Unum Group (NYSE: UNM) senior management is hosting a meeting today in
New York City with analysts and investors to provide an update of the
Company’s recent results and its outlook for 2015. This morning’s
presentation will include the following highlights:
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The Company will confirm its previously provided outlook for 2014
operating earnings per share growth of five percent to ten percent.
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The Company is in the process of completing a review of the adequacy
of the reserves supporting its closed block of long-term care business
and anticipates that in the fourth quarter of 2014 it will increase
reserves reported under generally accepted accounting principles
(GAAP) by approximately $400 million to $500 million, after tax.
Further, the Company anticipates that its capital metrics for year-end
2014 will be slightly above its previously provided outlook.
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Turning to its 2015 outlook, the Company anticipates growth in
operating earnings per share to be within a range of 2 percent to 5
percent, with anticipated share repurchases within a range of $400
million to $600 million.
“Thus far in the fourth quarter, we have continued to experience a
number of the very positive trends which we’ve seen throughout the year
including strong sales momentum, accelerating premium growth and
favorable risk results,” said Thomas R. Watjen, president and chief
executive officer. “For this reason, we continue to be very comfortable
with our previously provided outlook for 2014 of operating earnings
growth of five to ten percent. We expect these positive trends to
continue into next year, which is reflected in the 2015 outlook we will
discuss with investors today. Unfortunately, today’s persistently low
interest rates are a challenge, but even with these headwinds we expect
to maintain solid operating margins and significant financial
flexibility in 2015 to support the needs of the businesses, while also
continuing to return capital to our shareholders.”
The Company also is announcing that, as part of its annual reserve
review, it expects to increase the reserves supporting its long-term
care business. “The long-term care business remains a very challenging
business, especially in this low interest rate environment, and
continues to be an area of great focus for our management team,” added
Watjen. “I am quite confident that we are taking all of the right
actions to manage this difficult business, and the steps we are
outlining today will enable us to better position this business for the
future. As we will discuss with investors, these actions do not have any
impact on our core businesses or capital management strategy for 2015.”
Also, the Company will discuss additional details of its 2015 financial
plan and capital management plans.
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Primary factors impacting the 2015 outlook include the expectation of
continued momentum in premium income growth of 4 percent to 6 percent
for its core operations along with generally stable risk experience,
offset in part by the continued negative effects of today’s low
interest rate environment including a reduction of 50 basis points to
the discount rate which the Company anticipates implementing in the
fourth quarter of 2014 for new group long-term disability claim
incurrals in Unum US.
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The Company currently estimates its year-end 2014 capital metrics,
after consideration of the anticipated GAAP reserve increase and a
statutory reserve increase of approximately $150 million for its First
Unum subsidiary, will be slightly above the outlook provided a year
ago, with the weighted average risk-based capital ratio for the
Company’s traditional U.S. insurance companies exceeding 400 percent
and cash and marketable securities in its holding companies exceeding
$500 million.
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The Company continues to anticipate the generation of strong cash flow
from its operations in 2015 which will support planned share
repurchases within a range of $400 million to $600 million. In
addition, management expects that in May 2015 it will recommend to its
Board of Directors to again increase its common stock dividend.
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Finally, the Company expects to maintain a strong capital position and
is establishing an outlook for year-end 2015 weighted average
risk-based capital ratio to be within a range of 375 percent to 400
percent and cash and marketable securities in its holding companies to
be in excess of $500 million.
Executive vice president and chief financial officer, Richard P.
McKenney, said “Due to strong operational trends in our core businesses,
we expect to close 2014 with capital metrics consistent with our
original plans for the year. Looking forward, we are confident in the
strength of our franchise which we expect to enable us to maintain
significant financial flexibility while also maintaining a strong return
of capital to our shareholders.”
OTHER INFORMATION
Low-income Housing Tax Credits
As previously discussed in the Company’s most recent Form 10-Q, the
Financial Accounting Standards Board issued an update, which the Company
intends to adopt effective January 1, 2015, to provide guidance on the
accounting and reporting for investments in affordable housing projects
that qualify for low-income housing tax credits. Amortization will be
reported through the income tax line under the revised guidance rather
than as negative net investment income, which will increase the
Company’s before-tax income but also increase the 2015 effective tax
rate to an expected range of 31 percent to 32 percent. The Company
estimates that adoption of this update will result in a cumulative
effect adjustment that will decrease the opening balance of 2015
retained earnings between $25.0 million and $35.0 million, with an
immaterial decrease in net income in 2015 and in each of the years
preceding to which the retrospective adoption is applied.
Pension Plan Change
Also as previously discussed in the Company’s most recent Form 10-Q, in
September 2014, the Company amended its U.S. qualified defined benefit
pension plan to allow a limited-time offer of benefit payouts to
eligible former employees with a vested right to a pension benefit. The
offer provided eligible former employees, regardless of age, with an
option to elect to receive a lump-sum settlement of his or her entire
accrued pension benefit in December 2014 or to elect receipt of monthly
pension benefits commencing in January 2015. Upon distribution of the
lump-sum payouts, the Company will account for the payouts as
settlements and will recognize in income the applicable portion of the
unrecognized actuarial loss pertaining to the settled benefit obligation
and currently included in accumulated other comprehensive income. The
Company currently estimates that the unrecognized actuarial loss that
will be recognized in its results during the fourth quarter of 2014 will
be within the range of $40 million to $55 million, after applicable
income tax. The ultimate payout amount will depend on participant
election rates. The loss associated with the payout is subject to
certain economic factors such as the discount rate at the time of
settlement and the current year’s asset performance relative to the
assumed long-term rate of return on plan assets.
The meeting, which is being held today at the Grand Hyatt New York, will
begin at 8:30 a.m. and will be simulcast in a listen-only mode on the
Investors” page of the Company’s website (www.unum.com)
approximately 15 minutes prior to the start of the meeting.
The presentation will be available on the “News and Events” page and
will remain on the website for one year after the event.
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 growth in after-tax operating income per
share, anticipated reserve increases, the loss associated with the
pension payout, weighted average risk-based capital ratios and cash and
marketable securities, premium income growth, and share repurchases, 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, and our subsequently filed Form 10-Qs.
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.
Copyright Business Wire 2014