Good morning, and welcome to the Unum Group's First Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this conference [ph] is being recorded.
I would now like to turn the conference over to Tom White, Senior Vice President of Investor Relations. Please go ahead..
Great, thank you. Good morning, everyone and welcome to the first quarter 2021 earnings conference call for Unum. Our remarks today will include forward-looking statements, which are statements that are not of current or historical facts. As a result, actual results might differ materially from results suggested by these forward-looking statements.
Information concerning factors that could cause results to differ appears in our filings with the Securities and Exchange Commission, and are also located in the sections titled Cautionary Statement regarding forward-looking statements, and risk factors in our annual report on Form 10-K for the fiscal year ended December 31, 2020.
Our SEC filings can be found in the Investors section of our website. I’ll 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.
Yesterday afternoon, Unum reported first quarter 2021 net income of $153 million or $0.75 per diluted common share compared to $161 million or $0.79 per diluted common share in the first quarter of 2020.
Net income for the first quarter of 2021 included first the net after-tax loss from the second phase of the Closed Block individual disability reinsurance transaction of $56.7 million which is $0.27 per diluted common share.
Second, the after-tax amortization of the cost of reinsurance of $15.8 million which is $0.08 per diluted common share, and a net after-tax realized investment gain on the Company's investment portfolio, and this excludes the net realized investment gain associated with the reinsurance transaction of $13.5 million or $0.06 per diluted common share.
Net income in the first quarter of 2020 included a net after-tax realized investment loss of $113.1 million which is $0.56 per diluted common share.
So excluding these items, after-tax adjusted operating income in the first quarter of 2021 was $212 million or $1.04 per diluted common share compared to $274.1 million or $1.35 per diluted common share in the year ago quarter.
Participating in this morning's conference call are Unum's President and CEO, Richard McKenney; Chief Financial Officer, Steven Zabel; Chief Operating Officer, Mike Simonds and Tim Arnold, who Heads our Colonial Life and Voluntary Benefits business. I'd also like to introduce our new Head of the Unum International business, Mark Till.
Mark is an experienced leader in the insurance industry and we're very happy to have him here at Unum. And now, I'll turn the call over to Rick for his opening comments..
Thank you, Tom and good day everyone. Our first quarter results represent a solid start to 2021. With improving trends, we entered the second quarter with positive momentum and increasing optimism. We expect to see a strong second half recovery from the COVID-19 related pandemic.
It certainly has been a tumultuous period, but we believe we are well positioned both strategically and financially to return to our pre-pandemic levels of profitability and margins in the coming quarters.
Each quarter over the past year we've described had the COVID-19 pandemic and resulting economic impacts have influenced our operations and financial results across our business. Each quarter has had its own set of dynamics. This quarter was no different with the sharp increase in infections and deaths through the year end period.
We have seen rapid changes since that period of time, but nonetheless it has had an impact on the quarter. First COVID had significantly impacted mortality experienced in our Life Insurance businesses and generated higher volumes of short term disability claims, and leave requests at the workplace.
Additionally, the severe dislocations to the economy and national employment levels have dampened our premium growth by slower sales and regaining the natural growth we typically see in our in-force premium base. And finally, the downdraft in the financial markets last spring and the sharp decline in interest rates further pressured new money yields.
We expect each of these trends to turn. Throughout these challenging times, I've been proud of our employees who stepped up and successfully met our corporate purpose to help people thrive throughout life's moments. As we stand today, I'm confident that the challenges posed by COVID-19 and the 2020 recession are largely behind us.
I'm optimistic that while the pandemic certainly is not over, and we expect to see lingering effects into the second quarter, we will also see strong recovery in our results through the balance of 2021.
Coming back to our first quarter results, the core business continued to perform well generating solid sequential premium growth, continuous strong persistency and favorable benefits experience across most lives. The challenges from COVID continues to be well defined within our Life Insurance pipelines, primarily within Unum U.S. group life.
While the human loss from the pandemic continues to be heartbreaking for all of us, COVID-19 related mortality across the U.S. has been trending favorably on a weekly basis from peak levels in December and January.
Our own results mirror these week to week improving trends that you see in national statistics and we look forward to improved results in our life insurance lines beginning in the second quarter and accelerating further into the second half of 2021.
In addition to improving COVID-19 related trends for mortality and infection rates, we are very encouraged by the improving economic environment that is emerging.
The forecast of strong GDP growth in coming quarters, along with continued fiscal stimulus and further improvement in employment levels and wage growth, we are expecting both of those to be beneficial to the growth of our business.
Additionally, the improved interest rate environment and ongoing strength in the credit markets are all positives for us. We believe we are already beginning to see these benefits emerge in our results.
Most notable, the increase of 2.8% in premium income growth we experienced in our core business segments from the fourth quarter 2020 to the first quarter of 2021. This growth is reemerging due to continued strong persistency trends in our major product lines, along with the sales rebounded that has emerged in our U.S. employee benefit lines.
Combined with the stabilization and natural growth on our in-force Blocks as employment levels improve. We anticipate that this will accelerate though the year as sales momentum continues to build and economic growth reemerges as a tailwind for us.
I mentioned the improving trend that is evident in COVID related mortality, as infection rates also subside, we expect to see more favorable trends in our short-term disability and lead services line that have been adversely impacted over the past year.
In our other lines of business, we saw good results with the benefit experienced in the first quarter. Our voluntary benefits businesses for Unum U.S. and Colonial performed well this quarter. Outside of the impacts we felt at our life insurance exposures.
The recently issued individual disability line continued to show favorable benefits experience and we saw a very good recovery in our Unum UK results this quarter with strong performance in the group income protection, and group critical illness lines, offsetting adverse COVID related mortality there as well in the group level.
The benefits experience for our Unum U.S. long-term disability line was within our expectations and consistent with the trends over the past several quarters, that was up from the very favorable performance of the fourth quarter as we anticipated.
Finally, experience at our long-term care line remained quite favorable relative to our long-term expectations. Though we believe results in this line are beginning to trend back towards our long-term expected ranges.
A couple of thoughts on our investment portfolio, this is another area where we've seen meaningful improvement over the past several months.
For the first quarter's performance, our alternative asset portfolio has now fully recovered from the markdowns reported in the second quarter of last year, and on a solid path to generating the expected returns going forward.
We remain very pleased with the overall performance and quality of the portfolio, as currently seeing very few areas of credit concerns and an increased outlook for upgrades within the portfolio. Turning to our capital position, our strong position gives us significant financial flexibility to execute our growth plans going forward.
Our holding company cash position finished the quarter at $1.7 billion aided by the successful completion of Phase 2 of the Closed Disability Block Reinsurance Transaction. Risk based capital for our traditional U.S. insurance companies remained solidly above our targets at 370% and our leverage is down 3 points from a year ago.
As the pandemic winds down, we are evaluating alternatives on how to best utilize this capital position to drive growth in line with our strategy, as well as shareholder value. We expect to have more on that for you in the coming months.
As we look to enter an accelerated recovery period, an important area of differentiation for us in is the strong engagement we have we are continuing to have with our commercial markets.
That connection starts with a strong employee engagement and I continue to be very proud of the work our employees continue to do to provide excellent service to our customers, while we have navigated through this disruptive time. It is no surprise the strong employee engagement drives the strong claimant satisfaction scores we are seeing.
Additionally, I am very pleased to see the growing acceptance of the various digital capabilities we have invested in over the past several years. Recently we rolled out our new total leave offering, which will help employers and employees better manage the complex leave process.
We anticipate that these advanced tools and capabilities will help us further enhance our leadership position in the employee benefits market. And finally a couple of words on how we have focused on our culture at the company. Our purpose is clear in servicing the working world at the time of need.
It requires a foundation and strong values throughout the enterprise. We are proud to be recognized as one of the World's Most Ethical Companies designated by Ethisphere. You can see some of the great work at our newly launched ESG report on our websites. It adds to the totality of who we are at Unum.
Now I'll ask Steve to cover the details of the first quarter results.
Steve?.
Great, thank you, Rick and good morning everyone. In discussing Unum's first quarter financial results this morning, my remarks will primarily focus on analysis of our first quarter results relative to the fourth quarter of 2020, which will allow us to show how the company's business lines are progressing through the pandemic.
I'll start with the Unum U.S segment, which reported adjusted operating income for the first quarter of $15.7 million compared to $143.5 million in the fourth quarter.
As I'll describe in greater detail, these results were significantly impacted by COVID related mortality in our Group Life business line and Life Insurance line within the Voluntary Benefits business.
Beyond a significant mortality impact, we were pleased with the underlying performance of the rest of the businesses, particularly the 2.7% increase in premium income related to the fourth quarter. Starting with the Unum U.S.
Group Disability line, adjusted operating income for the first quarter was $64.1 million compared to $64.7 million in the fourth quarter of 2020. We were very pleased to see premium income increase by 3.5% compared to the fourth quarter with solid growth this quarter, very good persistence and natural growth stabilizing.
The benefit ratio was 74.8% compared to the very favorable 72.5% in the fourth quarter. As we expected, the first quarter benefit ratio was elevated due to the short-term disability line where we continue to see high COVID related claims driven by infection rates.
We continue to expect the annual group disability benefit ratio to run in the 73% or 74% range with some quarterly volatility. There are few other points to mention on group disability. First, net investment income was slightly higher in the first quarter largely driven by higher miscellaneous investment income.
Second, the expense ratio improved nicely declining to 28.4% in the first quarter from 30.4% in the fourth quarter. Some of this improvement related to timing of expenses, so the ratio is likely to move up slightly in future quarters, it will stay below the fourth quarter level.
We’re pleased with the improvement in the expense ratio this quarter as we balance making investments to further enhance our service capabilities with managing through the ongoing pressures on expenses from our lead services offerings related to COVID driven volumes. Adjusted operating income for Unum U.S.
Group life and AD&D continued to show the impact of COVID related mortality with a loss of $58.3 million in the first quarter compared to a loss of $21.9 million in the fourth quarter.
The change from to the fourth to the first quarter is largely explained by the national COVID related mortality trend, it showed an increase from approximately 145,000 nationwide observed deaths in the fourth quarter to approximately 200,000 in the first quarter.
Our 1% claims rule of thumb for Unum share of COVID related mortality did hold consistent in the quarter and we estimate that we incurred approximately 2050 COVID claims with an average claim size of approximately $50,000.
Non-COVID related mortality did not have a significant impact on results in the first quarter as while incidence was slightly higher on a seasonally adjusted basis was largely offset by a lower average claim size compared to the prior quarter.
Now looking ahead to the second quarter, national COVID mortality is trending favorably from the peak levels seen in December and January. Second quarter estimates of U.S. COVID related mortality are in the 50,000 to 60,000 range compared to the first quarter levels of approximately 200,000.
We are seeing this improving trend in our COVID claims experience as well. The magnitude of the decline is expected to drive a recovery in our Group Life results. However, the 1% rule of thumb that we have experienced throughout the pandemic is likely to change somewhat.
If the age distribution of mortality changes and it’s skewed more to younger people and away from the elderly population due to the vaccine rollout, we would expect to see a higher percentage of national claim counts and a higher average claim size.
Since working age policies tend to have higher policy amounts than retired and over aged 65 individuals, this does equate to an approximately $40 million impact to Group Life income from COVID related claims compared to over a $100 million in the first quarter.
In other words using these estimates, we would expect our Group Life earnings to improve by approximately $60 million from the first quarter to the second quarter to an approximately breakeven level of earnings in the second quarter. Now, shifting to the Unum U.S.
supplemental voluntary line we saw an improved quarter with adjusted operating income of $109.9 million in the first quarter compared to $100.7 million in the fourth quarter. Outside of the COVID related mortality impacts we saw on the Voluntary Benefits Life Insurance line, we were generally pleased with the trends we saw in this segment.
The Individual Disability line continues to generate favorable results with the benefit ratio of 42.4% in the first quarter compared to 42% in the fourth quarter and 52.1% in the year ago quarter, driven primarily by continued favorable incidence and mortality trends in the Block.
Benefits experienced for voluntary benefits excluding life insurance exposure, was generally in line with our expectations. Finally, utilization in the dental and vision line was higher this quarter pushing the benefit ratio to 73.2% in the first quarter compared to 65.4% in the fourth quarter.
Dental and Vision utilization has been volatile since the significant decline in utilization we experienced in the second quarter of 2020. Sales for Unum U.S. in total declined by 10.3% in the first quarter compared to the year ago quarter.
Within that sales increased 15.9% for the employee benefits lines which are FTD, LTD, Group Life and AD&D combined with a good mix of growth in both large case and core market business. This is consistent with our outlook at sales in our group employee benefit lines would recover more quickly than our Voluntary Benefits businesses.
We are currently seeing a good level of quote activity in the group markets, which has recovered to pre-pandemic levels. Recovery in the sales growth in the supplemental voluntary lines is slower, which is in line with our expectations.
Our recently issued individual disability sales were down 25.1% in the quarter coming up at strong pre-pandemic first quarter last year. Voluntary Benefit sales were down 21.5% in the quarter, which is consistent with our view that mid and larger case VB sales will take longer to recover.
Large case VB sales in particular, have a longer sales cycle and are more concentrated around January 1 effective days, so we wouldn’t expect to see growing momentum there until later in the year.
Finally, sales in Dental and Vision were 25.9% lower caused by the disruption in group sales resulting from discounts and other incentives, many carriers are providing the response to the unusually favorable claims trends seen in the second quarter of last year.
We are seeing a positive offset with higher persistency for Dental and Vision at 87.4% for the first quarter compared to 81.9% in the year ago first quarter. Persistency for our major product lines in Unum U.S. were in line to higher this quarter relative to the first quarter last year, giving us a good tailwind of premium growth for the full-year.
Now, let’s move on to Unum International segment where adjusted operating income for the first quarter showed a strong improvement to $26.4 million compared to $20.7 million in the fourth quarter last year.
A big driver of this improvement with improved results in the UK with adjusted operating income of £18.6 million in the first quarter compared to £15.4 million in the fourth quarter.
Benefits experience improved in the UK with strong performance in the Group Income Protection line due to improved claim recoveries and higher levels of mortalities, and we also experienced improved performance in the Group Critical Illness line.
This improvement offset adverse experience in the Group Life line, wasn’t resulting from a higher level of COVID related mortality.
Poland has seen adverse impacts from COVID on its results in the first quarter relative to the year ago quarter, but we are pleased with the growth we’re seeing in this business with growth in premium income of 11.7% on a year-over-year basis.
Although we are encouraged by the improved income in the International operations, we do remain cautious with our near-term outlook, as both the UK and Poland deal with COVID and related economic impacts.
Next, we are very pleased with the results generated by Colonial Life with adjusted operating income of $73.3 million in the first quarter compared to $71.2 million in the fourth quarter. This uptake was primarily driven by a slight improvement in the benefit ratio and a lower expense ratio.
The benefit ratio of 55.4% was slightly improved from 56.6% in the fourth quarter, but did remain higher than our historical trends due to the continued impact from COVID on our Life Insurance line.
Results in the Accident segments and Disability line, as well the Cancer and Critical Illness line were generally consistent with our long-term experience. Premium income for the first quarter picked up slightly from the fourth quarter increasing 1.8% primarily the result of favorable persistency trends.
We will need to see further recovery in new sales to rebuild premium growth back to the historic levels of 5% to 6%. We’re encouraged by the sales trends we saw in the first quarter for Colonial.
Although quarterly sales were down 9.2% year-over-year, that has sharply improved from the 31% cumulative decline we experienced for the last three quarters of 2020. We look forward to further improvement in sales momentum over the balance of 2021.
We are encouraged by the uptake we are seeing in our recently developed digital enrollment tools, which in the quarter accounted for about one third of our enrollments. It is also encouraging that face-to-face enrollments are rebuilding as we find new, safe and socially distanced ways to conduct these face-to-face enrollments.
And turning to the Closed Blocked segment, adjusted operating income excluding the impact of the Closed Block Individual Disability re-insurance transaction was $97 million in the first quarter compared to $104.2 million in the fourth quarter last year. Most strong quarter relative to our historical levels of income for this segment.
Looking at the primary business lines within the Closed Block, for the LTC Block, the interest adjusted loss ratio was 77.7% for the first quarter compared to 60.2% in the fourth quarter excluding the income of the reserve assumption update in the fourth quarter of last year.
The results for the first quarter remained favorable to our long-term assumption of a range of 85% to 90%, primarily due to the continued impact of COVID related mortality on our claim and block. In the first quarter, we estimate the accounts were approximately 15% higher than expected, a similar trend to what we experienced in the fourth quarter.
LTC claim incidence was higher in the first quarter compared to the fourth quarter and remains volatile on a monthly basis. We anticipate that the interest adjusted loss ratio for LTC will likely revert to our long-term range over the next several quarters as mortality and incidence trends normalized from the impacts of COVID.
For the Closed Disability Block, the interest adjusted loss ratio was 68.9% in the first quarter and 79.5% in the fourth quarter, both excluding the impacts from the reinsurance transaction in these quarters.
The underlying experience under the same block, which largely reflect the active life reserve cohort and other smaller claim blocks we intend to retain were favorably to our expectations primarily due to lower submitted claims.
In wrapping up my commentary on the quarter's financial results, the adjusted operating loss in the corporate segment was $38.9 million in the first quarter.
This is favorable to the fourth quarter of 2020 adjusted operating loss of $42.7 million, primarily due to higher net investment income, which offset a slightly higher level of operating expenses.
Keep in mind that the assets backing the required capital which were freed up from the individual disability insurance transaction have now been allocated to the corporate segment and generate a higher level of absolute net investment income for this segment.
As these assets are allocated out to the product lines in future quarters or deployed, the favorable net investment income for the corporate segment is expected to decline. Now I would like to turn to the completion of the Closed Block Individual Disability Reinsurance transaction, which we first announced back in December.
Phase 1 of the transaction, which covered approximately 75% of the transaction was reported in our fourth quarter earnings release and Phase 2covering the balance of the transaction was completed during the first quarter.
Phase 2 involved the transfer of approximately $767 million of assets to the reinsurance, the recording of a net after-tax loss in the transaction of $56.7 million. The components are detailed in the statistical supplement. In addition, the amortization of the after-tax cost of reinsurance was $15.8 million this quarter.
With the transaction now completed, we are very pleased with the ultimate release of approximately $600 million of capital to holding company cash and the flexibility that creates for us. Now I would like to next turn to our investment portfolio with a few points to highlight.
First we recorded an after-tax net realized investment gain of $66.9 million in the first quarter. Of that gain, $53.4 million was associated with the completion of Phase 2 of the Closed Block Individual Disability Reinsurance transaction.
These assets had unrealized gains which were realized and the assets were transferred to the reinsurer at market value. The balance of this quarter's realized investment gains which result from normal investment operations was $13.5 million and was largely driven by a positive mark on our market [ph] embedded derivatives balance.
Second, as I mentioned previously, we continue to see a strong recovery in the valuation mark on our alternative invested assets of $35.9 million this quarter following a positive mark of $29.4 million in the fourth quarter. Given the current portfolio size we would expect quarterly positive marks in the portfolio of $8 million to $10 million.
We have now fully recovered the valuation lost from the market decline in early 2020, while also earning our expected returns over that period. I'd also note that it was a higher than average quarter for traditional miscellaneous income from bond calls in the first quarter following an unusually low amount in the fourth quarter.
Third, with Phase 2 of the reinsurance transaction, we were able to retain approximately $361 million of invested assets that were not transferred to the reinsurer. Of that amount, $234 million of investment grade assets with a book value -- with a book yield of 7.4% have been allocated to the LTC portfolio.
And then finally, we remain very pleased with the overall quality of the investment portfolio. During the first quarter we saw only $92 million of investment-grade bond downgraded to below investment-grade and $13 million of upgrades to below investment-grade bonds to investment-grade status.
Our holdings of high-yield fixed income securities were 7.7% of total fixed income securities at the end of the first quarter which was down from 7.9% at year-end 2020. Our watch list of potentially troubled investments remained at very low levels as we've taken advantage of the rebound in the credit market to reduce our exposure of these positions.
Then looking to our capital position, we are very pleased with the financial position of the company and the flexibility it provides us as we come out of the pandemic. The risk based capital ratio for a traditional U.S.
insurance company is slightly over 370% and holding company cash is at 1.7 billion as of the end of the first quarter, both well above our targeted levels. In addition, I note that our leverage ratio has declined to 26% providing additional flexibility.
We are actively evaluating our capital plans as we come out of the pandemic and will have more to update you on in the coming months.
Importantly, we intend to focus on the deployment opportunities that we believe can create the greatest value for the company and our shareholders, which historically have included investing in the growth of our core businesses, maintaining a competitive dividend and payout ratio, and repurchasing our shares in the market.
I will close my comments with an update to our expectations regarding our outlook for 2021.With our fourth quarter reporting in February, we outlined our expectation of a modest decline of 5% to 6% for full-year 2021, adjusted operating income per share relative to the 2020 level of $4.93 per diluted common share.
In our view that continues to be a realistic outlook as we look for a strong recovery in the second half of 2021 following some lingering COVID related mortality impacts in the second quarter. Now I will turn the call back to Rick for his closing comments and look forward to your questions..
Great. Thank you, Steve. As you can hear from our comments, we continue to be very pleased with the operational performance of the company through what has been an extraordinary environment.
We believe we are well positioned to benefit from improving business conditions as vaccines take hold and mortality and infection rates from COVID-19 continue to subside. The team is here to take your questions. I will ask the operator to begin the Q&A session..
Thank you. We will now begin the Q&A session. [Operator Instructions] Our first question comes from Tracy Benguigui of Barclays. Please go ahead..
Thank you. Good morning. I just wanted to touch on your holding company cash of 1.7 billion, do you anticipate the need to downstream part of that amount back to operating companies or is that amount truly fungible? I did hear your comments about a positive credit trajectory..
Yes, so when you think about the $1.7 billion of cash, that sits there and actually is for our use. When you think about the overall course of our capital plans for the year as we talked about at year-end, everything is contemplated in there.
What we would have said at year-end is that we would expect the year to end in a similar spot to where we ended 2020.So, we are up above that right now and I think that number is roughly $1.5 billion. We've had some good positive things that have happened as a result of the transaction, leverage et cetera.
So, we believe that's available for our use to go back as Steve said into core growth, to go into our acquisitions if we see the opportunity there, and then dividends and share repurchase. So, we feel good about that. There is no expectation on and any portion of that per se will be downstreamed into the companies..
Okay.
So, I guess my follow-up is also at that outlook, meaning you mentioned potentially having to hold some of that capital for upcoming C1 [ph] charges, that were going to come in this year or I think it maybe next year, so any update on that thinking?.
We did talk about at the Analyst [ph] meeting that that was, as we roll forward the year contemplated in that $1.5 billion roughly at year-end was C1 [ph] factor change which was in the range of $200 million.
We are not sure if that will happen now, so you can still consider that to be part of those plans, but that number is factored in and we'll have to see how that transpires with the NAIC here in the coming months.
I think it's probably as we are sitting here in May and nothing has come out, it is maybe less likely that it will occur, but we'll still have to wait and see on that front..
Okay. Thank you..
Thank you. [Operator Instructions] Our next question comes from Erik Bass of Autonomous Research. Please go ahead..
Hi, thank you. Can you talk about your assumed path to margin normalization across different product lines? It sounds like Group Life could have a little bit of a longer tail as the pandemic impacts shift to a younger population.
But what are you assuming for disability, critical illness, LTC, et cetera, and are there any areas where you're concerned about a potential spike in claims for a period?.
So that’s a pretty broad question, so we'll try and dissect across the number of our lines .And what we are seeing, I mean, many of our lines are actually continuing to perform pretty well, so we see no change there.
Certainly some that we talked about, we're going to see reversion back here over the course of the year, maybe we will dissect some of those.
Mike do you want to start on the Group Life side, you know what we are seeing and what we may expect?.
Sure. Yes, Group Disability. Steve, I am wondering if you could improve life, on the disability front, you had an elevated loss ratio in the quarter as we talked about. A short time disability entirely and underneath that is COVID related claims entirely.
So, that we will follow pretty closely actually the track of improvement that Steve laid out in his opening comments.
So, as national COVID cases and then come down or we saw not only through the course of course of the first quarter but sitting here in the second quarter, nothing that sort of suggests anything different than that continued steady pace of improvement.
There will be lingering impacts on the disability side in that short term disability [indiscernible] segment here in the second quarter.
But you know let me talk about December, I think the outlook in the second half is quite good with LTD right there within expectations, a kind of 73% to 74% disability loss ratio that we kind of see on an annual basis, I mean that’s a reasonable place to think about it Steve in the second half of the year..
Yes, great. And then I will take, Erik I will take Group Life. This is Steve. So, as I mentioned in my comments, in the first quarter nationally we had about 200,000 deaths, that was reflected in our book about one week at about 1% of that or just over 200,000 deaths.
We do estimate from what we've seen kind of out there that we are going to be around 50,000 to 60,000 deaths probably in the second quarter nationally and how we equate that to our book would imply that our Group Life and AD&D business would be about breakeven in the second quarter.
I would say then for the remainder of the year, we would have that gradually revert back to kind of historical loss ratios in that business. So, we think second quarter might be kind of tough, but the latter half of the year we'll get back to where we historically were at for margins.
I would say on LTC, we've clearly had very low loss ratios over the last year or 77.7%.
We did see trends through the first quarter where mortality did begin to revert back closer to maybe more normalized, but definitely were still higher, 15% higher than what we would anticipate, in the second quarter we would see that revert, maybe back to more normal expectations.
And then incidence really is back in March to kind of our historical levels and we will have to see how that continues into the second quarter and we'll have to track that. But I would say we anticipate being back in that 85% to 90% kind of range in LTC as we get to the back half of the year..
I'll take this around on the Colonial Life, we did say there was a small increase in the benefit ratio from Life, we expect that improve, but it is not a big factor..
Got it.
And anything on the sort of voluntary products, where I think there may be some benefits from lower utilization on things like the accident policies, and maybe a little bit on Critical Illness anything notable you're seeing there?.
Yes, where I -- Erik, this is Tim. Thank you for the question. We are not really seeing anything different than what Mike and Steve described in our experience in the Voluntary Benefits lines. It's less pronounced in the Voluntary Benefits business, but we see the same trends developing over time..
Thank you. And then may be returning to sort of Tracy's question as well on kind of the excess capital.
It sounds like something where you're thinking over the next quarter or two, if I mean we continue to see improvement in the environment that you maybe have position to start thinking about deploying that? And I guess if you could just talk about how you're evaluating different options? And I think at different points you've been asked, you've mentioned prefunding in LTC transaction as another option and is that something that would be in the toolkit as well?.
Yes Erik. I think it's a fair question. I think as we still are coming out of this pandemic period, we're going to evaluate all of our options that are in front of us. And I think as we've always said, we have good capital flexibility at our disposal. We are going to make sure we put that right back into our core operations.
We have seen some really good investments to make just on the core operational side. M&A, when you think about that it's going to be probably smaller capability type transactions. We think we like our portfolio today.
We think we have good breadth, but we'll look at some capabilities as we've done over the last several years and then other forms, dividends and share repurchase are always on the table. You added a question about prefunding the LTC piece as well. We don’t see the need to do that.
We are actually on a path there on putting funds into our LTC that makes sense and we will continue to do that at the pace we've been doing, no change in plans that we have there.
But we are always looking at the LTC Block and making sure just like we did at year-end with our Individual Disability, what are the ways that we can free capital from behind that, it is a Closed Block.
And so making sure we can think about the pieces that will be good for potentially for risk transfer are out there, but as we've said before those are more difficult transactions, will take some time. But certainly that's a place where we are looking to potentially deploy some capital, if we see the right risk transfer opportunity..
Thank you. I appreciate the comments..
Thank you. [Operator Instructions] There seems to be no further questions at this time. I would now like to hand the call back to Mr. McKenney. Please go ahead..
Great, thank you. We appreciate everybody joining us today and taking the time out. Operator that now completes our first quarter 2021 earnings call and we look forward to connecting with many of you at upcoming investor conferences. Thank you..
Thank you. That conference is concluded. You may now disconnect your lines..