Unum Group on Wednesday reported net income of $210.6 million ($0.88 per diluted common share) for the first quarter of 2016, compared to net income of $212.9 million ($0.84 per diluted common share) for the first quarter of 2015.
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 $226.8 million ($0.95 per diluted common share) in the first quarter of 2016, compared to $224.8 million ($0.89 per diluted common share) in the first quarter of 2015. The combined impact of the amounts excluded for the first quarter of 2016 resulted in a net after-tax loss of $16.2 million ($0.07 per diluted common share). The combined impact of the amounts
excluded for the first quarter of 2015 resulted in a net after-tax loss of $11.9 million ($0.05 per diluted common share).
“Our first quarter results were a strong start to 2016. I am very pleased with the operating performance of our core business segments, which again showed solid levels of premium growth and stable benefits experience,” said Richard P. McKenney, president and chief executive officer. “Additionally, our financial flexibility continues to help create value for our shareholders as we actively repurchased our shares while investing in our future growth with the planned acquisition of Starmount Life Insurance Company. This platform will broaden our employee benefits offerings as we expand in the dental and vision markets.”
Unum US Segment
Unum US reported operating income of $215.9 million in the first quarter of 2016, an increase of 0.7 percent from $214.3 million in the first quarter of 2015. Premium income for the segment increased 5.8 percent to $1,301.3 million in the first quarter of 2016, compared to premium income of $1,230.2 million in the first quarter of 2015. Net investment income for the segment was $207.4 million in the first quarter of 2016 and $215.0 million in the first quarter of 2015.
Within the Unum US operating segment, the group disability line of business reported a 5.2 percent decline in operating income to $70.4 million in the first quarter of 2016 compared to $74.3 million in the first quarter of 2015. Premium income in group disability increased 6.3 percent to $588.1 million in the first quarter of 2016, compared to $553.0 million in the first quarter of 2015, primarily due to prior period sales growth partially offset by a decline in persistency. Net investment income declined by 3.4 percent to $120.8 million in the first quarter of 2016, compared to $125.0 million in the first quarter of 2015, primarily due to a decline in yields. The benefit ratio for the first quarter of 2016 was 80.6 percent, compared to 80.1 percent in the first quarter of 2015, reflecting a
higher average claim size. Group long-term disability sales were $37.5 million in the first quarter of 2016, compared to $37.3 million in the first quarter of 2015. Group short-term disability sales declined 32.5 percent to $16.2 million in the first quarter of 2016, compared to $24.0 million in the first quarter of 2015. Persistency in the group long-term disability line of business was 88.9 percent for the first quarter of 2016, compared to 91.0 percent for the first quarter of 2015. Persistency in the group shortterm disability line of business was 86.0 percent for the first quarter of 2016, compared to 86.5 percent for the first quarter of 2015.
The group life and accidental death and dismemberment line of business reported operating income of $55.4 million in the first quarter of 2016, a decline of 4.3 percent from $57.9 million in the first quarter of 2015. Premium income for this line of business increased 5.0 percent to $386.1 million in the first quarter of 2016, compared to $367.6 million in the first quarter of 2015, primarily due to favorable persistency in both group life and accidental death and dismemberment. Net investment
income declined 14.9 percent to $28.5 million in the first quarter of 2016, compared to $33.5 million in the first quarter of 2015, primarily due to a decline in yields and a decline in the level of invested assets supporting this line of business. The benefit ratio in the first quarter of 2016 was 71.5 percent, compared to 70.9 percent in the first quarter of 2015, reflecting a higher average paid claim size and higher claim incidence. Sales of group life and accidental death and dismemberment products declined 4.9 percent in the first quarter of 2016 to $40.8 million, compared to $42.9 million in the first quarter of 2015. Persistency in the group life line of business was 89.9 percent for the first quarter of 2016, compared to 87.3 percent for the first quarter of 2015.
The supplemental and voluntary line of business reported an increase of 9.7 percent in operating income to $90.1 million in the first quarter of 2016, compared to $82.1 million in the first quarter of 2015. Premium income for supplemental and voluntary increased 5.7 percent to $327.1 million in the first quarter of 2016, compared to $309.6 million in the first quarter of 2015. Net investment income increased to $58.1 million in the first quarter of 2016, compared to $56.5 million in the first
quarter of 2015, due to an increase in the level of invested assets, partially offset by a decline in yields. The benefit ratio for the individual disability product line was 50.9 percent for the first quarter of 2016, compared to 48.9 percent for the first quarter of 2015, primarily driven by an increase in new claim incidence. The benefit ratio for voluntary benefits was 43.8 percent in the first quarter of 2016, compared to 40.9 percent in the first quarter of 2015, primarily driven by higher reserve releases in the year ago quarter resulting from policy terminations. Relative to the first quarter of 2015, sales in the individual disability line of business increased 35.8 percent in the first quarter of 2016 to $16.7 million. Sales in the voluntary benefits line of business declined 4.5 percent in the first quarter of 2016 to $125.9 million. Persistency in the individual disability product line was 91.3 percent for the first quarter of 2016, compared to 90.1 percent for the first quarter of 2015. Persistency in the voluntary benefits product line was 76.7 percent for the first quarter of 2016, compared to 75.5 percent for the first quarter of 2015.
Unum UK Segment
Unum UK reported operating income of $33.6 million in the first quarter of 2016, an increase of 3.1 percent from $32.6 million in the first quarter of 2015. In local currency, operating income increased by 9.3 percent to £23.5 million in the first quarter of 2016, compared to £21.5 million in the first quarter of 2015.
Premium income increased by 0.2 percent to $139.3 million in the first quarter of 2016, compared to $139.0 million in the first quarter of 2015. In local currency, premium income was £97.3 million in the first quarter of 2016, an increase of 6.1 percent from £91.7 million in the first quarter of 2015, primarily resulting from the acquisition of National Dental Plan. Net investment income increased 14.0 percent to $26.8 million in the first quarter of 2016, compared to $23.5 million in the first quarter of 2015. In local currency, net investment income increased 21.4 percent to £18.7 million in the first quarter of 2016, compared to £15.4 million in the first quarter of 2015, primarily due to higher income from inflation indexlinked bonds. The benefit ratio in the first quarter of 2016 was 67.9 percent, compared to 65.3 percent in the first quarter of 2015, reflecting higher incidence and average claim size in the group life line, partially offset by lower average size of new claims in the group long-term disability line. The acquisition of National Dental Plan also contributed to the increase in our benefit ratio as this product line typically has a higher benefit ratio than other product lines reported in our supplemental product line.
Sales increased by 10.2 percent to $18.4 million in the first quarter of 2016, compared to $16.7 million in the first quarter of 2015. In local currency, sales for the first quarter of 2016 increased by 16.4 percent to £12.8 million. Persistency in the group long-term disability line of business was 87.5 percent for the first quarter of 2016 compared to 86.6 percent for the first quarter of 2015. Persistency in the group life line of business was 79.6 percent for the first quarter of 2016, compared to 79.3 percent for the first quarter of 2015.
Colonial Life Segment
Colonial Life reported a 0.3 percent decline in operating income to $77.4 million in the first quarter of 2016, compared to $77.6 million in the first quarter of 2015.
Premium income for the first quarter of 2016 increased 5.7 percent to $351.2 million, compared to $332.2 million in the first quarter of 2015, driven by sales growth in recent quarters, partially offset by a decline in persistency. Net investment income declined by 8.1 percent to $34.0 million in the first quarter of 2016, compared to $37.0 million in the first quarter of 2015, primarily due to lower miscellaneous investment income and a decrease in yields, partially offset by an increase in the level of assets supporting this segment. The benefit ratio in the first quarter of 2016 was 50.9 percent, compared to 51.3 percent in the first quarter of 2015, primarily reflecting favorable experience in the accident, sickness, and disability product line and the critical illness product line.
Sales increased 16.0 percent to $89.9 million in the first quarter of 2016 from $77.5 million in the first quarter of 2015, with favorable sales trends in both the commercial and public sector market segments. Persistency in Colonial Life was 78.5 percent for the first quarter of 2016 compared to 79.5 percent for the first quarter of 2015.
Closed Block Segment
The Closed Block segment reported operating income of $33.7 million in the first quarter of 2016, compared to operating income of $26.7 million in the first quarter of 2015.
Premium income for this segment declined 3.0 percent in the first quarter of 2016 compared to the first quarter of 2015, primarily due to expected policy terminations and maturities for the individual disability line of business which was partially offset by an increase in premium income for the long-term care line of business resulting from premium rate increases on certain in-force policies. Net investment income increased 4.1 percent to $333.4 million in the first quarter of 2016, compared to $320.4 million in the first quarter of 2015, due to an increase in the level of invested assets and higher miscellaneous investment income. The interest adjusted loss ratio for the individual disability line of business increased to 84.0 percent in the first quarter of 2016, compared to 80.0 percent in the first quarter of 2015, due primarily to a slight reduction in the claim reserve discount rate to recognize the impact on future portfolio yields from the higher than normal level of bond tenders during the first quarter of 2016. The interest adjusted loss ratio for the long-term care line of business was 88.9 percent in the first quarter of 2016 compared to 87.3 percent in the first quarter of 2015, primarily driven by a higher average submitted claim size.
Corporate Segment
The Corporate segment reported an operating loss of $31.8 million for the first quarter of 2016, compared to an operating loss of $29.9 million in the first quarter of 2015. The higher operating loss in the first quarter of 2016 was due primarily to lower net investment income.
OTHER INFORMATION
Shares Outstanding
The company’s average number of shares outstanding, assuming dilution, was 239.9 million for the first quarter of 2016, compared to 252.2 million for the first quarter of 2015. Shares outstanding totaled 237.7 million at March 31, 2016. During the first quarter of 2016, the company repurchased approximately 3.7 million shares at a cost of approximately $100 million.
Capital Management
At March 31, 2016, the weighted average risk-based capital ratio for the company’s traditional U.S. insurance companies was approximately 390 percent, and cash and marketable securities in the holding companies equaled $478 million.
Book Value
Book value per common share as of March 31, 2016 was $37.52, compared to $34.82 at March 31, 2015.
Outlook
The company’s expectation for after-tax operating income growth per share for full-year 2016 continues to be within a range of three percent to six percent.