Unum Group (NYSE: UNM) on Wednesday reported net income of $212.9 million ($0.84 per diluted common share) for the first quarter of 2015, compared to net income of $225.8 million ($0.86 per diluted common share) for the first quarter of 2014.
After-tax operating income, which excludes after-tax realized investment gains and losses on the Company’s investment portfolio and the amortization of prior period actuarial losses on the Company’s pension plans, was $224.8 million ($0.89 per diluted common share) in the first quarter of 2015, compared to $222.6 million ($0.85 per diluted common share) in the first quarter of 2014. The combined impact of realized investment gains and losses and the amortization of prior period actuarial losses resulted in a net after-tax loss of $11.9 million ($0.05 per diluted common share) for the first quarter of 2015, compared to a net after-tax gain of $3.2 million ($0.01 per diluted common share) in the first quarter of 2014.
“We are off to a very solid start in 2015, with many of the favorable growth and profitability trends we experienced in 2014 carrying over into this year. This includes strong growth in sales and premium income, in addition to generally stable risk performance across our core business segments and the closed block. While today’s low interest rates continue to create challenges for us and our industry, we remain confident that we are taking the actions needed to successfully operate in this environment,” said Thomas R. Watjen, chief executive officer. “I am also very pleased with the progress we have made in implementing the leadership changes we announced earlier in the year. We planned well for the transition of my responsibilities to my successor Rick McKenney, and the Board and I have great confidence in our leadership team’s ability to maintain the momentum we have worked so hard to achieve.”
Effective January 1, 2015, the Company adopted an accounting standards update for tax credit partnership investments in qualified affordable housing projects (ASU 2014-01) and applied the amendments retrospectively, adjusting all prior periods presented in this release, as applicable.
RESULTS BY SEGMENT
Unum US Segment
Unum US reported operating income of $214.3 million in the first quarter of 2015, an increase of 3.3 percent from $207.5 million in the first quarter of 2014. Premium income for the segment increased 6.7 percent to $1,230.2 million in the first quarter of 2015, compared to premium income of $1,152.5 million in the first quarter of 2014. Net investment income for the segment declined 3.6 percent to $215.0 million in the first quarter of 2015 from $223.1 million in the first quarter of 2014, primarily reflecting lower yields on invested assets and lower miscellaneous net investment income.
Within the Unum US operating segment, the group disability line of business reported a 9.9 percent increase in operating income, with $74.3 million in the first quarter of 2015 compared to $67.6 million in the first quarter of 2014. Premium income in group disability increased 6.2 percent to $553.0 million in the first quarter of 2015, compared to $520.8 million in the first quarter of 2014, primarily due to favorable persistency, premium rate increases, and sales growth. Net investment income declined by 4.9 percent to $125.0 million in the first quarter of 2015, compared to $131.5 million in the first quarter of 2014, primarily due to a decrease in the level of invested assets supporting this line of business, a decline in yields, and lower miscellaneous investment income.
The benefit ratio for the first quarter of 2015 was 80.1 percent, compared to 83.0 percent in the first quarter of 2014, reflecting very favorable claim recovery experience and lower new claim incidence levels, partially offset by the 50 basis point decrease in the discount rate implemented in the fourth quarter of 2014 for group long-term disability new claim incurrals. Group long-term disability sales increased 14.1 percent to $37.3 million in the first quarter of 2015, compared to $32.7 million in the first quarter of 2014. Group short-term disability sales increased 21.2 percent to $24.0 million in the first quarter of 2015, compared to $19.8 million in the first quarter of 2014. Persistency in the group long-term disability line of business improved to 91.0 percent through the first quarter of 2015, compared to 88.9 percent through the first quarter of 2014. Persistency in the group short-term disability line of business was 86.5 percent through the first quarter of 2015, compared to 88.1 percent for the same period of 2014.
The group life and accidental death and dismemberment line of business reported operating income of $57.9 million in the first quarter of 2015, a decline of 1.4 percent from $58.7 million in the first quarter of 2014, reflecting slightly unfavorable risk experience which offset an increase in premium income. Premium income for this line of business increased 8.0 percent to $367.6 million in the first quarter of 2015, compared to $340.5 million in the first quarter of 2014, primarily due to sales growth which was only partially offset by a decline in persistency. Net investment income declined 1.8 percent to $33.5 million in the first quarter of 2015, compared to $34.1 million in the first quarter of 2014, due to a decrease in yield on invested assets and lower miscellaneous investment income, partially offset by an increase in the level of invested assets. The benefit ratio in the first quarter of 2015 was 70.9 percent, compared to 70.3 percent in the first quarter of 2014, reflecting unfavorable experience in the accidental death and dismemberment line of business. Sales of group life and accidental death and dismemberment products increased 3.9 percent in the first quarter of 2015 to $42.9 million, compared to $41.3 million in the first quarter of 2014. Persistency in the group life line of business was 87.3 percent in the first quarter of 2015, compared to 89.5 percent for the same period of 2014.
The supplemental and voluntary line of business reported a slight increase in operating income to $82.1 million in the first quarter of 2015, compared to $81.2 million in the first quarter of 2014. Premium income for supplemental and voluntary increased 6.3 percent to $309.6 million in the first quarter of 2015, compared to $291.2 million in the first quarter of 2014. Net investment income declined slightly to $56.5 million in the first quarter of 2015, compared to $57.5 million in the first quarter of 2014, due to a decrease in yield on invested assets and lower miscellaneous investment income, partially offset by an increase in the level of invested assets. The interest adjusted loss ratio for the individual disability product line in the first quarter of 2015 was 27.5 percent compared to 27.2 percent in the first quarter of 2014, reflecting stable claim incidence rates and claim recoveries.
The benefit ratio for voluntary benefits was 40.9 percent in the first quarter of 2015, compared to 46.1 percent in the first quarter of 2014, due primarily to favorable claim experience in the disability, accident, and critical illness lines of business and a favorable change in active life reserves resulting from a higher level of policy terminations, which is largely offset by higher amortization of the related deferred acquisition costs. Relative to the first quarter of 2014, sales in the voluntary benefits line of business increased 27.7 percent in the first quarter of 2015 to $131.9 million. Sales in the individual disability line of business declined 15.8 percent in the first quarter of 2015 to $12.3 million. Persistency in the individual disability product line was 90.1 percent in the first quarter of 2015, compared to 90.6 percent for the same period of 2014. Persistency in the voluntary benefits product line was 75.5 percent in the first quarter of 2015, compared to 78.0 percent through the first quarter of 2014.
Unum UK Segment
Unum UK reported operating income of $32.6 million in the first quarter of 2014. In local currency, operating income declined by 2.3 percent to £21.5 million in the first quarter of 2015, compared to £22.0 million in the first quarter of 2014.
Premium income declined 8.4 percent to $139.0 million in the first quarter of 2015, compared to $151.7 million in the first quarter of 2014. In local currency, premium income was £91.7 million in the first quarter of 2015, compared to £91.6 million in the first quarter of 2014. Net investment income in local currency declined to £15.4 million in the first quarter of 2015, compared to £20.3 million in the first quarter of 2014, due primarily to lower income from inflation index-linked bonds which support the claim reserves associated with certain of our group policies that provide for inflation-linked increases in benefits. The decrease in net investment income attributable to these index-linked bonds was partially offset by a decrease in reserves for future claim payments related to the inflation index-linked group policies. The benefit ratio in the first quarter of 2015 was 65.3 percent, compared to 70.2 percent in the first quarter of 2014, resulting from favorable risk experience in the group life line and the impact of lower inflation on claim payments and reserves associated with polices containing an inflation-linked benefit increase feature.
Persistency in the group long-term disability line of business was 86.6 percent in the first quarter of 2015, compared to 86.3 percent in the first quarter of 2014. Persistency in the group life line of business improved to 79.3 percent in the first quarter of 2015, compared to 69.7 percent in the first quarter of 2014. Sales declined 3.5 percent to $16.7 million in the first quarter of 2015, compared to $17.3 million in the first quarter of 2014. In local currency, sales for the first quarter of 2015 increased 5.8 percent to £11.0 million, compared to £10.4 million in the first quarter of 2014.
Colonial Life Segment
Colonial Life reported a 1.9 percent decline in operating income to $77.6 million in the first quarter of 2015, compared to $79.1 million in the first quarter of 2014. Premium income for the first quarter of 2015 increased 5.0 percent to $332.2 million, compared to $316.4 million in the first quarter of 2014, driven by sales growth and favorable persistency. The benefit ratio in the first quarter of 2015 was 51.3 percent, compared to 50.5 percent in the first quarter of 2014, primarily reflecting a less favorable benefit ratio in the life product line.
Sales increased 7.6 percent to $77.5 million in the first quarter of 2015 from $72.0 million in the first quarter of 2014, with favorable sales trends in both the core commercial and public sector market segments.
Closed Block Segment
The Closed Block segment reported operating income of $26.7 million in the first quarter of 2015, compared to $28.3 million in the first quarter of 2014.
Premium income for this segment declined 4.1 percent in the first quarter of 2015 compared to the first quarter of 2014, primarily due to expected policy terminations and maturities for the individual disability line of business partially offset by an increase in premium income for the long-term care line of business due primarily to rate increases. The interest adjusted loss ratio for the individual disability line of business was 80.0 percent in the first quarter of 2015, compared to 81.5 percent in the first quarter of 2014, due primarily to favorable mortality experience. The interest adjusted loss ratio for the long-term care line of business was 87.3 percent in the first quarter of 2015 compared to 84.7 percent in the first quarter of 2014, reflecting a higher level of submitted claims relative to the favorable experience of last year’s first quarter.
Corporate Segment
The Corporate segment reported an operating loss of $29.9 million for the first quarter of 2015 compared to an operating loss of $26.5 million in the first quarter of 2014, primarily reflecting lower levels of invested assets and higher operating expense accruals.
Shares Outstanding
The company’s average number of shares outstanding, assuming dilution, was 252.2 million for the first quarter of 2015, compared to 260.7 million for the first quarter of 2014. Shares outstanding totaled 249.5 million at March 31, 2015. During the first quarter of 2015, the Company repurchased 3.2 million shares at a cost of approximately $108 million.
Capital Management
At March 31, 2015, 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 $426 million.
Book Value
Book value per common share as of March 31, 2015 was $34.82, compared to $34.68 at March 31, 2014.
Outlook
The company anticipates growth in after-tax operating earnings per share for full-year 2015 to be in the outlook range announced in December 2014 of two percent to five percent.