Unum Has Rise In Net Income For 1st Quarter 2017

  • Wednesday, April 26, 2017

Unum Group (NYSE: UNM) today reported net income of $229.9 million ($1.00 per diluted common share) for the first quarter of 2017, compared to net income of $210.6 million ($0.88 per diluted common share) for the first quarter of 2016.

Net income includes net after-tax realized investment gains and losses on the company’s investment portfolio and also, in the first quarter of 2017, a loss from a guaranty fund assessment related to an unaffiliated insurer that was declared insolvent of $20.6 million before tax and $13.4 million after tax ($0.06 per diluted common share). The net after-tax realized investment gain was $7.2 million ($0.04 per diluted common share) in the first quarter of 2017, compared to a net loss of $13.6 million ($0.06 per diluted common share) in the first quarter of 2016. Excluding these items, after-tax operating income was $236.1 million ($1.02 per diluted common share) in the first quarter of 2017, compared to $224.2 million ($0.94 per diluted common share) in the first quarter of 2016.

“Our first quarter financial results were a very good start to 2017, and continued many of the positive operating trends we experienced in 2016,” said Richard P. McKenney, president and chief executive officer.

“Our record earnings levels and overall consistent performance demonstrate the single minded focus on serving our customers and the disciplined execution of our strategy.

”We measure and analyze our segment performance on the basis of "operating income" or "operating loss", which differ from income before income tax as presented in our consolidated statements of income due to the exclusion of net realized investment gains and losses and certain other items. 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 reported operating income of $239.1 million in the first quarter of 2017, an increase of 10.7 percent from $215.9 million in the first quarter of 2016. Premium income for the segment increased 4.5 percent to $1,360.4 million in the first quarter of 2017, compared to premium income of $1,301.3 million in the first quarter of 2016. Net investment income for the segment was $202.5 million in the first quarter of 2017, compared to $207.4 million in the first quarter of 2016.

Within the Unum US operating segment, the group disability line of business reported a 26.0 percent increase in operating income to $88.7 million in the first quarter of 2017, compared to $70.4 million in the first quarter of 2016. Premium income in group disability increased 0.7 percent to $592.3 million in the first quarter of 2017, compared to $588.1 million in the first quarter of 2016, primarily due to prior period sales growth partially offset by a decline in persistency. Net investment income declined by 4.4 percent to $115.5 million in the first quarter of 2017,compared to $120.8 million in the first quarter of 2016, due to a decrease in the level of invested assets and a decline in portfolio yield. The benefit ratio for the first quarter of 2017 was 76.6 percent, compared to 80.6 percent in the first quarter of 2016, reflecting lower claim incidence rates in our group long-term disability product line, lower prevalence rates in our group short-term disability product line, and the impact of rate increases on the in-force block for our group long-term disability product line. These positive trends more than offset 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 $36 million in the first quarter of 2017, compared to $37.5 million in the first quarter of 2016. Group short-term disability sales were $16.9 million in the first quarter of 2017,compared to $16.2 million in the first quarter of 2016. Persistency in the group long-term disability line of business was 88.1 percent for the first quarter of 2017, compared to 88.9 percent for the first quarter of 2016.

Persistency in the group short-term disability line of business was 85.2 percent for the first quarter of 2017, compared to 86.0 percent for the first quarter of 2016.The group life and accidental death and dismemberment line of business reported operating income of $56 million in the first quarter of 2017, an increase of 1.1 percent from $55.4 million in the first quarter of 2016. Premium income for this line of business increased 4.7 percent to $404.4 million in the first quarter of 2017, compared to $386.1 million in the first quarter of 2016, primarily due to prior period sales growth partially offset by a decline in persistency. Net investment income declined 3.2 percent to $27.6 million in the first quarter of 2017,compared to $28.5 million in the first quarter of 2016, primarily due to a decline in yield and a decline in the level of invested assets supporting this line of business. The benefit ratio in the first quarter of 2017 was 71.9 percent, compared to 71.5 percent in the first quarter of 2016, reflecting a higher average claim size in the accidental death and dismemberment product line. Sales of group life and accidental death and dismemberment products declined 8.8 percent in the first quarter of 2017 to $37.2 million,compared to $40.8 million in the first quarter of 2016.

Persistency in the group life line of business was 87.4 percent for the first quarter of 2017,compared to 89.9 percent for the first quarter of 2016.The supplemental and voluntary line of business reported an increase of 4.8 percent in operating income to $94.4 million in the first quarter of 2017, compared to $90.1 million in the first quarter of 2016.

Premium income for supplemental and voluntary increased 11.2 percent to$363.7 million in the first quarter of 2017, compared to $327.1 million in the first quarter of 2016. This increase was 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 individual disability and voluntary benefits products due to sales growth. Somewhat offsetting this growth was the impact of a reinsurance transaction executed in the fourth quarter of 2016 to cede a portion of the individual disability product line.

Net investment income increased to $59.4 million in the first quarter of 2017, compared to $58.1 million in the first quarter of 2016, due to an increase in the level of invested assets and miscellaneous investment income, partially offset by a decline in yield. The benefit ratio for the individual disability product line was 54.6 percent for the first quarter of 2017, compared to 50.9 percent for the first quarter of 2016, reflecting the impact of the reinsurance agreement. Underlying risk experience was generally stable between the two reporting periods. The benefit ratio for voluntary benefits was 42.2 percent in the first quarter of 2017, compared to 43.8 percent in the first quarter of 2016, primarily driven by favorable benefits experience across most product lines. The benefit ratio for dental and vision was 71.6 percent for the first quarter of 2017. Relative to the first quarter of 2016, sales in the individual disability line of business declined 3 percent in the first quarter of 2017 to $16.2 million. Sales in the voluntary benefits line of business increased 17.0 percent in the first quarter of 2017 to $147.3 million. Sales in the dental and vision line totaled $9.9 million. Persistency in the individual disability product line was 91.1 percent for the first quarter of 2017, compared to 91.3 percent for the first quarter of 2016. Persistency in the voluntary benefits product line was 75.9 percent for the first quarter of 2017, compared to 76.7 percent for the first quarter of 2016. Persistency in the dental and vision product line was 83.4 percent in the first quarter of 2017.

Unum UK reported operating income of $26.6 million in the first quarter of 2017, a decline of 20.8 percent from $33.6 million in the first quarter of 2016. In local currency, operating income declined by 8.9 percent to £21.4 million in the first quarter of 2017, compared to £23.5 million in the first quarter of 2016.Premium income declined by 12.9 percent to $121.3 million in the first quarter of 2017, compared to $139.3 million in the first quarter of 2016. In local currency, premium income was £97.9 million in the first quarter of 2017, an increase of 0.6 percent from £97.3 million in the first quarter of 2016, primarily driven by growth in the supplemental line of business due to favorable persistency and prior period sales growth in the group critical illness product. Net investment income was $26.6 million inthe first quarter of 2017, compared to $26.8 million in the first quarter of 2016. In local currency, net investment income increased 14.4 percent to £21.4 million in the first quarter of 2017, compared to £18.7 million in the first quarter of 2016, primarily due to higher income from inflation index-linked bonds. The benefit ratio in the first quarter of 2017 was 71.4 percent, compared to 67.9 percent in the first quarter of 2016, reflecting a higher average size of new claims for the group long-term disability line of business and the impact from inflation-linked increases in benefits,partially offset by favorable claims activity in our 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 increased by 7.1 percent to $19.7 million in the first quarter of 2017, compared to $18.4 million in the first quarter of 2016. In local currency, sales for the first quarter of 2017 increased by 24.2 percent to £15.9 million. Persistency in the group long-term disability line of business was 84.2 percent for the first quarter of 2017, compared to 87.5 percent for the first quarter of 2016. Persistency in the group life line of business was 82.0 percent for the first quarter of 2017, compared to 79.6 percent for the first quarter of 2016. Persistency in the supplemental line of business was 91.5 percent for the first quarter of 2017 compared to 90.5 percent for the first quarter of 2016.

Colonial Life reported a 6.5 percent increase in operating income to$82.4 million in the first quarter of 2017, compared to $77.4 million in the first quarter of 2016.Premium income for the first quarter of 2017 increased 6.6 percent to $374.3 million, compared to $351.2 million in the first quarter of 2016,driven by sales growth in recent quarters. Net investment income increased 3.2 percent to $35.1 million in the first quarter of 2017,compared to $34.0 million in the first quarter of 2016. The benefit ratio in the first quarter of 2017 was 50.8 percent, compared to 50.9 percent in the first quarter of 2016, reflecting favorable benefits experience in the life and cancer and critical illness lines of business, which offset slightly less favorable experience in the accident, sickness and disability line of business.

Sales increased 7.2 percent to $96.4 million in the first quarter of2017 from $89.9 million in the first quarter of 2016, with favorable salestrends in both the core commercial and public sector market segments.Persistency in Colonial Life was 78.5 percent for both the first quarter of 2017 and 2016.

The Closed Block segment reported operating income of $31.6 million in the first quarter of 2017, compared to operating income of $33.7 million in the first quarter of 2016.Premium income for this segment declined 3 percent in the first quarter of 2017 compared to the first 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 0.6 percent to $335.3 million in the first quarter of 2017,compared to $333.4 million in the first quarter of 2016, due to an increase in the level of invested assets, partially offset by a decline in yield and lower miscellaneous investment income. The interest adjusted loss ratio for the individual disability line of business declined to 83.6 percent in the first quarter of 2017, compared to 84.0 percent in the first quarter of 2016, primarily reflecting lower claim incidence and favorable mortality experience. The interest adjusted loss ratio for the long-term care line of business was 88.6 percent in the first quarter of 2017 compared to 88.9 percent in the first quarter of 2016, primarily driven by favorable mortality experience.t

The Corporate segment reported an operating loss, including the loss from a guaranty fund assessment, of $60.4 million for the first quarter of 2017, compared to an operating loss of $35.9 million in the first quarter of 2016. The operating loss in the first quarter of 2017, excluding

the loss from the assessment, was $39.8 million.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 post retirement 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.

The company’s average number of shares outstanding, assuming dilution, was 230.4 million for the first quarter of 2017, compared to 239.9 million for the first quarter of 2016. Shares outstanding totaled 228.2 million at March 31, 2017. During the first quarter of 2017, the Company repurchased approximately 2.1 million shares at a cost of approximately $100 million.

At March 31, 2017, the weighted average risk-based capital ratio for the company’s traditional U.S. insurance companies was in excess of 390 percent, and cash and marketable securities in the holding companies equaled $648 million.

Book value per common share as of March 31, 2017 was $39.91, compared to$37.52 at March 31, 2016.

The company’s expectation for after-tax operating income growth per share for full-year 2017 continues to be within a range of three percent to six percent.

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