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Unum Group  (NYSE:UNM)
Q4 2018 Earnings Conference Call
Feb. 05, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Unum 4Q 2018 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Tom White, Head of Investor Relations. Please, go ahead sir.

Tom White -- Senior Vice President-Investor Relations

Great. Thank you, Amanda. Good morning, everyone, and welcome to the fourth quarter 2018 earnings conference call for Unum.

Our remarks today will include forward-looking statements, which are statements that are not of current or historical fact. As a result, actual results might differ materially from results suggested by these forward-looking statements. Information concerning factors that could cause results to differ appears in our filings with the Securities and Exchange Commission and are also located in the section titled Cautionary Statement Regarding Forward-Looking Statements and Risk Factors in our Annual Report on Form 10-K, as well as our subsequently filed quarterly reports on Form 10-Q. Our SEC filings can be found in the Investor section of our website at unum.com.

I remind you that statements in today's call speak only as of the date they are made, and we undertake no obligation to publicly update or revise any forward-looking statements. 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.

As you saw on yesterday afternoon's earnings release, for the fourth quarter of 2018 Unum reported net income of $249.1 million, or $1.15 per diluted common share. Net income included a net realized investment loss of $32.6 million, or $0.15 per diluted common share. So, after-tax adjusted operating earnings were $281.7 million, or $1.30 per diluted common share.

For full year 2018, net income was $523.4 million or $2.38 per diluted common share. Net income includes a net realized investment loss of $28.5 million or $0.12 per diluted common share and the reserve charge in the long-term care line which reduced net income by $593.1 million or $2.70 per diluted common share. So, after-tax adjusted operating income was $1.145 billion, or $5.20 per diluted common share.

As background, in the fourth quarter of 2017, net income was $266.9 million, or $1.19 per diluted common share. Included in net income were impacts related to the U.S. tax reform bill, the reevaluation of our net deferred tax liabilities at the newly enacted rate of 21% and a one-time tax on and distributed and previously untapped foreign earnings and profits, which resulted in net tax benefit of $31.5 million, or $0.14 per diluted common share and included a net loss of $25.4 million or $0.11 per diluted common share, related to the settlement of a third-party review conducted on behalf of a number of State treasurers, concerning unclaimed death benefits.

The net after-tax realized investment gain on our investment portfolio was $7.2 million or $0.03 per diluted common share. So after-tax adjusted operating income, which excludes these items, was $253.6 million, or $1.13 per diluted common share again in the fourth quarter of 2017.

For full year of 2017, net income was $994.2 million, or $4.37 per diluted common share. Included in net income was a net realized investment gain of $25.3 million which is $0.11 per diluted common share. So excluding the two items related to the U.S. tax reform bill and the unclaimed death benefit reserve adjustment, the adjusted after-tax operating income was $976.2 million, or $4.29 per diluted common share.

And finally, in the fourth quarter of 2017, we recorded a $19.5 million reserve release or $12.7 million after tax related to our Unum U.S. individual disability line, which was included in our fourth quarter and full year 2017 adjusted operating income.

Participating in this morning's conference call are Unum 's President and CEO, Rick McKenney; our CFO, Jack McGarry; as well as the CEOs of our business segments, Mike Simonds for Unum U.S.; Peter O'Donnell for Unum International; Tim Arnold for Colonial Life; and Steve Zabel for the Closed Block.

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

Rick McKenney -- Chief Executive Officer

Great. Thank you Tom, and good morning, everyone. We ended 2018 on a solid note, as our fourth quarter results demonstrated a continuation of the many positive operating trends we've seen over the past several quarters.

As a Tom detailed, our after-tax adjusted operating income totaled $281.7 million or $1.30 per share, an increase of 15% from $1.13 per share in the year-ago quarter. For the full year, our adjusted operating income per share increased by 21.2% to $5.20.

Excluding the 2017 Unum U.S. individual disability reserve release, adjusted operating income per share increased 22.6%, which put us in the upper end of original outlook range of 17% to 23%. The operating trends in our core businesses remained healthy.

We continue to see good levels of premium growth, including 5% growth in Unum U.S., 7% growth in Colonial Life and 14% growth in the Unum International segment, which now includes the Unum Poland acquisition that we closed at the beginning of the fourth quarter, which is now in addition to our Unum U.K. business. These trends reflect our disciplined approach to sales growth and our ongoing management of our current customers.

In addition to a solid premium growth, we continue to see generally stable benefits experience across the major product lines in our core businesses. This drives a continuation of the very healthy margins we have been experiencing in these business lines and the strong cash flow generation that goes with it which all supports our financial flexibility.

Also in the fourth quarter, we saw improved results from our Closed Block segments, particularly in the long-term care line. The loss ratio for long-term care was at 83.2%, which we were pleased to see. As we roll into a full year on our new reserving basis, we think that tracking this on a rolling four quarters is more appropriate.

Until then, we are encouraged that for the second half of 2018 the loss ratio for long-term care was 85.4%, at the lower end of our long-term expected range. Jack will provide additional details on these results, as well as updates on other important aspects of the LTC business.

With this good financial performance, our capital metrics remained in healthy shape as we closed out 2018. The RBC ratio for our traditional U.S. insurance companies was in line with our expectations and holding company cash remains above our targeted levels.

We've resumed our share repurchase activity in the fourth quarter with $150 million of repurchases, finishing the year with a total of $350 million. 2018 was certainly an eventful year for the company in many ways. We are proud of the accomplishments of the core business lines not only the strong financial performance we have seen throughout the year, but also the strategic positioning we enjoy in our markets which position us well going forward.

Additionally, we continue to make investments in our capabilities to ensure this continued success. Obviously, there was considerable noise, which created volatility in the market regarding long-term care. We understand the focus on this product line and I believe we responded in a responsible and transparent way. With the third quarter reserve update, we expanded our disclosure to give investors a basis for understanding the reserve assumptions we are making relative to the experience we have seen. This was in addition to the key attributes we've talked about for the block.

We've been pleased with the overall performance of the block in the second half of 2018 relative to our new assumption set as well as the progress we are making in managing it over the longer term. We are working diligently to ensure that long-term care did not overshadow our core business segments and mask what we believe is a valuable franchise that serves a growing need in our society and delivers real value to our shareholders.

As we look at 2019, we look forward to continuing to grow our company and protect more people. I've had the opportunity to meet with our sales teams over the last two weeks and the view is one off optimism for the year. I would also reiterate that our operating earnings-per-share growth expectations for 2019 are consistent with our investor meeting which is in the 4% to 7% range for the year.

So now, I'll ask Jack to cover the details of the fourth quarter results. Jack?

Jack McGarry -- Chief Financial Officer

Thank you, Rick, and good morning everyone. As Rick said in his comments, we feel very good about the operating results for the fourth quarter. In my comments, I will provide additional detail on our performance and give an update on our capital metrics as we close out 2018.

Looking at our operating results for the fourth quarter I'll begin with Unum U.S.. It was another good quarter with positive trends in premium income, very good persistency in our Group lines and stable benefit ratios across our major business lines. These operating results offset a decline in net investment income largely from lower portfolio yields and lower miscellaneous investment income.

Within Unum U.S., adjusted operating income for group disability declined by 6.9% to $80.7 million in the fourth quarter. We saw a good premium growth at 2.9% and stable benefit experience compared to the year-ago quarter with a benefit ratio at 76.2% compared to 76.3% in the year-ago quarter. Net investment income declined by 9.3% compared to the year-ago quarter. This decline was driven by the recent trend that reduce assets back in the line and lower portfolio yield on those assets as well as a decline in miscellaneous investment income.

As we said previously, miscellaneous investment income will be volatile from quarter-to-quarter in this quarter was a below last year and well below that of third quarter of 2018. With an average level of miscellaneous investment income, we would expect the group disability line to generate quarterly adjusted operating income in the mid-$80 million range. This quarter's risk results were consistent with that expectation.

The Group Life and AD&D line had strong results for the fourth quarter with adjusted operating income of $64.3 million, an increase of 12.8% from the year-ago quarter after adjusting for the unclaimed death benefit reserve increase recorded in 2017. Premium income increased 7.6% driven primarily by improved persistency, which increased in the group product line to 91.2% for 2018 compared to 88% in 2017. The benefit ratio was slightly higher at 71.6% in the fourth quarter compared to the adjusted loss ratio of 71.3% in the year-ago quarter, due primarily to higher claims incidence.

The supplemental and voluntary lines also generated strong results, with adjusted operating income of $103.7 million in the fourth quarter. The fourth quarter of 2017 adjusted operating income included the reserve release in the individual disability product line and adjusting for that the adjusted operating income for this line increased 2.7% compared to last year.

Premium income increased 6.3% for the fourth quarter, due primarily to higher sales in the voluntary benefits and individual disability and growth in dental and vision product line as we expanded distribution.

Adjusting for last year's reserve impacts benefits experienced for our major product lines was generally favorable. In IDI, we experienced favorable mortality in claim recoveries, and in voluntary benefits, we saw favorable experience in our disability in accident lines of business. The dental and vision results were in line with our expectations, though the benefit ratio was higher in the fourth quarter of 2018 than the favorable experience of last year.

Sales for Unum U.S. in the fourth quarter declined by 1.2%, primarily driven by lower sales in the large case group life line and in short-term disability, where the year-over-year comparison was challenging given a $22.6 million of sales in the fourth quarter of 2017 from an update to the New York disability law for paid family leave.

We saw positive signs in the fourth quarter sales results, including solid improvement in sales of group LTD, which increased by 16.7%, strong sales in individual disability which increased by 14.7%. In the ongoing distribution expansion for dental and vision products which increased sales by 33.5%. Persistency in the U.S. Group lines was also a bright spot increasing to 90.3% for 2018 compared to 88.5% in 2017.

With the closing of the acquisition of Unum Poland, we are now reporting Unum International segment which includes our Unum U.K. and Unum Poland business lines. Adjusted operating income for this segment totaled $30.4 million for the fourth quarter, an increase of 2.4% over the last year. Premium income in dollars increased by 14.2%, due to the inclusion of Unum Poland in the fourth quarter and growth in Unum U.K. in local currency.

Unum U.K. growth benefited from rate increases in the group LTD line and higher persistency which was offset somewhat by a lower exchange rate. The reported benefit ratio improved to 72.4% in the fourth quarter of 2018 from 75.7% in the year-ago quarter.

This improvement was primarily driven by favorable benefits and expansion of the U.K. supplemental in group LTD line along with the inclusion of Unum Poland. Unum international sales were $24.7 million in the fourth quarter compared to $24.5 million in the year-ago quarter.

On a local currency basis, Unum U.K. sales declined by 9.8% on lower sales in the large case segment, which were partially offset by growth in the small case market and in a critical illness product line. We were very encouraged that persistency for the Unum U.K. business improved to 88.6% in 2018 from 86.9% in 2017 given the level of rate increases we put through the block in 2018.

Colonial Life, again, produced strong results, with adjusted operating income in the fourth quarter of $85.4 million, an increase of 8% from the year-ago quarter, adjusting for the before-tax unclaimed death benefit reserve increase of $12.4 million for the life product line.

Premium growth continues at a very good pace increasing by 7.3% in the quarter, reflecting strong prior period sales growth. Benefits experience was stable at 51.6%, again, adjusting the year-ago quarter for the reserve increase. In addition, the expense ratio for Colonial Life declined to 18.7% for the fourth quarter of 2018 from 19.5% a year ago. This is encouraging as we continue to invest in territory expansion, expanding our additional capabilities in the dental product rollout.

Sales at Colonial Life increased 2.3% in the fourth quarter compared to the year-ago quarter. The introduction of the dental product earlier this year continues to help sales growth along with favorable trends in the core commercial market. These favorable trends were partially offset this quarter by lower sales in the public sector market in the large case market.

For full year 2018, sales for Colonial Life increased by 8% following growth of 7.5% for full year 2017.

Moving to the Closed Block. Adjusted operating income increased 5.1% to $34.8 million in the fourth quarter. As expected, premium income continues to decline in this segment declining 4.5% in the fourth quarter, primarily due to the ongoing policy terminations and maturities for the individual disability line.

Net investment income increased by 1.3% in the fourth quarter, driven by an increase in the level of invested assets and slightly higher miscellaneous investment income, which was partially offset by a lower portfolio yield on these assets. In the individual disability product line, the interest adjusted loss ratio remains steady at 81.2% for the fourth quarter of 2018 and 2017. For the full year, the interest adjusted loss ratio improved to 80.4% in 2018 from 82.4% in full year 2017.

The results of the long-term care business line for the fourth quarter reflect the new reserve assumptions we adopted in the third quarter of 2018. On this updated reserve basis, the interest adjusted benefit ratio for long-term care was 83.2% in the fourth quarter, which is favorable to the range we outlined for yield of 85% to 90%, primarily due to strong improvement in the level of submitted claims. The interest adjusted benefit ratio in the year-ago quarter was 93.1%, but it's not comparable given the reserve basis change.

For the second half of 2018, the interest adjusted loss ratio for long-term care was 85.4%. While the results of this block to be measured over the long time frame, we were very pleased with the performance of the block relative to our new reserve assumptions for the second half of the year.

Since we developed our new reserve assumptions set in the third quarter of 2018, we made strong progress related to our LTC premium rate increase assumption of $1.4 billion of margin. Since we set that assumption, we've secured rate increases that provide margin of just over $500 million and include significant approved increases from California on both our individual and group product filings.

In addition the new money yields for the long-term care portfolio we achieved in the fourth quarter exceeded the 5.5% new money yield assumption embedded in our updated reserve assumptions.

For our other U.S. businesses, new money yields for the fourth quarter were slightly higher than the third quarter, but remain below our portfolio yields, so we expect to continue to see some pressure on the portfolio yield in overall net investment income.

Wrapping up with the Corporate segment, the adjusted operating loss was higher in the fourth quarter at $48.2 million compared to a loss of $33.2 million in the year-ago quarter.

Expenses in this segment ran higher than usual and included some acquisition related in Corporate Development expenses we view as a one-time in nature. Going forward, we anticipate quarterly losses in the segment to average in the mid-$40 million range.

Statutory earnings for our traditional U.S. insurance companies remain at good levels and generate a strong level of cash flow for the company. For the fourth quarter, statutory after-tax operating earnings totaled $215 million compared to $220 million in the year ago quarter. Full year 2018 statutory after-tax operating earnings totaled $916 million compared to $812 million in 2017.

As a result, we finished 2018 in a strong capital position. The risk-based capital ratio for our U.S. traditional life insurance companies was approximately 370%, which was in line with our expectations. The decline from the 386% at year-end 2017 was largely due to the impact of tax reform on the RBC formula.

Our actual level of total adjusted capital, the numerator of the RBC formula, increased by approximately 4% during the year. We feel very good about the absolute level of capital in the company as well as the enhancement to our cash flows resulting from tax reform.

Cash at holding companies totaled $602 million at the end of the year comfortably above our projected 2019 fixed cost estimate of approximately of $430 million. We've resumed our share buyback program in the fourth quarter with $150 million of repurchases putting aside $350 million for full year 2018.

I'll conclude my comments this morning by reiterating Rick's earlier comments that our expectation for good growth and adjusted operating income per share in the 4% to 7% range for the full year 2019.

The base of the adjusted operating earnings for 2018 is $5.20 per share, which excludes the net realized investment losses and reserve increase for long-term care from our 2018 net income. This is consistent with the view we shared with you at our outlook meeting in December.

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

Rick McKenney -- Chief Executive Officer

Great. Thank you, Jack. So, to sum it up it was a solid quarter for the company and one that I feel gives us a good momentum going into 2019. We're very pleased with the operating trends we're seeing in our core businesses which we believe reflect the discipline execution of our plans and the strong position we enjoy in our markets.

We're also pleased to have completed the LTC reserve update last year and particularly, encouraged by the performance of the block relative to those new assumptions in the second half of the year point.

We'll now move to your questions. I'll now ask the operator to begin the Q&A session. Amanda?

Questions and Answers:

Operator

Thank you. (Operator Instructions) We will take our first question from Josh Shanker with Deutsche Bank.

Josh Shanker -- Deutsche Bank -- Analyst

Yes, thank you very much. Good morning. I want to just sense on how the competitive landscape is shaping up. There's been a lot of consolidation in the market over the past couple of years. And of course tax reform changed the profitable profile of the disability business -- business in general. Given the long-term contracts associated with that, it's probably three year old which really knows impact. But one of your competitors said that their pipeline for growth was really good the other day. And I was trying to figure out what that means for incumbents, what that means for new entrants and how does things look compared to what they were two years ago?

Rick McKenney -- Chief Executive Officer

Great. Thank you Josh. We'll turn it over to Mike to talk about the Unum U.S. position.

Mike Simonds -- Chief Executive Officer

Thanks Rick and good morning Josh. I think I'd start with the fact that all the prior companies heading into the consultation were calling on the same brokers and consultants and competing for the same employer groups in the market.

So post consolidation I'd say, we see fewer players on any particular case, but players that are more concentrated and better able and I think more likely to use their scale to invest in capabilities as the basis of competition, over a strong emphasis on just say, pricing and underwriting. And I think I would see that as a positive in the long run for the industries growth and return profile.

And to your question I take you back to sort of the fundamentals of the industry where we see demand for what we do growing and whether that's continue to change in the health insurance landscape with bigger deductibles and more exposure, for employees getting filled through voluntary products or increasing complexity when it comes to things like, leave and disability and where we can come in and help solve for that complexity for employers.

We're focused on those needs. We're disciplined player. We've got market-leading position. And so as -- you see few are more concentrated in the basis of competition shifts more and more toward capability. I think that's very good news for us in the long run and for the industry.

To your question on new entrants, I do see that some of those barriers to entry increasing not necessarily in terms of putting product on the street that remains a pretty simple undertaking, but it kind of match the capabilities around the data, the technology and the expertise. I would say the bar is going up through this consolidation cycle.

And lastly I think you asked about the tax reform. Yeah, go ahead.

Josh Shanker -- Deutsche Bank -- Analyst

That's exactly -- tax is a multi-year sales cycle.

Mike Simonds -- Chief Executive Officer

Yes. I'd say we'll continue to watch pricing levels. We've been to hold to the margins that we've been generating on a pre-tax basis. As we talked about when tax reforms coming and implemented, it's relatively small share of premium and feel like we're generating enough value for clients that, that we're able to weather that competitive pressure pretty well.

Josh Shanker -- Deutsche Bank -- Analyst

Thank you and good luck in '19.

Mike Simonds -- Chief Executive Officer

Thanks Josh.

Operator

We will take our next question from Humphrey Lee from Dowling & Partners.

Humphrey Lee -- Dowling & Partners -- Analyst

Good morning and thank you for taking my questions. In Jack's remarks you talked about you made very good progress on rate increases in the fourth quarter, especially with the approval from California. For the remaining of the kind of expected benefits of rate increases what is your expectation for the timing of the remaining approval. I know, it's going to be more art and science, but kind of if you can provide a feel in terms of how we should think about that?

Rick McKenney -- Chief Executive Officer

Great. Thanks for the question, Humphrey. Yeah. And I'll just going to summarize what did happen since the reserve assumption reset back last year. We did put margin into that reserve of $1.4 billion. We just announced that we secured approvals totaling about $500 million of that margin California was a significant portion of that. We also have other states that on the group side have assumptions from filing so that's makes the majority of what was left later there.

We are in the process right now of filing our increases on our new program. Those began at the end of last year they will continue through the first half of this year. We also as we disclosed back last year, we have quite a few pending rate increases California was one of those. We'll continue to work those. The majority of those are in States that have granted us approval in the past, but capped them on an annual basis and so that's kind of just a process that we have to work over time.

So I would say, generally speaking it's going to be a long process with these. We'll get them filed, the new ones filed, the first half of this year, but these take months and years to kind of go through the pipeline and especially with some of these states that are on more of a multi-year approval process. This will be measured over the year. So I would say we'll continue to update periodically on what our progress is. But I would say, what we are able to achieve was significantly influenced by what we did in California, and I won't expect that to happen on a quarterly basis going forward.

Jack McGarry -- Chief Financial Officer

Humphrey, I do think it's worth noting that this is a big step forward for us and we feel very pleased about the result.

Humphrey Lee -- Dowling & Partners -- Analyst

Yeah. No doubt about it. California has always been a challenging state. So that's good to hear you get a sizable approval from them. Staying on LTC incidence for this quarter seems to be favorable, but I guess on a full year basis how was incidence look like and how does incidence look like for 2018 especially given kind of the first half of the year saw a little bit of elevation.

Rick McKenney -- Chief Executive Officer

Yeah. So, we did have a spike in incidents at the beginning of the year. It's kind of humped it -- crushed in like the second quarter of 2018 third quarter was a decent quarter and then fourth quarter was favorable. I would say overall for 2018, we feel very good about where new claim volumes came out relative to our new reserve assumption set and are encouraged by the results we saw in the second half of the year.

Humphrey Lee -- Dowling & Partners -- Analyst

Got it. Thank you.

Operator

We will take our next question from Ryan Krueger with KBW.

Ryan Krueger -- KBW -- Analyst

Hi. Good morning. First, just one quick follow-up on long-term care, on the $500 million of rate increases can you give us a sense of how that compared to what you had assumed would occur within the reserves?

Rick McKenney -- Chief Executive Officer

Yeah. I would say Ryan we're not going to disclose or discuss really where we are on a state-by-state expectation. That -- those expectations are across all 50 states. They will vary state-by-state and we're just looking to track to kind of the overall margin that we've estimated related to that. So that's really how we will update going forward. It's safe to say that we're very satisfied with the process that we went through in California and we're very satisfied with the results.

Ryan Krueger -- KBW -- Analyst

Okay, thanks. And then now that you've completed on through January 1 renewals, can you give us a sense of how persistency came through on the renewals, if it was relatively stable I think you previously talked about relative to 2018?

Rick McKenney -- Chief Executive Officer

Mike?

Mike Simonds -- Chief Executive Officer

Sure. Good morning, Ryan. And I'd say in line with expectations to slightly favorable. And as always we're going through the book and looking for pockets where we need to take rate action that would be no exceptions for this year is one, one, and we are encouraged by the results.

Ryan Krueger -- KBW -- Analyst

Great. Thank you.

Rick McKenney -- Chief Executive Officer

Thanks, Ryan.

Operator

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

John Nadel -- UBS -- Analyst

Hey, good morning. Thank you for taking my questions. Just a quick one following up on LTC. So, slightly more than $500 million benefit from premium rate increase. Can you give us a sense, I guess twofold, one how much of that was actually from California finally coming through with an approval? And how should we think about the split of that roughly $500 million benefit between individual and group?

Steve Zabel -- President, U.S. Closed Block Operations.

Yeah. This is Steve. We're not going to disclose exact amounts on how that $500 million breaks down. The majority of it was related to California both the individual and group filing in California were significant. And we feel good about the approvals we got on both pieces of that.

I would say the remainder of the $500 million as I noted is going to be related to the group policy filings on our new program. We do have some exempt states where we're not required to file, so those are accounted as secured upfront. So, I would say the majority of that $500 million non-California is most related to group.

John Nadel -- UBS -- Analyst

Okay, that's helpful. And then just a quick question, I guess on Colonial. Good result, underwriting margins that look pretty stable. Premium growth looks good, but sales did slow down. I'm wondering if that's more of a maybe a tough comparison on a year-over-year basis or if there is something that you'd like to point out?

And if it changes any of your expectation as you think forward, I know you've been thinking about high single-digit growth rate there?

Rick McKenney -- Chief Executive Officer

Tom?

Tom White -- Senior Vice President-Investor Relations

Yeah. John, thank you for the question. So in the fourth quarter we're up against a very tough comparable from the last year. We had approximately 10.5% growth rate in sales and over 10% growth rate in our large case segment.

Large case can be volatile for us. It's a very opportunistic market. We wanted to serve that marketplace, but we also want to make that we're seeing the same returns in the large case segment that we do in other places.

Despite the tough overall comparison due to large case, we had a very good quarter in our direct part of the business, our new case business in our (inaudible) market, which were all up double digits, so we're pleased with that.

And we feel very great about our disruption system and our reach in the marketplace. Our product portfolio continues to resonate well in the marketplace with a full suite of both individual and group products. We have what we believe to be very unique set of enrollment capabilities and services.

I bet this education is increasingly important in the marketplace and we have over 7000 benefits counselors who could help us with that. Our service delivery is second to none and increasingly includes a full portfolio of digital solution. So we're still optimistic about the marketplace and we still feel comfortable with the range we gave investors in December 4, 2019 growth.

John Nadel -- UBS -- Analyst

Appreciate that. Thank you.

Rick McKenney -- Chief Executive Officer

Thanks, John.

Operator

We'll take our next question from Jimmy Bhullar with JPMorgan.

Jimmy Bhullar -- JPMorgan. -- Analyst

Hi. First, I just had a question on trends in the U.K. business. Your results have been actually pretty good the last several quarters, but how much of it do you view Brexit to results in the business?

Rick McKenney -- Chief Executive Officer

Peter Brexit update?

Peter O'Donnell -- President and Chief Executive Officer ,Unum UK

Yes, happy to do that. Thanks, Jimmy for the question. So I think there is a lot of hype around Brexit. It's difficult to sort out the facts from what the PR agencies are trying to drive. Our view would be at a no deal Brexit which would be across the U.K. economy and that -- the business is operating in the U.K. economy is still a possibility relatively low probability. The view from most of the commentators is that we'll get a deal whether it's the Theresa May deal or some variant of that during 2019. In terms of our exposure to that, we're not like some of the companies in the U.K. where we have significant offshore business and that's the real competition. We're totally -- we moved from that so it's really about how the U.K. economy does and how business confidence does.

Our performance during the last couple of years is being actually through what we would say a pretty difficult environment. Business confidence is being low. Usage we are not seeing people put a lot of new benefits in and you saw some of that in our sales numbers in the quarter four. Although we are seeing good core growth, we haven't seen large case sort of come to market, so that's winning in the smaller realm, but large case it's pretty competitive.

So we're sticking to our persistency elements getting margins through the book, ensuring that we are well placed we're monitoring Brexit trends. We're not seeing anything that worries us at the moment, but we'll have to be pretty agile to respond to things. Our view would be that the guidance we gave you in December still holds even based on the start of the year given Brexit still remains uncertain.

Jimmy Bhullar -- JPMorgan. -- Analyst

Okay. And then just following up on PG&E. I think you wrote off accrued interest income this quarter, but you didn't impair the bonds themselves. So if you could give us an idea on what your exposure is? And then also the expected ongoing impact of the PG&E situation on your investment income for the rest of the year?

Jack McGarry -- Chief Financial Officer

Yes. So we didn't actually write off the accrued interest. We stopped accruing it because PG&E made it public that they weren't going to pay the interest as a part of their bankruptcy filing. We have $107 million exposure in PG&E when we wrote off our asset and when we stopped accruing interest there was a small premium that we bought the bonds out initially that was like $400,000 or something. We wrote that premium off as well. Other than that, we feel pretty good about PG&E. We think it's money good. We -- but we -- our intent is to hold it to maturity. The market seems to be consistent with us. The bonds have rebounded pretty nicely of late. And so, it is on our watchlist, we're going to pay careful attention to it. But at least at this point, we think its good money and we'll continue to hold it.

From a annual net investment income perspective, it's kind of in that $5 million to $6 million range. Relative to our annual net investment income, it's pretty immaterial and we feel good about being able to hit our net investment income plans despite this.

Jimmy Bhullar -- JPMorgan. -- Analyst

Okay. Thank you.

Operator

We'll take our next question from Alex Scott with Goldman Sachs.

Alex Scott -- Goldman Sachs -- Analyst

Hi. Thanks. First question I had was, just if you could provide an update on sort of the year-end statutory process for long-term care. And I guess more specifically, if you could provide any commentary around how much margin you have in your asset adequacy testing was in Unum Life Insurance Company of America?

And any kind of update you have on kind of the process win in Fairwind, I guess, specifically for the long-term care? I mean it looks, from the RBC ratios and the cash contributions, that there weren't really any surprises from what you guys have previously laid out. But any commentary on how much of a buffer you have in the two legal entities would be great?

Rick McKenney -- Chief Executive Officer

Yes. So we have not tended to split those things out in the past. We tend to look at it, because so much of that is in Fairwind, we look at it in aggregate. We talked about the buffer we had at year-end or when we did the update in September, we continue to grow that buffer, so we made contributions on a statutory basis. During the fourth quarter, we will continue to expect to grow that going forward where it's in the high hundreds of millions, we feel comfortable with that.

And I think the base of it is, we feel very comfortable about the gap reserve assumptions, our best estimate reserve assumptions is having really taken a thorough view of where experience was merging and accommodated that view in our reserves.

And so, we feel very comfortable on the statutory basis our statutory reserves have not been unlocked. We do have contributions in First Unum, because of asset adequacy testing and the very conservative view that New York takes to mostly the interest assumption rates on reserves, but again we feel comfortable with where we are.

Alex Scott -- Goldman Sachs -- Analyst

And the higher hundreds of millions that you mentioned, was that in reference to the equity and Fairwind or is that sort of the margin in, in your earliest premium valuation there?

Rick McKenney -- Chief Executive Officer

No. That's the stat gap difference.

Alex Scott -- Goldman Sachs -- Analyst

I see.

Rick McKenney -- Chief Executive Officer

And that's actually for the aggregated book, so it includes First Unum and Fairwind and actually P&L. I guess it's about $800 million.

Alex Scott -- Goldman Sachs -- Analyst

And so would that be a reasonable way to think about the margin that you have in the stat reserves in Fairwind? I mean, I guess, would your -- that is your best estimate, I guess, on GAAP, so would there be any differences in the way that you would sort of evaluate in stat in your cash flow testing?

Rick McKenney -- Chief Executive Officer

That's the aggregate book. So it's the First Unum Fairwind and PL&A and so that's in total.

Alex Scott -- Goldman Sachs -- Analyst

Okay. Thanks.

Operator

(Operator Instructions) We will take our next question from Erik Bass with Autonomous Research.

Erik Bass -- Autonomous Research -- Analyst

Hi. Thank you. I was hoping if you could talk a bit more about competitive trends specifically in voluntary benefits. I think growth has remained strong here for both you and others in the industry. And just wondering if you're seeing any impact on pricing? Or is it more of that competition picks up for some of the employer paid benefits is winning those mandates is really how you to get access to growing voluntary?

Rick McKenney -- Chief Executive Officer

Yes. So we'll start with Mike on the Unum US then we'll go to Tim to talk about the Colonial Life dynamics.

Mike Simonds -- Chief Executive Officer

Yeah. Thanks. So actually you hit on it. So from a Unum brand perspective, we do enter it primarily through the Group lines and look to put the full offering together inclusive of voluntary. What I would say though is we have seen a very active market for new entrants in the voluntary space. And we're watching it pretty closely. Because we've seen some product pricing and commission structures emerge that to us don't appear long-term stable. So I think that does put a little bit of pressure primarily I would say in the large end of the market for us both in terms of our new sales and also just watching that persistency closely on the in-force client base. And I'm sure, Tim you've got some thoughts to add from a Colonial Life perspective?

Timothy Arnold -- Executive Vice President, President and Chief Executive Officer

Yes. I think we're seeing a lot of the same trends I appreciate the question Erik, but the place where we're probably seeing the most competitive pressure is in large end of the market and for us it's less about price and more about some of the other factors that Mike talked about including compensation overall. So we still feel pretty good about our value proposition due to the factors I've described earlier, but we are seeing more entrants in the space.

Erik Bass -- Autonomous Research -- Analyst

Thank you. And then a follow-up question on the investment portfolio. You did see a bit of an uptick in impairments this quarter. I was just hoping you could provide a little bit more detail on the drivers there and wondering if you are seeing anything that makes you more cautious about credit broadly?

Rick McKenney -- Chief Executive Officer

Yes. We did have a higher realized capital losses during the quarter than is typical. Couple of things, about half of that is our embedded derivative DIG B adjustment which on a non-reinsurance transaction would be the normal mark that would flow through AOCI because it's a reinsurance transaction, it actually comes through realized gains and losses instead. So non-economic, it's actually an unrealized gain for that DIG B adjustment.

I'd say the other, if you look at the other half of that charge, there is probably only half of that is actually credit market related. We did write-off some value on an energy holding was not really very remarkable amount. We also -- we unwound a spread program that we had going and we sold the underlying assets on that.

So there was a realized loss, but that loss had been more than covered by operating gains during the existing -- existence of the spread program and a little bit of noise back and forth too. But I would tell you that, the bulk of that loss is actually not kind of underlying credit driven.

Erik Bass -- Autonomous Research -- Analyst

Got it...

Jack McGarry -- Chief Financial Officer

As we look at the portfolio today -- I'd just add to that Erik as we look at the portfolio our watch list still remains intact. We feel very good about the position we have across the portfolio today.

Erik Bass -- Autonomous Research -- Analyst

Okay. Thank you.

Operator

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

Tom Gallagher -- Evercore ISI -- Analyst

Good morning. Just had a few questions on the rate increase approval, the $500 million of net present value benefits, can you give some high-level comments on whether the vast majority is one year approval, meaning, you get it all in the first year or is it -- we talking about most of it being staggered over a number of years?

And also just curious, are there any -- I guess from what I've heard more recently there is also been some contingencies on some of these approvals where there is a prohibition against asking for rate requests for a number of years after it. So any color on that part of it as well?

Steve Zabel -- President, U.S. Closed Block Operations.

Yes. Tom this is Steve. And we're not trying to avoid the details of the increase. I'll just give you the context that we still have a lot of consumer and group communication that needs to take place on the specifics -- specifically around the California increase.

And so, at this point we'd prefer to not get into the details and that's something that eventually will become public California and normally post that on their website. But we're going to be doing a lot of communication through the summer into the fall and we'd really like that to be the first time that our consumers as well as our groups kind of hear about the details.

Tom Gallagher -- Evercore ISI -- Analyst

Understood. That how about -- can I ask this question then, group versus individual, I guess now is kind of going to be the first big push into group rate increases and it sounds like you've already gotten a decent amount there. Is there any difference in the both the process and the terms and conditions for the group versus individual or is it pretty similar?

Steve Zabel -- President, U.S. Closed Block Operations.

This is Steve again. I would say, when it comes to the actuarial evaluation, it's consistent. The types of policy forms are consistent, kind of our pricing philosophy is relatively consistent as far as the types of risks. I would say, we are little bit different just in the conversations with the regulators.

For the group policies the -- just absolute premiums are much lower just because of the relative benefits that are provided in those group policies. So there is not as much maybe sticker shock on just the absolute premium amounts. I would say the other thing is just the funding of the premiums themselves, majority of our group business is employer funded. And so that creates a little bit different dynamic with the states.

But I would say by and large the regulatory framework is a really consistent between individual and group.

Jack McGarry -- Chief Financial Officer

I would remind you as well Tom that, this is not our initial foray into group renewals. We had a very sizable renewal program associated with our 2014 filing, driven by group and we are very successful in the completion of that program.

Tom Gallagher -- Evercore ISI -- Analyst

Got it Jack. And then final question just in terms of sales results in the quarter, you had strong group LTD weaker results in short-term disability in Group Life. Can you comment about what's going on behind the scenes there with kind of I guess that mixed sales picture

Mike Simonds -- Chief Executive Officer

Yes, thanks Tom, its Mike, appreciate the question and you summarized it well. Actually pretty pleased with where we ended in the fourth quarter. So, similar to Colonial Life, tough comp last year we're actually up about 29% year-over-year in 4Q and a couple of the lines where we really saw that outsized growth a year ago.

One was the implementation of paid family leave in the state of the New York which was a one-time slug of new premium coming in. That came into the short-term disability line hence the negative compared to the 4Q 2018.

And the other place was just some good large case life insurances activities. So, if we look at transactions over $5 million, we sort of saw a little bit of a spike there which good when we can get it at our underwriting and pricing targets and as was the case in 4Q 2017.

So, that's why life and STD standout, feel good about the LTD results and then just to take it to a separate line, it's good to have voluntary benefit sales up about 6%, our multi-life IDI sales up about 15%, and then dental and vision, which can be real contributor to our growth this year, was up about 34% in the quarter. So, I'm feeling pretty good about the momentum as we go into 2019.

Tom Gallagher -- Evercore ISI -- Analyst

All right. Thanks Mike.

Mike Simonds -- Chief Executive Officer

Got it.

Operator

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

Mark Hughes -- SunTrust -- Analyst

Yes, thank you. Just sort of curious how much momentum you see in the dental and vision product, you had good growth there as you penetrated more of your network. Is that going to continue or is that going to settle down a little bit?

Jack McGarry -- Chief Financial Officer

Mike, love to talk about that. Mike?

Mike Simonds -- Chief Executive Officer

I would love to talk about. And I bet Tim will chime in as well. This is a great Unum Group acquisition in play for us. It's coming up on a few years with us. So, I mentioned sales growth of about 34% and that's consistent with what our expectations are coming here in 2019.

Dental is a network business. So, as we have success through the Unum brand, through the Colonial Life brand that improves our position in terms of adding providers to the network. We think at this point looking at some of the industry stats, we've actually got the fastest growing provider network in the industry and find ourselves comfortably in the top 10 there and able to compete on a national basis.

So, we talked a little bit about it at our Outlook Meeting, but we do see a dental as a very meaningful contributor to our sales growth in sub-fall and Colonial Life segments. Here at 2019, it starts to have a very meaningful impact om our premium growth toward the latter part of 2019 and 2020 and then as we get to scale, the earnings growth will start coming in 2021. So, Tim, I don't know if you have any doubt about success on the worksite front?

Timothy Arnold -- Executive Vice President, President and Chief Executive Officer

Yes. Thanks Mike. Our field organization is very enthusiastic about the dental product. It's the first time we've had viable dental product in the marketplace. We had a great results from it last year and last year, we only had a product in the marketplace for nine months and we started with about 30 states and currently have about 45 state approvals.

So, a lot of excitement about dental again in 2019 and the opportunity that we had to reach both new customers with the dental product, but also introduced dental to a lot of our existing clients as well.

Mark Hughes -- SunTrust -- Analyst

And then just curious whether it was the government shutdown that has impacted recoveries in the disability area? Was there any sort of slowdown in approvals for government disability benefits -- make an impact with you in the last shutdown or did you see anything there around Q4 Q1?

Mike Simonds -- Chief Executive Officer

Thanks for the question, Mark. No. We didn't consistent in terms of what we've seen headed into it through it and expect the same to continue after.

Mark Hughes -- SunTrust -- Analyst

Thank you.

Rick McKenney -- Chief Executive Officer

Sure. Thanks, Mark.

Operator

We will take a follow-up question from John Nadel with UBS.

John Nadel -- UBS -- Analyst

So -- I just have a -- thanks for taking the follow-up, I just have a quick one on Unum International. I think the outlook from Investor Day was for 1% to 3% earnings growth in 2019. Should we be thinking about -- is that relative to the 2018 reported earnings or should we be adjusting the baseline to include any contribution earnings from the operations in Poland? Maybe you could sort of parse that out a little bit?

Jack McGarry -- Chief Financial Officer

That would actually -- John that would be after reported earnings so that's the growth for the overall segment which only had a quarter roughly of Poland as part of 2018. And dynamic you see there -- yeah, John I'm very happy with the Poland how it's really hit the ground running as part of our team so that's going to be a good enterprise and a lot of growth ahead of it. And as Peter mentioned the U.K. is a little slow right now reality what we see in Brexit world and so 1% to 3% growth I think is good for that segment given the nature of those two dynamics.

John Nadel -- UBS -- Analyst

Okay. So if I sort of broke that down is it fair to say a modest decline year-over-year in the U.K. constant currency I suppose and some contribution from Poland?

Rick McKenney -- Chief Executive Officer

Yeah. It will just be flat. I'd say if look at it on a comparable basis it's going to be flat year-over-year.

And I understand the Poland doing job we are also investing there integrating and going through that process, so its smaller relative yield.

John Nadel -- UBS -- Analyst

Still very modest. All, right. That's helpful. Thank you very much.

Rick McKenney -- Chief Executive Officer

Thanks, John. Okay. That I think that was our last question. Appreciate all of you taking the time this morning to join us. We look forward to seeing many of you in the coming weeks, different conferences and investor meetings. And so that now completes our fourth quarter 2018 earnings call.

Duration: 59 minutes

Call participants:

Tom White -- Senior Vice President-Investor Relations

Rick McKenney -- Chief Executive Officer

Jack McGarry -- Chief Financial Officer

Josh Shanker -- Deutsche Bank -- Analyst

Mike Simonds -- Chief Executive Officer

Humphrey Lee -- Dowling & Partners -- Analyst

Ryan Krueger -- KBW -- Analyst

John Nadel -- UBS -- Analyst

Steve Zabel -- President, U.S. Closed Block Operations.

Jimmy Bhullar -- JPMorgan. -- Analyst

Peter O'Donnell -- President and Chief Executive Officer ,Unum UK

Alex Scott -- Goldman Sachs -- Analyst

Erik Bass -- Autonomous Research -- Analyst

Timothy Arnold -- Executive Vice President, President and Chief Executive Officer

Tom Gallagher -- Evercore ISI -- Analyst

Mark Hughes -- SunTrust -- Analyst

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