Unum Group (NYSE: UNM) today reported net income of $228.9 million
($0.88 per diluted common share) for the first quarter of 2014, compared
to net income of $212.6 million ($0.79 per diluted common share) for the
first quarter of 2013.
After-tax operating income, which excludes after-tax realized investment
gains and losses and the amortization of prior period actuarial losses
on the Company’s pension plans, was $225.7 million ($0.87 per diluted
common share) in the first quarter of 2014, compared to $215.6 million
($0.80 per diluted common share) in the first quarter of 2013. The
combined impact of realized investment gains and losses and the
amortization of prior period actuarial losses is a net after-tax gain of
$3.2 million ($0.01 per diluted common share) for the first quarter of
2014, compared to a net after-tax loss of $3.0 million ($0.01 per
diluted common share) in the first quarter of 2013.
“We are off to a strong start in 2014, as we continue to generate solid
operating results in our core business lines and actively manage our
capital through our share repurchase program. As a result, we generated
good growth in operating earnings and book value per share again this
quarter,” said Thomas R. Watjen, president and chief executive officer.
“I am also very pleased that through strong customer retention and a
continuation of the sales momentum we established last year, we have
been able to profitably grow our business in this environment.”
RESULTS BY SEGMENT
Unum US Segment
Unum US reported operating income of $210.8 million in the first quarter
of 2014, an increase of 1.3 percent from $208.1 million in the first
quarter of 2013. Premium income for the segment increased 1.1 percent to
$1,152.5 million in the first quarter of 2014, compared to premium
income of $1,139.7 million in the first quarter of 2013.
Within the Unum US operating segment, the group disability line of
business reported a 12.1 percent decline in operating income, with $68.5
million in the first quarter of 2014 compared to $77.9 million in the
first quarter of 2013. Premium income in group disability declined 0.6
percent to $520.8 million in the first quarter of 2014, compared to
$523.7 million in the first quarter of 2013, due to a decline in group
long-term disability as a result of lower sales in 2013, partially
offset by premium rate increases and stable persistency. The benefit
ratio for the first quarter of 2014 was 83.0 percent, compared to 84.3
percent in the first quarter of 2013, with favorable claim incidence
rates and claim recovery experience relative to last year’s first
quarter. Group long-term disability sales increased 5.1 percent to $32.7
million in the first quarter of 2014, compared to $31.1 million in the
first quarter of 2013. Group short-term disability sales increased 25.3
percent to $19.8 million in the first quarter of 2014, compared to $15.8
million in the first quarter of 2013. Persistency in the group long-term
disability line of business was 88.9 percent for both the first quarter
of 2014 and 2013. Persistency in the group short-term disability line of
business was 88.1 percent for the first quarter of 2014, compared to
89.8 percent for the same period of 2013.
The group life and accidental death and dismemberment line of business
reported operating income of $59.8 million in the first quarter of 2014,
an increase of 3.3 percent from $57.9 million in the first quarter of
2013, resulting from growth in premium income and stable risk
experience. Premium income for this line of business increased 2.2
percent to $340.5 million in the first quarter of 2014, compared to
$333.1 million in the first quarter of 2013, reflecting growth in the
inforce block from sales and favorable persistency, as well as premium
rate increases. The benefit ratio in the first quarter of 2014 was 70.3
percent, compared to 70.6 percent in the first quarter of 2013,
reflecting lower claim incidence which was partially offset by a higher
average claim size. Sales of group life and accidental death and
dismemberment products increased 12.2 percent in the first quarter of
2014 to $41.3 million, compared to $36.8 million in the first quarter of
2013. Persistency in the group life line of business was 89.5 percent
through the first three months of 2014, compared to 88.9 percent for the
same period of 2013.
The supplemental and voluntary line of business reported a 14.1 percent
increase in operating income to $82.5 million in the first quarter of
2014, compared to $72.3 million in the first quarter of 2013. Premium
income for supplemental and voluntary increased 2.9 percent to $291.2
million in the first quarter of 2014, compared to $282.9 million in the
first quarter of 2013. This increase resulted from growth in voluntary
benefits premium income, partially offset by lower premium income from
the individual disability – recently issued product due to a reinsurance
agreement entered into during the second quarter of 2013 to cede a small
block of business. The interest adjusted loss ratio for the individual
disability - recently issued product line in the first quarter of 2014
increased to 27.2 percent from 25.2 percent in the first quarter of
2013, reflecting an increase in claim incidence rates and lower claim
recoveries. The benefit ratio for voluntary benefits of 46.1 percent in
the first quarter of 2014 was generally consistent with the first
quarter of 2013 benefit ratio of 46.5 percent. Relative to the first
quarter of 2013, sales in the voluntary benefits line of business
increased 4.8 percent in the first quarter of 2014 to $103.3 million.
Sales in the individual disability – recently issued line of business
decreased 3.9 percent in the first quarter of 2014 to $14.6 million.
Persistency in the individual disability – recently issued product line
was 90.6 percent through the first three months of both 2014 and 2013.
Persistency in the voluntary benefits product line was 78.0 percent
through the first three months of 2014, compared to 77.2 percent through
the first three months of 2013.
Unum UK Segment
Unum UK reported operating income of $36.5 million in the first quarter
of 2014, an increase of 16.6 percent from $31.3 million in the first
quarter of 2013. In local currency, operating income for the first
quarter of 2014 increased 8.9 percent, to £22.0 million from £20.2
million in the first quarter of 2013.
Premium income increased 5.5 percent to $151.7 million in the first
quarter of 2014, compared to $143.8 million in the first quarter of
2013. In local currency, premium income decreased 1.3 percent to £91.6
million in the first quarter of 2014, compared to £92.8 million in the
first quarter of 2013. The benefit ratio in the first quarter of 2014
was 70.1 percent, compared to 69.5 percent in the first quarter of 2013.
The higher benefit ratio in the first quarter of 2014 reflects adverse
risk experience in the group disability line of business which offset
improved mortality experience in the group life line.
Persistency in the group long-term disability line of business was 86.3
percent through the first three months of 2014, compared to 82.2 percent
through the first three months of 2013. Persistency in the group life
line of business was 69.7 percent through the first three months of
2014, compared to 66.7 percent through the comparable period of 2013,
reflecting the Company’s aggressive efforts to re-price this block of
business over the past several quarters. In local currency, sales for
the first quarter of 2014 declined 1.0 percent to £10.4 million,
compared to £10.5 million in the first quarter of 2013, reflecting a
decline in group life sales relative to the comparable period of 2013
which offset higher sales of group long-term disability products. When
translated into dollars, the favorable year over year exchange rate
resulted in a sales increase of 5.5 percent to $17.3 million in the
first quarter of 2014, compared to $16.4 million in the first quarter of
2013.
Colonial Life Segment
Colonial Life reported a 5.3 percent increase in operating income to
$79.4 million in the first quarter of 2014, compared to $75.4 million in
the first quarter of 2013.
Premium income for the first quarter of 2014 increased 3.0 percent to
$316.4 million, compared to $307.1 million in the first quarter of 2013,
driven by continued growth in the in-force block of business due to new
sales growth and generally stable persistency. The benefit ratio in the
first quarter of 2014 improved to 50.5 percent, compared to 52.5 percent
in the first quarter of 2013, with favorable risk results in all lines
of business.
Sales increased 6.5 percent to $72.0 million in the first quarter of
2014 from $67.6 million in the first quarter of 2013, driven by an
increase in sales in both new and existing account sales, primarily in
the commercial sector.
Closed Block Segment
The Closed Block segment reported operating income of $29.1 million in
the first quarter of 2014, compared to $27.3 million in the first
quarter of 2013.
Premium income for this segment declined 6.6 percent in the first
quarter of 2014 compared to the first quarter of 2013, primarily due to
the expected run-off of the individual disability block of business. The
interest adjusted loss ratio for the individual disability line of
business was 81.5 percent in both the first quarter of 2014 and 2013.
The interest adjusted loss ratio for the long-term care line of business
improved to 84.7 percent in the first quarter of 2014 from 89.5 percent
in the first quarter of 2013 due to lower claim incidence rates and
favorable development in active life reserves resulting in part from
terminations and changes in coverage for existing policyholders.
Corporate Segment
The Corporate segment reported an operating loss of $34.2 million in the
first quarter of 2014, compared to a loss of $33.7 million in the first
quarter of 2013. The higher operating loss in the first quarter of 2014
was driven primarily by lower net investment income due to lower
yielding assets and a decrease in miscellaneous investment income.
OTHER INFORMATION
Shares Outstanding
The Company’s average number of shares outstanding, assuming dilution,
was 260.7 million for the first quarter of 2014, compared to 270.4
million for the first quarter of 2013. Shares outstanding totaled 257.6
million at March 31, 2014. During the first quarter of 2014, the Company
repurchased 2.9 million shares at a cost of approximately $100 million.
Capital Management
At March 31, 2014, the weighted average risk-based capital ratio for the
Company’s traditional U.S. insurance companies was approximately 400
percent, and cash and marketable securities in the holding companies
equaled $822 million.
Book Value
Book value per common share as of March 31, 2014 was $34.77, compared to
$32.06 at March 31, 2013.
Outlook
The Company anticipates growth in after-tax operating earnings per share
for full-year 2014 to be in the range announced in December 2013 of five
percent to ten percent.
NON-GAAP FINANCIAL MEASURES
The Company analyzes its performance using non-GAAP financial measures.
A non-GAAP financial measure is a numerical measure of a company's
performance, financial position, or cash flows that excludes or includes
amounts that are not normally excluded or included in the most directly
comparable measure calculated and presented in accordance with GAAP. The
non-GAAP financial measures of "operating income" or “operating loss,"
and "after-tax operating income" differ from income before income tax
and net income as presented in the Company’s consolidated operating
results and in income statements prepared in accordance with GAAP due to
the exclusion of net realized investment gains and losses and
non-operating retirement-related gains or losses as specified in the
reconciliations that follow. The Company believes operating income or
loss is a better performance measure and a better indicator of the
profitability and underlying trends in its business. Realized investment
gains or losses depend on market conditions and do not necessarily
relate to decisions regarding the underlying business of its segments.
The Company’s investment focus is on investment income to support its
insurance liabilities as opposed to the generation of realized
investment gains or losses. Although the Company may experience realized
investment gains or losses which will affect future earnings levels, a
long-term focus is necessary to maintain profitability over the life of
the business since the Company’s underlying business is long-term in
nature, and the Company needs to earn the interest rates assumed in
calculating its liabilities. The amortization of prior period actuarial
gains or losses, a component of the net periodic benefit cost for the
Company’s pensions and other postretirement benefit plans, is driven by
market performance as well as plan amendments and is not indicative of
the operational results of the Company’s businesses. The Company
believes that excluding the amortization of prior period gains or losses
from operating income or loss provides investors with additional
information for comparison and analysis of its operating results.
Although the Company manages its non-operating retirement-related gains
or losses separately from the operational performance of its business,
these gains or losses impact the overall profitability of the Company
and have historically increased or decreased over time, depending on
plan amendments and market conditions and the resulting impact on the
actuarial gains or losses in the pensions and other postretirement
benefit plans.
The Company may at other times exclude certain other items from its
discussion of financial ratios and metrics in order to enhance the
understanding and comparability of its operational performance and the
underlying fundamentals, but this exclusion is not an indication that
similar items may not recur and does not replace net income or net loss
as a measure of overall profitability.
For a reconciliation of these non-GAAP financial measures to the most
directly comparable GAAP measures, refer to the tables in the Financial
Highlights section that follows.
CONFERENCE CALL INFORMATION
Members of Unum Group senior management will host a conference call on
Thursday, May 8 at 9:00 A.M. (Eastern Time) to discuss the results of
operations for the first quarter. Topics may include forward-looking
information such as the Company’s outlook on future results, trends in
operations, and other material information.
The dial-in number for the conference call is (888) 632-5006 for U.S.
and Canada (pass code 9001269). For international, the dial-in
number is (913) 312-1487 (pass code 9001269). A live webcast of the
call will also be available at www.investors.unum.com
in a listen-only mode. It is recommended that webcast viewers access the
“Investors” section of the Company’s website and opt-in to the webcast
approximately 5-10 minutes prior to the start of the call. The Company
will maintain a replay of the call on its website through Thursday, May
15, 2014. A replay of the call will also be available by dialing (888)
203-1112 (U.S. and Canada) or (719) 457-0820 (International) – pass code
9001269.
In conjunction with today’s earnings announcement, the Company’s
Statistical Supplement for the first quarter of 2014 is available on the
“Investors” section of the Company’s website.
ABOUT UNUM GROUP
Unum (www.unum.com)
is one of the leading providers of employee benefits products and
services and the largest provider of disability insurance products in
the United States and the United Kingdom.
SAFE HARBOR STATEMENT
Certain information in this press release constitutes "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements are those not based on
historical information, but rather relate to our outlook, future
operations, strategies, financial results, or other developments and
speak only as of the date made. These forward-looking statements,
including statements about anticipated growth in after-tax operating
income per share, are subject to numerous assumptions, risks, and
uncertainties, many of which are beyond our control. The following
factors, in addition to other factors mentioned from time to time, may
cause actual results to differ materially from those contemplated by the
forward-looking statements: (1) unfavorable economic or business
conditions, both domestic and foreign; (2) sustained periods of low
interest rates; (3) fluctuation in insurance reserve liabilities and
claim payments due to changes in claim incidence, recovery rates,
mortality rates, and offsets due to, among other factors, the rate of
unemployment and consumer confidence, the emergence of new diseases,
epidemics, or pandemics, new trends and developments in medical
treatments, the effectiveness of our claims operational processes, and
changes in government programs; (4) legislative, regulatory, or tax
changes, both domestic and foreign, including the effect of potential
legislation and increased regulation in the current political
environment; (5) investment results, including, but not limited to,
changes in interest rates, defaults, changes in credit spreads,
impairments, and the lack of appropriate investments in the market which
can be acquired to match our liabilities; (6) the failure of cyber or
other information security systems, as well as the occurrence of events
unanticipated in our disaster recovery systems; (7) ineffectiveness of
our derivatives hedging programs due to changes in the economic
environment, counterparty risk, ratings downgrades, capital market
volatility, changes in interest rates, and/or regulation; (8) increased
competition from other insurers and financial services companies due to
industry consolidation, new entrants to our markets, or other factors;
(9) changes in our financial strength and credit ratings; (10) damage to
our reputation due to, among other factors, regulatory investigations,
legal proceedings, external events, and/or inadequate or failed internal
controls and procedures; (11) actual experience that deviates from our
assumptions used in pricing, underwriting, and reserving; (12) actual
persistency and/or sales growth that is higher or lower than projected;
(13) changes in demand for our products due to, among other factors,
changes in societal attitudes, the rate of unemployment, consumer
confidence, and/or legislative and regulatory changes, including
healthcare reform; (14) effectiveness of our risk management program;
(15) contingencies and the level and results of litigation; (16) changes
in accounting standards, practices, or policies; (17) fluctuation in
foreign currency exchange rates; (18) ability to generate sufficient
internal liquidity and/or obtain external financing; (19) availability
of reinsurance in the market and the ability of our reinsurers to meet
their obligations to us; (20) recoverability and/or realization of the
carrying value of our intangible assets, long-lived assets, and deferred
tax assets; and (21) terrorism, both within the U.S. and abroad, ongoing
military actions, and heightened security measures in response to these
types of threats.
For further discussion about risks and uncertainties which could cause
actual results to differ from those contained in the forward-looking
statements, see Part I, Item 1A of our annual report on Form 10-K for
the year ended December 31, 2013. The forward-looking statements in this
press release are being made as of the date of this press release, and
the Company expressly disclaims any obligation to update or revise any
forward-looking statement contained herein, even if made available on
our website or otherwise.
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Unum Group
FINANCIAL HIGHLIGHTS
(Unaudited)
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($ in millions, except share data)
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Three Months Ended March 31
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2014
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2013
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Operating Revenue
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$
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2,604.8
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$
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2,614.5
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Net Realized Investment Gain
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6.3
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10.3
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Total Revenue
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$
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2,611.1
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$
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2,624.8
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Operating Income
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$
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321.6
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$
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308.4
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Net Realized Investment Gain
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6.3
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10.3
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Non-operating Retirement-related Loss
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(1.4
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)
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(14.9
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)
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Income Tax
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(97.6
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)
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(91.2
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)
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Net Income
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$
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228.9
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$
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212.6
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PER SHARE INFORMATION
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Net Income Per Common Share
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Basic
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$
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0.88
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$
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0.79
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Assuming Dilution
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$
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0.88
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$
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0.79
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Weighted Average Common Shares - Basic (000s)
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259,408.5
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269,361.1
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Weighted Average Common Shares - Assuming Dilution (000s)
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260,709.9
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270,354.4
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Reconciliation of Non-GAAP Financial Measures
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Three Months Ended March 31
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2014
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2013
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per share *
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per share *
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After-tax Operating Income
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$
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225.7
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|
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$
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0.87
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$
|
215.6
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|
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$
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0.80
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Net Realized Investment Gain, Net of Tax
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4.1
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0.01
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6.7
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|
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0.03
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Non-operating Retirement-related Loss, Net of Tax
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(0.9
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)
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—
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(9.7
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)
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(0.04
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)
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Net Income
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$
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228.9
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$
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0.88
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$
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212.6
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$
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0.79
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* Assuming Dilution
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March 31
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2014
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2013
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per share
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per share
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Total Stockholders' Equity (Book Value)
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$
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8,955.7
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$
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34.77
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$
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8,557.8
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$
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32.06
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Net Unrealized Gain on Securities
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325.3
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1.26
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792.4
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2.97
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Net Gain on Cash Flow Hedges
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398.0
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1.55
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399.6
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1.50
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Subtotal
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8,232.4
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31.96
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7,365.8
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27.59
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Foreign Currency Translation Adjustment
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(39.5
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)
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(0.16
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)
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(142.5
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)
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(0.53
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)
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Subtotal
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8,271.9
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32.12
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7,508.3
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28.12
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Unrecognized Pension and Postretirement Benefit Costs
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|
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(229.4
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)
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(0.89
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)
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(563.8
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)
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(2.12
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)
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Total Stockholders' Equity, Excluding Accumulated Other
Comprehensive Income
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|
$
|
8,501.3
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$
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33.01
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$
|
8,072.1
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$
|
30.24
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