Unum Reports Sharp Rise In Net Income For 3rd Quarter

Wednesday, October 25, 2017

Unum Group (NYSE: UNM) on Wednesday reported net income of $252.3 million ($1.12 per diluted common share) for the third quarter of 2017, compared to net income of $236 million ($1.01 per diluted common share) for the third quarter of 2016.

After-tax operating income, which excludes net after-tax realized investment gains and losses on the Company’s investment portfolio, was $246.1 million ($1.09 per diluted common share) in the third quarter of 2017, compared to $228.7 million ($0.98 per diluted common share) in the third quarter of 2016.  Net after-tax realized investment gains were $6.2 million ($0.03 per diluted common share) in the third quarter of 2017, compared to $7.3 million ($0.03 per diluted common share) in the third quarter of 2016. 

“Third quarter results continued a trend of very good results for the company.  This consistent performance has been driven by solid top-line growth, overall stable benefits experience, and good expense management,” said Richard P. McKenney, president and chief executive officer.  “We remain focused on effectively serving our customers and executing our business strategy.  Our disciplined approach is yielding steady growth, strong financial performance, and value creation for our shareholders.”

          Unum US Segment 

          Unum US reported operating income of $258.4 million in the third quarter of 2017, an increase of 11.9 percent from $231.0 million in the third quarter of 2016.  Premium income for the segment increased 3.5 percent to $1,360.9 million in the third quarter of 2017, compared to premium income of $1,315.0 million in the third quarter of 2016.  Net investment income for the segment declined 3.0 percent to $201.0 million in the third quarter of 2017, compared to $207.3 million in the third quarter of 2016.

Within the Unum US operating segment, the group disability line of business reported a 5.4 percent increase in operating income to $90.0 million in the third quarter of 2017, compared to $85.4 million in the third quarter of 2016.  Premium income in group disability increased 2.2 percent to $596.3 million in the third quarter of 2017, compared to $583.6 million in the third quarter of 2016, primarily due to sales growth, partially offset by a decline in persistency.  Net investment income declined by 5.3 percent to $113.7 million in the third quarter of 2017, compared to $120.1 million in the third quarter of 2016, due to a decrease in the level of invested assets and a decline in portfolio yield, partially offset by higher miscellaneous income.  The benefit ratio for the third quarter of 2017 was 76.7 percent, compared to 78.6 percent in the third quarter of 2016, reflecting continued favorable incidence trends in our group long-term disability product line and lower prevalence rates in our group short-term disability product line.  Partially offsetting these positive trends was the 50 basis point reduction in the discount rate used for new claim incurrals for the group long-term disability line of business implemented in the fourth quarter of 2016.  Group long-term disability sales were $31.1 million in the third quarter of 2017, an increase of 28.0 percent from $24.3 million in the third quarter of 2016.  Group short-term disability sales were $20.7 million in the third quarter of 2017, an increase of 76.9 percent from $11.7 million in the third quarter of 2016.  Persistency in the group long-term disability line of business was 89.5 percent for the first nine months of 2017, compared to 90.5 percent for the first nine months of 2016.  Persistency in the group short-term disability line of business was 86.3 percent for the first nine months of 2017, compared to 87.4 percent for the first nine months of 2016.   

The group life and accidental death and dismemberment line of business reported operating income of $60.1 million in the third quarter of 2017, an increase of 12.5 percent from $53.4 million in the third quarter of 2016.  Premium income for this line of business increased 4.8 percent to $407.2 million in the third quarter of 2017, compared to $388.7 million in the third quarter of 2016, primarily due to sales growth, partially offset by a decline in persistency.  Net investment income declined 2.8 percent to $27.3 million in the third quarter of 2017, compared to $28.1 million in the third quarter of 2016, primarily due to a decline in yield and a decline in the level of invested assets supporting this line of business, partially offset by an increase in miscellaneous income.  The benefit ratio in the third quarter of 2017 was 71.4 percent, compared to 72.6 percent in the third quarter of 2016, reflecting lower incidence and average claim size in the group life product line.  Sales of group life and accidental death and dismemberment products increased 12.9 percent in the third quarter of 2017 to $35.1 million, compared to $31.1 million in the third quarter of 2016.  Persistency in the group life line of business was 87.7 percent for the first nine months of 2017, compared to 90.3 percent for the first nine months of 2016.   

The supplemental and voluntary line of business reported an increase of 17.5 percent in operating income to $108.3 million in the third quarter of 2017, compared to $92.2 million in the third quarter of 2016.  Premium income for supplemental and voluntary increased 4.3 percent to $357.4 million in the third quarter of 2017, compared to $342.7 million in the third quarter of 2016.  This increase was primarily driven by the addition of the dental and vision product offering resulting from an acquisition in August 2016, as well as growth in the in-force block of voluntary benefits due to sales growth.  The increase was only partially offset by a decline in the in-force individual disability line due to the impact of a reinsurance transaction executed in the fourth quarter of 2016 to cede a portion of the individual disability product line, which offset an increase in the in-force block due to sales growth.  Net investment income increased 1.5 percent to $60.0 million in the third quarter of 2017, compared to $59.1 million in the third quarter of 2016, due to an increase in the level of invested assets and miscellaneous income, partially offset by a decline in yield.  The benefit ratio for the individual disability product line was 48.3 percent for the third quarter of 2017, compared to 52.6 percent for the third quarter of 2016, reflecting lower claim volumes in the current quarter, partially offset by the impact of the reinsurance agreement.  The benefit ratio for voluntary benefits was 44.1 percent in the third quarter of 2017, compared to 46.5 percent in the third quarter of 2016, primarily driven by favorable benefits experience across most of the product lines.  The benefit ratio for dental and vision was 70.1 percent for the third quarter of 2017, compared to 68.0 percent for the third quarter of 2016, primarily driven by less favorable claims experience.  Relative to the third quarter of 2016, sales in the individual disability line of business increased 24.4 percent in the third quarter of 2017 to $20.4 million.  Sales in the voluntary benefits line of business decreased 1.8 percent in the third quarter of 2017 to $44.8 million.  Sales in the dental and vision line totaled $9.7 million for the third quarter of 2017.  Persistency in the individual disability product line was 91.1 percent for the first nine months of 2017, compared to 91.2 percent for the first nine months of 2016.  Persistency in the voluntary benefits product line was 76.8 percent for both the first nine months of 2017 and 2016.  Persistency in the dental and vision product line was 84.2 percent in the first nine months of 2017. 

            Unum UK Segment

Unum UK reported operating income of $26.5 million in the third quarter of 2017, a decline of 6.0 percent from $28.2 million in the third quarter of 2016.  In local currency, operating income declined by 6.0 percent to £20.2 million in the third quarter of 2017, compared to £21.5 million in the third quarter of 2016.

Premium income increased by 3.3 percent to $131.5 million in the third quarter of 2017, compared to $127.3 million in the third quarter of 2016.  In local currency, premium income was £100.4 million in the third quarter of 2017, an increase of 3.6 percent from £96.9 million in the third quarter of 2016, primarily driven by growth in the in-force block, resulting from prior period sales and stable persistency.  Net investment income was $28.5 million in both the third quarter of 2017 and 2016.  In local currency, net investment income was £21.8 million in the third quarter of 2017, compared to £21.7 million in the third quarter of 2016, primarily due to higher income from inflation index-linked bonds which support the claim reserves associated with certain group policies that provide inflation-linked increases in benefits and growth in the level of invested assets, partially offset by a decline in yield on fixed-rate bonds.  The benefit ratio in the third quarter of 2017 was 74.9 percent, compared to 71.8 percent in the third quarter of 2016, reflecting higher claim incidence and unfavorable claim resolutions in the group long-term disability product line and the impact from inflation-linked increases in benefits, partially offset by a lower average claim size in the group life product line.  Also contributing to the less favorable benefits experience was a reduction of 80 basis points in the discount rate implemented in the first quarter of 2017 across several of our products.

Sales declined by 14.9 percent to $16.5 million in the third quarter of 2017, compared to $19.4 million in the third quarter of 2016.  In local currency, sales for the third quarter of 2017 declined by 14.2 percent to £12.7 million compared to £14.8 million in the third quarter of 2016. Persistency in the group long-term disability line of business was 87.1 percent for the first nine months of 2017, compared to 88.7 percent for the first nine months of 2016.  Persistency in the group life line of business was 83.5 percent for the first nine months of 2017, compared to 80.1 percent for the first nine months of 2016.  Persistency in the supplemental line of business was 89.5 percent for the first nine months of 2017 compared to 90.5 percent for the first nine months of 2016.

Colonial Life Segment

Colonial Life reported a 3.4 percent increase in operating income to $81.7 million in the third quarter of 2017, compared to $79.0 million in the third quarter of 2016.

Premium income for the third quarter of 2017 increased 6.9 percent to $378.7 million, compared to $354.1 million in the third quarter of 2016, driven by sales growth in recent quarters and stable persistency.  Net investment income totaled $36.0 million in the third quarter of 2017, compared to $36.1 million in the third quarter of 2016, primarily driven by a decline in portfolio yield and lower miscellaneous income, which was partially offset by an increase in the level of invested assets.  The benefit ratio in the third quarter of 2017 was 51.8 percent, compared to 51.6 percent in the third quarter of 2016, reflecting less favorable benefits experience in the cancer and critical illness lines of business, mostly offset by favorable experience in the life and accident, sickness, and disability lines of business.

Sales increased 2.6 percent to $106.9 million in the third quarter of 2017 from $104.2 million in the third quarter of 2016, driven by increased sales in the core commercial market segment and public sector.  Persistency in Colonial Life was 79.0 percent for both the first nine months of 2017 and 2016.

Closed Block Segment

The Closed Block segment reported operating income of $26.6 million in the third quarter of 2017, compared to $28.6 million in the third quarter of 2016.      

Premium income for this segment declined 3.6 percent in the third quarter of 2017 compared to the third quarter of 2016, 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 0.9 percent to $337.2 million in the third quarter of 2017, compared to $334.1 million in the third quarter of 2016, due to an increase in the level of invested assets which was partially offset by a decline in yield.  The interest adjusted loss ratio for the individual disability line of business increased to 82.4 percent in the third quarter of 2017, compared to 81.5 percent in the third quarter of 2016, due to unfavorable mortality experience.  The interest adjusted loss ratio for the long-term care line of business was 93.3 percent in the third quarter of 2017 compared to 93.8 percent in the third quarter of 2016, due to the impact of a large group case moving to an individual policy ported status in 2016, partially offset by unfavorable policyholder lapses in the current quarter.      

Corporate Segment   

The Corporate segment reported an operating loss of $36.2 million for the third quarter of 2017, compared to an operating loss of $45.7 million in the third quarter of 2016, primarily driven by lower operating expenses and lower interest expense due to a lower level of outstanding debt, partially offset by a higher overall rate of interest.

The Company previously excluded the amortization of prior period actuarial gains or losses, a component of the net periodic benefit cost for the Company’s pension and other postretirement benefit plans, from the results of the Corporate segment.  Effective January 1, 2017, the amortization of prior period actuarial gains or losses is now reported in the Corporate segment and amounts for prior periods have been adjusted to conform to current year reporting.

 

OTHER INFORMATION

Shares Outstanding

The Company’s weighted average number of shares outstanding, assuming dilution, was 226.0 million for the third quarter of 2017, compared to 234.2 million for the third quarter of 2016.  Shares outstanding totaled 224.4 million at September 30, 2017.  During the third quarter of 2017, the Company repurchased approximately 2.0 million shares at a cost of approximately $100 million.

Capital Management

          At September 30, 2017, the weighted average risk-based capital ratio for the Company’s traditional U.S. insurance companies was approximately 410 percent and cash and marketable securities in the holding companies equaled $771 million, excluding amounts committed for subsidiary contributions.

 

Book Value

          Book value per common share as of September 30, 2017 was $42.11, compared to $40.33 at September 30, 2016.



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