grow our new customer base with [case] sales in group and voluntary benefits up 8% in the fourth quarter. Within Unum UK we continue to see greater stabilization of our premium income, an important operating trend as we work to restore our historical strong performance. Competitive market conditions persist and economic trends remain challenging in the UK. Despite that, we're encouraged by the near term actions we discussed back in November, specifically around pricing that are beginning to take hold. Just as I discussed with our claim management processes we have implemented similar best practices from our Unum US experience by adjusting compensation to include a heavier emphasis on improving the profitability of their blocks of business through disciplined renewal and new sales activities. Although reported sales were down, excluding the year-ago sales related to the exit of a competitor from the UK group risk market, our fourth quarter 2010 sales increased by 35% in local currency.

And finally, growth metrics in Colonial Life remains very positive. Sales in the fourth quarter increased by 1.3% and for the full-year up 4.4%. Fourth quarter results remain solid in the commercial market where sales increased 5.3% in the quarter and 8.2% for the year. With these positive sales results and good persistency, we generated premium growth at Colonial Life for 6.3% for the fourth quarter and 6% for the full-year. Recruiting trends continue to be positive with new contracts up 22% this quarter. New account growth also remains encouraging up 4.5% this quarter and 13.6% for the year, but our average new case size is lower by about 5%, driven by the economy and the tendency for our newer agents to have their initial success in the smaller end of the market.

As you shift to the balance sheet and the investment portfolio we continue to see excellent results both in terms of maintaining a strong credit profile and our ability to manage within today's low interest rates and new money investment deals. During the fourth quarter, treasury yields increased driving the net unrealized gain position in our fixed maturities securities portfolio to $3.5 billion at quarter end from $5.1 billion at the end of the third quarter. For the full-year, we had net gains on sales and write down investments of $3.6 million before tax and a level one through three securities on our bond portfolio, watch list is one-seventh the size it was a year-ago.

In 2010 we did a good job on navigating the low interest rate environment and investing in asset classes where we saw relative value at the time. Our portfolio yields held up very well with our aggregate portfolio yield of 6.71% comparing well to our yield of a year-ago which was 6.74%. The yields on our investment portfolios backing our various product lines showed similar stability. An example of this is in our long-term disability business where the aggregate discount rate came down faster than the portfolio yields and we saw this margin expand from 92 basis points to 99 basis points.

So with solid financial and investment results this quarter, book value per share continues to grow. The Company's book value per share was $28.25 as of December 31, an increase of 10.3% relative to a year-ago. Moving to capital, our statutory earnings continue to be solid. Net income on a statutory basis for our traditional US life insurance subsidiaries in the fourth quarter was $158.5 million and $628.8 million for the full year. This healthy level of earnings continues to drive an excellent overall capital position for the company, giving us great financial flexibility. The weighted average risk-based capital ratio for our traditional US life insurance companies was approximately 398% at year-end at the upper end of our target range.

Holding Company cash and marketable securities remains at very strong levels as well totaling $1.2 billion at year-end. All of these characteristics were noted in our recent upgrade from AM Best.Given that strong position and the ongoing cash flow generation characteristics of our business that we discussed at our November investor meeting we announced an additional $1 billion to our share repurchase authorization. This authorization is in addition to the $144 million remaining on our previous authorization and now extends for 18 months.

While our share repurchase activities slowed in the fourth quarter we expect to be active again in the first quarter. This deployment contemplates utilization of our free generation of $500 million per year as well as reducing slightly the excess capital we have built up over the last several years. Additionally, we'll pay off the $225 million debt maturity as of March 1, 2011, which we pre funded in September. Our reported year-end leverage ratio would have been 20.9%, adjusting for this payoff. Concluding on our outlook for 2011, it's unchanged from the outlook we provided at November 17 investor meeting which called for operating earnings per share growth within the range of 6% to12%. Now I will turn the call back to Tom for his closing comments.

Thanks, Rick. As I said earlier, I was generally pleased with our overall results and believe that the additional $1 billion in share repurchase authorizations is a strong statement regarding our confidence in our future. The economic and competitive conditions remain challenging but I'm hopeful that the slow, gradual turn that we're seeing in the natural growth of our business will continue. In the meantime, I believe we have a solid business plan in place and a commitment to consistent, disciplined execution of that plan. Our capital position and financial flexibility will continue to be a an asset. An asset which we expect to continue to use in 2011 to create value for our shareholders. Well operator, this completes our formal comments so please let's go to the question and answer session.

(Operator Instructions)Well take our first question from Darin Arita with Deutsche Bank.

Thank you. Was hoping to think about the US and the growth there and there were comments about the employment pressures easing. I was wondering how quickly could we see that translate into some premium growth in the US?

Good morning, Darin. Maybe what I will do is ask Kevin to pick up on that. Because I think it's most affecting his business.

Good morning, Darin. Well, as we talked about it, last year we had about a 3% headwind in 2009 and 2010 was closer to 1% headwind in terms of natural growth, which is basically the lack of job creation, lack of employment growth, lack of wage inflation. Fourth quarter and in particular December it sort of flattened out. If we continue to see that trend sort of flattening and into the positive, it should flow through, you know, fairly, fairly quickly because basically what it does it increases payroll on your in force book of business and it flows through sort of directly to in force premium growth. You would start to see it sort of emerge pretty much as it emerges in the economy.

In addition, to that, not directly related to natural growth, over the last two years we have seen a fairly significant dampening of what we call [NBOC] or upgrades and benefits for existing clients. It's been down significantly, both in 2009 and 2010. I would expect that as the economy improves and consumer confidence improves and businesses start to reinvestment, we start to see some upgrade in benefits as well, which I think would benefit us on a sales side as well, although you wouldn't see the earned premium effect of that until the subsequent year.

Okay. Great. That's helpful there, Kevin. And then turning to Unum UK, was wondering what the dividend potential is out of that with the returns above 20%?

Let me just ask Rick to pickup. So you're asking, Darin, about the dividend and capacity of our UK business? Yes, go ahead, Rick.

Actually we were able to receive a dividend in the fourth quarter, so dividend flows do come out of our UK business. We're sitting in an access capital position in that business and we expect those dividends and working with regulators, et cetera, will continue to flow out of that enterprise. You would note as part of our overall capital plan we expect some of the capital generation will come out of UK business. That is what we are seeing and expect to see in the future.

Is there a typical rule of thumb guideline on maximum dividends, similar to what we have in the US?

There are and working with the FSA in the UK, it will be a different capital expectation that they'll have through the different capital models, different pillar structures that they have. Needless to say we're in excess position there as we continue to generate the capital, you will see local capital generation, fairly similar to what we see from a US GAAP perspective and those flows should look similar.

Thank you.

Thank you, Darin.

And we'll take our next question from Bob Glasspiegel with Langern McAlenney

Good morning everyone. As you sort of postmortem the Colonial quarter, is there any concern that maybe sales, the good sales you have had versus competitors may have sacrificed too much price?

Good morning, Bob. Actually I will ask Randy to pick up on that question about sales activities.

Thank you, Tom and good morning Bob.

Good morning, Randy.

We don't have any strong concerns in that regard. We have a very disciplined pricing approach and still selling primarily individual products, that, again, have been relatively stable over time. So, no, I don't see us sacrificing margin or having to come down significantly on price to maintain sales momentum.

Okay. And if I could switch gears, now that you have an A rating from AM Best, you sort of have been balancing, you know, generating statutory earnings, which is maybe a dampener on sales to maybe taking more that we'd be able to sacrifice that earnings for growth. I know it's not either/or, but as you look at the continuum of stat earnings and sales, could there be a little shift in focus going forward or is maximizing stat earnings your primary objective?

Bob, this is Tom and I'll ask Rick to, to add to my comments. First off, we're very pleased, obviously to get the AM Best rating and it was important for no other reason than I think certainly this Company has come a long way and we think the performance of Company certainly should have led to a ratings upgrade. I think we said in the past, commercially, the only place, I think we saw that rating somewhat helpful is in the public sector business, Randy's business. So it wasn't a big commercial victory, but I would say it's a big victory in terms of being able to show the hard work that has been put into the Company led to a ratings improvement. I don't think Rick, it's going to fundamental change though how we think about managing the business at all actually. We wanted the rating but I'm not sure we actually compromised anything financially in order to get the rating.

I think we have been running the business as we expected and as we have communicated to you over the last several years, we were happy to get that, but it wasn't reflective of change in the structure and to pick up on your question about maximizing earnings versus sales, I would go back to capital and as we generated statutory earnings into our capital base, first and foremost we like to put that pack in our new business. So we're not sacrificing on the new business front to generate more statutory earnings and quite the opposite. We would like to put more back into the business to generate those returns. So that's -- I would reverse your commentary around that and say I would much rather sacrifice a little bit on the stat earnings front and grow our good, profitable businesses around the company.

Thank you.

Thank you, Bob.

And we'll take our next question from Mark Hughes with SunTrust.

Thank you very much. Good morning.

Good morning.

Good morning, Mark.

The I think you emphasized December. Was December steady or actually up a little bit in terms of natural growth?

Kevin, you would you like to pick up on that?

Yes. It was -- December was better than the earlier part of the fourth quarter, but I mean we're splitting hairs here we're talking about the fact it was basically zero, plus or minus percentage points.

The inflation-indexed product, is that going to continue to have an effect only future quarters?

I think Mark, you are shifting to the UK now. Rick do you want to pick that up please?

I would say, remind you, the inflation index only impacts the benefit ratio. So what you will see equally and offsetting in the investment income lines is volatility. It's more a reporting issue and that is why question spike it out because it is more how it comes to the benefit ratio as opposed to how it effects profitability. Because we have assets that backs that same inflation index that float against the same indices. So we'll continue to spike it out, but it does cause a little bit of noise in our benefit ratio.

Right and just a reporting issue rather than an income issue?

That is correct.

The higher long-term care rates you are having success with your filings, when does that kick in in terms of a premium and then what should we expect in terms of losses? When will that change or moderate? And does that have an impact on persistency as well? Do people -- do certain cohorts abandon the policies when you raise rates like that?

When you look at the long-term care business, we did see an uptick in the benefit ratio. You will see it stabilize probably around that level over the course of 2011. The timing of the premiums starting to flow through and affect the benefit ratio are probably more of a 12-month to 18-month timeframe. So I think as we get towards the end of 2011, you will start to see that feather in over the course of early 2012. So that is kind of the trend lines you should expect to see it there. With regards to persistency, I think that -- you know, we'll have to see how that plays out. Previous rate increases have not affected persistency. They have been absorbed into the market and we'll have to see how that plays out. We don't have an expectation that persistency kicks up or I should say reduces as a result of the price changes.

Thank you.

Thank you, Mark.

And we'll take our next question from Mark Finkelstein with Macquarie.

Good morning. Actually a follow-up on, on the prior question. I guess with the rate increases in long-term care and I understand that naturally the business is going to show higher loss ratios over time, offset by investment income but if we look at it on a margin standpoint, would we expect with these rate increases that it would essentially take, you know, improve the margin or essentially kind of freeze it where we're at, relative to the experience that we're showing and how dramatic would we expect that margin expansion to be if that is the case?

If you look over the next couple of years and it's also early in the process, so I don't want to over commit what the process looks like, but what you would see happening is it bringing in the expense ratio a little bit. But that continued headwind we have seen with high persistency will continue to push it up. So you will see those two competing forces happening within our benefit ratio within the next two years and so you could think about that from a margin perspective. That is how it will flow. But it will be somewhere in this range with the increase in active life reserves from high persistency, being offset with some of the premium changes. And that will play out over the course of the next eight quarters or a little bit longer.

Okay. But you would expect the margin from where we are to date to improve with these rate increases?

Yes.

Okay.

Slightly not a tremendous amount.

Okay. Okay.Just on the UK, sounds like a lot of optimism around some of the claims management practices that Mr. McGarry is working on. And my question is what is it that we're trying to achieve and is there any way of kind of quantifying what you think the inefficiencies and what is currently being done today? Whether it's in terms of loss ratios or improvements in claim recovery patterns or what have you? Maybe you could elaborate on what you expect the outcomes to be at as a result of these procedures?

Rick do you want to pick up on that but maybe also maybe add a little to it to what you seeing in the marketplace with some of the growth -- from the top-line growth prospects as well.

Yes, the claims management processes aren't really as focused on margin improvement as they are on consistency, predictability and improving our value proposition in the marketplace. It's about fairness, objectiveness, making sure that we're fully documented. We probably will see some improvement in the loss ratio. It's going to be a more expensive benefits organization, because we're going to apply more resources to it, both management claims people as well as medical and vocational resources. Very consistent with the US. We face similar kind of headwinds in the UK around a kind of tightening regulatory environment and we expect those things to net out as opposed to seeing really good profit improvement from there. We do expect to see significant and profit improvement from our renewal efforts. You know, early days on those but we're encouraged by what we're seeing in the marketplace and encouraged by similar to the US the margin improvement potential from those profit movements, because the business we're losing in the marketplace is significantly underpriced, relative to the business we're keeping, at least with the business we have renewed thus far. And again, we have seen stabilizing premiums. We actually have seen over the last two quarters a pretty good increase in the what is called NBOC in the US, but called upsell in the UK and that is existing policy holders adding coverages and expanding coverages. We have a big push in the UK about encouraging employers to expand coverage and are optimistic about that and we begin to see some natural growth in the market as well.

Okay. All right.Thank you.

Thank you, Mark.

We'll go next to Colin Devine with Citi.

Good morning.A couple of questions for you. The first one, Kevin, can you just give us a sense how much as Jack refers to them are down in the US because that was quite significant for one of your competitors? And then for Randy, what is it about your agent's comp program that is allowing you to be so much more successful than one of the other large firms out there that seems to be struggling mightily to recruit agents?

Kevin, you wanted to start?

Yes, good morning, Colin. NBOC's or upsells as they say in the UK, were down 30% in the fourth quarter, down 16% for the year. And that is down from a 2009 level that was also down by similar levels versus 2008. Typically, in more "Normalized times" about a third maybe or so of our group insurance lines would experience -- their sales numbers would be from this NBOC so when you're down by that much, you know, I think the fact that we came in with a flat fourth quarter in terms of overall sale and with growth sort of in new business and new account acquisition was a pretty remarkable quarter.

That is very helpful, thank you.

Randy, you want to pick up on the other recruiting question?

Sure Tom. Good morning, Colin. Our ongoing growth in agents is not a matter of agent comp, it really comes back to performance expectations that we have for all of our field management group. So we have very clear expectations established. We have a great structure in place at this point that really maintains a very strong focus on new agent recruiting on a continuous basis. So we have very solid processes around recruiting, a good support structure in place. Both in the field and the home office and I think it's just more about continuity, expectation, focus and we're getting good steady results. But Colin, it really is not a matter of compensation that is driving that.

That is also very helpful. I had just one quick one for Rick. You mentioned on, I against the problematic long-term care block that I think you were approved in 18 states. I'm curious, more importantly what percentage of in force have you received approvals on?

That is a good question, Colin.

Colin, think that is just slightly under 20% at this point. So that is 13 states. We've had two states that have denied our request that we'll go back to but I think of those states that have approved, it's a little less than 20% of our overall program.

Great. Thank you very much.

We'll go next to Jimmy Bhullar with JPMorgan.

Good morning.

Good morning Jimmy.

I have questions on pricing trends in disability. You touched on this before, but a few of your competitors have been talking about raising prices and I wanted to discuss when you have seen some of the large competitors in the group disability market in the US raise prices or just talking no action in the marketplace?

Secondly on buybacks, obviously you announced the additional $1 billion and part of that is drawdown on your existing excess capital conditions and how should we think about that over the next year, year and a half? A portion front-ended or you expect to do them evenly through the next year and a half?

Let's just go back to your first question, Jimmy on pricing trends. Kevin, you want to pick up on that?

Good morning, Jimmy. We really haven't seen much change in the marketplace is what it comes down to. We have maybe seen during the fourth quarter a little more stability in pricing in terms of large-case end of the business than we have been experiencing in the past. But in the small and medium-sized sort of core marketplace, we haven't seen much movement at all. On the pricing side, industry pricing levels flat to slightly down over the last 18 months. We haven't seen any change in that when we look at our 2011 renewal program. I think we're making good solid, steady progress but we recognize that incumbents are continuing to defend their enforce books of business so short answer I guess is no, haven't really seen any change.

Your second question, Rick do you want to pick up on the buyback?

I think the key question you had was on the pace of the buybacks we expect to see over the next 18 months. I think it would be fairly level in terms of what we would expect. We have the capital to do more today and given the right opportunity we would move it earlier, move it later, but it's going to be more dependent on what we see and being opportunistic on that front. So I think it's a reasonable estimation is on a level basis but expect that we will do more and less based on what the market dictates. It's not a question of capital, though. We have that available to us today.

But opportunistic would imply the stock price, if it were to correct, you would do more, otherwise, at an evening pace, right?

That is one point, certainly.

Thank you.

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

Thank you so much. A follow-up question for Rick on share repurchases. You talked about $500 million on share repurchases being included within your guidance so I wanted to see if your affirmation of 6% to12% growth in earnings per share included $500 million or something bigger than that in you talked about $900 million as sort of capacity in terms of running down RBC and reducing excess liquidity and if we expect that in 2011. And finally, it if could talk about taking the foot off the pedal a bit in Q4 in terms of buyback activity.

In terms of EPS guidance, we have the increment and this is if you load the $1 billion over the course of the year, you'd see maybe 1%, 1.5% type of moment in the EPS. That is still within our range and we're not adjusting guidance for that but I would assume that's baked in.It really depends on how this program plays out and we'll update that over the course of the year.

In terms of capacity we laid out on investor day, we're generating $500 million a year. Came in a little heavier than that last year. So we're starting with this $1 billion to start to bring down our expectation a little bit of our Holding Company-levels, which are still running 1.2, running at almost five times our annual needs. We'll run that down and RBC ever so slightly, but still stay in the range $375 million to $400 million most likely. With regards to the fourth quarter, we did a small in number of buyback, $29 million, but you are right, it was slower than what we did in the third quarter, which was closer to $200 million. Looking at the fourth quarter, there were not a lot of windows in terms of buying back shares and I have to remind you we did our earnings in early New York, investor day, November 17 and with holidays and volumes drying up as we get into December, so there wasn't the opportunities there. You will see us active in the first quarter, buying back our shares and you can expect to see that.

Thank you. Everything else was touched upon.

Good. Thank you, Chris.

We'll go next to Sean Dargan with Wells Fargo.

Thank you and to follow-up on Chris' question, should we still view the operating earnings growth guidance of 0% to 5% to be in place? In other words, it's not taking incremental more share repurchase to get to the guideline?

0% to 5% would still be intact. We have a little bit of movement around there as we get to our final plans, but that 0% to 5% is good and we're keeping the 6% to 12% both of these expectations are system within that range.

Thank you. And just one more question about Colonial Life. There's a mix shift going on. Am I to take that to mean there will be a higher utilization going forward based on the client base that is buying the product now?

Yes, actually Randy you want to pick up on that? The mix shift is something you have been talking about for some time and it relates to your markets as well as your product portfolio. So if you could just pickup on that a little bit.

Good morning, Sean. It's definitely a market and product shift. We do see a little higher utilization of benefits on the public sector side of things. As we focus on that market, we'll see a little more shift there. And also, as we introduce new products that are more competitively priced, that is going to inch it up a bit. Then just seeing a mix within produce segments with more focus on the accident and sickness side of our benefit offerings. All coming together to kind of inch things up from a benefit ratio standpoint, but still, we feel very comfortable in terms of stability in the low 50s range that Rick talked about and it's a good place to operate our business going forward.

Thank you.

Thank you, Sean.

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

Hi, good morning.

Hi, Steven.

Just to follow-up, the message vis a vis Colonial and risk results is not that necessarily that this is an adverse morbidity quarter that we had here. It's more along the lines that we think things are given our mix shift and we just did reserves accordingly. Is that the way to think about this?

I think that the most of what you said I agree with. In the fourth quarter we did see some things related to prior quarters and we adjusted reserves. You are should take some of that increase and spread it back to second and third quarter. We didn't see it at that point in time (inaudible) and go to fourth quarter. It is ultimately higher incidences and that is why we said the quarter in and of itself it was 50.7%, which was higher than we have seen in previous quarters, but still within our range of expectation.

Okay. If I may follow-up on a couple of things, Rick? So the guidance now seems to be to look for not that it makes a whole lot of difference to the earnings or the EPS, but the guidance seems to be looking to $1 billion of share repurchase, somewhere in that range. You have $500 million coming out from the insurance companies, based on operating cash flow. Of course, that comes back in during this year, taking another $500 million or so out-of-the Holding Company, is that correct?

I would look at it more split into the two years. Over the next 18 months we'll generate $750 million out of insurance company and you drawdown probably out of Holding Company, $250 million. Those are rough numbers gives you a sense because we're look out over 18 months.

Okay. And then to follow-up on Colin's question about the in force rate increase on individual long-term care. Could you remind us what percentage of your book of business are you looking to take rate increases on?

Tom?

Let me to a little homework on that really quick.

We'll just try to check on that as we're speaking now.

All right. That is all I have got. Thank you.

Thank you, David.

We'll go next to Randy Binner with FBR Capital Markets.

Good morning and thank you.

Good morning, Randy.

I guess the Colonial questions have been answered pretty well, but coming back to long-term care, I want to understand Rick's comment that the benefit ratio would stabilize kind of later this year. A, I assume you are talking about interest rate- adjusted, but B, if I think about it, you have a younger book than some of the peers and so if utilization is higher, wouldn't that cause a longer term increase? I want to understand why that would stabilize until of naturally rising, not withstanding your comments on the re-rates.

If you look at the increase in the reserve, you have to do it over a little bit longer trend. This isn't about claims or things that we have seen. We're within our expectations are round what around the claims front. So it is purely the increase in reserves that we're seeing as high persistency. And so my comments around that is the fourth quarter is probably a little higher than our expectation going into 2012, maybe around it, but to the higher end of expectations. When you isolate a quarter, looking at 82-83-ish range and as we get to the end of the year, you will start to feather in the higher premiums on the re-rates coming in, which will neutralize that ever increasing loss ratio as a result of the high persistency.

Okay. So the persistency is maybe driving it more than pure utilization, is that fair to say?

It's all consistency.

Okay and can you remain us what the average age of someone coming on claim there and what the average age of the whole block is?

I think, go ahead, I was going to say, maybe, Kevin do you have a sense of that?

In individual long-term care, I think the average age on claim is in the 70's somewhere. The average age of total in force block I think in and around age 60 or so where as in group term care, high 40's in terms of in force. This isn't about claim utilization and we're not seeing deviations around recovery patterns or morbidity. It's all about expected persistency levels and adjusting active life reserves for that.

Understood, thank you very much.

Before we take the next question -- .

Just to follow-up on Steven's question, the block of individual long-term care business we're looking for rate increases on represents roughly 40% of the total individual long-term care block.

Thank you, Tom.

(Operator Instructions)We'll go next to Jeff Schuman with KBW.

Thank you, good morning.

Good morning Jeff.

I wanted to go back to the UK. I think I understood Jack to say that the claim management function there has been under resourced and that you are going to put more resources there in search of a higher degree of fairness and consistency. I guess that begs fairly obvious, but loaded question, which is where there some questions there historically? Are you taking a look at somewhat historical claim practices there?

Jack, you want to follow-up on Jeff's question?

Excuse me?

I was going to say, Jack, do you want to follow-up on Jeff's question?

We have done a pretty exhaustive review of the claim decisions over time. It uncovered no issues historically with claim decisions, a piece of the focus is on the consistency and predictability of results that we need to improve. Another element is that even though the claim decisions themselves were accurate and according to guidelines, we didn't have the same rigor of controls in place around them to ensure that would always be the case going forward. So a real piece of what we're doing is putting in similar controls in the UK that we have in the US

That is helpful, though I'm still --it's still hard not to note your use of the word fairness before so is that not maybe the right choice of words.

You know, I think it probably wasn't, because the decisions have been fair before. It wasn't the right choice of words, but probably it's more around documentation and standards.

I'm sure one thing going through your mind is to draw the parallels between the US and UK.

Of course.

The FSA has consistently felt good about the claim practices that we have followed. I think with Jack's arrival, among other things we found there is a better way to do things. That is what it's all about is taking a good process and making it better.

That is understandable. Thank you for that. One other thing I wanted to ask you about is how we should think about market share and competition in the US group at this point? We have observed from competitors that some of them have clearly been underpriced and that is come through in their results. Your commentary is that you are not seeing a lot of firming of pricing. I guess you sort of add those two together it would suggest some level of inadequate pricing in the market. So given that, is interest a way for you to hold share as the market kind of recovers and grows here? Or is that going to be a little challenging, unless pricing moves from here?

Kevin, you want to pick up from that?

Yes, thanks. Good morning, Jeff.

Good morning.

Over the last 24 months we have gained share in terms of case sales if you will. Case share.And we have gain share in the core market during that period of time. Our struggles in terms of top-line notwithstanding because of the economy, those struggles have been less than many of our competitors than the industry in total. Our growth rates, we're much less pressured than the industry in total. So no, I'm not sort -- First of all, I'll not overly focus on gaining share, but achieve rock-solid disciplined results that meet our business objectives and to the extent had a we're gaining share, that is great. I think our value proposition has worked very well and the growth of our market and expansion of our enrollment capabilities and integration of simply Unum into the marketplace, all of those things bode well for share gain, sort of, over time.

I guess what you are saying that you could still find your spot where's you can live with the pricing?

Absolutely. I think to the extent that the market continues to shift from sort of historical and fully-employer paid to sort of shared funding with employer-employee, our voluntary capability and ability to integrate group and voluntary play very well.

Thank you.

I think operator we'll take one more call. We know there is another company call coming up shortly and we want to close promptly. So we'll take one more question.

We'll take our last question from Mark Hughes with SunTrust .

Thank you. The UK business you had a tough comp this quarter on a normalized run rate, what should sales growth look like as we look over the next 12 months?

Jack, you want it pick up on that?

Yes. It's a tough comparison, because the business was in the fourth quarter in 2009. Our expectations are that sales will be down slightly next year, because of the rate, as we're trying to take and put into the marketplace. We would expect that to be more acute in the beginning of the year and as rates we're trying to take and put in the marketplace, which we're optimistic that they will, towards the year.

Rick is consistent with the guidance we provided investor day and we're holding to the guidance that we gave on investor day in local currency 10%. Thank you all for taking the time to join us this morning and again, we're all standing ready for questions arch today's call, but at this point, operator this will complete our fourth quarter 2010 earnings conference call.

Thank you everyone. That does conclude today's conference. We thank you for your participation.