Unum Group Reports Increased Net Income In Second Quarter

  • Wednesday, July 27, 2016

Unum Group on Wednesday reported net income of $236.8 million ($1.00 per diluted common share) for the second quarter of 2016, compared to net income of $224.3 million ($0.90 per diluted common share) for the second 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 $235.7 million ($0.99 per diluted common share) in the second quarter of 2016, compared to $222.6 million ($0.89 per diluted common share) in the second quarter of 2015. The combined impact of the amounts excluded for the second quarters of 2016 and 2015 equaled net after-tax income of $1.1 million ($0.01 per diluted common share) and $1.7 million ($0.01 per diluted common share), respectively. 

“Second quarter results were very strong, reflecting the on-going operating performance of our business segments. We continue to see solid levels of premium growth in our core business segments along with stable benefits experience and favorable expense management trends,” said Richard P. McKenney, president and chief executive officer. “These strong operating results continue to provide a significant level of financial flexibility for our company as we continue to create value for our shareholders through our share repurchase activity, dividends, and our investments in our future growth.”

RESULTS BY SEGMENT 

Unum Group measures and analyzes segment performance on the basis of "operating income" or "operating loss", which differ from income before income tax as presented in consolidated statements of income due to the exclusion of net realized investment gains and losses and nonoperating retirement-related gains or losses. These performance measures are in accordance with GAAP guidance for segment reporting, but they should not be viewed as a substitute for income before income tax or net income. 

Unum US Segment
Unum US reported operating income of $227.2 million in the second quarter of 2016, an increase of 12.0 percent from $202.8 million in the second quarter of 2015. Premium income for the segment increased 5.1 percent to $1,299.4 million in the second quarter of 2016, compared to premium income of $1,236.4 million in the second quarter of 2015. Net investment income for the segment was $207.7 million in the second quarter of 2016 compared to $215.7 million in the second quarter of 2015. 

Within the Unum US operating segment, the group disability line of business reported a 21.6 percent increase in operating income to $74.4 million in the second quarter of 2016 compared to $61.2 million in the second quarter of 2015. Premium income in group disability increased 5.0 percent to $589.1 million in the second quarter of 2016, compared to $561.0 million in the second quarter of 2015, primarily due to prior period sales growth partially offset by a decline in persistency in the group long-term disability product line. Net investment income declined by 4.3 percent to $119.8 million in the second quarter of 2016, compared to $125.2 million in the second quarter of 2015, primarily due to a decline in yields and lower miscellaneous investment income. The benefit ratio for the second quarter of 2016 was 80.0 percent, compared to 83.4 percent in the second quarter of 2015, reflecting lower claims incidence rates and favorable claim recovery experience in the group long-term disability product line and shorter claim duration periods in the
group short-term disability product line. Group long-term disability sales were $48.3 million in the second quarter of 2016, compared to $51.9 million in the second quarter of 2015. Group short-term disability sales declined to $24.9 million in the second quarter of 2016, compared to $32.4 million in the second quarter of 2015. Persistency in the group long-term disability line of business was 90.3 percent for the first half of 2016, compared to 91.4 percent for the first half of 2015. Persistency in the group short-term disability line of business was 87.0 percent for the first half of 2016, compared to 86.4 percent for the first half of 2015. 

The group life and accidental death and dismemberment line of business reported operating income of $56.9 million in the second quarter of 2016, an increase of 8.4 percent from $52.5 million in the second quarter of 2015. Premium income for this line of business increased 3.9 percent to $383.6 million in the second quarter of 2016, compared to $369.3 million in the second quarter of 2015, primarily due to favorable persistency in both group life and accidental death and dismemberment and sales growth. Net investment income declined 14.5 percent to $28.9 million in the second quarter of 2016, compared to $33.8 million in the second quarter of 2015, primarily due to a decline in the level of invested assets supporting this line of business. The benefit ratio in the second quarter of 2016 was 71.5 percent, compared to 73.1 percent in the second quarter of 2015, reflecting favorable group life waiver of premium benefits. Sales of group life and accidental death and dismemberment products increased 13.6 percent in the second quarter of 2016 to $55.3 million, compared to $48.7 million in the second quarter of 2015. Persistency in the group life line of business was 90.0 percent for the first half of 2016, compared to 88.0 percent for the first half of 2015. 

The supplemental and voluntary line of business reported an increase of 7.6 percent in operating income to $95.9 million in the second quarter of 2016, compared to $89.1 million in the second quarter of 2015. Premium income for supplemental and voluntary increased 6.7 percent to $326.7 million in the second quarter of 2016, compared to $306.1 million in the second quarter of 2015, driven by favorable persistency and sales growth. Net investment income increased to $59.0 million in the second quarter of 2016, compared to $56.7 million in the second 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 53.8 percent for the second quarter of 2016, compared to 51.7 percent for the second quarter of 2015, primarily driven by higher average size of submitted claims. The benefit ratio for voluntary benefits was 42.4 percent in the second quarter of 2016, compared to 43.1 percent in the second quarter of 2015, primarily driven by lower claim incidence in the disability product line. Relative to the second quarter of 2015, sales in the individual disability line of business increased 12.3 percent in the second quarter of 2016 to $14.6 million. Sales in the voluntary benefits line of business increased 14.0 percent in the second quarter of 2016 to $44.8 million. Persistency in the individual disability product line was 91.3 percent for the first half of 2016, compared to 90.4 percent for the first half of 2015. Persistency in the voluntary benefits product line was 76.7 percent for the first half of 2016, compared to 75.2 percent for the first half of 2015. 

Unum UK Segment
Unum UK reported operating income of $36.9 million in the second quarter of 2016, a decline of 3.7 percent from $38.3 million in the second quarter of 2015. In local currency, operating income increased by 2.8 percent to £25.7 million in the second quarter of 2016, compared to £25.0 million in the second quarter of 2015. 

Premium income declined by 1.0 percent to $140.8 million in the second quarter of 2016, compared to $142.2 million in the second quarter of 2015. In local currency, premium income was £98.1 million in the second quarter of 2016, an increase of 5.7 percent from £92.8 million in the second quarter of 2015, primarily resulting from the acquisition of National Dental Plan in the third quarter of 2015. Net investment income declined 11.9 percent to $34.0 million in the second quarter of 2016, compared to $38.6 million in the second quarter of 2015. In local currency, net investment income declined 6.0 percent to £23.7 million in the second quarter of 2016, compared to £25.2 million in the second quarter of 2015, primarily due to lower income from inflation index-linked bonds. The benefit ratio in the second quarter of 2016 was 70.1 percent, compared to 70.7 percent in the second quarter of 2015, reflecting favorable benefits experience in the group long-term disability line, partially offset by a higher average claim size and an increase in the claim incidence rate in the group life 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 12.2 percent to $23.0 million in the second quarter of 2016, compared to $20.5 million in the second quarter of 2015. In local currency, sales for the second quarter of 2016 increased by 19.4 percent to £16.0 million. Persistency in the group long-term disability line of business was 87.8 percent for the first half of 2016 compared to 87.5 percent for the first half of 2015. Persistency in the group life line of business was 78.8 percent for the first half of 2016, compared to 79.9 percent for the first half of 2015. 

Colonial Life Segment
Colonial Life reported a 0.4 percent increase in operating income to $77.9 million in the second quarter of 2016, compared to $77.6 million in the second quarter of 2015. Premium income for the second quarter of 2016 increased 4.6 percent to $351.4 million, compared to $335.9 million in the second quarter of 2015, primarily due to sales growth partially offset by a decline in persistency. Net investment income declined by 3.5 percent to $35.6 million in the second quarter of 2016, compared to $36.9 million in the second 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 second quarter of 2016 was 51.1 percent, compared to 50.4 percent in the second quarter of 2015, primarily reflecting less favorable mortality experience in the life product line, which offset favorable claims experience in the accident, sickness, and disability product line and the cancer and critical illness product line. 

Sales increased 13.3 percent to $108.5 million in the second quarter of 2016 from $95.8 million in the second 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 half of 2016 compared to 79.2 percent for the first half of 2015. 

Closed Block Segment
The Closed Block segment reported operating income of $32.6 million in the second quarter of 2016, compared to operating income of $36.6 million in the second quarter of 2015. 

Premium income for this segment declined 4.3 percent in the second quarter of 2016 compared to the second quarter of 2015, 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 2.8 percent to $341.1 million in the second quarter of 2016, compared to $331.7 million in the second 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 84.3 percent in the second quarter of 2016, compared to 83.6 percent in the second 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 and calls experienced in the second quarter of 2016. The interest adjusted loss ratio for the long-term care line of business was 92.6 percent in the second quarter of 2016 compared to 83.4 percent in the second quarter of 2015, due primarily to a higher average claim size. 

Corporate Segment
The corporate segment reported an operating loss of $35.7 million for the second quarter of 2016, compared to an operating loss of $33.4 million in the second quarter of 2015. The higher operating loss in the second quarter of 2016 was due primarily to lower net investment income and higher interest and debt expense, which were partially offset by lower operating expenses. 

OTHER INFORMATION
Shares Outstanding
The company’s average number of shares outstanding, assuming dilution was 237.3 million for the second quarter of 2016, compared to 249.2 million for the second quarter of 2015. Shares outstanding totaled 235.0 million at June 30, 2016. During the second quarter of 2016, the company repurchased approximately 2.8 million shares at a cost of approximately $100 million. 

Capital Management
At June 30, 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 approximately $600 million, excluding amounts committed for the third quarter debt maturity, subsidiary contributions, and the anticipated acquisition of H&J Capital, LLC, parent of Starmount Life Insurance Company and AlwaysCare Benefits.

Book Value
Book value per common share as of June 30, 2016 was $38.96, compared to $34.53 at June 30, 2015.

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