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Unum Group (NYSE:UNM)
Q2 2020 Earnings Call
Jul 29, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Unum Group Second Quarter 2020 Earnings Conference Call. [Operator Instructions]

At this time, I would like to turn the conference over to Tom White, Investor Relations. Please go ahead, sir.

Thomas A. H. White -- Senior Vice President, Investor Relations

Great. Thank you, Jonathan. Good morning, everyone, and welcome to the Second Quarter 2020 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 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, 2019, and our subsequent Form 10-Q filings. Our SEC filings can be found in the Investors section of our website at unum.com.

I remind you that the statements in today's call speak only as of the date they are made, and we undertake no obligation to publicly update or revise any forward-looking statements. And a presentation of the most directly comparable GAAP measures and reconciliations of any non-GAAP financial measures included in today's presentation can be found in our statistical supplement on our website also in the Investors section. So yesterday afternoon, Unum reported second quarter 2020 net income of $265.5 million or $1.30 per diluted common share compared to $281.2 million or $1.33 per diluted common share in the second quarter of 2019. Net income for the second quarter of 2020 included net after-tax realized investment gains of $25.4 million and an after-tax impairment loss of $10 million on the right-of-use asset related to one of our operating leases on an office building, we do not plan to continue to occupy.

Net income in the second quarter of 2019 included a net after-tax realized investment loss of $5.7 million. As a reminder, net realized investment gains and losses include changes in the fair value of an embedded derivative in a modified coinsurance arrangement, which resulted in an after-tax realized gain of $33.1 million in the second quarter of 2020 and an after-tax realized investment loss of $600,000 in the year ago quarter. Therefore, the net after-tax realized investment loss from sales and credit losses totaled $7.7 million in the second quarter of 2020.

So excluding these items, after-tax adjusted operating income in the second quarter of 2020 was $250.1 million or $1.23 per diluted common share compared to $286.9 million or $1.36 per diluted common share in the year ago quarter. Participating in this morning's conference call are Unum's President and CEO, Rick McKenney; the Chief Financial Officer, Steve Zabel; and Chief Operating Officer, Mike Simonds; as well as Peadar O'Donnell, who heads our Unum International business; and Tim Arnold, who heads our Colonial Life and Voluntary Benefits businesses.

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

Richard P. McKenney -- President and Chief Executive Officer

Thank you, Tom, and good day, everyone. I'd like to thank you all for joining us today on our second quarter earnings call. Despite the many challenges brought on by the COVID-19 pandemic, the corresponding sharp economic downturn and the resulting upheaval and unemployment conditions and workplace environments, we produced solid financial results in the second quarter. The operating trends we experienced were generally consistent with the expectations we discussed in the first quarter. However, the magnitude of the pluses and minuses was different than expected, particularly with mortality trends. We'll outline these impacts as well as other COVID related impacts on the business in greater detail throughout our commentary today.

Before I get into the discussion of the results, I want to express how proud I am of the hard work and dedication of our teams over these past several months through this difficult time. Our teams are feeling challenge and uncertainty in their own lives, but their efforts to support our customers, communities as well as each other through this time has been exceptional. We have remained true to our purpose of helping people thrive throughout life's moments. And what we are witnessing today has amplified the need for what we do. We are also focused on the disciplined execution of our business plans and adapting to our changing world. We are operating very well in a largely work-from-home setting with high customer satisfaction and solid productivity.

In this environment, we continue to be well prepared to navigate through a variety of economic scenarios. The entire set of circumstances we face today reinforces the need for our core business of providing affordable and accessible financial protection products to individuals and their families through the work site. The fragility of many Americans' financial lives has never been more obvious than what we are experiencing today. Our focus on delivering great social value remains paramount. It ranges from supporting a family with a loss of a loved one to helping America's workers with short-term disability to many other needs created by this pandemic.

It is why we are here. If we turn to the totality of our second quarter financial results, we were pleased with the overall performance this quarter in the wake of the stressful conditions in the business environment. Adjusted operating earnings per share were $1.23, which is down from the $1.36 of the year ago second quarter, but was solid overall given the headwinds of the market. We experienced more volatility within our segment results than usual, and we'll walk you through the details throughout our commentary.

Starting with our top line. We continue to see growth in premiums, which were up 1.7%, while underlying business origination was more mixed. When we think of our business growth, we think first of customers that are staying with us because of the value of the protections we provide. This is even more true in the midst of the pandemic. Persistency levels are holding up well so far this year, with only modest impacts currently. It is reasonable to expect that persistency will be further pressured in the second half of the year as the effects of lower unemployment lower employment levels flow through our blocks, particularly in our voluntary benefits businesses. Sales trends showed varying levels of impacts depending on the distribution model, size of customer and product and services set.

Unum US Total sales declined just under 3%. International sales increased just over 1%, while Colonial Life sales declined 43%, reflecting the challenges of face-to-face sales. These trends were consistent with our expectations as cases with large companies performed better than smaller businesses and group life performed better than the voluntary lines. We expect premium income for our core business segments to be flat to a slight increase for full year 2020 after increasing just over 2% in the first half. From a benefits perspective, clearly, mortality impacts are the biggest variable on people's minds. When the pandemic started, it was believed to impact older ages much more severely, which meant the belief was that group carriers, such as us, would see less claims as the working population skews younger.

In fact, what we saw was that death rates were similar to our overall non-COVID age distribution, negatively affecting our U.S. group life block and our other life insurance blocks within our voluntary benefits businesses and the U.K. On the other hand, higher mortality drove significantly higher claim terminations in the long-term care block resulting in the interest adjusted loss ratio of 67%, which is well below historical trends. Steve will provide more detail in his comments, but our experience was generally consistent with the trends for mortality as published in national studies. Beyond these outsized mortality impacts experienced this quarter, we saw several other less severe anomalies in our benefits trends resulting from the pandemic, which touched every part of the company. In the U.K., disability results continue to be challenged by the limitations we are experiencing in accessing the healthcare system to get the information we need to adjudicate and settle claims and return claimants to work.

Within Unum US, our growing leave management business experienced higher volumes, which drove higher expenses and dampened profitability in the group disability line. Our dental businesses, on the other hand, benefited from unusually low utilization rates, producing favorable operating income for Unum US supplemental and voluntary. And within the group disability line, newly submitted long-term disability claims were slightly higher, but with strong claim recoveries and favorable short-term disability trends, we experienced favorable risk performance in the Unum US group disability loss ratio. On our investment portfolio, we saw a very dramatic improvement in the credit markets in the second quarter as the Fed became heavily involved in bringing forms of stimulus to aid the economy and the purchase of debt securities.

Combined with improved oil prices, we saw reduced credit losses, much lower ratings migration and a sharply improved net unrealized gain position in our fixed income portfolio relative to the first quarter. So far, we are tracking favorably to the credit scenario we laid out in the first quarter. On the other hand, Fed actions in a more difficult economy have pushed interest rates to low levels. So in the world of tightening credit spreads and low government rates, ongoing pressure to new money yield is creating a challenging environment to put money to work for our team. When we bring it all together, we saw excellent statutory earnings generated again this quarter, which has been true for the first half of the year.

Our capital metrics remained solid with RBC at approximately 370% and holding company cash of $1.6 billion. The results this quarter demonstrate the resilience of the franchise and underscore the disciplined approach we take to operating the business, while bringing good value to our customers.

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

Steven A. Zabel -- Executive Vice President, Chief Financial Officer

Great. Thank you, Rick, and good morning, everyone. This morning, I want to cover second quarter results in greater detail with you. And while doing so, give you some insights into what impacts were seen from the current business environment and how they could play out in the third quarter. I'll also discuss what trends we're seeing in the investment portfolio and the impacts we see it having on our capital position. To reiterate Rick's comments, we are pleased with the overall results for the second quarter. There was more volatility than we normally see in our segment results but the fact that overall results remain solid and our statutory results were very good speaks to the balance of our business mix and the focus we have maintained on discipline in all aspects of managing the company.

Looking at the quarter from a high-level perspective, I want to start with a summary of what we estimate the COVID-19 and related impacts were on our second quarter results. To be clear, these are our best estimates as we do not always know that a claim is directly tied to COVID, but this is intended to give you our best approximation of the impacts. I'll break the impacts into three categories, starting with impacts to claims experience. We estimate that COVID produced a net unfavorable impact to our claims experience of between $12 million and $16 million, with the biggest unfavorable impacts occurring within Unum US group life the overall Unum UK results and the Closed Disability Block.

We did experience favorable financial impacts in the dental and long-term care blocks, as I'll describe in a moment. The second category covers impacts to net investment income and the investment portfolio, which we estimate in the range of $24 million to $28 million unfavorable. The larger items were the mark on our alternative asset investment portfolio and the valuation of hybrid securities, which I'll detail in the Closed Block discussion. The third category is expenses, which relates primarily to higher expenses in our leave services business, driven by higher utilization of those services. In all, these items produced an unfavorable impact in the high $40 million to $50 million range on a before-tax basis for the second quarter.

Although there was an unfavorable impact to sales and persistency, it is more difficult to quantify the current quarter impact on earnings. With that said, I'll start my discussion with Unum US. Adjusted operating income declined 9% to $231.9 million, primarily reflecting adverse mortality impacts from COVID-19 on the group life business, along with higher expenses in our leave management operation. This offset favorable benefits experience in the group disability line and stronger earnings growth in the supplemental and voluntary lines of business. Premium growth for Unum US in the second quarter was 1.2% year-over-year, which is a slightly lower trend than we have seen in recent quarters. The current sales environment remains challenging, declining by 2.9% in total for the segment.

As we expected, we saw better sales results in the large case market for group products with those sales advancing 9.5% compared to a decline of 3.6% for sales of core market group products using 2,000 lives as a dividing line. In the large case segment, we continue to experience success selling packaged products with HR Connect, which is a secure connection between Unum and select employer HCM systems that automates many time-consuming HR activities. Persistency in Unum US was generally lower year-over-year, though we did see a slight increase in voluntary benefits. Persistency levels and new sales activity will continue to be watch areas as we navigate the volatile employment trends in coming quarters.

Claims trends for Unum US showed a wide range of results in the second quarter, but the benefit ratio for this segment was generally consistent year-over-year at 68.1% compared to 67.6% in the year ago quarter, reflecting our broad diversification within the employee benefits market. The group disability line continue to show strong performance producing an improved benefit ratio of 72.8% in the quarter compared to 74.7% last year, driven by strong claim recoveries. This was offset by higher submitted claim incidents, although the recent trend in paid claims has been more favorable. Within the supplemental and voluntary lines, both the individual disability and voluntary benefit lines showed consistent trends year-over-year.

While the dental and vision line benefited from a sharp decline in utilization due to COVID-19. This pushed the benefit ratio significantly lower to 36% from 71.6% last year. We are already seeing a utilization already seen utilization return to more normal levels for dental and vision and expect the benefit ratio to increase, but remain volatile as the pandemic continues to play out. The leave management business, which is reported within the group disability line, experienced significantly higher volumes related to COVID-19, driving higher expenses for that line, which negatively impacted earnings.

The group life and AD&D line had a sharp decline in adjusted operating income to $19.4 million in the quarter from $62.7 million a year ago as the benefit ratio increased significantly to 81.8% in the quarter from last year's 72.9%, predominantly driven by COVID-19-related mortality. We experienced an increase in the number of paid claims this quarter by approximately 12% or slightly over 900 excess claims, along with an increase in the average claim size by approximately 7%. In addition, at the end of the second quarter, we estimated an additional number of incurred but not reported COVID claims leading to an increase in the IBNR reserve balance for group life of $7 million.

To put this into perspective, the total impact to the quarter was approximately 1,100 excess life claims above our quarterly average, which is slightly less than 1% of the approximately 120,000 COVID-19 deaths reported by Johns Hopkins in the second quarter. Our experience tracked national trends closely throughout the second quarter with higher claims reported from the New York and New Jersey Metro area early in the quarter and the later skewing more to the South and Midwest in the second half of the quarter. Overall, despite the volatility, it was a good quarter for Unum US. Looking ahead, third quarter claims trends will likely continue to be volatile as the pandemic continues, though likely less than what we experienced this quarter. Given the recent trend in COVID-related mortality, we expect group life claims to remain elevated in the third quarter and recommend that you follow the mortality data provided by Johns Hopkins to get a sense for how our claims experience may evolve.

Finally, we are already seeing a return to more normal utilization in the dental block. The Colonial Life segment produced very good earnings this quarter with adjusted operating earnings of $90.9 million, an increase of 7.7% over the year ago quarter. Premium income increased 4.2% as persistency held up well, offsetting the decline we are seeing in new sales activity. This quarter, new sales declined by 43%, reflecting the challenges of selling and enrolling in what has traditionally been a face-to-face sales environment. The benefit ratio was slightly lower at 50.7% compared to 51.4% a year ago as improved results in accident, sickness and disability and cancer and critical illness offset the incrementally higher mortality we experienced in the business.

Overall, it was a good earnings quarter for Colonial Life, but we're likely to see further pressure on top line growth from the pandemic until sales activity recovers. We anticipate some rebound in third quarter sales, though it will continue to remain pressured relative to the year ago quarter. We believe that the investments we've been making in digital capabilities to support growth and improved productivity will benefit us in this environment. We are excited to see increased utilization of these new tools by our agency force.

In addition, we will likely see further pressure on persistency in the coming quarters given the volatility in employment conditions and pressure on small businesses. Results in our Unum International segment remained weak this quarter with adjusted operating income of $15.1 million compared to $30.7 million a year ago. We continue to have challenges in getting the necessary documentation and certifications for claim assessments and terminations, given the disruption in our customers' workplaces and the overburdened healthcare system in the U.K. from COVID-19. While we did see some improvement at the end of the second quarter, this trend continued to pressure results in the group disability line.

Additionally, like our U.S. group life trends, we experienced higher mortality in the U.K. group life block, which represents a little less than 20% of the overall U.K. business. Premium income, however, did increase in both Unum UK, up 1.9%; and Unum Poland, up 11.1%, both in local currency. Financial results from our Poland operation were very good again this quarter with a strong year-over-year increase in adjusted operating income. Looking forward, economic conditions in the U.K. are expected to remain pressured by the COVID-19 pandemic, the ongoing Brexit negotiations and the low interest rate environment, creating significant headwinds for the U.K. business. Business trends in June were more favorable than April and May as we are beginning to see some improvement in the information flow necessary to produce claim recoveries.

However, a full recovery may be slow and is not expected until there is increased confidence that the health aspects of the pandemic are under control and that the economy will rebound. The Closed Block segment produced a very good quarter with adjusted operating income increasing almost 9% to $36.7 million. I'll discuss the operating trends of the LTC and Closed Disability Blocks in just a minute, but first, let me walk through some of the factors impacting net investment income, which is an important driver of results in this segment. In total, net investment income for the Closed Block segment declined 8% in the second quarter to $326.3 million. As we have discussed with you in the past, we allocate most of our alternative investments to this segment as we feel that over time, these investments can generate higher returns, which are important in supporting the LTC line.

Along with these higher potential returns over the long-term income volatility in quarterly investment income, that was evident this quarter with a negative market value adjustment on these investments of $31.3 million reflecting market values at March 31, which are reported on a lagged basis. To put this in perspective, in 2019, we reported average quarterly positive marks of approximately $8 million a quarter. So this was a significant negative variance from historical results. With the second quarter recovery in financial markets, we do expect the valuation for many of these investments has also improved and will be reflected in our third quarter reporting. We do not expect, however, a full recovery in the third quarter, but do expect them to fully recover over time and generate our assumed returns.

The second item to note regarding investment income for the Closed Block are the marks on two perpetual preferred securities that are mark-to-market quarterly and reported through net investment income, not as a part of realized investment gains or losses. These are energy-related investments and both rebounded strongly in the second quarter with the recovery in oil prices. Therefore, there is a positive market value adjustment of $10 million in the second quarter compared to the $17 million negative adjustment in the first quarter. Aside from these impacts to net investment income, the long-term care line within the Closed Block had an exceptionally positive quarter. The second quarter interest adjusted loss ratio dropped to 67%, bringing the rolling four quarters ratio to 81.1%, well below the expected range of 85% to 90%.

The favorable results were primarily driven by elevated claim mortality, which was approximately 30% higher than average this quarter. Higher mortality was not evident this quarter in the active lives block, but we continue to closely monitor that experience. New claim incidents for LTC was also favorable this quarter, driven in part, we believe, by the hesitancy of many to enter nursing homes or assisted living facilities or receive home care because of the pandemic. Given the uncertainty of the timing of future claim filings, as a result of the pandemic, we did increase the incurred but not recorded reserve for long-term care by an incremental $20 million in the quarter. In addition, we decreased our near-term mortality assumption in our best estimate claim reserve.

We believe this will take into account potential acceleration of mortality in our claimant population. Looking out to the third quarter, we expect mortality in the claimant block to remain elevated, though not at second quarter levels. Also related to LTC, we made further progress this quarter with several new rate increase approvals on in-force business, and now we're at 65% of our $1.4 billion reserve assumption. The Closed Disability Block experienced an increase in the interest adjusted loss ratio to 89.5% in the quarter from 81.3% a year ago, driven primarily by higher submitted incidents. New claims submissions, which we attribute in part to COVID-19 and related to economic impacts, were heavy in the early part of the second quarter, but they did return to more normal levels later in the quarter. Mortality did not have a meaningful impact on Closed Disability results this quarter.

I'd like to now turn to a discussion of the investment portfolio, which showed a dramatic recovery from the first quarter, given the recovery in the financial markets. A few points to highlight are: first, net after-tax realized investment losses from sales and credit losses declined to $7.7 million in the second quarter from $44.4 million in the first quarter of this year. Second, downgrades of investment-grade securities to high-yield totaled $193 million for the second quarter compared to $336 million in the first quarter.

You'll recall, we previously referenced $119 million of downgrades that occurred in April. So the activity in May and June declined significantly. The increase in second quarter downgrades created a minimal $11 million increase to required capital, which impacted the second quarter RBC ratio by only one point. And then third, the net unrealized gain position on the fixed maturity securities portfolio improved to $7.4 billion in the second quarter from $4.3 billion at the end of the first quarter. Within that, the Energy Holdings, which do total 9.2% of our fixed maturity securities moved to a net unrealized gain position of $437 million from a net unrealized loss of $350 million, a significant improvement in values due to spread tightening, given the recovery in economic and oil prices.

In the first quarter, we outlined an investment credit scenario for defaults and downgrades of investment-grade securities to high-yield for 2020, that assumed as a base case $85 million of defaults and $1.6 billion of downgrades. We are tracking favorably to this scenario and have refreshed our view of our portfolio on a credit-by-credit basis. Our capital forecast now includes $70 million of defaults and $1.3 billion of downgrades in 2020, including what we have already experienced. We will monitor our investment portfolio and realize there is continued uncertainty in the markets for the remainder of the year, but are optimistic that the portfolio will outperform these planning assumptions.

Even with this scenario, we still expect to meet our capital metric targets for risk-based capital and holding company liquidity throughout 2020. Looking to our capital position. We finished the second quarter in very good shape with the risk-based capital ratio for our traditional U.S. insurance companies at approximately 370%, above the 350 targeted level and holding company cash at $1.6 billion. We target maintaining holding company cash at greater than 1 times our fixed obligations, which is approximately $400 million. During the second quarter, we issued $500 million of debt. And as a reminder, we have a $400 million debt maturity in September.

Beyond this upcoming maturity, the next maturity is not until 2024. In addition, an important driver of our capital position is after-tax statutory operating earnings in our traditional and U.S. insurance companies, which were quite strong again in the second quarter, totaling $327 million compared to $278 million in the year ago quarter. Now

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

Richard P. McKenney -- President and Chief Executive Officer

Thank you, Steve, for that summary of our second quarter. I would reiterate that in a very tough environment that the team and the strength of the franchise have responded. We enter the second half of the year recognizing the challenges if the pandemic persists, but we have been adapting well and continue to stay focused on serving our customers well. The team is here to respond to your questions.

So I'll ask Jonathan to begin the question-and-answer session.

Questions and Answers:

Operator

Thank you. [Operator Instructions] We'll take our first question from Humphrey Lee with Dowling & Partners.

Humphrey Lee -- Dowling and Partners -- Analyst

Good morning and thank you for taking my questions. My first question is related to the earnings power for U.S. group disability. I think, Steve, you talked about the high expenses in the quarter for leave management because of activities. But if I were to look at it from a trailing 12-month basis, the earnings is still down 6% year-over-year, even though the underwriting margin actually have grown by 12%. So I understand the lower earned yield and the asset level has resulted in lower net investment income, but the growth in underwriting margin more than covered that.

So I guess at this point is, the leave management is a drag to U.S. group disability because of the investments? Or is it something else? Like what is your expectation for the leave management business from an earnings contribution perspective? And when do you expect U.S. group disability to be back on a positive growth trajectory?

Richard P. McKenney -- President and Chief Executive Officer

Okay. We have a lot in there. So we'll try to unpack it a little bit. Maybe we'll start with Steve to talk a little bit about the dynamics, and then Mike will talk a little bit for leave as well.

Steven A. Zabel -- Executive Vice President, Chief Financial Officer

Yes. So I'll just thanks, Humphrey. I'll just start out by just talking about the benefits experience that we've seen in Group Disability. When you look at long term disability, we're very happy with the performance in the second quarter. We continue to see very good recovery rates. We did start to see some increase in our submitted claims, but actually have seen very normalized experience in our paid claims. So we feel pretty good about how that business is performing in the current environment. As it relates to short-term disability, we also feel good about the quarter. We did see an elevation of claims that are COVID-related. But we did see a decrease in non-COVID-related short-term disability claims in the quarter, and they were largely offsetting. So overall, the earnings look very good. I'll kick it over to Mike to talk a little bit about our leave management business and just the dynamics there.

Michael Q. Simonds -- Executive Vice President, Chief Operating Officer

Thanks, Steve, appreciate it. So the leave management business experienced a pretty significant spike here in the second quarter, COVID-related, think about volumes increasing about 50% in the second quarter over the prior year quarter. And while that did absolutely put additional expense pressure on us, as Rick teed up, this is what we're here for, and we were able to meet that demand in a very high-quality way. A couple of points strategically about the leave business, stepping back, we only sell these services in combination with insured lines of business. And we really think about making sure that it's a sustainable economic relationship across both insured and services. And when you look at a mid- to high teens, we feel very good about that.

Strategically, it is actually a very good business for us in that it puts us front and center with our HR clientele and with the front-line employee base. And so that's something that I think is going to bear fruit for us over time. And the last thing is, in addition to the volumes, we are investing significantly in terms of technology. And when you think about our digital agenda, which is broad at Unum, this is the number one priority because of the strategic importance and because of how we bundle it with other lines. So I think you've correctly identified the expense pressure, but these are, I think, moments to be there for our clients and the investments that I think are going to generate good returns for us over time.

Humphrey Lee -- Dowling and Partners -- Analyst

And I understand the synergy between your kind of risk business and the leave management. But if you were to look at it in isolation, like is it fair to say right now, leave management is a cost center? And do you expect that to be an earnings contributor down the road?

Michael Q. Simonds -- Executive Vice President, Chief Operating Officer

Yes. Thanks, Humphrey. I think certainly, in the current environment, we're not collecting fees commensurate with the expense. So it's a slight loss. That's as much due to the incidence and how much leave volume we're seeing coming in. But our plans are, particularly on the back of those investments, to continue to improve the efficiency and as we grow the top line, have this be a contributor.

Richard P. McKenney -- President and Chief Executive Officer

I think as Mike said, Humphrey, this is a very important strategic piece of the operation. And so we'll continue to invest in it. And so you may not see it turn the corner in terms of being a profit generator, but the integrated part of the offering, I think, is critical as we look to the future.

Humphrey Lee -- Dowling and Partners -- Analyst

I guess, so in terms of these kind of investments for leave management, like what innings are you in right now? Because again, like for the past several quarters, being kind of a drag on earnings growth for U.S. disability. So when should like, I guess, like when should we start to see that turning the corner?

Michael Q. Simonds -- Executive Vice President, Chief Operating Officer

Yes, I think it's Mike again. I would say for the balance of the year until we start to see COVID infection rates stabilize and come down in the U.S., we're going to continue to see elevated operating expense pressure. And I would think over the coming four quarters or so in terms of the pace of investment in the business. But as Rick said, while it may be a bit lumpy right now in terms of the pace of investment, we're going to continue to invest in the business going forward, well beyond that.

Humphrey Lee -- Dowling and Partners -- Analyst

Got it. Thank you.

Operator

Thank you. [Operator Instructions] We will take our next question from Ryan Krueger of KBW.

Ryan Krueger -- KBW -- Analyst

Hi, good morning. All right. Could you provide some additional color on persistency trends you're seeing across the businesses and your expectations in the back half of the year? And I guess just related to that, have you been doing anything like grace periods on premium payments in any of the businesses that I guess has had any impact so far?

Richard P. McKenney -- President and Chief Executive Officer

Yes, Ryan. We'll take that in part. There's multiple products dealing with it differently in customers. So maybe we'll start on the U.S. group side.

Michael Q. Simonds -- Executive Vice President, Chief Operating Officer

Yes. Thanks. It's Mike. Ryan, so I'll hit some of the group lines and then flip to Tim, who can cover voluntary. And then I think I'm sure, Peadar will have a couple of comments on the international business. And you think about persistency broadly, I actually feel good about the results that we've achieved across all the lines of business, but certainly, within group insurance, I'd say at the margin, certainly working with clients on a one-on-one basis as they're dealing with challenges in their business. We want to make sure that we're appropriately flexible and there with them. I'd say the bigger impact in the quarter are the state-level grace period extensions by mandate. And those went into place relatively quickly early in the quarter and then have kind of begun to roll off.

And by the time we're sort of through this month of July, we'd expect that about 85% of the group book will have come out from under the state-mandated hold orders. That may put some degree of additional pressure on persistency as late notices do start going out that have been held up. But actually, our experience as states have hit on the group insurance side has been it's actually been a good instigator for getting premium in-house. So steady as she goes, I would say, on the group insurance side. Tim, on voluntary?

Timothy G. Arnold -- Executive Vice President, Voluntary Benefits and President, Colonial Life

Yes. Thanks, Ryan, for the question. The only thing I would add to Mike's comments is that we believe that, well, I would say we're encouraged by what we're seeing so far with persistency. We've had our account management teams reaching out to clients who have past-due premium, and we're updating our assumptions based on some of those conversations and what we're seeing in our models. And we're cautiously optimistic. We recognize there will be pressure over the balance of the year, but we're a little bit more optimistic than we were a quarter ago.

Michael Q. Simonds -- Executive Vice President, Chief Operating Officer

Peadar, any thoughts on international?

Peadar G. O'Donnell -- Executive Vice President, Unum International

Yes. Thanks, Mike. So on the international side, in Poland, persistency has been tremendously strong actually. And although sales have dipped a bit, premiums are growing very nicely, mainly as we see the business very sticky there. So that's excellent. In the U.K., we do expect to see we have expected and are expecting to see persistency trend down. And really, that's a combination of employers coming under a bit of pressure. We are continuing to push rates. So we expect to see it be a little bit lower than it was last year.

Ryan Krueger -- KBW -- Analyst

And then just a I just had a quick follow-up, separate, but how did the new money rate come in, I guess, in the quarter for LTC relative to your expectation?

Steven A. Zabel -- Executive Vice President, Chief Financial Officer

Yes. Thanks, Ryan. It's Steve. I'll take one. I would say, if you go back to when we reset our reserve assumptions, I guess, it's been close to two years now. We put in a new money rate behind the LTC book that was $550 million, grading up to $625 million over several years. I would say we have been able to achieve that rate cumulatively up to this point, and feel pretty good about what we've been able to do. Clearly, in the current environment, it will be a challenge going forward as we look to the regression to the $625 million, but that's something we'll continue to monitor and just see how rates progress over the next couple of years. But for the quarter, we continue to be able to achieve that rate. And a lot of that is through, as we mentioned earlier, investing in some of our alternative asset portfolio alternatives.

Ryan Krueger -- KBW -- Analyst

Got it. Thank you.

Steven A. Zabel -- Executive Vice President, Chief Financial Officer

Thanks, Ryan.

Operator

Thank you. We'll take our next question from Tom Gallagher with Evercore.

Tom Gallagher -- Evercore -- Analyst

Good morning. Just a question on the net COVID impact of $12 million to $16 million that you cited this quarter. When you consider the puts and takes heading into 3Q, how would you see that playing out? Would you still expect that to be kind of a similar net negative amount? Or how would you see that changing?

Steven A. Zabel -- Executive Vice President, Chief Financial Officer

Yes. Tom, this is Steve. I'm not going to give a number, but let me just give a framework to kind of think about it on a product-by-product basis. And I'll start with group life and the pressure that we saw there in the second quarter. In my comments, I mentioned that we actually track pretty well with some of the national statistics that are out there, specifically, if you want to anchor it to Johns Hopkins, we track a little under 1% of the national count. And so for us, in the second quarter, that was about 1,100 claims. Our average claim size in the quarter was around 48,000. That's a little bit inflated from what we normally see. But that's probably a good construct just to think going into the third quarter what those national statistics look like, and you can probably estimate pretty well what our impact will be.

As I look at some of the other variations in the quarter, one would be dental, we did see very low utilization early in the quarter. That's trended back to a more normalized. So I would see dental getting back closer to a more normalized earnings level in the third quarter. I would say in the Closed Block, IDI block, we did have pressure there. We saw higher incidents. That again occurred earlier in the quarter, normalized a little bit more as the quarter progressed. So I would see that loss ratio coming back down to closer to normalized and then I would say, in long-term care, it's just hard to say. As we look at our claimant mortality, which was a big driver, it's hard to really link that to what you're seeing nationally just because it's so specific to certain facilities. It's specific to a certain age group. And also these folks already have comorbidity.

So that one's, I think, a little bit tougher to determine. What we did see, though, in that block, April mortality was very elevated. May and June continue to be elevated, but maybe not to the same degree. So there might be a little bit of a normalization there. But I'd say there's still a lot of uncertainty in how that will play out. So that's how we're just kind of thinking about it looking forward. I'd say the other thing is in the U.K., we have had pressure on our long-term disability product there. I think that's going to be a slower recovery. And as I mentioned in my remarks, we really need the health the medical services profession to kind of become more focused on what we need from them. And just where the U.K. is within the pandemic, that's probably going to be a slower recovery from just a performance perspective there.

So Tom, I can't give you a number, but that's probably just a way to think about the different lines of business.

Tom Gallagher -- Evercore -- Analyst

No, I appreciate it. The pieces are helpful. Just on the LTC incidents, would you expect the favorable incidence trends to continue for a while? And just relatedly, are you actually seeing the overall a big drop in the number of LTC claims being submitted? Or is it more of a shift out more to home healthcare and away from nursing home and assisted living facilities?

Steven A. Zabel -- Executive Vice President, Chief Financial Officer

Yes. Tom, I would say it's not a shift. It's a decrease in the absolute submitted claim counts that we're seeing. They're down about 15% from what we would normally see regardless of location. As far as that continuing, I think it will continue. The question is to what degree. And again, I think that will just be based upon people's comfort to go into facilities. And I do think just the logic would follow that we would probably see that emerge more with home healthcare first. I think people would be more comfortable with that than maybe going into facilities. But that's still a real unknown for us.

I would say I mentioned in my remarks, we do believe that there's probably some level of just delay of submitted claims. And so we thought it would be prudent to increase our IBNR fairly significantly. We quoted $20 million in the quarter to try to take into account the fact that some of the claims that might already otherwise been submitted in the current quarter will be submitted in a future quarter. So but I'd say there's still a lot of uncertainty there.

Tom Gallagher -- Evercore -- Analyst

And then final question. Just statutory earnings were quite strong. GAAP earnings were softer. Can you comment at all why there was that kind of disconnect? Was it really just the sales strain differential? Or was something else driving the differential between the 2?

Steven A. Zabel -- Executive Vice President, Chief Financial Officer

Yes. I think that's probably one of the bigger items, what was just the strain on new business. You do have that differential. And there's obviously some puts and takes in statutory accounting versus GAAP accounting. But I would say that's a pretty large contributor to it.

Tom Gallagher -- Evercore -- Analyst

Okay, thanks.

Operator

Thank you. We'll take our next question from Andrew Kligerman of Credit Suisse.

Andrew Kligerman -- Credit Suisse -- Analyst

Great. Thank you. Good morning. Back on the persistency question, and more specifically, to Colonial Life. I think if I get it right, roughly 2/3 of the business is in cases of under 500 lives with an average case size of 100 to 150. So that would be the more vulnerable areas. So to get a better feel for the persistency, I'd be interested to know what do you tally a mix of the sectors that you're in? Are you in food services? Are you in retail, entertainment? And maybe you could give us some percentages because from where I sit, maybe that might be helpful to get a read into how persistency might play out over the next six to 12 months.

Richard P. McKenney -- President and Chief Executive Officer

Great. Tim, can you give us some insight into that?

Timothy G. Arnold -- Executive Vice President, Voluntary Benefits and President, Colonial Life

Yes, absolutely. Thanks, Andrew, for the question. So maybe it'd be best to start with a little broader context around the voluntary benefits businesses, and then I'll get to your specific question, Andrew. So the challenges of the second quarter have not changed our view about the long-term market opportunity for voluntary benefits, the need for simple, affordable financial services products for America's workers and their families has always been great, and it's been amplified in the current environment. And we think having two brands serving different segments of the market with really strong market share and brands and capabilities is going to give us leverage in the future. We're reaching the market through traditional distribution methods, but we're also supplementing our teams with digital tools to help them reach and serve customers in new ways.

And so we have cause for optimism despite the challenges in the second quarter. With respect to your specific question, we have very little business in retail and leisure entertainment. We're fortunate that a significant share of our business at Colonial Life is in public sector and public sector has the highest persistency of any segment. Think about schools and municipalities where layoffs are just not very common. So we could break it down a little bit more for you offline, but we like the mix of business we have and the industry segments we're in.

Andrew Kligerman -- Credit Suisse -- Analyst

That was very helpful. And then on the group disability in Unum US, we saw I think it was 72.8% loss ratio and that compared with, I think it was 74.7% in the year ago quarter. And you cited favorable claim recoveries despite higher incidence rates. And it's improved pretty nicely in the recent perhaps since over the last few years. So I'm wondering, is sub-73% a good target even in this COVID-19-oriented environment? Could we see that pick up in the second half, but then longer term, would that be the right kind of normalized ratio?

Michael Q. Simonds -- Executive Vice President, Chief Operating Officer

Yes. Maybe I'll take that one. So I would say you captured the dynamics of the quarter. So a little bit of upward pressure on submitted incidents. But as Steve noted, actually paid incidence was pretty consistent with prior periods. And recovery is very strong as well as offsets, which was good to see. So it is a credit to a very strong and tenured group of disability benefits, professionals, the clinicians and the vocational experts that they work with every day. So it is good to see that continued consistency in outcomes and getting people back to work. In terms of the specific question, I mean, I think there was some favorability in the loss ratio that may repeat, but may not.

And Steve hit it around the fully insured short-term disability, a lot of the elective surgeries and other sort of non-critical procedures got pushed in the quarter that would yield at a pretty favorable short-term disability, fully insured benefit ratio. So that may be a I would expect that would normalize as some of those are now being scheduled here in the third quarter. So I think consistency, but probably a bit of favorability here in the second quarter.

Andrew Kligerman -- Credit Suisse -- Analyst

Got it. So 73% seems like a good longer-term ratio, in your view, without the noise that we may see in the second half of the year?

Michael Q. Simonds -- Executive Vice President, Chief Operating Officer

Yes, 73%, 74% probably is a good number.

Andrew Kligerman -- Credit Suisse -- Analyst

Thank you.

Michael Q. Simonds -- Executive Vice President, Chief Operating Officer

Yeah.

Operator

Thank you. We'll take our next question from Mark Hughes of SunTrust.

Mark Hughes -- SunTrust -- Analyst

Yeah. Thank you. Good morning. Any update you can provide on the needs for capital, just what contributions will be for supporting ongoing business? Any updated numbers on how much it will contribute for the extra LTC reserves?

Steven A. Zabel -- Executive Vice President, Chief Financial Officer

Yes. Great. Mark, thanks for the question. This is Steve. I'll take that one. So just to kind of back up and think about our capital position and how we're thinking about capital deployment for the remainder of the year. Right now, RBC levels are right around $370 million. Holding company cash is at $1.6 billion. And so if you think about the remainder of the year, probably a good model to use would be we have a maturity coming up in the third quarter. So that's $400 million of maturity that we'll fund out of holdco cash. We'll continue to pull dividends out of the operating subsidiaries, and then we have our fixed costs that we have to cover, whether it's interest or dividends.

And then we do have contributions that we make throughout the year to both our New York entity as well as fairwind. We've discussed in the past that we were anticipating about a $400 million kind of base rate contribution that was going to grade down to $200 million over the next couple of years. And then we did have our examination of finding from Maine. And we estimated that, that would require a reserve strengthening between $200 million and $250 million this year. We still feel pretty good about that level.

I'll remind you, though, that the capital contribution necessary for that would be on an after-tax basis. The other thing that I would say is, as you saw on a GAAP basis, our LTC results were very good. That did flow through to the results we saw in fairwind just on an ongoing operating basis. So you kind of put that all together, and we still feel like the full year capital contributions are still in that $550 million to $600 million range.

I would note that we do make contributions throughout the year. And through the end of the second quarter, we've already made around $150 million of capital contributions that would already be reflected in our June 30 capital metrics. So we have about $450 million on an estimated basis for the remainder of the year. So well within our capital plan, and we still feel very good based on what we know now that we'll be able to hit risk-based capital targets, holding company cash targets by the end of the year.

Mark Hughes -- SunTrust -- Analyst

And then in the Closed Block Disability, it doesn't sound like it was affected by mortality this quarter. Should it be if mortality continues to be elevated? Should that be a possible benefit?

Steven A. Zabel -- Executive Vice President, Chief Financial Officer

Yes. It's an interesting question. And as we look across all of our product lines, clearly, we saw mortality increases in many of our product lines, as you would anticipate. There were two, one being our Closed Block Disability, claim block and also our long-term care active life block where we did not see elevated mortality. You can think of a lot of hypothesis why that might be. None of them, we would be able to confirm. But what we would say is for those parts' specific populations, we have not seen elevated mortality, and frankly, are not really forecasting that right now that we would. But we'll have to continue to monitor that, and we'll adjust kind of our expectations as we see that play out.

Mark Hughes -- SunTrust -- Analyst

And then a final question, just your view of the competitive environment within the group sales area?

Michael Q. Simonds -- Executive Vice President, Chief Operating Officer

Yes. It's Mike, I'll take that one. So actually, I would say second quarter was relatively quiet on that front. And I think that was because employers were sorting transitioning to work from home and dealing with the pandemic. So the number of quotes in the marketplace slowed down. And I would say carriers were very focused on taking care of existing clients and transitioning their own workforces. So how that plays out over the balance of the year is a little bit of a wait and see. We would expect and have begun to see activity levels improve really each week since we've hit kind of the middle of the second quarter. And we would hope and expect that, that will continue through. Whether carriers look to make up for sort of a very slow first half from a sales perspective, I couldn't really speculate.

I would just say that we're going to remain very disciplined in our approach. Our strategy has always been the same, which is to price and underwrite business with the long-term in mind. I think our clients very much value consistency in pricing. So it's a net good thing to see activity beginning to really pick up back into market. It's going to take some time to recover fully. The competitive environment actually has been quiet, but we'll see how it plays out over the balance of the year.

Mark Hughes -- SunTrust -- Analyst

Thank you.

Operator

Thank you. We'll take our next question from Suneet Kamath of Citi.

Suneet Kamath -- Citi -- Analyst

Thanks, good morning. Just on Colonial Life and the drop in sales due to lower face-to-face. How quickly can you migrate to more of a virtual sales model in that channel? Do you have to make some incremental investments? Or do you have those capabilities already and you just need the agents to sort of embrace them?

Michael Q. Simonds -- Executive Vice President, Chief Operating Officer

Tim, do you want to take that?

Timothy G. Arnold -- Executive Vice President, Voluntary Benefits and President, Colonial Life

Yes. Suneet, thanks for the question. So about three years ago, we began to build digital tools that would be necessary for our agents to be successful, and more importantly, perhaps, for our employer, customers and consumers to interact with us digitally. So we have a full portfolio of digital tools that enable us to be successful across the entire cycle. We didn't see adoption rates quite as strong as we would have hoped with some of those tools until COVID. So if you think about a silver lining to a very dark cloud, this is one of those places. We've seen extremely strong adoption of digital tools that have been in place over the last few weeks and over the last couple of months.

We're very encouraged with many of our leading indicators right now. We think as long as the economic environment continues to improve, we're going to see continued improvement in our sales results and partially because of the digital tools we have in place, but we also believe that post-COVID, there will continue to be a place for in-person face-to-face enrollments, and that may be done by video or perhaps even across the table from each other. So we like the fact that we believe the traditional model is going to continue to serve us well, but we're supplementing that with a full portfolio of digital tools that will enable our agents to be successful.

And we've seen very strong results in recruiting and we think a big part of that has to do with the fact that we can show new prospects these digital tools that we have to help them be confident that they can be successful. We've had good success with agent retention so far. We've lost about 9% of our agents, but that's not terribly unusual. So we're encouraged by agent recruiting and retention as well. And we believe we've got the toolkit necessary to help people be successful long term.

Suneet Kamath -- Citi -- Analyst

Okay. And then just quickly on long-term care. If we do end up seeing a pretty significant shift in terms of folks not wanting to go to nursing homes and preferring to have in-home care, does that have any dramatic impact on the assumptions that are underlying your current long-term care reserves? Or are you fairly agnostic in terms of where people decide to get the long term care?

Steven A. Zabel -- Executive Vice President, Chief Financial Officer

Yes. This is Steve. Probably a couple of things to think about. First of all, we set our assumptions based on longer-term experience. So we would have to see that play out over a longer period of time, not just through several quarters types of experience. So that's one. Two, I would say, on the fringes, home healthcare is cheaper and how our policies are structured, their indemnity. So it's just a fixed cost per day. But the cost the benefit that we provide is lower in most situations for a home care situation versus a facility. So on the edges, the average size of the claim may be lower. But we have to see that play out over a longer period of time before we would make any changes to our assumptions for that.

Suneet Kamath -- Citi -- Analyst

Okay. And then maybe just one quick follow-up on long-term care, Steve, if I could. You've given a stat on how much progress you've made in terms of the price increases. And I forget what that comparable number was last quarter. But just any color in terms of if the impact of COVID is impacting the ability to get those rate increases, if regulators are focused on other issues, that kind of stuff?

Steven A. Zabel -- Executive Vice President, Chief Financial Officer

Yes. So as far as the progress, I forget the exact number, but I think it was 60 maybe 61% last quarter progress. So we have moved the needle up to 65% of the target. Just from a regulatory environment, we're still very optimistic, both from a process perspective, the states, they're working from home or they've transitioned to kind of their new protocols. So we haven't really seen much of a slowdown there as far as them processing and just more from kind of a commissioner perspective and their desire to approve these rate increases. Again, I have not really seen a slowdown on that. We still feel good about the progress we're making. So it's something we'll continue to monitor.

Suneet Kamath -- Citi -- Analyst

Got it. Thanks, Steve.

Steven A. Zabel -- Executive Vice President, Chief Financial Officer

Yeah. Thank you.

Richard P. McKenney -- President and Chief Executive Officer

Actually, we're going to take one more question. We're at the top of the hour. So one more question.

Operator

Thank you. We'll take our next question from Erik Bass of Autonomous Research.

Erik Bass -- Autonomous Research -- Analyst

Hi, thank you. Thanks for squeezing me in. Could you just talk a little bit more about your expectations for premium growth in Unum US and Colonial given the current sales trends, the trends you're talking about in persistency and unemployment levels?

Michael Q. Simonds -- Executive Vice President, Chief Operating Officer

Yes, sure, Eric, it's Mike. I think after first quarter, we sort of looked at it and said more or less a flattish premium year. And I'd say, having come through the second quarter, we're in a similar place, I'd say, we talked a little bit about the persistency trends. So kind of watching closely and working with clients to keep as much premium in force as they're experiencing some economic difficulty. That's one of the variables. The second variable is really less so for premium growth for the year, but more of the trajectory into 2021 is the sales that we have. And the way to maybe think about it on the group insurance side is the pipeline of activity really slowed in the second quarter like we talked about.

I suspect that's going to show up as pressure in reported sales in the third quarter, but the third quarter is a very small sales quarter for us anyway, traditionally. And really, all our focus with our field teams and underwriting and plant management teams is building the inventory for fourth quarter sales. That's traditionally our most important quarter for us, and that's where the January one effectives fall. So that's probably the other big variable is how quickly are markets recovering, are people getting back to a little bit more adjusting to the new normal. We are seeing activity increase week over week, which is good, but that's really the other second important variable is what can we do in the fourth quarter for new business.

Erik Bass -- Autonomous Research -- Analyst

Got it. And on that note, I mean, how are you preparing for the 2021 enrollment process? And do you expect to see any material differences in either sponsor or participant behavior?

Michael Q. Simonds -- Executive Vice President, Chief Operating Officer

Yes. I think Tim hit it really well. I mean, so the silver lining here is the digital adoption. So we are seeing that pick up very rapidly. And again, don't see that as planning face-to-face ultimately on the other side of COVID, we really see it as augmenting our reach into clients and into situations where digital just makes a lot more sense. So it is a challenge. There's no doubt about it, pivoting as quickly as we've had to pivot. But I will say there is a good offset, and that is what Rick hit at the opening, which is where we are getting in front of folks digitally or in-person, our participation rates at the consumer levels are holding to improve from what we've seen. And I do think that's reflective of the fragile state of the average consumer when it comes to financial protection. It is just front and center for folks. So I think there is some reasons for optimism there.

Erik Bass -- Autonomous Research -- Analyst

Great. Thanks, Mike. Got it.

Michael Q. Simonds -- Executive Vice President, Chief Operating Officer

Thank you.

Richard P. McKenney -- President and Chief Executive Officer

I'd like to thank you all for taking the time to join us this morning. Please do stay safe and healthy. Jonathan, this now completes our second quarter 2020 Earnings Call.

Operator

[Operator Closing Remarks]

Duration: 62 minutes

Call participants:

Thomas A. H. White -- Senior Vice President, Investor Relations

Richard P. McKenney -- President and Chief Executive Officer

Steven A. Zabel -- Executive Vice President, Chief Financial Officer

Michael Q. Simonds -- Executive Vice President, Chief Operating Officer

Timothy G. Arnold -- Executive Vice President, Voluntary Benefits and President, Colonial Life

Peadar G. O'Donnell -- Executive Vice President, Unum International

Humphrey Lee -- Dowling and Partners -- Analyst

Ryan Krueger -- KBW -- Analyst

Tom Gallagher -- Evercore -- Analyst

Andrew Kligerman -- Credit Suisse -- Analyst

Mark Hughes -- SunTrust -- Analyst

Suneet Kamath -- Citi -- Analyst

Erik Bass -- Autonomous Research -- Analyst

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