Joel Hurwitz: Hey, good morning. Another one on LTC. Can you just talk about the opportunities for further portfolio duration extension? And any way to quantify the benefit from that and the rate hedges that you put on?
Steven Zabel: Yes, this is Steve. Yes, probably the points that I would make around that is just we’re really happy about both the hedge program that we’ve put in place. We’re up to about $2.6 billion of notional amount on that hedge program. We’ve already seen the benefit, but it also just protects us from some of those downside scenarios. We took the opportunity to reposition part of the LTC portfolio, selling out of some short duration bonds and being able to increase both duration credit quality and frankly, the annual earnings coming off of that block. We’ll continue to roll that program forward from a hedging perspective. As I mentioned before, it’s really — it ladders in based on quarterly cash flows. So we will continue, as those hedges mature quarter-by-quarter, we’ll continue to extend that.
So we think that will be really good protection in the future. I also mentioned in my script that we’ve kind of extended that time horizon for those cash flows from five to seven years, and so we took the opportunity to extend. As far as scenarios and that sort of thing, we’ll have a guidance call coming up here in the next several months to talk about 2024. In our Investor Day last year, we gave some scenarios, which really gave you an idea of what the downside protection is. I think that’s the best way to articulate it. And so we’ll probably just wait until we refresh that going into next year and give you a little bit more guidance, just how much protection we do have against the PDR, given the actions that we’ve taken.
Richard McKenney: And Joel I think you are asking a little bit about the repositioning trade that we did as well. And so the team did a really nice job looking at cash flows throughout the cycle and thinking about how we put those cash flows in the right space. That’s what that trade was as well that we did in the quarter. And so is there more opportunity to do that? We were feeling pretty good about the cash flow match, not just in general, as we’re talking about the hedging, but also as we look at specific durations throughout the curve. And so Martha Leiper, Steve and the team did a really nice job of positioning us for that.
Joel Hurwitz: Okay. That’s helpful. And then shifting to group disability. Can you just provide an update on expectations moving forward? And in terms of pricing for 1/1, how is it being affected by the continued favorable experience that you’re seeing?
Richard McKenney: Mike?
Michael Simonds: Yes. Thanks and good morning, Joel. You’re right. We continue to feel good about the group disability benefit ratio of 57.5% this quarter and continues to benefit, I think, from a favorable macro environment, like Rick highlighted, paid incidents has been favorable. recoveries, both in count and average size continue to be strong for us. And I do think that the actuarial underwriting teams, the renewal delivery over the last couple of years through sales and client management. And ultimately, our benefits team is a big contributor to that. And as you said, certainly, that favorable experience will and has begun to flow into renewal conversation as we sit here, having worked through the large employer inventory for January 1st effective, and kind of working down into the middle and smaller end of the market.
We feel really actually quite good about the persistency levels that we’re achieving. Like we’ve talked about, over time, we would expect a gradual increase back towards longer-term targets for our group disability loss ratio. But again, the dynamics are such that we would see that happening pretty gradually over the coming six, eight, 10 quarters and feel like this high 50%, low 60% is a pretty good target here for the short to midterm.
Joel Hurwitz: Okay. Thank you.
Richard McKenney: Thanks, Joel.
Michael Simonds: Thanks, Joel.
Operator: Our next question comes from Ryan Krueger with KBW. Your line is open.
Ryan Krueger: Hey, good morning. Unfortunately, one more question on long-term care. I guess in terms of the capital contributions still being the same for the year. But doing the $200 million to $300 million in First Unum, what was the — what was caused or what drove the offset in terms of lower capital contributions to Fairwind? Is that just the gradient of higher rates? Or is there something else there?
Steven Zabel: Yes. Basically, Ryan, it is the gradient of higher rates. That’s the main thing drive. And it’s really the combination of that, but also the hedging program and some of the de-risking that we did in the portfolio. That gives us downside protection in the future, but it also does give us a little bit of benefit kind of in the current calculation. So I’d say it’s a combination of those two things. The higher rates bleeding into kind of the new money assumption we’re able to use and also in de-risking
Ryan Krueger: Okay, makes sense. Thanks. And then in terms of the 4Q sales pipeline, can you give any color on early reads on how that should be up so far?
Michael Simonds: Good morning, Ryan, it’s Mike. Thanks for the question. And I’d say, we talked a little bit about for the Unum US Group business, the January 1st renewals coming in at or favorable to expectations, which is really good. I’d say the same thing about the new sales pipeline. Rick had a few things in his opening comments, but the investments that we have continued to make over the last couple of years, particularly around our lead management offering in our HR Connect into leading HRIS platforms are really paying off. We’re seeing really good sales growth, very high attachment rates of our group insurance premium to those services. I mentioned last quarter is a good time to be in group disability. And I think that’s both because of risk dynamics, but also lead management has presented a real opportunity for us to differentiate ourselves in the market.
It’s a top concern for HR teams, and having a really strong digital solution backed by great people has allowed us to kind of move off the spreadsheet in a lot of instance and has us feeling good about the January 1 implementations that are already beginning to occur. And maybe we’ll just take a minute and check in on January 1st in sales growth in our voluntary and international businesses.
Timothy Arnold: Sure. This is Tim. Thanks, Mike. So we’ll start with the Unum brand. Mike mentioned attachment rates for group insurance to our HRC and Leave solutions, and we see opportunity to continue to drive VB adoption there as well. We’re seeing good sales growth in the Unum VP business in 2023 through the third quarter, and we expect to continue to build momentum in that business as we look to continue to benefit from those solutions Mike mentioned around HRC and Leave and also just cross-selling into our existing group business on the Unum brand. For the Colonial Life brand, this year is not worked out as we had expected at Investor Day from a sales perspective, but we do see a number of very encouraging trends. One is we see building momentum.
