Unum Group (UNM) 2026年第三季度业绩电话会：伤残理赔推高赔付率

核心要点

• Unum Group (NYSE: UNM) 公布2026年第三季度税后调整后营运收益为每股2.20美元，其中包括来自特殊项目的每股0.33美元。上年同期可比数据为2.81美元，其中包括来自特殊项目的0.75美元。
• 核心业务保费在按固定汇率计算下增长4.7%，得益于美国团体业务保单继续率提高近2个百分点。今年迄今的整体销售额仍增长4%。
• 不计特殊项目，Unum US团体残疾险的赔付率升至70.6%，高于61.3%的一年前水平。长期残疾险报案量增加带来了约5个百分点的压力，而短期残疾险及带薪家庭与医疗假业务则增加了约2个百分点。
• 管理层目前预计2026年全年税后调整后营运每股收益为8.30美元至8.50美元；在公司修订非GAAP指标定义后，其中包括来自特殊项目的约0.33美元。
• Unum完成了第二笔外部长期护理险再保险交易，分出38亿美元的法定准备金至Fortitude Re。结合此前的交易，Unum已将其长期护理险风险敞口降低了40%以上。
• 该公司在季度内回购了约2亿美元的股票，并仍有望在2026年通过股票回购和普通股股息向股东回馈约13亿美元。

核心财务数据

年度准备金假设评估导致各产品线（包括封闭业务板块）税前准备金整体减少了2870万美元。核心业务录得8370万美元的税前准备金释放，而封闭业务板块则录得5500万美元的准备金增加。该封闭业务板块准备金增提的大部分已通过Fortitude Re交易分出。

业务与经营表现

美国残疾险理赔增加施压业绩

Unum US团体残疾险实现调整后营运收益9480万美元，其中包括2860万美元的特殊项目。不计这些项目，赔付率达到70.6%，而上年同期为61.3%。

本季度长期残疾险报案量比管理层预期高出约10%。该增长主要集中在心理/行为健康理赔，但在各行业、不同客户规模和各地区均广泛存在。管理层表示，第四季度初的报案量尚未回落至较低水平，同时强调现在判断这一增长是否具有持续性仍为时过早。

该公司在收到理赔申请时计提准备金，采用历史获批概率和索赔特征数据。第三季度的准备金测算采用了正常的获批率，并未假设理赔激增期间可能因获批率下降而带来的有利偏差。

短期残疾险及带薪家庭与医疗假（PFML）业务继续带来约2个百分点的赔付率压力。Unum正对PFML业务普遍实施两位数的费率上调。该业务绝大多数按年续保，使得价格调整能够更快传导至整个业务组合。

对团体寿险的相关影响

团体寿险与意外身故及伤残险（AD&D）调整后营运收益为7820万美元，其中包括500万美元的特殊项目。不计特殊项目，其赔付率为69.7%，其中与残疾险理赔相关的保费豁免带来了近3个百分点的压力。

管理层表示，寿险的基础出险率继续反映出有利的死亡率趋势。在整体团体福利业务中，扣除特殊项目后的赔付率为70.3%，其中近8个百分点与长期残疾险（LTD）报案量和PFML业务理赔情况相关。

补充及自愿险产品表现仍符合预期

Unum US补充及自愿险产品实现调整后营运收益1.423亿美元，其中包括1740万美元的特殊项目。不计这些项目，赔付率为49%，得益于个人残疾险和牙科险良好的理赔表现。

Unum US本季度销售额下降8.5%，主要原因是大型团体业务销售额下滑。今年迄今Unum US销售额增长8.6%。

国际业务业绩受英国理赔拖累

不计特殊项目，国际业务赔付率升至76.9%，高于71.3%的一年前水平。Unum UK录得亏损140万英镑，其中包括约1860万英镑的特殊项目。受团体收入保障险报案量增加及大额赔案增多驱动，其不计特殊项目的赔付率由73.8%升至80.5%。

心理/行为健康是英国理赔报案量增幅最大的领域。管理层指出，尽管英国的运营环境与美国不同，但这些报案中最终获批赔付的案件相对较少。

Unum UK保费增长3.5%，而波兰业务保费增长10%。该公司正在英国上调价格、收紧核保并控制费用。管理层预计这些举措将在短期内对销售和保单继续率造成一定压力，但有助于支撑长期盈利能力。

Colonial Life为业务组合提供平衡支撑

Colonial Life调整后营运收益为1.694亿美元，其中包括4250万美元的特殊项目。不计这些项目，收益同比实现增长，赔付率从48.2%改善至47%，主要得益于癌症理赔减少。

季度销售额增长6.4%，使得今年迄今的增幅达到4.7%。保费增长3%，今年迄今保费增幅为3.2%。

长期护理险风险敞口进一步降低

Unum分出了38亿美元的法定长期护理险准备金至Fortitude Re，净成本相当于最佳估计准备金的12%。结合此前的交易，该公司已将长期护理险风险敞口降低了40%以上。

该交易导致确定转让的资产产生了7.44亿美元的GAAP减值损失。管理层表示，这一会计影响已包含在最初的交易评估中，并未改变其经济实质。

约有150家雇主在第三季度终止了团体长期护理险保单。在2026年前九个月中，这些终止使团体长期护理险保单敞口减少了14%。Unum本季度还获得了总现值超过1亿美元的费率上调批准。

管理层业绩指引

管理层目前预计2026年全年税后调整后营运每股收益为8.30美元至8.50美元，其中包括来自特殊项目的约0.33美元。该展望反映了在与SEC工作人员沟通后对调整后营运收益定义的修订，以及前三季度的业绩和管理层对第四季度的预期。

对于第四季度，管理层假设整体盈利和赔付率水平与第三季度大致持平。该公司未提供2027年业绩展望，并表示预计在观察第四季度残疾险理赔情况后将掌握更多信息。

Unum仍有望实现其4%至7%的全年核心业务保费增长预期。Colonial Life亦有望达成其2%至4%的全年保费增长区间。

管理层仍将团体残疾险长期赔付率目标定在约65%，但具体达成时间取决于理赔激增是否消退、调价措施是否生效，抑或两者兼具。该公司将重返该水平称为一项中期目标，而非近期预测。

年终预期保持不变，仍为15亿至20亿美元的控股公司流动性以及400%至425%的风险资本比率。Unum还继续预计在2026年通过股息和股票回购向股东回馈约13亿美元。

风险与关注重点

• 美国长期残疾险报案量增加是暂时的、周期性的还是结构性的，目前仍不确定。管理层表示，从目前的劳动力市场指标来看，该趋势很难预测。
• 报案量增加可能不会按比例转化为赔付支出，但理赔审核需要数周时间，最终获赔率仍存在不确定性。
• 价格调整需要时间才能传导至整个残疾险投资组合，尤其是出险频率较低、参考理赔经验期更长的长期残疾险产品。
• 受报案量高企和大额赔案影响，英国团体收入保障险的盈利能力仍承压。调价举措需要时间才能对现有存量业务产生影响。
• 由于团体长期护理险保单终止以及前期再保险交易带来的会计影响，封闭业务板块业绩可能仍将保持波动。
• Unum预计最新长期护理险交易带来的摊销和非同期再保险影响约为每季度3000万至4000万美元。包含此前的封闭业务板块交易在内，最初每季度总额预计约为9000万至1亿美元，随后将逐步下降。

分析师问答环节要点

分析师主要关注残疾险理赔趋势以及利润率恢复的时间表。管理层表示，在今年上半年报案量基本符合预期后，长期残疾险报案量在第三季度出现增加。目前尚未发现按行业、地区、雇主规模或员工人口特征划分的显著集中倾向。

该公司强调，理赔审核标准并未改变。专业的医疗与理赔团队负责评估心理/行为健康报案、活动受限情况、治疗方案以及重返工作岗位的可行性。管理层表示，尽管发病率上升，但长期残疾险良好的康复表现仍保持完好。

在定价方面，管理层表示，由于大多数保单为按年续保，PFML和短期残疾险可以相对较快地重新定价。长期残疾险定价也将纳入最新理赔表现，不过规模较大的1月续保保单可能已在今年早些时候进入谈判阶段。该投资组合中的绝大多数保单均不受多年期费率担保限制。

管理层坚称，当前的残疾险压力并未改变其整体战略或资本部署计划。管理层拒绝就潜在的战略交易或外部收购意向进行揣测，强调将继续对特许经营业务进行投资并保持审慎有度的股东回馈。

业绩电话会完整文字实录

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完整财报电话会议逐字稿

管理层陈述

Operator

Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Unum Group Third Quarter 2026 Earnings Call. [Operator Instructions]

I would now like to turn the call over to Matt Royal, Investor Relations. Please go ahead.

J. Royal

Thank you, and good morning. Welcome to Unum Group's Third Quarter 2026 Earnings Call. Today's call may include forward-looking statements, and actual results may differ materially, and we are not obligated to update any of these statements.

Please refer to our earnings release and our periodic filings with the SEC for a description of factors that could cause actual results to differ from expected results.

Yesterday afternoon, Unum released our earnings results and financial supplement for the third quarter of 2026. Materials are available on the Investors section of our website.

This quarter's reported results for our core operating segments include the effects of our annual reserve assumption review and refinements, which we refer to as notable items. These items are recognized in the quarter. However, they reflect experience and changes in expectations spanning multiple periods.

Therefore, we will discuss benefit ratios, excluding these items to provide a more comparable view of quarterly benefits experience. Also, as a reminder, references made today to core operations sales and premium, including Unum International, are presented on a constant currency basis for improved comparability period to period.

Participating in this morning's conference call are Unum's President and CEO, Rick McKenney; and Chief Financial Officer, Steve Zabel.

Following the remarks from Rick and Steve, additional members of management will participate in Q&A, including Chris Pyne, who leads our Group Benefits business; Mark Till, who oversees Unum International; and Steve Jones, President of Colonial Life.

Now let me turn the call over to Rick.

Richard McKenney

Thank you, Matt, and good morning, everyone. Thank you for joining us today as we report our third quarter results. It is a quarter where we saw many positives in growth and portfolio management, but ultimately fell short of our earnings expectations.

This was driven by elevated disability claims submissions in the U.S. and U.K. We'll unpack the drivers and the actions we're taking, and we will continue to closely monitor and act on this important business.

Many of our strategic initiatives remain on track, and our experience, discipline, the breadth of our franchise and our ability to reprice give us confidence that we can manage through a range of environments.

Looking more broadly at the quarter, after-tax adjusted operating earnings were $2.20 per share. This result includes $0.33 of favorable notable items, primarily from our annual reserve assumption review. Outside of Group Insurance, earnings results across the rest of the franchise were solid with good results in Colonial Life and in our supplemental and voluntary lines of business.

These results demonstrate the balance and earnings power of the broader franchise, but they were not enough to overcome the disability headwinds. From an overall returns perspective, the core business is still returning a high ROE.

From a top line perspective, our underlying growth drivers remain solid. Core operations premium grew nearly 5% on a constant currency basis with growth across Unum US, International and Colonial Life. And customer retention in our U.S. group businesses remained strong.

Overall sales declined year-over-year against a very strong performance in the third quarter of 2025, but remain up 4% year-to-date. Our strategy and purpose center on helping employers solve workforce challenges while supporting employees at important moments in their lives. This is as relevant as ever as employers are managing a dynamic workforce environment, balancing growth, productivity, talent development and employee well-being.

Our investments in connectivity, leave solutions and customer experience are helping employers address these challenges while strengthening our relationships and competitive position. We continue to believe strongly in the business model with our group franchise as the key to delivering broader solutions to employers and their employees.

So let me take a moment to dig into the challenges in the results we saw this quarter. The disability claims dynamics in U.S. group insurance and International warrant different tactical responses based on the experience in each business, but ultimately, it is addressed by some form of pricing action.

In U.S. group insurance, the entire group portfolio of disability products saw higher submitted claims, which was the primary driver of the elevated benefit experience. This was particularly pronounced in long-term disability, but similar to last quarter, we also saw elevated short-term disability and paid family and medical leave experience.

On long-term disability, we are evaluating a rapid increase in submitted claims and have not concluded that it represents a sustained change in underlying claims experience. What we've seen so far has been concentrated in behavioral health claims, where submission levels have fluctuated with external conditions in prior periods.

In the meantime, and as we always do, we will continue to make pricing changes on a customer-by-customer basis where we have seen poor performance. In PFML, as we noted previously, the industry experience is still developing, but utilization has been higher than we originally priced.

We see the PFML experience as more rapidly addressable as the pricing structure generally does not include multiyear rate guarantees. This allows us to incorporate emerging experience in new pricing for both new business and renewals, and we are implementing double-digit rate increases.

In International, U.K. group income protection experience remained elevated, driven by a higher number of large claims and increased overall submitted claims. Last quarter, we noted that we are already taking actions to address this and have done so through adjustments to new business pricing, the phased implementation of higher pricing at renewal, disciplined underwriting and expense actions.

Some of these actions are already reflected in our expense performance, while the pricing actions will take longer to work through the block. We remain confident in the franchise, its market position and the expertise of our team, and we have seen steadily rising performance in our other lines of business in the U.K.

Importantly, what we are seeing across all disability lines is not being driven by changes in the competitive environment or in how we adjudicate claims. It is being driven by more people submitting claims. We have an experienced benefits team that combines deep technical expertise with empathy for the people we serve.

That expertise and judgment have served us well over time and give us confidence as we position the business for continued success. We will take the action necessary to address the pressures we've seen in our disability lines, and we remain well positioned over the longer term.

While this was a challenging quarter, it is also a quarter that demonstrated the importance of our diversified business model. Certain products, segments or geographies will experience pressure from time to time, but the breadth of the portfolio provides balance and supports attractive returns over the long term.

Moving to the Closed Block. I am pleased to announce that yesterday, we formally closed our latest LTC reinsurance transaction with Fortitude Re. This is another important milestone in reducing our LTC exposure. Together with our prior transaction, this represents a cumulative reduction in our LTC statutory reserves of approximately 40%, another important step in reducing risk and improving the profile of the business that remains.

In addition, we continue to pursue organic actions across the retained block. In the third quarter, close to another 5% of group cases closed, and we achieved more than $100 million of rate increase approvals. The annual assumption update resulted in a negligible change in reserves for the block and significant protections remain in place at our Fairwind entity.

Our LTC position is in a very different place than it was just 18 months ago. Turning to capital. We repurchased approximately $200 million of shares in the third quarter, bringing year-to-date repurchases to approximately $800 million.

For the year, we have returned more than $1 billion in share repurchases and common stock dividends, and we remain on track to return approximately $1.3 billion to shareholders for the year. Our capital position remains strong, and we continue to expect to finish 2026 with $1.5 billion to $2 billion of holding company cash and a risk-based capital between 400% and 425%. When you look at the overall franchise, there are clear bright spots. Premium growth is steady, year-to-date sales remain positive. U.S. group persistency is attractive and capital deployment remains on plan.

We also continue to make meaningful progress derisking the Closed Block. While we saw elevated benefits experience in Group Insurance and International, we are monitoring and responding to the specific dynamics in each business, and we'll continue to adjust our approach as the experience develops.

At the same time, we continue to see evidence across our business that the investments we've made in our people, technology and processes are resonating with customers. We believe we have a clear path to value creation through continued execution of our plan, and we are confident in the strength of the franchise, the durability of our capital generation and our ability to create long-term value.

And with that, let me turn it over to Steve.

Steven Zabel

Great. Thank you, Rick, and good morning, everyone. As Rick described, third quarter after-tax adjusted operating earnings per share were $2.20 per share, including a $0.33 contribution from notable items compared with $2.81 last year, which included a $0.75 contribution from notable items. From a top line perspective, results sustain the positive trends we've seen all year, and we are well positioned to meet our 4% to 7% full year outlook.

We continue to see strong levels of persistency in our U.S. group businesses, which increased nearly 2 points year-over-year and helped drive core operations premium to increase 4.7%.

Our annual reserve assumption review completed in the third quarter resulted in an overall net decrease in reserves of $28.7 million pretax across our product lines, including the Closed Block, compared to a net increase in reserves of $478.5 million in the prior year.

In our core businesses, the impact of the assumption review was favorable with reserve releases totaling $83.7 million pretax. This compares to the pretax decrease in reserves in our core businesses of $162 million in 2025. The reserve assumption update in the Closed Block drove a $55 million increase in reserves, reflecting higher incidence and lower mortality expectations, partially offset by favorability from the continuing rate increase program.

The vast majority of this reserve strengthening was ceded as part of the reinsurance transaction that closed yesterday with only $9.5 million remaining in the retained block.

Then moving to segment results. Unum US adjusted operating income was $315.3 million, including $51 million in notable items. Apart from these items, earnings were lower year-over-year, reflecting the dynamics noted in group disability and Group Life, partially offset by solid performance in supplemental and voluntary. Group disability's adjusted operating earnings of $94.8 million declined from the prior year and included $28.6 million in notable items.

Excluding these items, the benefit ratio was 70.6% compared with 61.3% a year ago. This quarter's results reflects long-term disability submissions that were higher than our expectations with approximately 5 points of pressure and elevated short-term disability, including PFML with approximately 2 points of pressure. While the trend in PFML was largely expected, the increase in LTD submissions was not.

As Rick mentioned, we are not ready to conclude if these trends will continue, but we would call out a few considerations around them.

First, the related impacts of higher LTD incidence across group disability and Group Life and AD&D emerged in the third quarter rather than throughout the year.

Second, the increase we've seen is in claim submissions, which do not necessarily translate into paid claims. Most notably, the behavioral health claims driving the increase in LTD tend to rise along with certain other claim types during periods of labor market uncertainty. All things considered, we remain cautious about the increase in submissions this quarter and are prepared to take further corrective action if these trends persist.

At the same time, we continue to see favorable underlying recovery trends, which have supported our strong results over the last few years, and we are confident in a long-term benefit ratio of around 65% for our group disability business.

The increase in disability submissions also had a related impact on Group Life. Group Life and AD&D adjusted operating income was $78.2 million, including $5 million in notable items. The benefit ratio was 69.7%, excluding the notable items, with nearly 3 points driven by waiver premium experience where premiums are waived while a group life insured is on a disability claim.

Beyond this related impact from disability claim submissions, underlying life incidence continues to reflect the favorable mortality trends we've experienced recently. Together, when excluding notable items, total group benefits generated a benefit ratio of 70.3%. While this result is higher than our expectations, nearly 8 points of it was attributable to the impacts across group disability and life related to submitted LTD incidence and PFML, which we are actively managing and repricing.

Our Unum US supplemental and voluntary lines generated adjusted operating income of $142.3 million, which includes $17.4 million of notable items.

Apart from these items, underlying results were squarely within our outlook range with a benefit ratio of 49%, driven by favorable claims experience in individual disability and dental. Then wrapping up the discussion on Unum US, premium and sales were within our outlook range. Unum US premium grew 5.2%, supported by strong sales in prior periods and healthy persistency in our group product lines.

Third quarter sales declined 8.5%, mainly on lower group large case sales. The third quarter is typically our smallest sales quarter and year-to-date sales have grown 8.6%.

International adjusted operating income was $0.2 million, which included $27.3 million of notable items. Excluding the notable items, the benefit ratio was 76.9% compared with 71.3% in the prior year, driven primarily by the U.K. product lines.

Unum UK reported a loss of GBP 1.4 million, including approximately GBP 18.6 million of notable items. Without these items, the U.K. benefit ratio was 80.5% compared with 73.8% a year ago, driven by a higher number of submitted claims in group income protection.

Regarding premium growth, U.K. premium grew 3.5% and Poland premium grew 10%. As we discussed in the second quarter, we are taking thoughtful pricing and underwriting actions to restore the business to its target profitability. While these actions will affect near-term sales and persistency, they will ultimately position the business for long-term success.

So Colonial Life adjusted operating income was $169.4 million, including $42.5 million of notable items. After adjusting for those items, earnings were also higher year-over-year. Driving these improved earnings, the benefit ratio, excluding notable items, was 47% compared to 48.2% a year ago, driven primarily by lower cancer claims.

This is a continuation of the strong benefit trends that Colonial has exhibited all year. In addition to the strong margin trends, Colonial's top line also continues to exhibit strength and growing momentum.

Sales in the quarter increased 6.4%, bringing year-to-date sales growth to 4.7%, which compares to 2.8% a year ago. With this, premium grew 3% and is positioned to meet its full year premium growth outlook of 2% to 4% with year-to-date premium growth of 3.2%.

Finally, the Corporate segment produced an adjusted operating loss of $45.7 million and was within our expectation of a loss in the mid- to upper $40 million range.

Before turning to the Closed Block, I'd like to address our full year outlook. We have revised our definition of after-tax adjusted operating income based on discussions with the staff of the Securities and Exchange Commission during an ongoing comment letter process regarding our use of non-GAAP financial measures.

The revision does not impact our GAAP net income. As a result, our full year 2026 after-tax adjusted operating earnings per share will now reflect the impact of our annual assumption review. Incorporating the annual assumption review and refinements, our results through the first 3 quarters and our fourth quarter expectations for the core segments, we now expect full year 2026 after-tax adjusted operating earnings per share of $8.30 to $8.50, which includes approximately $0.33 from notable items.

I'll now turn to the Closed Block. As Rick mentioned, we have successfully closed our second external LTC reinsurance transaction, ceding $3.8 billion of statutory reserves to Fortitude Re at a 12% net cost relative to our best estimate reserves.

This cost is consistent with our previous transaction and reflects the economic benefits we realized from the transaction, including the required capital release and tax benefits. Through the transaction, we have meaningfully reduced exposure to LTC reserves and materially improved the risk profile of the remaining LTC block. Paired with the first transaction last year, we have reduced our LTC exposure by over 40%.

The upfront loss associated with the transaction will be amortized and reported within the Closed Block GAAP results, consistent with prior transactions. With the transaction now closed, we expect increasing amounts of non-contemporaneous reinsurance impacts, reflecting the ongoing recognition of earnings associated with the reinsurance transactions completed both in prior periods rather than current period operating performance.

The earnings impacts from both the amortization of upfront costs and non-contemporaneous reinsurance impacts are expected to be approximately $30 million to $40 million per quarter. Combining that with our prior Closed Block reinsurance transactions, the total impact from these items is expected to be approximately $90 million to $100 million per quarter initially and then will gradually decline over time.

Our third quarter GAAP result includes an impairment loss of $744 million on assets identified for transfer in the transaction, reflecting the difference between their amortized cost and fair value. This impairment and the other GAAP impacts associated with the transaction were contemplated in our original evaluation and signing and do not change the overall transaction economics that we described at announcement, which remain intact through closing.

Outside of the transaction, Closed Block earnings remain volatile, largely reflecting employers continuing to terminate group LTC coverage. In the third quarter, approximately 150 employers made this choice and closed their cases. This year alone, these terminations have reduced our group LTC case exposure by 14%. The net premium ratio increased 30 basis points sequentially from the second quarter to 98.1%, with most of the increase driven by group case terminations.

Other key indicators that we monitor for the health of the block remain solid. Fairwind protections stand at approximately $2 billion following the closing of the LTC reinsurance transaction.

We have now achieved over 25% of our current rate increase program with over $100 million of GPV approved this quarter. The alternative investment portfolio that primarily supports LTC generated an annualized yield of 10.1%, above our long-term expectation of 8% to 10%.

I'll end by covering our robust capital position. Holding company liquidity stood at $1.4 billion and traditional RBC at 485%. We remain on track to end the year within our full year outlook of 400% to 425% RBC and $1.5 billion to $2 billion of holding company liquidity. Our robust capital position is supported by statutory after-tax operating income of $298.7 million in the third quarter when adjusting for the effects of preparations for the reinsurance transaction.

Our year-end capital expectations remain unchanged. We continue to expect to finish the year within our stated ranges for both RBC and holding company liquidity, and we are generating capital as expected from our strong businesses.

Finally, during the third quarter, we repurchased approximately $200 million of stock. Paired with our common stock dividend, capital return to shareholders was approximately $280 million in the quarter, bringing our year-to-date deployment to over $1 billion. This positions us well to end the year at our goal of returning $1.3 billion to shareholders through dividends and share repurchases.

I will now turn it back to Rick for his closing comments before we move to your questions.

Richard McKenney

Thank you, Steve. This quarter's earnings shortfall does not diminish our confidence in the underlying franchise with growth, persistency and capital generation intact. Monitoring and understanding the increase in U.S. disability claims submissions remains a priority and emerging experience will guide where and how we respond.

We continue to strengthen the profile of the Closed Block through completed reinsurance transactions and ongoing actions across the retained business. Overall, we remain confident in our business and our ability to create long-term value.

And with that, let me turn the call over to Jordan, we're ready for your questions.

Operator

[Operator Instructions] Your first question comes from the line of Ryan Krueger from KBW.

分析师问答

Ryan Krueger

I have, I guess, a multipart question on the LTD incidence. Hoping to get more details on when it started? Has it continued through October? Is there a concentration in any particular industries or job types?

And then can you just give more, any more detail on what, on the behavioral health component of all this? Is that the vast majority of the 500 basis point adverse impact? Or are there other things going on as well?

Richard McKenney

Good. Thanks for the multipart question there, Ryan. We do need to step back a little bit and look at the strength of the franchise overall. Strong business built on serving customers well and delivering products and capabilities for employers and their employees. We have managed through periods of elevated submissions before and the circumstances are never exactly the same, but we have a deep understanding of this business and the capabilities to respond as conditions evolve.

And we are a company of discipline. And so you'll hear more as we go through that. And we can start to unpack. You have a multipart question, a lot of dimensions to it, and I'll turn it over to Steve to start to do that.

Steven Zabel

Yes. Great. Thanks, Rick. And yes, as we described earlier, third quarter, we did see a sharp increase in submitted long-term disability claims. And I think it's good to ground a little bit on just what our reserving process looks like. And when we, when a claim is submitted, we set up the reserve based on just historical experience, the probability of what type of claim it is, the probability that it will actually go to payment.

And then we go through an adjudication process on that claim. And when we prove that it is valid, we pay it, and we adjust the reserve accordingly if that's appropriate to do.

So I'll take us back to the beginning of the year. We originally had an outlook coming into the year for our benefit ratio of 62% to 64%. And in the first 2 quarters, we did see pressure in our short-term disability and PFML business. That drove about 2 percentage points of pressure on the loss ratio with some other puts and takes.

But what we did see also was recoveries continued in LTD at the rate that we would have expected. We saw a little bit of volatility in incidence there, but really nothing that was beyond our expectation. Then we come into the third quarter, and we saw the following.

First of all, STD and PFML experience was really consistent with the first 2 quarters, and it did pressure earnings by about the same 2 percentage points. Our pricing strategy to address is already in motion, and that is out there with our clients already. That's mostly annual renewable business. So work is underway there.

What we saw that was different was our long-term disability claim submissions created about another 5% of additional pressure on the loss ratio. And just to size it up a little bit, that's approximately a 10% increase in submitted claims above what our expectations would have been for the period.

This increase was focused on behavioral health type claims, and that's really a subset of claim types that we've seen that may fluctuate when you have different market uncertainties out there, whether it's economic or labor related.

What we've seen in prior cycles, we've seen an increase in environmentally sensitive claim type submissions. That doesn't necessarily translate to an increase in paid claims ultimately, but we have to monitor that. We have to take it through the adjudication process, and that will take some time, which Chris can talk about.

What we have seen, though, is really pretty decent stability in the employment levels within our in-force block. And I think that would mirror what you're seeing out there in the environment just around unemployment. And so we're thoughtful about that, but we really continue to see pretty good strength in the labor markets.

What I would say is every cycle can be different. Historically, when we've seen this type of spike, it does resolve over time, but it's unclear what that's going to look like this time, and we're just going to have to monitor it. The other thing that I'll hit on, Ryan, that you asked is just about the trend.

And I'll just ground a little bit with every quarter, we can see intra-period volatility. So not every month looks the same. And so incidence can bounce around a little bit on this. I guess what I'd say is year-to-date through second quarter, submissions were pretty much right at our expectations. So this was definitely a third quarter change in the volumes.

The other, I think, to mention on this is LTD claims volumes, they're much lower than some of our more high-volume claims like short-term disability. So they can be a little bit volatile.

So what I would say is during the quarter in third quarter, we saw this elevated size of claims. As we go into the fourth quarter, it will be volatile there, too. What I'll say what we've seen so far, it hasn't reverted to lower levels. But I'd also say it's very early in the quarter.

And we have seen these types of claims have a lot of volatility within a quarter. So we'll just have to see how the quarter plays out, and then we'll evaluate it.

But maybe I'll turn it over to Chris to talk about the actions we're taking and more broadly, how you think about the process of adjudicating these types of claims and what that looks from a business process perspective.

Christopher Pyne

Yes. Thanks, Ryan. And to build on Rick and Steve's comments, when you think about our response, it really does call on things we do very well and have done for a long time.

One is we've got know-how around claims management. We've got a very thoughtful process around price. And we have those long-term relationships with customers where they understand the combination of services we provide for them and the need to make sure we're setting fair and stable prices over time.

So when experience emerges, like it did with STD and PFML, we're very clear with the data. We're very out in front of it as we have been already this year. And we will be talking about the long-term disability experience and what we're seeing.

Inside of the claim operation, which is important, we have some very deeply specialized teams, I think doctors and nurses in addition to other members of the claims organization who have real expertise in these areas. Behavioral health is something that's been a reality of our business for a long time, and we're very well staffed to make sure that we can go through the process that is appropriate for these claims. It takes expertise to work them through, and it's very important to us that we don't shortcut those processes.

We do all the work relative to restriction and limitation evaluation, conducting the appropriate medical research, giving guidance toward return to work possibilities. The contracts do have limitations on how long behavioral health claims are paid, but we're working them well in advance of that.

So think about that as part of the durable model that we've used and we're deploying today. And then to Steve's point, we do think ahead toward the pricing element. What will we do for pricing? This experience gets feathered into the renewal cycle immediately, and we take it through.

A majority of our block is up for renewal every year. So we'll be talking to customers. We are in market talking to customers today, and we will continue to do that. And again, this is all part of the combination of things we do very well, combining claims management and appropriate go-forward pricing actions.

I think you did ask, part of your question was around are we seeing any specific industry or segment of the business. And I would step back and say this is more broad-based rather than coming from any one direct area. And we're going to approach it with a broad view looking to move the meter forward.

Operator

Your next question comes from the line of Alex Scott from Barclays.

Taylor Scott

I wanted to see if you could talk about just the dynamic with the elevated benefit ratio, paid family medical leaves in there as well, contributing some to that. And I just want to understand, as this potentially continues, but paid family medical leave begins to get maybe a little bit of relief quicker from pricing, what does that cause the benefit ratio to do as we get into 2027? If you could just help walk me through that a little bit and the timing would be helpful.

Steven Zabel

Yes, Alex, this is Steve. Maybe I'll just kind of talk about the math a little bit and how we're thinking about that, and then maybe Chris can hit on just pricing strategies. You're right. We've seen about a 2% elevation in benefit ratio throughout the year for the first 3 quarters around PFML and STD. The majority of that, vast majority of that is annual renewal.

So if you think about just an annual pricing cycle, our expectation is that we would get that business back to our expected pricing levels within that period. So that's much more shorter-term actions that we can take. And so that will feather in as we get into '27 throughout the year as we go through the renewal cycles. But maybe talk more about just how we think the market pricing.

Christopher Pyne

Yes. Thanks, Steve. Alex, there's no question, very data-driven PFML/STD type of renewals where you have highly credible loss ratios to show customers. They've seen the utilization in their own population. So they're not shocked when we're coming in showing the need for rate adjustment, generally speaking, up double digit.

That is kind of how we've been reflecting it. And we've been in those conversations with significant parts of the business already this year with 1/1 renewals and beyond. So you're exactly right. That plays through fairly quickly, and we'll be working that on a continued basis.

Long-term disability, again, this is the third quarter. This new experience is added into the experience review. We use a broader, a slightly broader kind of window for experience because of credibility on lower frequency type of products. We do try and reflect what the emerging experience is doing because I think that's the most important relative to how we set price going forward and customers want to know where it's headed.

Ultimately, the goal is stable pricing, very transparent for customers where experience matters for any time we have customers where we're talking about PFML, short-term disability, other leave services, the depth of the relationship and what we do for them, it makes it sort of is a true partnership where we want to get the price right as a kind of coordinated effort between our customers and us, and they're very receptive to these discussions.

Taylor Scott

Got it. That's all helpful. As a follow-up question, I wanted to ask on capital deployment and just to what degree all of this is going to potentially impact the redeployment of capital into things like buybacks.

And then maybe also if you could comment just around your strategic options more broadly in the way you're thinking about the business?

Richard McKenney

Yes. So when you think about the capital generation, capital deployment, as we've said for a long time, we've had a good, strong capital generation model. That continues. You saw that even in this quarter, continued strong capital generation. And so that gives us flexibility to what we're doing.

As we've talked about utilization of that capital, I think we've been very consistent in terms of what we want to do is put it back into our business, growing the business and the kind of growth rates that we've seen, how can we continue those with the right investments in our business that can come organically.

It can come inorganically, too, with some capabilities that we have out there. And then ultimately, what we've done over the course of this year, we kind of set in the range of redeploying capital to shareholders at about the level of which we're generating. And so this year, $1.3 billion, still very much intact.

And as we look to the future, we'll have to look at what our overall capital plans are, but we think that's still a good mode for our shareholders to sit with a good excess capital position we have today and then return back which we're earning in the future. And I think that will continue, Alex.

I think you had a question, I think we're on our fourth question with Alex. So we got to make sure we get through the queue here a little faster. I think Alex as well, strategically, how we continue to think about it is our strategy is very much intact. And so we're not distracted, although we're focused on it, but we're not distracted by a quarter's event.

We know how to run this business. We like this business very much, how it's placed, how it's positioned. Our ability to reprice is a real plus. And we'll manage through that period of time, but our strategic priorities remain the same.

Operator

Your next question comes from the line of Tom Gallagher from Evercore ISI.

Thomas Gallagher

First question is, so the 70.6% loss ratio you guys have emphasized that's based on claim submissions, not necessarily claim payments. How, help us think through what does that practically mean? So you've seen, I think, a 10% surge in submitted claims.

Do you, does it take a while to work through the inventory to determine what's a claim that gets approved? Do you initially put up a pick just based on submissions and then it needs to season? Like what does the 70.6% mean, I guess? Is it also a reasonable estimate for what will be approved? Or is there still some uncertainty in that relative to the 70.6%?

Steven Zabel

Yes. Tom, it's Steve. I'll talk to you just about how the reserving methodology works. And then maybe Chris can hit just on kind of timing of adjudication and how long that takes to work its way through. So when we get a claim submission, we mark it up, we have diagnosis, different things that are attributes of the claim itself.

And so we'll set up the reserve initially based upon those factors as well as probability that it will go to pay. So we do take that into account what we think the probability that it will ultimately pay when we set up the reserve to begin with.

Now that is an estimate based on historical experience and the actual kind of acceptance of that claim can differ over time. And what we've seen historically, and this isn't a forward-looking statement, but what we've seen historically when we have surges like this for these types of claims is sometimes the acceptance of those claims are a little bit lower and not as many of them may go to paid.

But we have to see every situation, every cycle is going to be different. And so we'll just have to see how that plays out. And then, Chris, maybe you can just hit on kind of timing and what the cycle looks like.

Christopher Pyne

Yes. Tom, I think it's important to think about, and maybe I'll just break it apart between short-term disability and long-term disability frequency. On short-term disability, claims are paid relatively quickly. There's, decisions are made with the information that we need and we proceed and manage the claim.

Long-term disability slows down a bit. And I think it's important to note when we get a claim in, volumes are significantly lower. There are multiple layers of discussion. Again, using specialized medical, are you getting appropriate care? Are we talking to the right type of doctor? Do we really understand the ongoing restrictions and limitations, which means you have to understand the occupation that the person is doing, what they're required to do, what the options are.

And we measure that more in weeks than in days and hours. And so that's an ongoing process. And we certainly want to move expeditiously, but we want to make sure we do our full review. And I think that's very important. We've got a very strong history of making sure that we communicate well with claimants.

We communicate very well with their medical team. We understand what their employers' needs are and the occupation and then we arrive at a claim at the right time. And that's, I think, the process we're in right now.

Thomas Gallagher

Got you. And then Steve, the, so the 70 you said you've seen in the past when it's economically sensitive claims like this that there has been somewhat of a lower approval rate. Is that what the 70.6% contemplates? Like are you assuming a lower approval rate on this 10% increase? Or are you assuming a normal and then there could be, I don't want to, I'm not trying to ask are you in a favorable development on these, but I just want to understand what's in that 70.6% number.

Is that, does that contemplate the historic, when you see a surge, you have had lower approval rates. Is that in that number already?

Steven Zabel

Yes, Tom, I'll just answer that factually because you're right. I don't want to give any kind of guidance how this is necessarily going to play out. But we do use just kind of our normal acceptance rate that you would see during normal levels of submissions.

Thomas Gallagher

Got it. So you've not assumed, we'll call it, favorability at all on the lower acceptance rates on this particular moment?

Steven Zabel

Yes. That's right.

Operator

Your next question comes from the line of Joel Hurwitz from Dowling & Partners.

Joel Hurwitz

Just a quick follow-up on Tom's question. I guess, is there any early color on how the rate of these submitted claims moving to paid compares to your expectations?

Steven Zabel

Yes, it's probably premature to give any sort of guidance on that. Like Chris said, it takes time to work this through the system. We'll know more as we get into the fourth quarter.

Joel Hurwitz

Okay. And then I guess, at this time, are you able to contemplate the spike in LTD claims and pricing for 1/1/27? Or do you still anticipate that renewals will reflect some of the rate concessions that you've talked about in the past?

Christopher Pyne

Yes, Joel, thanks. And it's a good point if I were to step back and say that we have had some very favorable group disability years, and you've seen and we've communicated that there has been appropriate rate reduction if experience was really good for customers, and we've shared that. That's actually a great setup for kind of where we are today, where we can go back to customers and say, new experience dictates a new pricing action, and we have the credibility to go and get those rates, that in combination with the work we do.

We're talking to customers all the time. I've touched on the fact that short-term disability and PFML discussions have been happening very directly, and that's been happening all year. Long-term disability is always part of that conversation. We generally have a bundle of products. Larger cases, there is a timing where larger cases for 1/1 negotiations did start earlier in the year, and we still kind of communicate all the way through with them.

Smaller cases are still in discussion right now. So that end of the block is still being kind of negotiated. So that's open for kind of current experience. And I will say just maybe as an addendum, there is always a significant majority of our block that is outside of rate guarantee. So we'll be actively working that through as effective dates come up beyond 1/1. So it's not like 1/1 is a cliff and nothing else is in play.

Operator

Your next question comes from the line of Mike Ward from UBS.

Michael Ward

I guess I just wanted to dig in a little bit, like is there any sort of demographic or firm level kind of layer we can think about it through? Like is it -- are you seeing the long-term disability claim submissions at tech firms? Or is it younger employees facing burnout? Like I'm just hoping you can help us understand it on the ground a little bit better.

Christopher Pyne

Yes, Mike, it's Chris. We are -- of course, we're keen into all the different ways we cut the block and segments. And I think it's appropriate to say at this point, any differences between size segment or industry or region are subtle enough that they really aren't telling.

And I think right now, we're approaching it as there's claim activity in the market, let's do our job and kind of keep focused on the elements that require claims management and the other elements that require pricing.

Michael Ward

Okay. And then on the strategic interest sort of topic, just to flip it around a little bit. So there's growing discussion across the market around pent-up M&A across the sector. And Unum, I think, is pretty clearly that much cleaner because of all of your efforts but I do think a lot of people are sort of curious if this thought process makes sense and if we should include Unum in this debate. And so curious if you can opine on that and if you have had any credible strategic inbound interest.

Richard McKenney

Yes. I think, Mike, I just said very clearly that we would not speculate on anything like that. I would say that when we think about running our business, this is about growing the franchise, generating good returns and making sure that we're building the value for our shareholders across the board.

At the same time, we're also a company and our Board of Directors. We do -- we run the company well. I mentioned discipline that goes right along with corporate governance and everything that we do that we've been known for. We continue to pursue those paths. But that's as much as I'd say about that. This is about us this conversation today is about us building a really good -- or continuing to develop a really good franchise.

Operator

Your next question comes from the line of Wes Carmichael from Wells Fargo.

Wesley Carmichael

Steve, I think in your prepared remarks, you mentioned that you're confident in the long-term benefit ratio for group disability in the 65% range. It sounds like there's going to be some pricing actions taken, but also there's some near-term elevated claims submissions. So I'm just wondering how long you think it takes back to get around to that 65%.

Steven Zabel

Yes. There's a couple of different paths that this goes down. I would say, the spike that we've seen right now in claim submissions, we don't know how quickly that's going to resolve. We've seen different cycles in the past and just different timeliness of how those surges might come and then abate. So we have to see how that plays out. And that will influence, obviously, the performance of the block, what that looks like.

But then also from a pricing perspective, I think Chris hit on it, just we're able to get after this fairly quickly. And so when we talk about 65% loss ratio, we still do feel confident. Like we think that, that's the right level of underwriting margin for the franchise that we have, and that will be our pricing strategy to hit those levels. The timing of how that plays through, we're after it now.

Chris mentioned, we have a lot of renewals that we're able to go after on an annual basis. We will do that as appropriate. And so we would hope to do that in the medium term. But we'll just have to see how the experience plays out, just what the timing of that may be, whether it's kind of resolution of the spike or it's pricing or it's a combination of both.

Wesley Carmichael

Got it. And I just wanted to follow up on the group life and AD&D impact from the disability submission. Can you maybe just walk us through just a little bit of the mechanics of how that works? I mean I think I understand that if somebody goes out on disability, they're not paying a premium and you'll establish a reserve for that. But I just wanted to know, is that -- do you expect that to kind of continue that 3-point or so impact into the fourth quarter as well?

Steven Zabel

Yes. Again, it will depend on what the new submissions look like. And it is directly related to when we get a submission in for long-term disability and we also have a group life policy, we do immediately, in essence, waive premiums for that period of time that they're on disability.

And we set up a reserve for that of what the expected death benefit may be on that. And that can be both from integrated policies where we have the group disability coverage. It can also be where they may have that coverage somewhere else, and we're notified of that.

And so what we find is it flows relatively consistent with the flow of the submissions themselves. And we did see that a little bit when we saw the trends historically with our claim terminations increasing over time, where during that period of time, it wasn't as acute, but we were releasing waiver of premium on life at the same time. And if you go back and kind of check some of the comments that we've made, we have referred to that as well. So it works both ways.

Operator

Your next question comes from the line of Suneet Kamath from Jefferies.

Suneet Kamath

At the risk of being the devil's advocate here, I just wanted to ask a question around timing. Why wouldn't this -- if this claims trend stays the way it is, why wouldn't it take years to fix?

And the reason I ask is because when the benefit ratios were actually lower, you guys were saying, well, we can hang on to this extra margin for a while because it takes a while for the business to reprice because it doesn't always come up for renewal and all of those things, which I think were positive.

But now that we're on the other side of this, it sort of seems like you're telling a story where you can fix it relatively quickly. And so I just want to make sure I'm not misunderstanding that. I'm just curious about your comments there.

Richard McKenney

Yes, Suneet, let me just start and say when we were talking about the margin that we're getting and how we're able to hang on to it. I mean part of that was actually the competitive dynamics and the capabilities we deliver to our customers. And so we said from that perspective, relative to the rest of the competition, we feel like we could hang on to it. This is a very different dynamic. And so what we're dealing with here as it's increased is a customer-driven submit.

It's not competitive dynamics. It's not our ability to adjudicate the claims or the knowledge about these customers. And that's why it's different. And so the pricing process here is different as well as we continue to reflect that.

And Chris, maybe you can talk a little bit about that in terms of how we can increase price differently than we talked about before.

Christopher Pyne

Yes. Suneet, there's no question that if I were to go back to that price stability desire for most of our customers, as you reflect on some of the good experience we had, and we would talk about kind of bringing rate down appropriately, the pressure on the way down is such that you don't have to go right to rock bottom because the desire is that they hold a more consistent kind of outlook going forward.

So our discussions are, geez, here's where it's running. It's running really well. We think the prudent thing would be to take a little bit off the top for you, but not go all the way down. So that would have been the kind of maintain those strong margins for a period of time and hopefully give employers the stability they need.

On the flip, though, we do have now experienced data that says that the price needs to be different, and we will go and reflect back to a place where this is what we need, and we're doing a lot of services for you. We're providing great cover. We're providing the right level of long-term disability as well as some of the things we're doing around leave services and connecting HCM, but this is the price we need to run that.

And that's part of the discussion and negotiation to get the right levels of pricing going forward. So they do operate a little bit differently depending on the circumstance.

Suneet Kamath

Got it. That makes sense. And then my second question or maybe it's more of a comment on this whole long-term 65% benefit ratio thing. I don't know how helpful it is to have that out there because when you first gave it, I think you said it was going to take a couple of years to get there.

And I think it took a couple of quarters, and now we're well above it without a real sense of when we could get back there. And as I've talked to investors about that, I think providing ranges as opposed to this line in the sand, given that there is uncertainty in this business might be a better way to go. But that's just my initial thought when I heard that comment in your prepared remarks. I don't know if you want to comment on that or not, but I just wanted to mention it.

Steven Zabel

Yes, I can. I mean, clearly, Suneet, when we came into the year, we did think that was very consistent with what we saw in the experience and very consistent with what our pricing strategy was. So we did know, as Chris said, that we were going to have to give some price back.

And so we thought that, that was a very reasonable target to set and where we wanted to run the business. What's happened this year with some of the claim submission dynamics, it was obviously unforeseen. And so we still feel committed that, that's the right place to run the business over the long term. But we're going to have to roll up our sleeves and take some action for us to get to that point, and we're prepared to do that.

Operator

The next question comes from the line of Maxwell Fritscher from Truist.

Maxwell Fritscher

I'm calling in for Mark Hughes. Is there any part of the higher incidence in the U.K. being driven by similar behavioral health type claims that you're seeing in the U.S.? I know you had called out the group income protection, but any similar dynamic in the U.K.?

Richard McKenney

Mark, do you want to take that?

Mark Till

I didn't quite hear the first part. Was it about?

Richard McKenney

Yes, the question was similar -- are there similar dynamics around behavioral health that we're seeing in the U.K. as well. So maybe just talk about the dynamics that you are seeing in the U.K. and...

Mark Till

Yes, sorry. I heard the word expense at the beginning. That was why I was just slightly -- you're entirely right. We have -- probably behavioral health has been the biggest increase in claims submission in the U.K. So we have -- on that basis, we have a similar profile -- but also, we have been having this for probably a little bit longer than the U.S. business.

So we've been able to see as that works through the claims funnel and into admitted and claims. And actually, not that many of behavioral health claims in the U.K. turn into admitted claims, but it is a different environment in the U.K. than it is in the U.S.

Richard McKenney

Yes. And I would just say, as we talk about -- we talked about the U.K. earlier. So the U.K. has been taking price earlier as well. And so I think they're maybe a little bit ahead of the U.S. business, but it's the same process, and it's the same mentality we have in the U.K. relative to what we're seeing in the market and then how do we address it.

Maxwell Fritscher

Got it. And then you had mentioned -- going off that, you mentioned no changes in the competitive environment. And I believe you were referencing the U.S., but -- and if that is the case, and what are your observations around the competitive environment in the U.K.? And would you also say that it's steady state there?

Mark Till

Yes. The competitive environment in the U.K. has remained pretty consistent over the last few years. Sorry, forgive me, I got slightly disturbed at the door of the room that I happened to be in. That threw me slightly. Sorry, the market is -- market has been consistent in the U.K. We have seen claims -- we have seen the claims profile change in the last little while, but the behaviors of the competitors is pretty consistent.

We continue to be a disciplined price of business in the market. And so we respond to the claims situation that we see. We pass price on where that's appropriate and where we think it's sustainable, and we continue to compete for business where we consider the margins to be attractive.

Operator

Your next question comes from the line of Josh Shanker from Bank of America.

Joshua Shanker

When you think about giving value to customers in a higher interest rate environment, what is the right price or right ratios on the benefit to be targeting in the U.S. for the business? I realize this was -- there were unforeseen claims, but the margins are still very, very good in the business, certainly over a trailing 12-month basis.

When you think about the right margins to target that balance the needs of customers and the needs of shareholders equally, what is the appropriate sort of range that the company should be targeting on the benefit ratio and disability?

Christopher Pyne

Yes, Josh, it's Chris. Thanks for the question. We do talk about value we create for customers all the time, and it's, quite frankly, the focus of what we do. We want to be a very valuable partner, both in terms of the financial cover we provide to the covered employees, but also helping employers run their businesses, providing robust leave management services, tying into their human capital management program, mixing bundles of products that have employer and employee paid options so that people can get the coverage that's appropriate for them.

I would say depending on the services we provide, the range of profit expectation on every customer does vary. And when we're deeply engaged in what more and more of our customers need around leave management and all the investments we've got to make in technology and all the investments we've got to make in people and process, we do feel like we should command a healthy margin that you're reflecting in what you see in the numbers.

And I think that gets into the financial stuff that Steve's outlined in terms of where we want to run the business going forward. But it is a value proposition as opposed to just a target margin.

Joshua Shanker

And in a 5% 10-year environment versus a 3% 10-year environment, how much more value can you create for the customer without alienating shareholders?

Steven Zabel

Yes. What I would say, the interest rate -- our pricing is less sensitive to interest rate on this product. There's not a very big balance sheet necessarily with these types of products. And so don't think about a lot of value creation from interest spreads on group products. So it's really about underwriting margin, and it's about expense management. Those are the 2 things that we have to be really good at, and that's how we're going to generate value.

Operator

Your next question comes from the line of Jack Matten from BMO.

Francis Matten

I wanted to follow up on the kind of the macro environment and how it's impacting your disability margins. I guess if we look at like headline unemployment still pretty low, and I think you even referenced some labor market strength earlier. I guess, given that, do you view there could be any risk of incidence remaining higher or even moving higher versus this quarter's levels if market conditions actually become more adverse? And just any thoughts on kind of that historical relationship that you've seen?

Richard McKenney

Yes. Thanks, Jack. Appreciate that. I think Steve mentioned it in some of his comments as well, which is the unemployment picture actually seems pretty good at the surface level in terms of where unemployment is. We see it in our own results in terms of our payrolls that we're covering are steady and things like that. And I think the question here is how much -- this is somebody that's submitting a claim because of something that's on their mind literally or an accident they may have had.

And so that's the thing that's hard to actually predict what that looks like. We can look to history. And so it's the only thing we can do is look to history where we've seen periods of submitted incidence increase and how those played out over time. But as we try to say, every scenario is a little bit different.

This one might be different as well. So it's really hard to correlate specifically what's happening in a macro environment to what we're seeing here. I think we'll look back at it and we'll probably have a better view. But as we look at it right now, it's very hard to use predictive analytics to help us tell us what that's going to look like.

Francis Matten

Got it. That's helpful. And then I guess just looking at the disability benefit ratio a little above 70%. I guess if you go back like many years, pre-pandemic times, it was in a similar ballpark. If we're like at a high level comparing the ratio today versus historically, are the underlying drivers that are really just higher incidences this quarter, offset by the better recovery experience you've had over time? Or are there other moving pieces you'd kind of call out if we're thinking about drivers over a longer-term perspective?

Steven Zabel

Yes, Jack, that's the exact way to look at it. I mean we still feel very confident in the strides we've made in being able to get people back to work over the last 10 years. Those are sustainable. Those are holding even through the volatility that we've seen with incidences so far this year, our recovery performance continues to be kind of historically best that we've seen in the block.

And you even see it demonstrated our confidence in the sustainability. We haven't really talked about the reserve assumption review, but we did release a little bit more reserve on our claim reserve for long-term disability due to our confidence in the level of recovery rates that we're seeing. So we view that as structural. We just need to work through what we've seen with the elevated incidence.

Operator

Your next question comes from the line of Wilma Burdis from Raymond James.

Wilma Jackson Burdis

I guess this is sort of more of a philosophical question maybe, but it seems like across pretty much every area that's exposed to health care trends, you're just seeing a lot higher costs, especially for mental health and really -- I mean, there's other factors as well.

But I think what you're kind of seeing is just because costs are so high, more costs are being pushed back on employees. I just -- and then some of these companies, it seems like their willingness to pay more is sort of declining a little bit. So how do you guys see this shaking out longer term? I don't know if you can really answer it, but any color you could give would help.

Richard McKenney

Yes. Well, I think it's more than just philosophical question. I mean it's a question of the business. We are at the employer. You talked about a number of dynamics. And some of those dynamics very much play in our favor in terms of our ability to work with employers to help them as they manage their workforce. But causal type things that you're talking about here, it's harder to see how those causal effects on what we're seeing specifically here.

But it is important that the workplace is a very dynamic time. The tools that we bring to help the employer, we think will certainly bear well for us over time. And that's what we're focused on today is continuing to build those good solid relationships with employers to help them through that period of time.

Steven Zabel

Yes. Wilma, the only thing I would add is I think it does help parts of our business where employers are thinking about their health care costs and going to more high deductible plans and passing more of the cost to employees.

Our voluntary benefit products are really engineered to help employees with that cost at a much lower cost to them on an individual basis. So I think it works well with the construct that's being created around health benefits themselves.

Wilma Jackson Burdis

And then very, very good progress really on the group LTC this year, first 3 quarters. I know that going into the 1/1 season is a big time where HRs are thinking about these products and what they want to do for 2027. Maybe give us a little bit more color on how you see that season playing out, what you're seeing for 4Q and what we can expect near term there?

Richard McKenney

Yes, certainly. I mean I think when you look at the group long-term care, the work that was done was a year ago, basically, where we said that we were going to stop taking new lives on group long-term care contracts. I think that's caused a lot of employers to look at what their situation is today. It's not dissociated either from the question you just asked around the cost. Employers are paying for this benefit for their employees, which they may or may not be utilizing.

And so I think seeing some of those terminations through the first 9 months have been good. I think it's a continuing conversation we're going to have with employers about what makes sense for them, and we'll have to see how that plays out.

I don't want to give any forecast for 4Q or even into next year. But this is going to be an ongoing discussion from here on in, in terms of why an employer is deciding to continue this type of product line where it's probably in their best interest not to.

Steven Zabel

Yes. And when we've talked about this in the past, it's not that -- one of the conversations we have now that we're not allowing new enrollees in is just kind of the equity or inequity of offering this coverage to part of an employee base and not all of an employee base, that's just going to grow larger and larger as a difference between that experience for an employee at a single employer as people leave companies and we are not insuring the new people coming into the company.

So I don't think it's not a 1-year cycle having those discussions because I think it will be kind of a greater and greater issue for employers when they think about just overall coverages for employees.

Wilma Jackson Burdis

If there's any chance I could sneak one more in.

Richard McKenney

No. Sorry, Wilma. We still have three or four more people we want to get in, so we'll have to come back to Wilma. I appreciate that. I apologize for the lateness of this, so

Operator

Your next question comes from the line of Bob Huang from Morgan Stanley.

Unknown Analyst

This is [ Ji ] I'm calling on behalf of Bob. We have a question on the group disability loss ratio. So could you help us frame the outlook for the loss ratio heading to 2027? I think based on the EPS guidance, like probably 4Q is going to have a similar trend as in the third quarter.

And I understand it's still like really early to forecast 2027 as you will have the pricing action and you're still monitoring the cases. But could you just give us some like upside or downside scenarios and like as the loss ratio on the pace that like PFML and STD might reset, just anything helpful.

Steven Zabel

Yes. I would say we're not going to comment on '27 at this point. We'll know more as we get through the fourth quarter and we go into our outlook meeting, which we'll talk about in the first quarter of next year. I will say, in our outlook, we have assumed earnings levels overall very consistent with the third quarter.

And so the implication there is the benefit ratios for the various lines, we think will be pretty consistent, what we're seeing right now in the fourth quarter from what we've seen in the third quarter. But beyond that, we're not going to give any other kind of forward-looking guidance at this point.

Unknown Analyst

Okay. Understood. And the second question is like do you view the elevated LTD claim trend as like a cyclical trend, like a normalization following you probably have a lower claims in the past few years? Or do you think this is like more structure reflecting the changes like in workplace behavior, mental health?

Richard McKenney

Yes. I would just say it's hard to actually predict whether it's cyclical or not. We're just telling you where we are right now relative to that. And it is elevated, but it's -- we'll have to work our way through when we talk about what this looks like. I think cycles are hard to look at when you're going through it, I think cycles are things you'll look back on. So -- but where we are right now is kind of what we talked about throughout the call.

Operator

Your next question comes from the line of Tracy Benguigui from Wolfe Research.

Tracy Benguigui

A follow-up question on your reiteration of your long-term 65% disability benefit ratio target. Just on a mechanical standpoint, does the 2-year limit on behavioral claims versus a longer tail and physical type of LTD give you more confidence in getting your benefit ratio back on track? Or are these type of behavioral claims just too volatile where in a way, it does not matter how long the tail is?

Steven Zabel

Yes. How I would answer that, Tracy, is when we set up the initial reserve, we have a view of the type of claim it is. And so we're going to set that claim reserve up, understanding what the duration is probably going to be. And so we take into account the limitations on behavioral health type claims. And so you might still have some variation in what the ultimate duration of that is, but that's taken into account kind of upfront.

Tracy Benguigui

Okay. Just a follow-up. It was good to see another 5% of group LTC cases closed. That was a tad higher than the second quarter. I'm just curious on a cadence perspective, was that a function of the timing of your annual letters that you sent out for your upcoming 1/1 renewals, reminding folks no longer -- you're no longer offering LTC policies to existing cases starting in February.

I'm just trying to figure out which period may be a bigger window to see those terminations in the third quarter or fourth quarter.

Richard McKenney

Yes. It's a good question, Tracy. I think these discussions with employers really go back a year, and they're ongoing. And so when they get to their decision point is perhaps less about the calendar and more about when they've made that conclusion for their own employee base.

So it's hard to look at any particular quarter and say that that's the window which we're going to see more. I'd just reiterate, we're very happy. 15% of our group long-term care cases have come off from that announcement. And so we'll look forward to that continuing.

And that's just part of the overall block management of our Closed Block. And so that's one element of it. We've been happy with the action that we took last year and the result that we've seen thus far.

Operator

Your final question comes from the line of Pablo Singzon from JPMorgan.

Pablo Singzon

I'll try to be quick. So assuming that some portion of these mental health claims convert to paid, whether it's a normal or surge adjusted level, what do the recovery curves on these claims look like? And do you think it will be accretive, neutral or dilutive to your favorable recovery trends overall, right? I think Tracy said mental health claims are capped at 2 years, but perhaps determining claim resolution is less objective than with physical injury claim.

Richard McKenney

I'm sorry, Pablo, I have to back you up. We only got about 1/4 of that question. So if you could just summarize the key points.

Pablo Singzon

Yes. It was just questions on recoveries in these mental health claims and whether or not you think the recoveries here expected to be accretive, neutral or dilutive to the overall favorable recovery trends for the book, right? And I think Tracy had said you're normally capped at 2 years, but perhaps determining claim resolution is less objective than with a physical injury claim.

Steven Zabel

Yes. I would go back to kind of how I answered, I think, Tracy's question. When we set up a reserve to begin with, we look at diagnosis and all those types of things, including the type of coverage that they have.

And we set up the original claim with the expectations that we have, including what the recovery rate may look like for that type of claim and therefore, what the duration of the claim is. So it's really hardwired in just our claim reserve calculation to begin with.

Pablo Singzon

Okay. And then second question is on PFML. How long does it normally take for claims utilization in the population to season? And I guess the genesis of the question is that if you look at some public data on PFML, say, like in New York, it seems like utilization is just increasing year-over-year as more covered insureds become more aware of the benefits available to them. So I guess the question is, what are you seeing in your books now? And can we potentially be in a multiyear repricing process here as the PFML book season?

Christopher Pyne

Yes, Pablo, it's Chris. I think PFML is it's in the short-term disability family relative to kind of that near-term limited benefit period. Different states have different rules. And obviously, where there are parts, which is the employee is healthy, but they're taking time that's compensated away from work for a variety of reasons.

There's been some maturation in the process that all goes into the experience. I would say we're watching it carefully, and I wouldn't draw any conclusions as to the future trends up relative to utilization. But we have been very close to it and set prices appropriately going forward as new states come on.

Operator

That concludes our question-and-answer session. I will now turn the call back to Rick McKenney for closing remarks.

Richard McKenney

Great. Thank you, Jordan, and I appreciate everybody sticking with us today. And obviously, a lot of details to get into. We'll be out there and available and look forward to coming opportunities in the next couple of months of the year to continue to have that discussion. So I appreciate you joining us. Appreciate your support, and that concludes the call for today.

Operator

That concludes today's meeting. You may now disconnect.