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Unum Group  (NYSE:UNM)
Q1 2019 Earnings Call
May. 01, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Please standby. Good day, everyone, and welcome to the Unum Group First Quarter 2019 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Tom White. Please go ahead, sir.

Tom White -- Investor Relations

Great. Thank you, Lisa. Good morning, everyone, and welcome to the first quarter 2019 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, 2018. And our SEC filings can be found in the Investors Section of our website.

I remind you that statements in today's call speak only as of the date they are made, and we undertake no obligation to publicly update or revise any forward-looking statements. Also, 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 is also on the website in the Investors Section. Participating in this morning's conference call are Unum's President and CEO, Rick McKenney; our CFO, Jack McGarry; as well as the CEOs of our business segments. Mike Simonds for Unum US, Tim Arnold for Colonial Life and Steve Zabel for the Closed Block.

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

Richard P. McKenney -- President and Chief Executive Officer

Great, thank you, Tom, and good day, everyone. We started 2019 with good first quarter results. Our after-tax adjusted operating income per share increased approximately 5.5% to $1.31, right in line with our outlook range for the year of 4% to 7% growth. We are pleased that the first quarter, repeated many of the positive operating trends we have consistently experienced over the past several quarters. We'll cover these trends throughout our comments this morning.

To begin, the growth trends in our core businesses remain quite healthy. We continue to see good levels of premium growth, including 4% growth in Unum US, 5% growth in Colonial Life and 10% growth in the International segment. This stable pattern as a result of our disciplined approach to sales growth and our ongoing focus on our current customers. In addition to solid premium growth, we continue to see stable benefits experienced across our operating businesses. This provides a very healthy margins with strong cash generation and financial flexibility for the overall company.

Also in the first quarter, our Closed Block segment results were in line with our long-term outlook. We're encouraged that over the 3 quarters since our Reserve Assumption Update last year, the interest adjusted loss ratio for the long-term care block has been 86.4%. This is in line with our expectation of 85% to 90%. Jack will provide additional detail on these results as well as updates on other important aspects of the LTC business.

With this good financial performance, our capital metrics remain on track. The RBC ratio for our traditional US insurance companies was on our expectations and holding company cash remains above our targeted level. We bought back $100 million of our shares as we consistently return a portion of this capital to our shareholders. Thinking about our business in the aggregate, we continue to believe that the workplace is the (inaudible) to reach and serve the financial protection needs of our consumers. We will continue to use our strong cash generation to execute on our long-term strategy of investing in the growth of this business. You've seen us strategically expand our portfolio of products and services over the last several years with the largest example being the Dental business. By scaling our acquisition through our distribution teams at Unum US and Colonial Life, we have created a meaningful position in the Dental business in a short time.

In addition, we are investing not only in the solutions but in the ways we deliver them to consumers. We're doing this through streamline integrated ways of working with our distribution partners and easy to use digital tools to assist customers as they access and manage their benefits. Investments can also come in the form of expanding our reach. Last year saw our expansion into Poland, which is a small relative to our UK business, but as a good platform and has real potential longer term. Distribution expansion in the US is also a focus as we see opportunity in developing our Colonial Life footprint with geographic expansion in the US. These activities underscore our purpose of providing a central financial protection to millions of workers and families. All of this position us very well to drive continued growth in the future.

We're off to a good start in 2019. You can see that reflected in our results. I would also share, there is a high level of enthusiasm that our teams bring to serving our customers every day. It solidifies the great position we have in our markets today and provides the energy to pursue the growth opportunities ahead of us. Now I'll ask Jack to cover the details of the first quarter results, Jack?

Jack F. McGarry -- Executive Vice President And Chief Financial Officer

Thank you, Rick and good morning, everyone. To reiterate Rick's opening comments, we feel very good about the operating results for the first quarter and the momentum this gives us in 2019. I'll provide additional detail on the performance of our business segments and provide an update on our capital position. Beginning with Unum US, it was a good start to 2019 with adjusted operating income increasing 3.4% for the first quarter. The positive operating trends we've seen in this segment over the past several quarters continued into the first quarter, with solid growth in premium income, very good persistency in our group product lines and stable risk results across our major business lines. These strong operating trends were offset somewhat by the ongoing decline in net investment income for the segment, which was driven by lower miscellaneous investment income as well as the ongoing pressure on portfolio yields.

In fact, miscellaneous investment income for the first quarter was lower for the total company, relative to the year-ago quarter and relative to our historical quarterly average. This shortfall had a dampening effect on a number of our business lines. Within Unum US, adjusted operating income for group disability declined by 0.5% to $82.6 million in the quarter. Continued good premium growth and excellent benefits experience were offset this quarter by lower net investment income. Premium income grew by 3.9% as the in-force block increased strong persistency levels and higher sales. The benefit ratio improved to 74.7% in the first quarter from 75.6% a year ago, driven by favorable new claims incidents and recoveries in our long-term disability line, which offset higher paid claims volumes in the group short-term disability product line.

Similar to recent trends, net investment income in the quarter declined by 7.6% driven by a very low level of miscellaneous investment income and the continuing trend of reduced assets back in the line and lower portfolio yields on those assets. With an average level of miscellaneous investment income, we would expect the group disability line to generate quarterly adjusted operating income in the mid $80 million range. This quarter's risk results were consistent with that expectation.

The Group Life and AD&D line also had a good quarter, with adjusted operating income of $67.4 million, an increase of 4.3%. The primary drivers of the performance was an increase in premium income of 4%, resulting from prior period sales growth and very good persistency trends. The benefit ratio was generally consistent with the year ago quarter. Sales for the group lines of business in Unum US were very good in the first quarter, increasing 8% over the year ago quarter. The good disability lines primarily drove this growth, increasing 24.6% but we saw a decline of 9% in Group Life. Persistency in the Unum US Group Lines remains a highlight for us, an important driver of premium growth. Total group persistency for the first quarter of 2019 was 90.9%, up from 89.4% from the first quarter of 2018.

Finally, for Unum US, the supplemental and voluntary lines showed strong results for the quarter, with adjusted operating income of $102.3 million, an increase of 6.2%. The primary drivers for the quarter were good premium growth and overall favorable risk experience, which offset lower net investment income and higher amortization of deferred acquisition costs related to the impact of a higher level of policy terminations, particularly in the voluntary benefit product lines. Premium income grew by 5.6%, primarily from prior period sales growth with increases in all three primary product lines, particularly in dental and vision as we expand its distribution.

Focusing on risk experience, the benefit ratio for individual disability was lower due to favorable claims incidents and a lower average size of new claims. In the dental and vision line, the benefit ratio was also lower due to lower claims utilization. For the voluntary benefits business, the benefit ratio benefited from favorable underlying risk experience as well as the release of active life reserves resulting from a higher level of policy terminations. The active life reserve release is largely offset by accelerated amortization of the deferred acquisition cost. So the earnings impact is muted.

Sales for the supplemental and voluntary lines declined by 2% for the quarter, with lower sales in individual disability and voluntary benefits, partly offset by an increase in the dental and vision line. Persistency in the supplemental and voluntary lines was lower in the quarter relative to the year ago quarter. Our Unum International segment reported adjusted operating income of $29.1 million for the quarter, a decline of 2.3%. The decline is largely due to unfavorable UK currency exchange rate relative to the prior year. In local currency, Unum UK produced adjusted operating income of GBP21.6 million in the quarter, an increase of just under 1%. Results for the UK business were driven by an increase in premium income of 4.7% from favorable persistency in sales growth, partially offset by a decline in net investment income due to a lower yield on both fixed rate bonds as well as inflation index-linked bonds. In addition, the benefits experience was favorable the benefits experience was favorable, due primarily to the impact of inflation-linked decreases in the benefits related to our group products. Our International segment also includes the earnings contribution from Unum Poland, which we acquired in the fourth quarter of last year. Unum International sales in US dollars increased 32% in the first quarter, driven by strong growth of 19.5% for Unum UK in local currency and the inclusion of Unum Poland. Persistency for the UK business increased over a strong 2018 level, a very positive sign given the high single-digit rate increases we're achieving for renewables, on the group disability blocks.

The Colonial Life Segment produced another strong quarter, with adjusted operating income of $85.2 million, an increase of 5.2% from the year ago quarter. The drivers of this performance, continue to be very good premium growth of 5.3%, and steady benefits experience. The benefit ratio for the first quarter was generally consistent with the year ago quarter with favorable experience in the life business partially offset by less favorable results in the cancer and critical illness lines. Sales at Colonial Life increased 4.9% in the first quarter, compared to the year ago quarter. The growth was primarily driven by favorable sales trends in the core commercial market and public sector.

Moving to the Closed Block. Adjusted operating income was $31 million for the quarter, an increase of 7.3% over the year ago quarter. As expected, premium income declined to -- in this segment, declining by 3.6% in the first quarter, primarily due to the ongoing policy terminations and maturities for the individual disability line. Net investment income increased by 2.6% in the quarter, driven by an increase in the level of invested assets, which was partially offset by lower miscellaneous investment income. In the individual disability product line, the interest adjusted loss ratio was 80.1% for the first quarter, compared to the very favorable 77.1% last year, driven by less favorable mortality experience and a higher average claim size. The results of the long-term care business line for the first quarter, reflect the new reserve assumptions we adopted in the third quarter of 2018. On this updated reserve basis, the interest adjusted loss ratio of the long-term care was 88.5% in the quarter, which is in line with the range we outlined for you of 85% to 90%. The interest adjusted loss ratio in the year ago quarter is not comparable given the reserve basis change.

For the 3 quarters, since the Reserve Assumption Update last year, the interest adjusted loss ratio for long-term care was 86.4%. While the results of this block should be measured over a long timeframe, we're pleased that the performance thus far has been solidly within the targeted range. Since we updated the reserve assumptions in the third quarter 2018, we continue to make good progress related to our long-term care premium rate increase assumption. And we're encouraged about the conversations with the NAIC to grant actuarially justified rate increases.

In addition, the new money yield for long-term and care investments in the first quarter, exceeded the 5.5% new money yield assumption embedded in our updated reserve assumptions. For our other US businesses, new money yields for the first quarter were in line with the fourth quarter, but remain below our portfolio yields, so we expect to continue to see some pressure on the portfolio yield and overall net investment income. Wrapping up with the Corporate segment. The adjusted operating loss was higher in the first quarter at $45.4 million, compared to a loss of $40.3 million in the year ago quarter, due in large part to a higher level of outstanding debt, a higher rate of interest and higher pension costs. This quarter's results are consistent with our expectation of quarterly losses in the mid $40 million range.

Statutory earnings for our traditional US insurance companies remain at healthy levels and adequately support our capital management plans. In the first quarter, statutory after-tax operating earnings totaled $223 million, compared to $242 million in the year ago quarter. You may recall that last year's results benefited from an IBNR Update for the group long-term disability line. We closed the first quarter with a strong capital position. The risk-based capital ratio for our US traditional life insurance companies, was approximately 360%, which was in line with our expectations.

Cash at our holding companies, totaled $594 million at the end of the quarter, comfortably above our projected 2019 fixed cost estimate of approximately $390 million. Share buybacks in the first quarter were a $100 million, consistent with our outlook for the year.

I'll conclude my comments this morning by reiterating the expectation of growth and adjusted operating income per share in the range of 4% to 7% for full year 2019. The base of adjusted operating earnings from 2018 is $5.20 per share, which excludes net realized investment losses and rgw reserve increase for long-term care from our 2018 net income. This is consistent with the view we shared with you at our outlook meeting in December.

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

Richard P. McKenney -- President and Chief Executive Officer

All right. Thank you, Jack. And to wrap up our comments, it was a solid quarter for the company and a solid start to the year. We're pleased with the operating trends we're seeing in the core businesses and they are driving strong operating earnings and cash flow for the company. We're happy to move to your questions now. So I'll ask Lisa to begin the question-and-answer session. Lisa?

Questions and Answers:

Operator

Thank you, sir. (Operator Instructions) We'll take our next question from Jimmy Bhullar with JPMorgan.

Jimmy Bhullar -- JPMorgan -- Analyst

Hi, good morning. I had a question first just on the long-term care business. The interest adjusted loss ratio was within your guidance, but it has picked up a little bit, so is it, normal sort of volatility in the business, and if it is what did you see or are you seeing the slight deterioration in claims trends?

Richard P. McKenney -- President and Chief Executive Officer

Yeah. Jimmy, good morning. I'd say that's normal volatility. If you look at what's happened since we did the Reserve Update in the third quarter, the third quarter of the loss ratio was at 87.5%. So spot on the middle of the range. This quarter it was slightly above that, but still well within the range and we noted when we did the reserve update that we would see volatility in the loss ratio. Fortunately, that volatility was positive at this time. So I would look at the sector fourth quarter of 2018 as kind of the aberration and that a little bit of unusual positive volatility there. But overall, we're really pleased with where the loss ratio is, we are pleased with how experiences unfolding and it's really positive that 3-quarter loss ratio, if we look at it, is in the low end of our 85% to 90% range.

Jimmy Bhullar -- JPMorgan -- Analyst

And do you sort of review your or do a more detailed adjustment to your assumptions every few years? If the loss ratio were to get to the high end of the range or a little higher than the range in a given quarter, would that the sort of drive you to maybe reassess reserves again, are you more -- are you going to look more at sort of more added on an annual basis over a longer-term basis?

Richard P. McKenney -- President and Chief Executive Officer

We're looking at add a longer-term basis, by way of example, when we had an 83.4% loss ratio in the fourth quarter. We didn't revise our assumptions downward. If we had 90 plus percent loss ratio in the quarter, we wouldn't revise our assumptions upwards. So we're looking at the overall loss ratio cumulatively, it would take even better than a year, actually to cause us to reevaluate those assumptions unless something markedly happens that, that we could point to the higher loss ratio.

Jimmy Bhullar -- JPMorgan -- Analyst

Okay. And then just lastly, any comments on what you're seeing in terms of competition in the US disability market, seems like there is more interest among competitors in that -- in the group benefits business in general?

Richard P. McKenney -- President and Chief Executive Officer

Mike, you want to take that?

Michael Q. Simonds -- President And Chief Executive Officer,

Sure, good morning, Jimmy. I appreciate it. So first quarter not a huge one for the group insurance business, and your question is specific to group disability but we were pleased with sales results, strong growth quarter-over-quarter, which is good. Probably as or more importantly persistency for the group disability business was over 90% and really good there. And I'd say in the mid-to-large end of the market, the capabilities that we've built and actually continue to invest in around helping our employer clients, manage their leaves, protected, paid on an integrated basis with disability has been a strong differentiator for us in the market and that paired with our investments to deeply integrate with the HR technology that our clients are increasingly adopting on a cloud basis. I think put it us in a really good spot going forward. The smaller end of the market, I'd say is where we got off to a slower start overall and we've already taken some actions at the margins from our field force, marketing and underwriting point of view because this is a profitable and important market to us and probably even more importantly, as I look at some of the digital capabilities that we have to ease the administrative role of the employer that we will be rolling out in the second half of the year. I feel confident that momentum will build in the core market as we head toward the all important fourth quarter and the one-one cycle.

Jimmy Bhullar -- JPMorgan -- Analyst

What I was trying to get more to that was actually sort of pricing, because you have seen very good loss ratios by most companies, have you seen that flow through to sort of -- have you seen that I call an uptick in competition and pricing that's perhaps by competitors?

Michael Q. Simonds -- President And Chief Executive Officer,

Sorry, Jimmy. Yeah. I got it. So I would say, it remains a very competitive market, but I'd say a rational market from a pricing point of view. And so our best data points are looking at things like our ability to pick up place rate increases through the renewal cycle. We had a really good one-one in terms of profit improvement and our persistency number overall. Again, there are some pockets where I'd like I said, we've taken a few actions because those are important and profitable segments for us, it is competitive no doubt about it, but I'd say ,I'd seen significantly worse.

Jimmy Bhullar -- JPMorgan -- Analyst

Thank you.

Richard P. McKenney -- President and Chief Executive Officer

Thans, Jimmy.

Operator

We'll take our next question from Humphrey Lee with Dowling & Partners.

Humphrey Lee -- Dowling & Partners -- Analyst

Good morning, and thank you for taking my questions. Looking at Unum US supplemental and voluntary as well as Colonial Life, premium growth was good 5% but little lighter than what you have been having and then also kind of relative to your guidance. I believe, there were some nuances like the exit of the individual dental business, running through the numbers, but I was just wondering if you can provide some additional color in terms of the moving pieces on the premium and the sales growth in both segments and then in terms of your outlook for both of them? Tim, do you feel like your all the premium remain intact?

Richard P. McKenney -- President and Chief Executive Officer

We will start in the US, Michael. I'll hand over to Tim on Colonial Life .

Michael Q. Simonds -- President And Chief Executive Officer,

Sounds good. Good morning Humphrey. And yes, you did -- I'm going to start with dental, you cited a tough comp because we made the decision to exit a relatively small direct to consumer business. We're focused entirely on the worksite to something unique about Unum here in the US and so we don't have the individual sales for dental in the current quarter number to compare to. If you kind of peel that back and looked at what we're taking forward, which is the group dental and vision business. We saw sales growth over 45% in the quarter. So really strong and exciting momentum building for group dental and group vision by going forward and we anticipate like, we talked at the outlook say, that'll be a meaningful contributor to our overall Unum US, not just softened but overall Unum US sales results here in 2019 and a pretty significant premium contributor in 2020. So feel very good about that. On the voluntary benefits front, I guess, what was the primary dampener on premium growth was, we did see a poor quarter from VB Persistency. So, we reported 73% versus 77% a year ago 1Q. That's a tough comparable 77% is at the high end of what we've seen historically, which is in the 75% to 77% range. As we dig into it, I'd say it's an average case size issue, so if you took the relatively comparable number of terms and you apply what our historical averages for the average size of a term that's worth about 2 points that puts us into the bottom end of the range. So I wouldn't say it's as bad as it looks, but I would highlight the large case voluntary benefits market as one that is competitive, we've seen some existing competitors get more aggressive there. We've seen some new entrants and hopefully what you'll come to know and expect of us, we are going to be disciplined about our approach there in terms of our underwriting and our expense profile. So I do remain optimistic in the long-term about voluntary benefits, but in that large case market, I think there's probably a little bit of weather in that we're going to have to deal.

Richard P. McKenney -- President and Chief Executive Officer

Good. Tim, you want to hit Colonial Life?

Tim Arnold -- President and Chief Executive Officer of Colonial Life

Yes, Humphrey, thank you for the question. I'll start with the overall level of premium and persistency. and we are seeing some of the same trends that Mike talked about. Our persistency this year was lighter than last year and will lighter than our plan and a big part of that is the large case the component and we do see some seasonality and volatility there, the first quarter typically has the largest percentage of clients, who have their medical plan renewals and so much of their voluntary benefits also are up for renewal in the first quarter and so we'd see some volatility there. From a sales perspective, this is the 22nd consecutive quarter that Colonial Life is produced year-over-year growth in sales. So we feel good about the sales results overall, little bit lighter than we had projected . But we saw very strong growth in our core commercial market, in the public sector market and from three of our four sales regions. There was pressure in large case there from a sales perspective as well which at large case market can be a little bit more volatile. I would just remind everyone that first quarter for Colonial Life is typically our lowest sales volume quarter of the year. So we feel good about our prospects of recovering from a little bit of a shortfall here.

Humphrey Lee -- Dowling & Partners -- Analyst

Appreciate the color, that is helpful. And then shifting gear to net investment income. Jack talked about prepayments been low. I was just wondering, do you see that as a timing issue or one-off issue as opposed to a slowdown in overall prepayment activities. Maybe talk about kind of your outlook for prepayments in the coming quarters?

Jack F. McGarry -- Executive Vice President And Chief Financial Officer

Yes, prepayments have been volatile and we expect them to continue to be -- so I view that as volatility I think prepayments will be -- we're not changing our expectation for -- payments going forward. So I think we feel good about where it is, the flip side of prepayments is that although it hurts you a little bit in earnings that actually to maintain discount rates going forward. And so, although, it did costs somewhat in the quarterly earnings. It's from a long-term perspective, it's still decent outcome.

Humphrey Lee -- Dowling & Partners -- Analyst

Got it. Thank you.

Operator

We'll take our next question from John Nadel with UBS.

John Nadel -- UBS -- Analyst

Hey, good morning, everybody. So I don't want to be overly nitpicky here, I have a general question about sort of the pace of operating expense growth relative to revenue growth. Is really only two segments where revenue growth exceeded operating expense growth this quarter. Group Life and the Closed Block, but otherwise operating expenses are growing faster than your revenues in the other segment. And I'm wondering what you think is the overarching driver of that, is that more investments in technology and digital and things of that sort that are -- sort of stable stake to the overall business these days or is it really just more about the fact that sales growth was pretty strong in this quarter and maybe you've got some higher non-deferrable?

Richard P. McKenney -- President and Chief Executive Officer

Yes, John, let me hit from the higher level and we will dig in a little bit in each of our business segments. Overall, nothing has changed really relative to how we manage expenses, the discipline that we have. We've been making investments all along. So there is nothing incremental on the investment side, with some of these digital footprints that we're talking about. So I think that's all pretty steady. You may be seeing some things quarter-to-quarter, relative to that. You mentioned a couple of things where our sales growth is higher or lower, but we feel very good about the expense management side, we think about it, just now you're talking about it. Operating expense ratio, that's how we manage the businesses. So we want to invest, we want to be efficient and I think our mode around being efficient hasn't changed at all. So maybe I'll let Mike and Tim talk a little bit about it, how they're managing and thinking about it, but I would tell you, from a macro perspective, we're still disciplined when it comes to our expenses are managed. Mike?

Michael Q. Simonds -- President And Chief Executive Officer,

Sure. Thanks, Rick. So, yeah, we look at expenses across those segments, the group dis, group life and supp and vol, relatively flat year-over-year, 20.4% in the quarter as OE ratio versus 20.6% a year ago. So a little bit of improvement there, I would say and maybe one that's helpful, John is to highlight group disability. So I mentioned it earlier as one of the drivers of success in group disability but we are growing our Lead Management business and that's a fee-based business, so that's going to put natural pressure, upward on your operating expense ratio as a percentage of insured premium, but when you look at the really favorable loss ratio in group disability John, and a really favorable persistency that fee-based business is a big driver of the sticky at productive client relationships. So we feel pretty good about that. And lastly just, if you take a bigger step back to Rick's point, it bounces around quarter-to-quarter, but over the last 4 years, due to US overall CEO ratio come down by about 200 basis point. But I'd say nothing dramatic, but I'd say continued gradual improvement, they're expected over the coming years, as we continue to invest like you said in digital capabilities.

Richard P. McKenney -- President and Chief Executive Officer

Tim, you want to talk about expense at Colonial Life?

Timothy Arnold -- President and Chief Executive Officer of Colonial Life

Sure, yeah. So we see some seasonality in our expenses last year in the first half of the year, our OE was a little bit higher than we had for the full year 2018. We think that same pattern will emerge, we did incur a number of non-recurring expenses in the first quarter of 2019. But also the continued investments we're making in growth and the customer experience and digital, and technology are investments that we think makes sense for the long-term, the little bit of pressure on the near-term expense ratio.

John Nadel -- UBS -- Analyst

Okay.

Richard P. McKenney -- President and Chief Executive Officer

I think, one thing I'd add to John. John, one thing I would say, we're looking at relative to premium to one of the things you've gotten there is NII has been coming down, so that will cause a lot of pressure, which we really think about it, managing relative to premium.

John Nadel -- UBS -- Analyst

Yeah. I appreciate that NII was definitely pressured and there was a couple of places where your other income, which I assume that's especially in disability that's where Mike talked about fee revenue, the growth there was pretty strong. Just the second and an unrelated question, I was just hoping, Jack, you might be able to give us an update last quarter you had really positive news is that related to LTC premium rate increase approvals, I think you had mentioned that something of order of magnitude $500 million of assumed rate increases that been approved. Any further progress there, I know it's only been 90 days, but any further progress toward that -- full assumption that's embedded in your reserves?

Jack F. McGarry -- Executive Vice President And Chief Financial Officer

Hi, John. We have Steven Zabel here and he will talk about that.

Steven Andrew Zabel -- President of U.S. Closed Block Operations

Yes, great. Thanks for the question, John. And you're right, we announced earlier in the year, we had really nice success coming out of the gate on our new program, just to go back in the ground. We have about $1.4 billion of present value premiums in our current reserve assumption about half of that was related to filings that were pending with the states and about half of that was on new filings that we are going to be making from that point going forward. We continue to have good progress, really building off of the California approval that we've received earlier as well as some of the group exempt states that we are able to implement. We did make continued progress. We have several strong approvals since that point in time. And I think one of the important things about those approvals, we are starting to get approvals on the new filings that we made, the latter part of last year in the early part of this year. So that's a positive sign for us as well. And then I just close it off by saying we're encouraged by what's going on at the NAIC. We've had a lot of discussions over the years with the actuarial teams and some of the staffs at the states around consistency of approving actuarial justified rate increases. And that conversation is starting to get elevated up to the Commissioner level. And so we're very happy about executive task force that they announced at the last meeting in Orlando. We think that's positive, we'll get the commissioners actually talking about their approaches and drive consistency. But we feel good about our program and we continue to make progress against our target.

John Nadel -- UBS -- Analyst

Steve, just a quick follow-up on the NAIC and the movements there, is it your expectation that ultimately what that results in is a more standardized or consistent premium rate increase filing and process for determining yes or no?

Steven Andrew Zabel -- President of U.S. Closed Block Operations

Yeah, I think the simple answer is yes. We would hope that would drive better consistency. The actual calculations and the math that's used to support those rate increases, it's fairly consistent state to state, really where we find inconsistencies are around things like arbitrary caps, (inaudible) types of caps and that happens more at the Commissioner level and sometimes even at the Governor level. So that's really where we think it can be positive for the Commissioner's to talk to each other about what's the right thing for the states to do to really balance protecting consumers, but also protecting the financial stability of carriers. So, yes. So we think all things being equal, it should increase the consistency. And that should be a positive thing.

John Nadel -- UBS -- Analyst

Got you. I hope we get there.

Richard P. McKenney -- President and Chief Executive Officer

Great. Thanks, John.

Operator

We'll take our next question from Erik Bass with Autonomous Research.

Erik Bass -- Autonomous Research -- Analyst

Hi, thank you. With the year-to-date decline in interest rates. Does this change how you think about discount rates for new business and group disability at all? And if you do make an adjustment, do you think, you'll be able to pass that through in pricing or will it be more difficult given the favorable claims experience in margins across the industry?

Richard P. McKenney -- President and Chief Executive Officer

Yeah. Jack, why don't you talk about our interest?

Jack F. McGarry -- Executive Vice President And Chief Financial Officer

Yeah, so I mean there's been -- recent decline in interest rates, actually rebounded it a for a while, but they're not lower than they've been over the last several years. We feel pretty good about where our discount rates are -- in terms we've lowered our discount rate and we're still comfortable that -- at new money rates today, we're earning a decent margin over our discount rate, particularly on group disability. So, we're comfortable there. Given our investment strategy, we continue to exceed the 5.5% hurdle for long-term care. Certainly, we'd love to see interest rates go higher. We would like to see spreads widen. But I don't think there's. We are not feeling a ton of immediate pressure as a result of some of these fluctuations in interest rate.

Erik Bass -- Autonomous Research -- Analyst

Got it. Thank you. And then I think you had previously talked about potentially completing the $400 million of buybacks that you'd originally planned to do in 2018. I guess this quarter, you did $100 million kind of in line with your 2019 outlook. Can you talk about what drove that decision and bigger picture, how you're thinking about future capital return?

Jack F. McGarry -- Executive Vice President And Chief Financial Officer

Yes. So I would say we originally thought about it, we did buy and repurchased a $150 million in fourth quarter of 2018. I'd say that's not necessarily off the table at this point, but just our sense around what's in the best interests of our shareholders, where our stock price was in the reaction that the stock prices than having share repurchase, we thought just returning to our normal kind of $400 million a year rate, was a very reasonable thing to do.

Erik Bass -- Autonomous Research -- Analyst

Okay, thank you. So no change then in terms of kind of the level of liquidity or other targets you're planning to maintain just more of a tactical timing issue?

Jack F. McGarry -- Executive Vice President And Chief Financial Officer

Now I'd say -- yeah, I don't think any of the metrics change that would cause us to it, that was not what drove us one way or the other is more of the market.

Erik Bass -- Autonomous Research -- Analyst

Got it. Thank you.

Operator

Our next question comes from Alex Scott with Goldman Sachs.

Alex Scott -- Goldman Sachs -- Analyst

Hi, good morning. First question I had was just on -- I think you guys said your marked cash for the C1 changes to risk weights on assets. And just in light of , it'slooking like that's I guess not happening this year. Have you given any consideration or the prioritization of what you do with it, whether it's capital return deleveraging, building RBC et cetera?

Jack F. McGarry -- Executive Vice President And Chief Financial Officer

Yes. So first I'd say that, we did have it in our cash plans. That was the contribution to subsidiaries. Most of the capital was going to come out of RBC and our traditional insurance companies. It's not happening this year, but we still expect that to happen in 2020. So it's a timing difference. I don't think, we will do anything different, other than to hold higher RBC ratios than we originally anticipated in the insurance companies, until it gets implemented next year and probably, we'll clearly hold the cash to fund that when it happens.

Alex Scott -- Goldman Sachs -- Analyst

Got it. So the follow-up question, I had was just thinking higher level about risk-based capital and appropriate targets. I mean, my understanding of long term care risk-based capital is that based, I think on premiums. And some of the commentary we've heard from -- I guess, peers and reinsurers and so forth is suggested that maybe RBC isn't the best measure of capital adequacy, as it relates to LTC specifically? And we see similar situations and things like variable annuities, where it's not a great reflection and sometimes companies run with materially higher RBC to reflect that because their internal capital models show greater risk relative to what RBC would suggest. So I'd just be interested to hear your take on how RBC reflects LTC risk and why you're comfortable being able to target, I guess an RBC ratio that's materially lower than peers?

Richard P. McKenney -- President and Chief Executive Officer

So my response to that is we look at capital adequacy of the company, not at a single line. There are lines like maybe the LTC, the RBC ratios don't reflect their risk in long-term care, but I will guarantee those are same RBC ratios are way overstated for things like Colonial Life's business. They don't reflect or overstate that capital needs of the group businesses, which are way less volatile than that those ratios would assume. And even within long term care, so, a piece of the RBC ratio is that premium but you're also holding risk-based capital, and the reserves, you're holding risk-based capital on the assets underlying the long-term care business. So I -- so we look at it in an aggregate basis. When we look at economic capital, it reflects the fact that we are a very profitable company that we generate a lot of free cash flow and we feel more than adequately capitalized at our current levels.

Alex Scott -- Goldman Sachs -- Analyst

Alright, I appreciate that. Thank you.

Operator

Our next question comes from Tom Gallagher with Evercore.

Tom Gallagher -- Evercore ISI -- Analyst

Good morning. First question just on group disability, the loss ratio was pretty favorable this quarter. Can you talk a bit about whether we should -- is there any reason to think that's not sustainable based on the trends you're seeing meaning like, was there any favorable prior year development or can you just provide some color for, A what drove it? B, you think that's sustainable at around this level?

Richard P. McKenney -- President and Chief Executive Officer

Mike?

Michael Q. Simonds -- President And Chief Executive Officer,

Sure. Thanks for the questions, Tom. As you said, favorable quarter from group disability point of view. And to your question about drivers. I'd say it's encouraging in that the drivers are pretty widespread across LTD. So submitted incidents and I would say that it is probably even more favorable than our expectation there -- not dramatically. So recoveries continue to be very good and right in line to slightly favorable. We've had good experience with security offsets, our settlement practices are right in line with expectations. So pretty much across the board, it's a business that's in a pretty good spot. I would only caution that it is insurance. So I wouldn't say anything is going to stick exactly, but I wouldn't -- there is no reason to think that at the current level that we're at 74.7$is reasonable and in the range. Also within the group segment -- group disability segment in the short short-term disability business there we actually say, we saw a little bit of the opposite in terms of lack of favorability. And so that's something that we continue to watch pretty closely and are addressing through the normal renewal process.So that maybe a little bit of a tailwind to the loss ratio over the next 4 quarters or so.

Richard P. McKenney -- President and Chief Executive Officer

Yeah, Tom, the underlying fundamentals were good and pretty consistent. But I'd say ,it's never a good idea to take the best loss ratio you've ever had and assume that will last forever. Just said, there is never a good idea to take the worst loss ratio you've ever had and assume it last forever. So I would stay a good quarter, we're glad to happen, but I think our, kind of the overall level of where the disability business has been run and so as several quarters is just kind of level I would pick it up.

Tom Gallagher -- Evercore ISI -- Analyst

Got you. Thanks guys. And then question on long-term care. Jack, can you put the 88.5% benefit ratio in some context. It was higher than 4Q, but it's still within your range. But when I think about 1Q trends, normally there is a seasonal favorable claim termination, consideration and so just curious did you see the favorability of claim terminations in the quarter and also can you provide some color -- what are you seeing kind of beneath the surface on what's driving that ratio as it relates to frequency, severity or claim terminations? Thanks.

Jack F. McGarry -- Executive Vice President And Chief Financial Officer

So I would -- let me put it in the context of fourth quarter and first quarter. We did see favorable claim terminations, kind of relative to like the summer months. We intend to have less mortality driving claim recoveries, it wasn't markedly favorable. We don't have the same barrel include season this year that we had last year, but we saw favorable mortality in both the fourth quarter and the first quarter. We saw extremely favorable new claim volumes in the first quarter. We saw unfavorable new claims volumes in the first quarter. If you take those two quarters, combined, they look like, pretty average around that 86.4% long-term trends. So there was nothing other than volatility. I think the best perspective I could give you on the long-term care loss ratio is to remember that we have $10 billion of active life reserves that are funding claims and we have a $150 million of annual -- quarterly premium that's generating the loss ratio. And so any time you have a situation like that with the reserves are funding claims and premiums are relatively small relative to that reserve funding you're going to have volatility.

Tom Gallagher -- Evercore ISI -- Analyst

Got you. And then my final question just on the 5.5% new money yield for LTC in the quarter you said that came in above your bogie. Just given where rates are where credit spreads are, how do you feel about that playing out for the rest of the year and do you have some flexibility within reserving assumptions where even if you're below it. It's manageable?

Richard P. McKenney -- President and Chief Executive Officer

First of all, we take a long-term view of this, this is 30-year, 40-year time horizon. So we're not going to react to things that happen quarter-by-quarter. The first 3 quarters were positive. So there is some buildup of margin there. I think even if you had a couple of quarters below it, I don't think we'd be compelled to react to that, given the time horizon that we're thinking about here. So we're not although we can -- we would love to see interest rates higher, but we're not overly concerned with where they are at least in the short term.

Tom Gallagher -- Evercore ISI -- Analyst

Okay. Thanks.

Operator

Our next question comes from Josh Shanker with Deutsche Bank.

Josh Shanker -- Deutsche Bank -- Analyst

Thank you very much. I want to follow-up on something that Humphrey was asking about. You made the comments about the competitive conditions of the SNV market such that you might have to weather things out for few years. I was hoping you might be able to talk about a little bit what are the competitive tools maybe technologies that can make a winner in the supplemental marketplace over the next 5 years, let's call it? And two, I don't want use the word losers but let's say, the non-winners, are they going to the businesses that sell to the winners and therefore are they've repositories of accounts that need be one, but will be transfered?

Richard P. McKenney -- President and Chief Executive Officer

So, Mike take the first, please? I'll talk about the second half.

Michael Q. Simonds -- President And Chief Executive Officer,

Yeah. So, appreciate the follow-up question. And so I think I couldn't speak to the entire set of levers that are going to make for winners versus I think you term was non-winners. But I can tell you what our strategy is, and that is to compete on the delivery of the benefit and particularly, when we're talking about employee pay and voluntary, I think what stands out over time is making life simple for the employer and for the end consumers. So our strategy is about investing, as I mentioned, and continuing to invest in integrating our product and process into the human capital management, HR technologies that our clients are increasingly adopting and they move to those cloud-based software. It gives you the ability to integrate really once and it carry that instance across because people stay on version when Software as a Service. So we see that as a long-term trend where our focus on the benefits market and on that integration, gives us a competitive advantage first. And then the second piece is, and this is an important one for us is increasingly integrating with our group insurance business because if you think about the things that drive a leave of absence or disability those are very often to the same sicknesses and accidents and health-related events that are going to trigger voluntary benefits. And so we're seeing the majority of our growth coming, when we integrate with the group insurance and we see a pretty significantly uptick -- significant uptick in persistency on the voluntary side when it's integrated well with group insurance. So that'll be the path, which I think over time, we're going to play to win.

Richard P. McKenney -- President and Chief Executive Officer

And I think, Josh, it is an important point you make that over time, and if you look to the history of it, this is the business that we're in. We invest heavily to make sure we have a lead in this business. It is a very good business, so it attracts competitors, non-traditional competitors that have come in over time, that haven't done this business. Oftentimes, they find out it's a little bit higher than they might think it is. And so we're able to work through and wheaher these different periods of times of competition, do so in a disciplined way and what you've seen particularly in the group space was some of the people end up selling, because they don't have the scale, they don't have the capabilities and it doesn't fit with their business model. Will that be what the future looks like? Hard to tell, but this will be the business that we're in and competition, sometimes makes us better as well, and we'll continue to look to lead.

Josh Shanker -- Deutsche Bank -- Analyst

And how long do you expect this period of clinical weathering to be before competitive advantages show themselves?

Michael Q. Simonds -- President And Chief Executive Officer,

Yeah. It's Mike, I would say, it is very difficult to say. We saw first for taking care of our existing clients and then making sure that we can deliver a consistent and manageable margin on the business. And then, take the growth where the opportunity presented. And so I feel optimistic that the weathering is not going to be multiple years and that -- things will punch through quicker than that. But just having seen some of the cycles before, it sometimes it takes a little bit of time. So what I would just signal is when we think about for Unum US guidance of sales growth between 6% and 8%, that's what we laid out at Investor Day, that continues to be my best estimate of where the year is going to come in. That would be message number one. Message number two would be, we're going to remain disciplined and whether it's the disability market or life market, the voluntary market, we're going to be a disciplined underwriter.

Richard P. McKenney -- President and Chief Executive Officer

And I think as Mike articulated, those growth targets that we have, that's -- we talked about is weathering, we're still doing well, we're still growing well at very high margins and so as much as we will look at it and be disciplined, I wouldn't really consider that weathering, that's us growing. And we want to grow faster, we want to protect more people, but we'll do so in a disciplined way.

Josh Shanker -- Deutsche Bank -- Analyst

Alright. Thank you very much, and good luck.

Operator

Our next question comes from Ryan Krueger with KBW.

Ryan Krueger -- KBW -- Analyst

Hi, thanks. Good morning. I had a question on the investment portfolio. We've seen some life insurance take some derisking actions. Just given that we're late in the cycle. Just curious, do you came to anything about the investment portfolio at this point or you're considering changes going forward?

Jack F. McGarry -- Executive Vice President And Chief Financial Officer

Thanks, Ryan for the question. I think when you think about how we manage our investment portfolio, we're a liability driven investor and so we have been very consistent through periods of time to think about backing up our liabilities, our products with a consistent portfolio, both from a risk mix perspective and making sure that we're matched up from an asset perspective. So I think we feel good that we'll continue to invest the same way that we have, no elements that we don't take risk in higher levels of cycles or derisk. We think is we're very steady investor over a longer period of time.

Ryan Krueger -- KBW -- Analyst

Okay. Thank you.

Operator

Our next question comes from Suneet Kamath with Citi.

Suneet Kamath -- Citi -- Analyst

Thanks. Good morning. Jack, I wanted to start with the Closed Block, IDI block. I think when we chatted with you earlier in the year, you seemed a little bit more open to perhaps bring some capital there at least that was our reads. So I just wanted to get an update particularly given the amount of capital that seems to be interested in these types of mortality-based blocks? Thanks.

Jack F. McGarry -- Executive Vice President And Chief Financial Officer

Yeah. I mean, I would tell you that we are always connected to the capital markets, we're always looking for ways to optimize our use of capital. And so we will continue to aggressively seek solutions to do that.

Suneet Kamath -- Citi -- Analyst

Okay, got it. And then in terms, I just want to go back to the supplemental and voluntary business. Again, I just wanted to get a sense of is something really changing here in terms of the lapsation activity that we saw or is this sort of normal volatility, and it was just a couple of cases here and there, just incremental competition, just kind of want to get a sense of if this is something that we should be expecting in terms of higher lapses over the next couple of quarters?

Michael Q. Simonds -- President And Chief Executive Officer,

I'll take that one. Suneet, it's Mike. I would say, just going back to it. Average size volatility is what the driver of it is, if we had seen pretty typical average size terms, we'd be right in the bottom end of the range of what we would have anticipated. So the short answer is, no I don't see a fundamental shift in the voluntary benefits business. I would say that the way the metric is constructed is a 12-month rolling average and one more effect is tend to be pretty dominant. So the actual metric will stay depressed over the next few quarters. That's not representative of anything, that's actually occurring in the next couple of quarters. But again, not a fundamental shift, I think it's just a watch area for us around competition.

Suneet Kamath -- Citi -- Analyst

And did you cite, whether or not the increased competition is coming from some of the more traditional players or some of the companies that are maybe new entrants that entered through acquisition in recent years. Any color on that?

Richard P. McKenney -- President and Chief Executive Officer

You know, little bit of both, actually. So we've seen some non-traditional that have not been in the group employee benefits space enter in through voluntary and then we've seen some well-established voluntary players. I think, I've gotten a bit more aggressive in trying to grow share.

Suneet Kamath -- Citi -- Analyst

Okay. Thanks.

Richard P. McKenney -- President and Chief Executive Officer

Great. Thanks, Suneet.

Operator

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

Unidentified Participant -- -- Analyst

Hey, good morning guys. This is Michael (inaudible) on for Mark. Thanks for taking my question. So how did Unum Poland itself doing on an organic growth basis in the quarter? And can you please give us a sense of how they would do organically this year and what is the rough outlook for next year after you've owned them for a while? Thanks.

Richard P. McKenney -- President and Chief Executive Officer

Thanks, Michael. It's a good question. I think I mentioned in our comments, our Unum Poland business is small today, we're looking to grow it over time. They had a great quarter, so they continue to grow the business. It's small relative to our UK business and our International segment, it's been small relative to the enterprise. But we're still very optimistic about it. So you won't see those numbers materially moving anything in the company. But this is one for longer-term growth. We like the market, our team is doing a great job and I'm sure we'll keep talking about it for a longer period of time.

Unidentified Participant -- -- Analyst

Okay, great. Thanks for that. And then maybe one follow-up, what was the net bottom-line impact of the lower persistency and voluntary benefits, which I guess, reduce the benefit ratio, but presumably had offsetting increase in DAC amortization?

Jack F. McGarry -- Executive Vice President And Chief Financial Officer

It was very immaterial that DAC amortization and the active life reserve release almost offset each other, dollar-for-dollar.

Unidentified Participant -- -- Analyst

Okay, great. Perfect. Thank you.

Richard P. McKenney -- President and Chief Executive Officer

Great. Thanks, Michael. That's actually all the questions we've got. So I would like to thank you all for taking the time to join us this morning. We look forward to seeing many of you at the various conferences and investor meetings over the course of spring and summer. So operator, now completes our first quarter 2019 call.

Operator

Thank you, sir. And that does conclude today's presentation. Thank you for your participation and you may now disconnect.

Duration: 61 minutes

Call participants:

Tom White -- Investor Relations

Richard P. McKenney -- President and Chief Executive Officer

Jack F. McGarry -- Executive Vice President And Chief Financial Officer

Jimmy Bhullar -- JPMorgan -- Analyst

Michael Q. Simonds -- President And Chief Executive Officer,

Humphrey Lee -- Dowling & Partners -- Analyst

Tim Arnold -- President and Chief Executive Officer of Colonial Life

John Nadel -- UBS -- Analyst

Timothy Arnold -- President and Chief Executive Officer of Colonial Life

Steven Andrew Zabel -- President of U.S. Closed Block Operations

Erik Bass -- Autonomous Research -- Analyst

Alex Scott -- Goldman Sachs -- Analyst

Tom Gallagher -- Evercore ISI -- Analyst

Josh Shanker -- Deutsche Bank -- Analyst

Ryan Krueger -- KBW -- Analyst

Suneet Kamath -- Citi -- Analyst

Unidentified Participant -- -- Analyst

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