Unum Group (UNM) Q2 2022 Earnings Call Transcript

Unum Group (UNM -0.34%)
Q2 2022 Earnings Call
Aug 03, 2022, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, everyone, and welcome to the Unum Group second quarter 2022 earnings conference call. My name is Daisy, and I'll be coordinating today's call. [Operator instructions] I would now like to hand the call over to your host, Tom White, senior vice president of investor relations at Unum Group, to begin. So, Tom, please go ahead.

Tom White -- Senior Vice President of Investor Relations

Great. Thank you, Daisy. Good morning, everyone, and welcome to the Second Quarter 2022 earnings call for Unum. The one last time, our remarks today will include forward-looking statements which are statements that are not of current or historical fact.

As a result, actual results might differ materially from results suggested by these forward-looking statements. Information concerning factors that could cause results to differ appears in our filings with the Securities and Exchange Commission and are also located in the sections titled Cautionary Statement Regarding Forward-Looking Statements and Risk Factors in our annual report on Form 10-K for the fiscal year ended December 31, 2021, and our subsequently filed Form 10-Q. Our SEC filings can be found in the Investors section of our website at unum.com. I remind you that the statements in today's call speak only as of the date they are made, and we undertake no obligation to publicly update or revise any forward-looking statements.

A presentation of the most directly comparable GAAP measures and reconciliations of any non-GAAP financial measures included in today's presentation can be found in our statistical supplement on our website in the Investors section. So yesterday afternoon, Unum reported second quarter 2022 net income of $370.4 million or $1.83 per diluted common share, an increase from $182.9 million or $0.89 per diluted common share in the second quarter of 2021. Net income for the second quarter of 2022 included the after-tax amortization of the cost of reinsurance of $13.1 million or $0.06 per diluted common share and a net after-tax investment loss on the company's investment portfolio of $3.1 million or $0.02 per diluted common share. Net income in the second quarter of 2021 and included the after-tax costs related to the early retirement of debt of $53.2 million, $0.26 per diluted common share, an after-tax impairment loss on the right-of-use asset related to one of our operating leases for office space that we are no longer using of $11 million or $0.05 per diluted common share, the net tax expense related to a U.K.

tax rate increase of $24.2 million or $0.12 per diluted common share, the after-tax amortization of the cost of reinsurance of $15.5 million or $0.08 per diluted common share and a net after-tax investment gain on the company's investment portfolio of $600,000 or $0.01 per diluted common share. So excluding these items, after-tax adjusted operating income in the second quarter of 2022 was $386.6 million or $1.91 per diluted common share, an increase from $286.2 million or $1.39 per diluted common share in the year ago quarter. Participating in this morning's conference call are Unum's president and CEO, Rick McKenney; chief financial officer, Steve Zabel; chief operating officer, Mike Simonds; as well as Mark Till, who heads our Unum international business; and Tim Arnold, who heads our colonial life and voluntary benefits. And now I'll turn the call to Rick for his opening comments.

Rick McKenney -- President and Chief Executive Officer

Thank you, Tom, and good morning, everyone. The second quarter was an outstanding one for Unum, highlighted by accelerating growth in premium income favorable benefits experience across many of our business lines and strong capital levels that give us great flexibility to carry out our strategic initiatives and invest in growth. Pulling it together, our after-tax adjusted operating income per share increased 37% from the year ago quarter to $1.91 per diluted common share this quarter, the highest quarterly earnings levels we have seen. Reflecting on the first half of the year, our earnings have been on an accelerated realization of our expectations coming into the year.

We now expect our adjusted operating earnings growth rate to be in the 40% to 45% range, much better than expected in the beginning of the year and also double the growth we expected coming out of the first quarter. Over the last several years, we have remained disciplined in how we price and been good stewards of capital. With an engaged workforce, we weathered a challenging period in the external environment. The fortitude of our team, combined with consistency in our strategic focus has allowed us to accelerate our growth path in 2022.

This is an inflection point for our company. And as we unpack the results, you will see the multiple factors that enable the recovery ahead of what we had in addition coming into the year. To start, a return to higher profitability this quarter was driven by the lessening of COVID-related mortality across the U.S. population, which declined to approximately 35,000 lives in the second quarter compared to an estimated 155,000 lives in the first quarter.

There is also a lower percentage impacting the age of the population that we cover. This improvement in mortality levels led to a significant increase in adjusted operating income in our Unum US Group Life and AD&D business with returned to pre-pandemic levels, following operating losses in five of the last six quarters. We are in a much better place today, but it bears watching, and it has not gone away completely. In addition, the current business environment has proven to be beneficial to many aspects of our business.

High employment levels and rising wages have continued to generate higher levels of what we term natural growth. That is the incremental premium we realized from rising payrolls at our insured customers, which is now running at almost 5%. This rate is nearly double that of the benefit we are realizing prior to the onset of the pandemic. With this tailwind, which primarily impacts our group lines, we realized year-over-year growth in premium income of three and a half percent in our core business segments on a constant currency basis.

This second quarter performance compares to growth of 1.9% in the first quarter, also measured on a year-over-year basis. In addition to this lift from favorable employment conditions, we were quite pleased with the level of new sales we recorded in the second quarter, with increases of 26% for Unum US, 6% for colonial life and 20% for Unum UK on a local currency basis. In addition to favorable employment and wage growth, today's higher interest rates are also benefiting the company in multiple ways. New money yields continued to rise in the second quarter, and we are now seeing the yields on many of our investment portfolios that back our product lines begin to stabilize after many years of persistent declines.

Also in the second quarter, we raised the discount rate for new long-term disability claim incurrals for the first time in many years as a result of higher new money yields and healthy interest margins in their block. This change was a contributor to the strong financial performance for group disability this quarter and will be a modest mitigate to our pricing actions for LTD going forward. And finally, higher interest rates and the projection of continued higher interest rates are helpful to the long-term funding needs for the long-term care closed block. In addition to the significant improvement we saw in our Unum US group life business, benefits experienced in several other lines also showed good improvement.

Most notably is the improvement we saw in the Unum US group disability line that had one of its lowest benefit ratio on record at 66.4% in the second quarter. This was due primarily to very favorable new claims incidents and claims recoveries in addition to the benefit from the discount rate that I just referenced. Colonial life also recorded one of its lowest benefit ratios at 47.6% this quarter, with favorable claim experience across all product lines. And finally, Unum U.S.

supplemental and voluntary lines continue to produce very strong levels of operating income as it has throughout the pandemic. It's worth noting that the Unum US supplemental and voluntary lines and colonial life too lies with strong margins, solid growth and table experience over long periods of time, continue to represent almost half of our before tax adjusted operating income this quarter. These many positive operating trends that helped drive our GAAP earnings improvement also helped drive strong after-tax adjusted statutory income, which for the second quarter increased by almost 60% over the year ago quarter. This further improves our cash flow and capital position as risk-based capital for the U.S.

traditional insurance companies increased to approximately 45% at the end of the second quarter, Unum's highest ever. Holding company liquidity remains well above our targeted levels at $1.2 billion and leverage dropped below 25%. This capital strength gives us increased flexibility as we look to grow our high-margin core businesses returning capital to shareholders through dividends and share repurchases and fund the needs of the launch of carbon. In summary, I'm very pleased with our performance in the second quarter and the flexibility it creates for us as we move forward.

risks from the pandemic are still very real, and there is growing concern over the direction of economic growth. However, I believe it's a testament to the strength of our business that we are in such a favorable position today from an earnings and capital perspective after navigating through the pandemic over the last two years. Now I'll ask Steve to cover the details of the second quarter results. Steve?

Steve Zabel -- Chief Financial Officer

Great. Thank you, Rick, and good morning, everyone. As Rick outlined for you, the second quarter was an exceptionally good one for the company, as we benefited from both a significant decline in the COVID-related impacts on our business this quarter and strong operating performance in many parts of our operation. As I cover our second quarter results, I will primarily focus on an analysis of our second quarter results compared to the first quarter of 2022, allowing me to describe how our business lines have been progressing through the pandemic.

For items such as premium growth and sales growth, I will tend to focus more on the over year comparisons. To start, I'd like to provide some broader context on the quarter and frame up for you the primary drivers of the strong performance we saw this quarter. First, as you are aware, there was a significant decline in COVID-related mortality in the U.S. in the second quarter relative to the first quarter declining to an estimated 35,000 national deaths this quarter according to Johns Hopkins compared to approximately 155,000 deaths in the first quarter.

This absolute decline, coupled with the continued shift in the age demographics of the mortality away from working-age people to the more elderly population, helped drive a significant improvement in our Unum US Group Life results. which are policies that primarily cover employees in their working years. The decline in mortality also produced a more normal result for long-term care block as benefits experience more closely aligned with pre-pandemic levels of experience, especially for claimant mortality. Second, we saw exceptionally favorable performance in our Unum US group disability line with a strong acceleration in premium growth and historically low benefit ratio.

I'll dig into those details in just a moment, but the benefit ratio for the group disability line was favorable for both the short-term disability and long-term disability lines, leading to overall excellent performance for this business line. Third, we continue to see very favorable performance for our alternative investment portfolio. Our alternatives portfolio generated returns of approximately $54 million, which are higher than our expected average quarterly return exceeding both the first quarter income of $32 million and the year ago second quarter of $52 million. Again, I'll dig into the drivers of the results in more detail in a moment.

And one final trend to highlight is the favorable operating performance we experienced in our colonial life and supplemental and voluntary lines of business. These lines saw stable margins through the pandemic and continue to produce good top-line growth very strong earnings contribution and excellent adjusted operating returns on equity exceeding 18%. With that high-level setting, I'll begin my review of our operating performance, starting with the Unum US segment. Adjusted operating income increased sharply to $295.4 million in the second quarter of 2022 compared to $171.6 million in the first quarter primarily driven by strong sequential quarter improvement in the group disability and group life and AD&D lines as well as continued strong levels of operating income from the supplemental and lines.

Within the Unum US segment, the group disability line reported an excellent quarter with adjusted operating income increasing to $107.5 million in the second quarter of 2022 compared to $62.6 million in the first quarter. The biggest driver of the earnings improvement was favorable benefits experience, which produced further improvement in the benefit ratio in the second quarter to 66.4% from 73.8% in the first quarter. This improvement was driven in large part by strong performance in the long-term disability line as claim recoveries and new claim incidents were both favorable. Benefits experienced in the short-term disability line was also favorable in the second quarter as compared to our experience in the first quarter.

The benefit ratio was also helped by an increase of 25 basis points in the discount rate for new LTD claim incurrals, a reflection of the significant increase we are seeing in new money yields. Now looking forward, we expect the group disability benefit ratio to average in the low to mid-70% range for the second half of 2022, though will likely remain volatile given the environment we are in. Results for Unum US Group Life and AD&D also showed strong improvement with adjusted operating income of $67.3 million for the second quarter of 2022 and compared to an adjusted operating loss of $9.4 million in the first quarter. This quarter-to-quarter improvement was also primarily the result of an improvement in benefits experience mostly driven by the significant decline in national COVID-related mortality to an estimated 35,000 in the second quarter from 155,000 in the first quarter.

Additionally, the age demographics for mortality continue to shift away from the working-age population that was more significantly impacted in the second half of 2021 to the more elderly population. In the second quarter, 16% of the deaths were in the working-age population compared to 24% in the first quarter and 35% in the fourth quarter last year. For our group life block, we estimate that COVID-related mortality claims declined from an estimated 1,400 claims in the first quarter to approximately 200 claims in the second quarter. In addition, we also saw a lower average benefit size of just over $40,000 per claim this quarter compared to slightly less than $55,000 in the first quarter as more of the impact we saw was in the retiree population.

We also saw favorable prior period one-off of IBNR, which reflects the faster than predicted improvement in our COVID claims experience. Finally, non-COVID-related mortality improved in the second quarter relative to the first quarter and the AD&D line perform more favorably as well, adding to the strong improvement this quarter. Now looking ahead, assuming national fiber-related mortality continues at its current levels and we see some moderation in the favorable volatility from non-COVID mortality in the AD&D line, we would expect the benefit ratio for this line to run in the low to mid-70% area for the second half of 2022. Moving on.

Adjusted operating income in the Unum US supplemental and voluntary lines continue to be very strong in the second quarter at $120.6 million compared to $118.4 million in the first quarter. For the first half of 2022, these business lines generated an adjusted operating return on equity of over 18%. So looking at the three primary business lines, First, the individual disability recently issued block of business continued to produce excellent results with the benefit ratio slightly lower at 41.3% in the second quarter compared to 42.5% in the first quarter. Likewise, the voluntary benefits line again reported a strong level of income with the benefit ratio stable at 40.8% for the second quarter compared to 40.4% in the first quarter, primarily reflecting continued strong performance in the life product line.

And then finally, benefits experienced in the dental and vision line was generally consistent in the second quarter relative to the first quarter with a benefit ratio of 72.9% compared to 73.4%. Again, the supplemental and voluntary lines continue to perform very well and are generating strong levels of operating income for the company which we do anticipate to moderate slightly in the second half of the year. Looking out premium trends and drivers, we are very pleased to see momentum for Unum US accelerates further with growth in premium income of 3.3% in the second quarter on a year-over-year basis compared to the 1.3% increase we saw in the first quarter. Growth was especially strong in the group disability line with year-over-year growth of 5.1% in the second quarter compared to growth of 1.9% in the first quarter.

Sales growth from Unum US was very encouraging with growth of 25.6% year over year in the second quarter and 16.2% for the first half of 2022. Sales growth trends in the second quarter were broad-based with strong results in the employee benefits lines, individual disability and voluntary benefits, and also by market size with favorable results in both the core and large case markets. Overall, we remain pleased with persistency trends this quarter, which showed some variation by line of business, but for our total group block was slightly higher at 89.9% for the first half of 2022. The contribution from natural growth continues to accelerate for us and was approximately 5% year over year as we benefit from strong employment levels in the U.S.

as well as higher wage levels. So taken together with all these factors combined, Unum US premium income for the second quarter of 2022 has recovered to pre-pandemic levels and is now actually 3.3% higher than it was in the second quarter of 2020. And moving to the Unum International segment, adjusted operating income for the second quarter declined slightly to $24.9 million compared to $27.2 million in the first quarter. The weaker dollar to pound exchange rate was the primary driver of the decline.

Adjusted operating income for the Unum UK's business was steady in the second quarter at 19.3 million pounds compared to 19.2 million pounds in the first quarter. The reported benefit ratio for Unum UK was 89.7% in the second quarter, which compares to 80.7% in the first quarter. The high levels of inflation in the U.K. during the second quarter did distort the reported benefit ratio, but adjusting for this impact, the underlying benefits experienced in the quarter was somewhat mixed.

The benefits experienced in the group disability line was impacted by unfavorable mortality in the claimant block and experience was unfavorable in the critical illness line. Experience in the group life business was also unfavorable in the second quarter compared to the first quarter. For Unum Poland, adjusted operating income was slightly lower, though overall results remain consistent with our expectations for this business. Premium income for our International business segment declined on a year-over-year basis in dollars, but continued to show strong growth in local currency.

Unum UK generated premium growth of 8.6% year-over-year basis in the second quarter, and our Poland operations produced growth of 15.4%. Both businesses continue to generate strong year-over-year sales growth in the second quarter with Unum UK up 20.3% and Unum Poland up 19.8% in local currency, and persistency remains steady. Next, results for colonial life this quarter were among the best on record with adjusted operating income of $101.1 million compared to $90.1 million in the first quarter. We continue to see favorable experience in the A&H product line, namely the cancer and critical illness products as well as improved experience in the lifeline, which together produced an improvement in the benefits ratio to 47.6% in the second quarter compared to 49.3% in the first quarter.

We anticipate the benefit ratio will trend in the 48% to 50% range for the remainder of 2022. We are pleased to see a continuation in the improving trend in premium growth for colonial life, which increased 1.9% on a year-over-year basis compared to 1% year-over-year increase recognized in the first quarter. Driving this improving trend is the rebound we have seen in new sales over the past several quarters as well as generally stable to higher persistency. For the second quarter, sales for colonial life increased 6.4% compared to the year ago second quarter and have increased 10.4% for the first half of the year.

Persistency for colonial life was 78.6% for the first half compared to 78.3% for the first half of 2021. As we have indicated previously, it will take a couple of years to return to pre-pandemic levels of premium growth in the colonial life segment. However, we do feel very good with the progress we are making to build back premium income to pre-pandemic levels for this business, which this quarter are only 2.5% below the second quarter of 2020. In the closed block segment, adjusted operating income, excluding the amortization of cost of reinsurance related to the closed block individual disability reinsurance transaction was $79.3 million in the second quarter compared to $94.1 million in the first quarter.

This decline largely reflects the more normal benefits experience we saw in the long-term care block as the effect of higher claim of mortality was diminished. In with broader COVID trends the adjusted operating income The adjusted operating loss ratio for LTC was 85.9% in the second quarter compared to 70.2% in the first quarter as there was no excess claimant mortality this quarter after running about 10% higher than our seasonally adjusted expectations in the first quarter. This level of performance for LTC is consistent with Our long-term expectations. For the closed block individual disability line, the interest adjusted loss ratio increased slightly to 79.5% in the second quarter compared to 78.7% in the first quarter, but remain within our long-term expectations.

Miscellaneous investment income in -- the closed block increased in the second quarter compared to the first quarter by approximately $17 million with higher returns on the alternative investment portfolio, more than offsetting a reduction in bond call premiums. So then wrapping up my commentary on the quarter's financial results, the adjusted operating loss in the corporate segment was $36.9 million for the second quarter compared to $40.4 million in the first quarter with higher net investment income and more favorable operating expenses. Going forward, we anticipate quarterly losses in this segment to be more consistent with our first quarter results. Moving now to investments and net investment income.

We continue to see a much better environment for new money yields given the rise in interest rates and the widening in corporate bond spreads so far this year. The new money yield for the second quarter was approximately 4.8% compared to 3.2% in the year ago quarter. While there are many factors that impact these new money yields for our various product portfolios, we're starting to see portfolio yields for most of our product lines begin to stabilize after many years of decline as new money yields are currently exceeding the portfolio yields. Miscellaneous investment income increased in the second quarter to $57 million compared to $41 million in the first quarter.

We continue to see strong above-average returns from our alternative investments portfolio, which produced returns of $54 million in the second quarter and $32 million in the first quarter. It is worth highlighting that second quarter returns benefited from about $17 million. From year end 2021 statements due to a lag in reporting final audited financial statements from those partnerships. Looking at this quarter's performance, returns from the real asset category performed very well in the second quarter, as did our credit funds with floating rate investments, benefiting from rising rates this quarter.

The portion of our miscellaneous investment income from traditional bond calls did decline in the quarter relative to the first quarter and, thus far in 2022, is running well below the unusually high volume of bond calls we experienced in 2021. This is consistent with our expectations and while it does pressure net investment income in the short run, maintaining those higher-yielding securities for longer periods of time is beneficial to our portfolio yields. Our current run rate expectation for quarterly income from alternatives is in the $20 million to $25 million range. And our current estimate is that the third and the fourth quarter returns will be slightly below that expected average run rate.

Moving now to capital. The financial strength of the company continues to build and remains in excellent shape, giving us significant financial flexibility. The weighted average risk-based capital ratio for our traditional U.S. insurance companies improved to approximately 415% and holding company liquidity was $1.2 billion at the end of the second quarter.

Both of these metrics are well above our targeted levels. In addition, leverage trended lower and ended the quarter at 24.7%. These strong capital metrics are driven by the strong improvement we are seeing in our statutory earnings results thus far this year. Statutory after-tax operating income was $281.3 million for the second quarter, a sharp increase from the second quarter of 2021 of $177.5 million.

For the first half of 2022, our statutory earnings totaled $481.8 million and have exceeded first half 2021 by $168 million. Looking at capital deployment in the second quarter, we repurchased $45 million of our shares this quarter and $95 million for the first half of the year. And we do continue to anticipate repurchasing approximately $200 million for the full year. Capital contributions in the Fairwind subsidiary were $135 million in the second quarter and for the first half of 2022 now totaled $350 million.

With favorable performance in the LTC block and the rise in interest rates this quarter, we are trending favorably within the range of full year capital contributions to Fairwind of $550 million to $650 million that we guided to at our investor meeting. One final comment to make regarding capital is to highlight the announcement that we made yesterday afternoon that we have issued a redemption notice for the $350 million notes due to mature in 2024. We intend to fund that redemption with the proceeds of a new five-year bank term loan facility, which we also signed yesterday afternoon. The pricing on the loan facility is very attractive relative to current market spreads, and we are able to effectively extend the maturity by three years.

I'll then wrap up with a comment on our outlook for the year. As a reminder, at our outlook meeting in February, we initially set our expectation for growth in after-tax adjusted operating income per share in a range of 4% to 7% for 2022. We raised our outlook to an expectation for growth in the range of 15% to 20% following our first quarter earnings report. With our strong performance in the second quarter and our improved outlook for the second half of 2022 relative to our original expectations, we are again increasing our outlook for growth in 2022 to a range of 40% to 45% off of our adjusted after-tax operating income per share in 2021 of $4.35.

At our investor meeting in February, we also provided a longer-term outlook for after-tax adjusted operating income per share to increase within a range of 45% to 55% in 2024, off of our 2021 earnings per share of $4.35. Since we will be moving to the new LDTI accounting basis, beginning with the first quarter of 2023, we will not be updating this three-year view under the current GAAP reporting standards. However, we believe that upside to our original growth expectations has developed, given our strong performance so far in 2022, including higher premium growth and faster improvement in benefits experienced in many of our business lines as well as the benefits to our business from higher interest rates, rising wages and strong employment conditions. We intend to provide 2021 and 2022 recasted results on the new LDTI basis in the first quarter of 2023 and transition our outlook expectations to the new accounting basis also in the first quarter.

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

Rick McKenney -- President and Chief Executive Officer

Great. Thank you, Steve, for that summary of our second quarter results. The quarter was an outstanding one, and we were very pleased with the performance of the company as we continue to deliver on our promises to our customers throughout the pandemic. We believe we are very well positioned in today's business environment with a strong balance sheet, strong earnings momentum and remain very encouraged with our outlook going forward.

Before I open up the call to questions, I want to take a moment to acknowledge and thank Tom White. After more than 40 years of service with the company, Tom will be retiring in the next month. and this will be his last earnings call. Tom has been a stable external voice of Unum for all these years, and I know that he's built exceptional relationships with all of you.

We will miss him greatly as he will now have more time to work on his golf game, spend time with this growing family, including grandchildren. Matt Royal, our current chief risk officer, will be our new head of investor relations. Matt's unique combination of financial strategy and risk experience makes him an ideal person for this role. You will all begin to meet Matt as he and Tom work together over the next month.

It is fitting that we have record results for Tom's last call. The team is here to respond to your questions. So I'll ask Daisy to begin the Q&A session.

Questions & Answers:

Operator

Thank you very much. [Operator instructions] Our first question is from Alex Scott from Goldman Sachs. Alex, your line is open. Please go ahead.

Alex Scott -- Goldman Sachs -- Analyst

Hi. How are you guys? First one I had is just on the favorable trends you're seeing. I assume some of that has to do with the strong labor market at the moment. And I would just be interested in your perspective on sort of the run rate you gave us, what that assumes about how the labor market will be sustained in the near term? And what kind of sensitivity you'd have if things do get a little choppier here?

Rick McKenney -- President and Chief Executive Officer

Yeah, thanks, Alex. I just hit on it overall. Like we've mentioned in our results, they have a little bit faster given the very strong labor market, rising wages. And so I think we've outpaced as part of that.

I don't think we count on that. When you think about how we think about our business and natural growth, we think of that two, two and a half percent range of what that looks like. So the levels that we're seeing that we just don't count on and we really don't factor those in as we look out over the next several years. And you mentioned if it gets a little bit choppier.

It's worth mentioning how the people think about the company and how we think about the company in a slowing period. I think, first of all, I'd say it's a top-line question in terms of growing our premium levels. We've been very happy with the recovery we've seen in our premium growing three and a half percent. We want to see that get back up into the 4% to 7% premium growth range we've gotten accustomed to prior to the pandemic.

We might see that slow a little bit or not maybe not accelerate as fast as we want if the environment gets a little bit slower. A couple of other places to think about if the world does get choppier. And by the way, we don't have any particular insight on that. So we don't plan our business that way.

And I think our business model is quite resilient. So even if things get a little bit less robust than they are currently, we don't get too concerned about that. The two other places you might see it is in our investment portfolio. So the team has done a really good job of going through the portfolio, taking a look at where things get impacted.

Just not so long ago, they were looking at what happens in a rapidly rising interest rate environment. Now they're looking at what if things slow down and what is the impact to our credits. We feel very good about that and where the portfolio is positioned. Even I'd say in the pandemic, we actually decreased our exposure to some of the high yield, a couple of percentage points of the portfolio came down.

And then the other place when things a little choppier, I think we get the question often about what happens in the long-term disability world. Mike, do you have some comments on that? We've seen recessions in the past and maybe some thoughts on that.

Mike Simonds -- Chief Operating Officer

Yeah. Thanks, Rick. It's just we managed through multiple times to think the last recession should we be in a similar spot again. What we saw was a little bit of a lag.

That's kind of the first point. As you see it coming. It's generally two to four quarters before that incident starts to come through. And I would say that gives us an opportunity to think about the front end of the business through a pricing and underwriting point of view.

And then most importantly, just to make sure that we're prepared from a claims management and you make sure that those clinical locational indicate specialists are well are prepared. So in general, not something that we're looking to see happen. But should that occur, we are really well prepared.

Rick McKenney -- President and Chief Executive Officer

I'll summarize it, Alex. I think it's -- the discussion is more what happens on a recessionary front. I think we feel good about it. We showed that we got through a very difficult time in the pandemic and are in good shape.

We like the environment that we're in today. We hope it persists, but it's hard to predict. And we feel good about where we are.

Alex Scott -- Goldman Sachs -- Analyst

Got it. Second one I had for you is on expenses and maybe more broadly on expenses. I think in certain areas of your business, there is a lot of need to ramp up staff associated with handling claims and so forth during COVID. And I mean, hopefully, that same level won't necessarily be needed going forward.

We shall see, I guess. But how do you think about that? I guess there's also obviously -- inflation is a pressure point. How does all of that sort of go into where expenses should go from here for you guys?

Rick McKenney -- President and Chief Executive Officer

It's a good question, Alex. And I think in this environment, where the labor market is tight as we look at it, we think about expenses more broadly, we always have in terms of managing good productivity in the company as we grow. I think we were challenged a little bit going through the pandemic and how expenses went up just to meet the needs of our customers. It's something we needed to do, and I think we responded to that.

And then I think the second piece you asked about just an inflationary environment, and our expenses will be commensurate with making sure we're taking good actions to be competitive in our market. Our talent means a lot to us and making sure that we're competitive on that front is equally important. Maybe, Steve, you talked a little bit about -- we talked a little bit at investor day about how we see this coming over the next couple of years. I think that might be helpful to quantify some of that.

Steve Zabel -- Chief Financial Officer

Yeah, Alex. It's Steve. Thanks for the question. So back in investor day, we did talk about some pressures to our operating expense level in the short term that we would be able to work through over time with just growth of the business as well as pricing actions.

We had mentioned that we thought that our overall operating expense ratio would go up by somewhere between 125 and 175 basis points to do those things that Rick talked about, take care of our employees and invest back in the business. I would say we're probably tracking for 2022 to be at the lower end of that range, but we did expect that our levels would go up during the year. Maybe a lot of those expenses are concentrated in our group disability line. It's very labor intensive in that line.

And so Mike, maybe talk a little bit about what we're doing to invest specifically in group disability?

Mike Simonds -- Chief Operating Officer

Got it. Yeah, I think you feel most acutely in that for disability line because it is where we're most intently serving clients, as Rick mentioned. So Alex, to your point, as global volumes have come down here, we've seen more favorable incidents. That should put a little bit of tailwind for us in terms of operating expenses.

At the same time, I would tell you, we're pretty much fully staffed for the first time into nine months. It is a tight labor market we're quite selective in terms of we agreed into on the team, and we've arrived at a good spot there. And then the second piece is technology. And we continue to invest in technology.

I think, again, that will represent a tailwind for us as we get into 2023 as -- technology, particularly around short-term disability and lead comes online, but those are expenses we're incurring from an investment point of view. So in a reasonable spot, we want to make sure we take care of our people there, that we are taking care of our customers. But I would expect a downward trend as some of those technology investments come online and hopefully sustain the improvement in expense.

Alex Scott -- Goldman Sachs -- Analyst

Thank you.

Rick McKenney -- President and Chief Executive Officer

Thanks, Alex.

Operator

Thank you. Our next question is from Ryan Krueger from KBW. Ryan, your line is open. Please go ahead.

Ryan Krueger -- Keefe, Bruyette and Woods -- Analyst

Hi, thanks. Good morning, and congrats to Tom. On the, I guess, first question is on the second half guidance. I guess, would you characterize that as pretty much back to normal fully or is there any headwinds embedded in that still related to the environment?

Steve Zabel -- Chief Financial Officer

Yeah, Ryan, this is Steve. I can take that one and I'll take the question up a little bit and just make sure everybody is clear on the guidance that we did put out there. We are looking for the second half of the year, quarterly run rate on EPS to obviously drop below what we saw in the second quarter. There's really probably three main areas that we think that, that will go back to a normal run rate.

One, is just in our group disability benefits experience. I messaged in my comments. We think that is more in the low to mid-70% range going forward. Also with our life insurance business, group life insurance business in the U.S., I mentioned in my comments as well, we did have some favorable impact of the runout of our IBNR at the end of the first quarter.

We do think we'll have some ongoing impact from just COVID claims coming through, maybe $10 million a quarter. So that will be coming through the latter half of the year. And then with our alternative investment portfolio, we obviously had a very good quarter at $54 million in the second quarter. That's probably going to be in the high teens per quarter for the remainder of the year.

a little bit lower than our longer-term expectations of the mid-20s. So you take that all in, you put that in there, we do think we're going to have more of regressing to a norm. It comes out to about $1.40 to about $1.45 a quarter probably for the remainder of the year. If you take that back to pre-pandemic, that's about where jumping point -- our jumping off point was in 2019, 2020.

So we feel like we're back to pretty much the earnings power that we have there, and then we're able grow off of that. I did mention in my comments, we're going to be on a different accounting basis going into next year. So not really given any guidance beyond '22, but obviously, we feel really good about how we think we're going to end the year and be able to go into the future.

Ryan Krueger -- Keefe, Bruyette and Woods -- Analyst

Great. Thanks. That's helpful. And then on long-term care, could you give an update on any more thoughts you've had on potential ways you could hedge into straights as you've been evaluating that?

Steve Zabel -- Chief Financial Officer

Yeah, thanks for the question. I would take it in two pieces because we really have two blocks that we manage somewhat differently just from an interest rate perspective because of the reserving construct we're on. We have our Unum America block, about 80% of the block seated in the Fairwind. We are on a premium deficiency reserve construct there.

And then we have our first Unum block, which is more on a traditional asset adequacy reserve testing. And I am happy to announce we actually did make a move in the second quarter on that block. We did execute on $164 million of notional hedge in our first Unum LTC portfolio. What that does is it effectively locks in the risk-free rate on about 50% of our positive cash flows for the next five years.

And we locked in at different rates, but on average, it's about 3.35% for the third year. So we really feel good about being able to take that first step. It also allows us to get a little bit more certainty around our asset adequacy reserve in the New York entity. We think that will support being able to release a bit more of our cash flow testing reserves by the end of the year and also be able to take a dividend out of our New York company this year.

We'll have to let the year-end process play out, but we feel like that's a pretty positive outcome. If you go back to the Unum America block, it is more complex just the interaction with the PDR. It's a funds-withheld portfolio. So we basically have the assets in Unum America and the liability has been fair when we have to work through that.

And just the collateral requirements on that block are going to be much greater. So I would say that's still working in process, Ryan, but we're obviously evaluating it to see how best we can derisk the balance sheet, which is obviously, a big part of our strategy behind our long-term care block.

Ryan Krueger -- Keefe, Bruyette and Woods -- Analyst

Great. Thanks a lot.

Rick McKenney -- President and Chief Executive Officer

Thanks, Ryan.

Operator

Thank you. Our next question is from Erik Bass from Autonomous Research. Erik, your line is open. Please go ahead.

Erik Bass -- Autonomous Research -- Analyst

Hi. Thank you. So sales and premium growth have been trending much stronger than assumed in your original 2022 outlook. Can you just talk about what's changed since then that's driving the upside and how we should think about the premium growth trajectory going forward?

Mike Simonds -- Chief Operating Officer

Yeah, sure. Maybe I can jump in and take that one. Erik, it's Mike. And like Rick highlighted, I think it's a combination of factors that are fueling that premium growth coming in is really across segments above what our expectations were coming into the year.

And first, I would just start with sales results overall, 20% plus growth for the Unum brand here in the U.S. colonial life up nicely, International up very nicely on local currency basis. So we're finding our value proposition is winning in terms of new clients and adding benefits in existing clients. And maybe in a minute, I'll put it over to Tim to talk a little bit about what's happening in voluntary on your life and then market International.

But say -- certainly back to the group business. So you take that kind of sales growth, combine it with good, strong persistency, the natural growth coming through probably a tick or two higher than we might have expecting. And then we talked about it at the outlook meeting, just continued sort of balanced rate increases to the renewal program has continued to track well against our expectations. So everything showing a little bit of upside for us and the combination is finding ourselves as over 3% growth in the top line, probably six months quicker than we thought, and it.

Bodes well for getting back into that 4% to 7% range. So we like how we're positioned here in the U.S. group market. And Tim, maybe you'll comment on long-term?

Tom White -- Senior Vice President of Investor Relations

Yeah, thanks, Mike. You hit it well. I think the biggest surprise has been maintaining the persistency through the pandemic in a way that's helped us have premium levels and really held up well through the pandemic. We have also seen improvements in agent productivity over the last couple of years.

We took that help on the colonial life side. We're making -- we're continuing to make nice investments across the VB businesses, both colonial life and Unum that are spurring some additional growth. And recently, we're very encouraged by the momentum we're beginning to see building on the VB side in both the small, mid and large case market. So appreciate the question.

Pleased with the progress we're making, and we think that there's still a plan of opportunity out there.

Rick McKenney -- President and Chief Executive Officer

Mark?

Mark Till -- Head, International Business

Yes. So source growth in both Poland and the U.K., at 20% premium growth in the U.K., at 8.5% and -- in Poland, and 15% on persistency slightly higher. I would put to a few things. In the U.K., I would say that we've addressed some of our service levels.

So the customer satisfaction is rising, makes the proposition more attractive. I think we've obviously had some wage inflation in the country, and that obviously helps premium income. And I think we're generally at good employment levels. And I think we have a not dissimilar story in Poland as well.

So those things together are contributing to a good view on sales persistency and premium growth over time.

Mike Simonds -- Chief Operating Officer

So Erik, hopefully, that gives you a sense across markets. There's a lot of things going well. Some good optimism in the team. I'll just round it out by saying -- and I mentioned it just a second ago when we were talking about expenses, we're fully staffed in our claims area.

So we're also fully staffed in our onboarding enrollment, implementation and client service areas, and we are sort of anticipating continued success from a new sales point of view. So as we work through the second half and get to the important January effective we are ready to onboard a substantial number of new clients.

Erik Bass -- Autonomous Research -- Analyst

Great. Thanks. And I guess the second question I had is your RBC ratio, as you mentioned, is the highest of even, and that's even after factoring in the impact of new C1 charges. Seems like free cash flow is also normalizing more quickly than you had expected.

So does this change your view at all kind of about the level of annual capital deployment you can support near term -- or any difference in how you think about the priorities of deploying that?

Rick McKenney -- President and Chief Executive Officer

Yeah. Thanks, Erik, for the question. I mean, the capital deployment picture it's getting clearer. You mentioned the strong capital generation has been tremendous.

The statutory earnings we saw, as we mentioned, in the first half of the year, are returning to levels that we experienced prior to the pandemic. So it puts us in a very good spot. We want to make sure that we're doing a good job of thinking about how we deploy that. You would have seen in the second quarter, we increased our dividend by 10%.

That's one of those pieces that we look at. But I take you back to, we really want to put it into the core business and grow the way that Mike talked about on the premium side. So we're going to continue to invest very strongly in the business today and then think about how we can grow both on the organic front. Think about acquisitions, not too large, but certainly a place that we can help to enhance the overall offerings that we've got out there.

And then the continued deployment that we see across the buybacks. And Steve, you want to mention a little bit about what's changed because there are other uses that we can use now as well and thinking about where we put that money to work.

Steve Zabel -- Chief Financial Officer

Yeah, yeahl. I think we still are pretty consistent in our view of wanting to balance our stakeholders between getting the premium deficiency reserve kind of behind us from a recognition perspective as well as starting to deploy buybacks to our shareholders. I'll kind of take you back to the investor day discussion and bringing the whole PDR discussion into this a bit. I think important points.

First of all, as you know, the discount rate that we use there comes into the calculation over a trailing three-year period. So although we're really happy with where the 20- and 30-year treasury rates are right now, we would like to give that a little bit more time to actually work its way into the calculation. That does amortize in over time. And so 2022 contributions for that are going to be pretty consistent with what we thought coming into the year.

We did give a scenario that provided a 3% 30-year treasury, and that would reduce the PDR to about $1.8 billion, and we would love if that's where we end up, but we need to play this out a little bit longer. We do think that scenario would imply that we could fully recognize the PDR in 2024. But we also think that right now, it makes sense to balance the stakeholders that are out there as far as moving forward with given the PDR permitting practice behind this. And also having, I'd say, a moderate level of capital deployed back to our shareholders.

Erik Bass -- Autonomous Research -- Analyst

Got it.Thank you. And you said PDR in 2024, I think that was the original plan. Did anything change there?

Steve Zabel -- Chief Financial Officer

Yeah, I mean the original permitted practice or the permitted practice allows us to take until 2026. What we did discuss in our investor day is under certain interest rate paths and interest rate scenarios, we would have the ability to probably recognize that in the 2024 period. That would be something that if rates stays at the levels that they are, that would be something that we definitely want to contemplate doing.

Erik Bass -- Autonomous Research -- Analyst

Got it. Thank you.

Operator

Thank you. Our next question is from Jimmy Bhullar from J.P. Morgan. Jimmy, your line is open.

Please go ahead.

Jimmy Bhullar -- J.P. Morgan -- Analyst

Hey, good morning. So just a question on your margins overall, especially in the disability business, they've been better than expected better than I think most of the peers have had. So wondering how much of the improvement is this because of improving core trends versus maybe any reserve releases or anything else that might not sustain into the second half and into next year?

Mike Simonds -- Chief Operating Officer

Yeah, Jimmy, it's Mike. I can take that question. And I'll just start by kind of agreeing with the premise that it is a very favorable loss ratio, I'd say underpinning the really solid fundamentals. And I think that is a testament to the folks that are doing the pricing, underwriting, our field organization as well as our claims organization kind of really working together quite effectively.

There are some things that showed up in the quarter to your question that we would not see repeating and sort of mitigating over time and coming back into that group disability loss ratio that Steve was talking about in sort of the low to mid-70s. The things I would point to, and they're sort of in order of impact -- if you recall back to the first quarter, non-COVID-related short-term disability incidence was quite favorable for us. And we talked a little bit on the call about in all likelihood, the Omicron variant and the surge there in the early part of the year, pushing out some of the scheduled surgeries and non-COVID STD type claims. That favorable STD incident, if you think about the flow-through timing into LTD really came through in quite favorable LTD incidents here in the second quarter.

We would see that normalizing in line with our expectations as we work through the rest of this year and into next year. So that's one piece of it. I will talk a little bit about it. But again, a onetime in the quarter around a paid family leave premium return based on risk experience of last year, that was a little bit of a tailwind.

And then LTD recoveries in the segment were quite favorable. I do expect favorability to persist. And so that is something that's built into our outlook, but not quite to the rate that we had here in second quarter. So kind of take all those together and you say, over the next few quarters, it seems likely, although there's always a bit of uncertainty.

It seems likely we'll be reverting back to those low 70% range.

Jimmy Bhullar -- J.P. Morgan -- Analyst

OK. And then on -- with the changes in taxes in the U.K. in the business, how does -- how should we think about your overall expected tax rate for 2023?

Steve Zabel -- Chief Financial Officer

This is Steve, Jimmy. I'll take that one. So I'll kind of take back to last year. In the U.K., the government enacted a new tax rate, take tax rate from 19% to 25%.

The tax rate was not effective, though, until next year. I believe it's the first quarter of next year or maybe early second quarter of next year. When they enacted it, the GAAP accounting would have you revalue your balance sheet, in essence, your deferred tax assets and liabilities to that new effective rate. So we did that.

We revalued those to 25%. What we saw in the current period was that on a tax basis, we kind of outperformed what our normal expectations would be that the U.K. tax basis for income has a market value component to it. So with the rising interest rates in the U.K.

that generated a lot of taxable income. And what happens is that is taxed currently at 19%, but we're releasing our deferred balances on the balance sheet at 25%. And so in essence, it creates a tax -- net tax benefit for GAAP. That dynamic could continue until we're on the same current basis as we are on the deferred basis next year.

But what that did is it drove our overall tax rate down to that 16.6%. We don't believe that will continue. We think the 20% to 21% overall effective tax rate is the right place to be. But that dynamic costs a little bit of volatility just in the quarter.

Jimmy Bhullar -- J.P. Morgan -- Analyst

And then going forward, do you think the tax rate overall for the company will go up a little bit higher than 20%, just based on -- commensurate to the contribution of the U.K. business or the overall results?

Steve Zabel -- Chief Financial Officer

It might be a tick, but it won't be much, just the relative taxable income in the U.K. versus our U.S. operations.

Jimmy Bhullar -- J.P. Morgan -- Analyst

OK. All right.

Steve Zabel -- Chief Financial Officer

The other way to think about it is from a timing difference perspective, we've already valued our balance sheet at 25%. So as those turn they'll turn at the same rate as what the deferred are up at right now.

Jimmy Bhullar -- J.P. Morgan -- Analyst

Got it. OK, thank you.

Rick McKenney -- President and Chief Executive Officer

Thanks, Jimmy.

Operator

Thank you. Our next question is from Tom Gallagher from Evercore. Tom, your line is open. Please go ahead.

Tom Gallagher -- Evercore ISI -- Analyst

Thanks. And best of luck to Tom White from me as well. The -- just a quick one on capital management, potential risk transfer for LTC. Is that still a ways off? I think you guys have sort of indicated you're pursuing paths, but it might take as long as two years for anything to come to fruition.

Is that still the expectation or is the timing on that changed at all?

Rick McKenney -- President and Chief Executive Officer

Yeah, Tom. I think it's hard to predict. To predict M&A and timing is difficult. It's about making sure that we can have buyers and sellers getting together.

I think we're doing the work to make sure that we're prepared for the right environment and interacting with the right counterparties, but very hard to predict timing around when something can come to fruition. So I really can't give you a better time frame, a couple of years, when would it take. We'd like it to be earlier, but could it be later. It's one of those things.

M&A is just unpredictable on that front. But we're doing the work, and we'll be prepared if the market opens up, and we think it will be a good thing for the company overall.

Tom Gallagher -- Evercore ISI -- Analyst

OK, thanks. And just back on disability for a minute. Do you have any sense for what's really driving this good submitted incidence in claim recoveries? Just what are the main drivers behind the scenes if you've done any analysis on that?

Mike Simonds -- Chief Operating Officer

Yeah. Thanks, Tom, it's Mike. I mean, I think on the incidence front for LTD, a good chunk of that was what I was talking about, this is specific to the quarter. And that's very favorable STD incidents last quarter about elimination period kind of 90, 180 days coming through the year in second quarter.

So that's what's driving the incidence favorability. On the recovery front, again, we've sort of seen an improving recovery trend. And while I think jumped a bit ahead, I would sort of attribute that to some favorable volatility here in the quarter. But as we sort of looked at our guidance for the second half of the year, I said I expect that recoveries will remain elevated just not at the current level.

So to really put that to the strength of the benefits team, the return to work of success that we've had some investments on the clinical front, the percentage of claims that are going and getting touched by a clinician is up and has been going up over the last several quarters. So a combination of things going to give us some confidence on that front.

Tom Gallagher -- Evercore ISI -- Analyst

OK, thanks. And then just finally, anything on -- as we think about pricing for 2023 for renewals, I mean, on one hand, you've had enough volatility on the mortality and even the disability side. Just a couple of quarters ago, where the results were pretty bad. And I think you got a little bit of rate last year.

But now that you're seeing all this favorability, do you think that will start to play into pricing here and maybe flatten out, if not lead to some pricing declines or any initial indication on what you think all of this means for pricing?

Mike Simonds -- Chief Operating Officer

Sure. Yeah, it's a great question, Tom. And yeah, I can actually characterize it reasonably well. I think about most of our clients have multiple Unum benefits.

And so we're going to think about the aggregate level of price action that we get across product lines. The interest rate environment, some favorability from an LTE risk and recovery point of view, those things are certainly favorable. Those will mitigate some increases that we need to put through when you think about material citing to life insurance experience that we've had and just staying ahead of the curve there, the inflationary pressure on expense to make sure as we increase wages and benefits for our people to make sure that we keep them up front and center with our customers. We need to make sure we're accurately sort of reflecting that.

On fee-based businesses, that's something we've talked about pretty consistently and needing to make sure that the expenses we're incurring to take care of leave, claims and LTD claims are reflected in pricing. So as always, we sort of seek to make a pretty balanced approach, but we'll need to continue to put a bit of rate into the market. It will be softening just a bit on the LTD front as part of that package. And given what we've seen in terms of renewal plan to date, the persistency tracking these expectations to be pretty optimistic.

Tom Gallagher -- Evercore ISI -- Analyst

OK, thanks.

Rick McKenney -- President and Chief Executive Officer

Thanks, Tom.

Operator

Thank you. Our next question is from Suneet Kamath from Jefferies. Suneet, please go ahead. Your line is open.

Suneet Kamath -- Jefferies -- Analyst

Thanks. Good morning, and thanks to Tom for all the help over the many years. My question is, again, back on group disability. If I go back to the outlook presentation, I think you guys guided to mid to low 70% range for '23 and '24.

Feels like you're going to get there second half. So as we think about kind of the longer term, is there a reason to be confident that we could push kind of lower than that as we ended '23 and '24 if the current trends that you're seeing persist? Or do you think you'll have to give up some of that in terms of pricing?

Mike Simonds -- Chief Operating Officer

Yeah, Suneet, it's Mike. And as we've just talked about sort of reverting into those low 70%. And you think about kind of where we were pre-pandemic, coming down pretty consistently into that low 70% range. We know that is a good spot to be in because recall, with that kind of a loss ratio, we're looking at an ROE that's sort of mid- to high teens.

We think that's a really, really good return on a business. And we want to make sure that we're balancing pricing that's generating good strong returns with pricing that's going to enable us to grow that business. And we started to see that disability segment really start to grow again in terms of top line. We're encouraged with the pipeline.

We're encouraged with the investments that we've made in new total leaves platform in new connections into winning HCM platforms. I think we just have a really good story to tell there. We want to make sure we've got fair and competitive pricing and feel like a loss ratio in the low 70s is a good spot for us to be in.

Suneet Kamath -- Jefferies -- Analyst

Got it. And then I guess for Steve, on LDTI, I know you're not going to give us any details, but some companies have talked about sort of earnings benefit kind of going forward. Just kind of directionally, is there any color that you can give us on that front?

Steve Zabel -- Chief Financial Officer

Yeah, I'm not going to give you the directions, but I'll give you the dimensions. So when we file our Form 10-Q later today, we're going to give a little bit more disclosure than we've historically given, really on two fronts. One is a little bit on just qualitative disclosure around major drivers of what we're seeing in the recast for earnings. There's probably three or four major things and you might be able to read across some of the other disclosures.

Definitely different amortization periods and that's going to vary a little bit by our different product lines, some longer, shorter runoff of some margins that we have on our reserves on the balance sheet. I think that's consistent with what maybe you've heard. And then just establishing our new claims that a different rate will be at single A rate as we establish. So those are some things we're starting to see emerge from the runoff and some of those are positive, some of those are a little negative.

And then the other thing is we're going to update the disclosure on the initial impact. If you go back to our original disclosure on the 1/1/21 impact of adoption, it was in that $6.5 billion to $7 billion range. If we take 630  rates, and push it back to 1/1/21 and recap that. That number is more in the $2 billion to $2.5 billion range.

And so as you might imagine, both the movement in the risk-free rate as well as the movement in the credit spreads on a single A that's where we brought that initial impact down quite a bit. And I'll just kind of end that conversation with. I think that just proves the point that we view this accounting guidance as accounting and not economics of the business, given the volatility that you see around that mark just period-to-period. And so we still see great about the cash generation from the firm and just how we feel about growth for the business.

Suneet Kamath -- Jefferies -- Analyst

Make sense. Just one last quick numbers one. Can you just give us the split in LTC reserves between sort of First Unum and then the piece that's at Fairwind?

Steve Zabel -- Chief Financial Officer

Yeah, just rough numbers, and this is kind of bi reserve probably. First Unum is 80% of the business. New York is about 15%. And then -- and did I get the other one? Yeah, I'm sorry, 80% in Unum America Fairwind, 15% in First Unum.

And then we have a small 5% block, it's our old reimbursement business in PL&A, our Tennessee company.

Suneet Kamath -- Jefferies -- Analyst

Got it. Thanks for the answers.

Steve Zabel -- Chief Financial Officer

Yeah, thank you.

Operator

Thank you. Our last question today is from Tracy Benguigui from Barclays. Tracy, your line is open. Please go ahead.

Tracy Benguigui -- Barclays -- Analyst

Thank you. Good morning. Based on your New York asset adequacy testing, you said you'd be able to take a dividend at out of First Unum. Could you size up what that may look like? And I also believe First Unum as the sister company, is not stacked.

So can I assume that will go up to the holdco?

Steve Zabel -- Chief Financial Officer

Yeah. Tracy, this is Steve. You are correct. It's a sister company, so it doesn't have to pass through holding company, they will go to -- direct to group.

And then it will be -- obviously, we need to get the work done at year-end and see where rates and but we anticipate a dividend pretty consistent with what we saw last year. I think it was in the $40 million range. So I'd anticipate something pretty similar to that. As you know, how the dividend rules work around extraordinary dividends, ordinary dividends and where you can take those out, you have to kind of run the math, and we think probably $40 million is about the right place for this year, but we'll see how year-end plays out.

Tracy Benguigui -- Barclays -- Analyst

OK, got it. I also want to follow up on an earlier discussion on Fairwind hedging. I get that your collateral needs is a consideration if rates go up substantially higher from here, but what about hedging just a portion of Fairwind?

Steve Zabel -- Chief Financial Officer

Yeah, we're looking -- we're evaluating a lot of different alternatives, whether it's matching the cash flow specific to the entire business, specific to parts of the business but also there more of a macro hedge we'd want to put in place that economically hedges it without being kind of specifically hedging cash flow. So we're looking at all those alternatives. And I think they all have their pros and cons, and so we'll continue to look at that as the summer and fall plays out.

Tracy Benguigui -- Barclays -- Analyst

Got it. Thank you.

Steve Zabel -- Chief Financial Officer

Thanks, Tracy.

Operator

Thank you. This is all the questions we have today. So I'll hand back over for any closing remarks.

Rick McKenney -- President and Chief Executive Officer

Great. Thanks, Daisy. I just want to thank everybody for joining us this morning. Good quarter.

Certainly, we want to get out there and talk to all of you in the coming weeks. We'll see you at upcoming conferences and investor events. And I do want to wrap the call today with thanking Tom White for his years of service. I'm very appreciative.

Make sure to send him a note of congratulations. He's going on to do some different things. And with that, we'll wrap up the call. Thanks, everyone.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Tom White -- Senior Vice President of Investor Relations

Rick McKenney -- President and Chief Executive Officer

Steve Zabel -- Chief Financial Officer

Alex Scott -- Goldman Sachs -- Analyst

Mike Simonds -- Chief Operating Officer

Ryan Krueger -- Keefe, Bruyette and Woods -- Analyst

Erik Bass -- Autonomous Research -- Analyst

Mark Till -- Head, International Business

Jimmy Bhullar -- J.P. Morgan -- Analyst

Tom Gallagher -- Evercore ISI -- Analyst

Suneet Kamath -- Jefferies -- Analyst

Tracy Benguigui -- Barclays -- Analyst

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