Unum Group (NYSE: UNM) senior management is hosting a meeting Tuesday 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:
- The company will confirm its previously provided outlook for 2014 operating earnings per share growth of five percent to ten percent.
- 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.
- Turning to its 2015 outlook, the company anticipates growth in operating earnings per share to be within a range of two percent to five 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 Ccmpany 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.
- 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.
- 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.
- 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.
- 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.