Pandemic Cited As Unum Faces Major Income Drop, $2.1 Billion Reserve Deficiency At Maine Operation

Wednesday, May 6, 2020

Unum Group (NYSE: UNM) for the first quarter reported net income of $161 million ($0.79 per diluted common share), compared to net income of $280.9 million ($1.31 per diluted common share) for the first quarter of 2019.

Included in net income are net after-tax realized investment gains and losses on the company's investment portfolio.  The company reported a net after-tax realized investment loss of $113.1 million ($0.56 per diluted common share) in the first quarter of 2020, compared to a net after-tax realized investment gain on the company's investment portfolio of $0.6 million in the first quarter of 2019.  Excluding the items above, after-tax adjusted operating income was $274.1 million ($1.35 per diluted common share) in the first quarter of 2020, compared to $280.3 million ($1.31 per diluted common share) in the first quarter of 2019.

In connection with a  financial examination of its Maine headquartered Unum Life Insurance Company of America subsidiary, which is expected to close at the end of the second quarter, the Maine Bureau of Insurance has concluded that Unum America's long-term care statutory reserves are deficient by $2.1 billion as of December 31, 2018.  As permitted by the MBOI, Unum America will phase in the additional statutory reserves over seven years beginning with year-end 2020 and ending with year-end 2026.  The 2020 phase-in amount is estimated to be between $200 million and $250 million.  Officials said, "This strengthening will be accomplished by our actuaries incorporating explicitly agreed upon margins into our existing assumptions for annual statutory reserve adequacy testing.  These actions will add margin to Unum America's best estimate assumptions.  The company plans to fund the additional statutory reserves with expected cash flows.  The company's long-term care reserves and financial results reported under generally accepted accounting principles are not affected by the MBOI's examination conclusion." 

Unum officials said, "On March 11, 2020, the World Health Organization identified the spread of COVID-19 as a pandemic.  COVID-19 has caused significant disruption to the global economy and has unfavorably impacted our company as well as the overall insurance industry.  Due to the unprecedented nature of these events and the current pace of change in this environment, we cannot fully estimate the ultimate impact of the COVID-19 pandemic at this time.  We are closely monitoring several key factors related to our business that have and may continue to have adverse impacts.

"While our first quarter results were solid, the emergence of the COVID-19 pandemic and resulting economic contraction have created uncertainty for both businesses and individuals worldwide.  The current environment reinforces the importance of our corporate purpose, helping the working world thrive throughout life's moments, and we will remain focused on providing excellent service to people in their time of need," said Richard P.

McKenney, president and chief executive officer.

"Our resilient franchise, with its strong capital and liquidity position, has weathered numerous economic and business cycles successfully in the past, and we have a well-developed road map for managing through these times. The resolution we reached with the Maine Bureau of Insurance regarding funding the long-term care business will build additional margin over our best estimates and should reduce market uncertainty over the block.  With our dedicated people and excellent brands and strong reputation in the benefits marketplace, we will continue to invest in our operations and expand into new areas where we can best leverage our expertise and capabilities to capture growth opportunities as the economy begins to recover."

Unum US Segment             

Unum US reported adjusted operating income of $261.8 million in the first quarter of 2020, an increase of 3.8 percent from $252.3 million in the first quarter of 2019.  Premium income for the segment increased 1.7 percent to $1,527.7 million in the first quarter of 2020, compared to premium income of $1,501.9 million in the first quarter of 2019.  Net investment income for the segment decreased 1.4 percent to $179.6 million in the first quarter of 2020, compared to $182.1 million in the first quarter of 2019.

Within the Unum US operating segment, the group disability line of business reported a 7.6 percent decrease in adjusted operating income to $76.3 million in the first quarter of 2020, compared to $82.6 million in the first quarter of 2019.  Premium income for the group disability line of business increased 3.8 percent to $666.2 million in the first quarter of 2020, compared to $641.6 million in the first quarter of 2019, driven by growth in the in-force block resulting from higher prior period sales, partially offset by lower persistency.  Net investment income decreased 6.6 percent to $93.4 million in the first quarter of 2020, compared to $100.0 million in the first quarter of 2019, driven by a decline in yield on invested assets, lower miscellaneous investment income, and a decrease in the level of invested assets.  The benefit ratio for the first quarter of 2020 was 73.2 percent, compared to 74.7 percent in the first quarter of 2019, due primarily to favorable claim recovery experience in our group long-term disability product line, partially offset by higher claims incidence in both our group long-term and short-term disability product lines.  Group long-term disability sales were $31.4 million in the first quarter of 2020, a decrease of 14.9 percent from $36.9 million in the first quarter of 2019.  Group short-term disability sales were $14.2 million in the first quarter of 2020, compared to $20.9 million in the first quarter of 2019.  Persistency in the group long-term disability product line was 90.6 percent in the first quarter of 2020, compared to 90.9 percent in the first quarter of 2019.  Persistency in the group short-term disability product line was 86.1 percent in the first quarter of 2020, compared to 90.5 percent in the first quarter of 2019.

The group life and accidental death and dismemberment line of business reported adjusted operating income of $70.4 million in the first quarter of 2020, an increase of 4.5 percent from $67.4 million in the first quarter of 2019.  Premium income for this line of business was $456.2 million in the first quarter of 2020, which was generally consistent with the $455.4 million in the first quarter of 2019, with growth in the in-force block resulting from prior period sales growth mostly offset by lower persistency.  Net investment income was $25.7 million in the first quarter of 2020, which was generally consistent with the $25.6 million in the first quarter of 2019, due primarily to a higher level of invested assets and higher miscellaneous investment income, mostly offset by a decline in yield on invested assets.  The benefit ratio in the first quarter of 2020 was 70.6 percent, compared to 70.9 percent in the first quarter of 2019, due primarily to lower claims incidence in the group accidental death and dismemberment product line.  Sales of group life and accidental death and dismemberment products decreased 30.8 percent in the first quarter of 2020 to $28.1 million, compared to $40.6 million in the first quarter of 2019.  Persistency in the group life product line was 88.4 percent in the first quarter of 2020, compared to 91.0 percent in the first quarter of 2019.  Persistency in the accidental death and dismemberment product line was 87.9 percent in the first quarter of 2020, compared to 90.3 percent in the first quarter of 2019.

The supplemental and voluntary line of business reported an increase of 12.5 percent in adjusted operating income to $115.1 million in the first quarter of 2020, compared to $102.3 million in the first quarter of 2019.  Premium income for the supplemental and voluntary line of business was $405.3 million in the first quarter of 2020, which was generally consistent with $404.9 million in the first quarter of 2019, with growth in the dental and vision product line mostly offset by lower persistency in all product lines.  Net investment income increased 7.1 percent to $60.5 million in the first quarter of 2020, compared to $56.5 million in the first quarter of 2019, due to a higher level of invested assets and higher miscellaneous investment income, partially offset by a decline in yield on invested assets.  The benefit ratio for the individual disability product line was 52.1 percent for the first quarter of 2020, compared to 49.9 percent for the first quarter of 2019, due to higher claims incidence.  The benefit ratio for the voluntary benefits product line was 32.7 percent in the first quarter of 2020, compared to 35.4 percent for the first quarter of 2019, due primarily to the release of active life reserves resulting from a higher level of terminations.  The benefit ratio for the dental and vision product line was 65.1 percent for the first quarter of 2020, compared to 67.7 percent for the first quarter of 2019, driven by lower claims incidence.  Relative to the first quarter of 2019, sales in the individual disability product line increased 50.3 percent in the first quarter of 2020 to $22.7 million.  Sales in the voluntary benefits product line declined 15.6 percent in the first quarter of 2020 to $128.6 million.  Sales in the dental and vision product line totaled $10.8 million for the first quarter of 2020, a decrease of 13.6 percent compared to the first quarter of 2019.  Persistency in the individual disability product line was 88.9 percent in the first quarter of 2020, compared to 90.3 percent in the first quarter of 2019.  Persistency in the voluntary benefits product line was 72.4 percent in the first quarter of  2020, compared to 73.0 percent in the first quarter of 2019.  Persistency in the dental and vision product line was 81.9 percent in the first quarter of 2020, compared to 84.3 percent in the first quarter of 2019. 

Unum International

The Unum International segment reported adjusted operating income of $19.4 million in the first quarter of 2020, a decrease of 33.3 percent from $29.1 million in the first quarter of 2019.  Premium income increased 6.9 percent to $164.6 million in the first quarter of 2020, compared to $154.0 million in the first quarter of 2019.  Net investment income increased 6.9 percent to $26.5 million in the first quarter of 2020, compared to $24.8 million in the first quarter of 2019.  Sales increased 5.8 percent to $23.9 million in the first quarter of 2020, compared to $22.6 million in the first quarter of 2019.

The Unum UK line of business reported adjusted operating income, in local currency, of £13.7 million in the first quarter of 2020, a decrease of 36.6 percent from £21.6 million in the first quarter of 2019.  Premium income was £113.8 million in the first quarter of 2020, an increase of 8.4 percent from £105.0 million in the first quarter of 2019, driven by sales growth, higher overall persistency, and the impact of rate increases in the group long-term disability product line.  Net investment income was £19.3 million in the first quarter of 2020, an increase of 8.4 percent from £17.8 million in the first quarter of 2019, due to higher investment income from inflation index-linked bonds, which we invest in to support the claim reserves associated with certain of our group policies that provide for inflation-linked increases in benefits, and higher miscellaneous income, partially offset by a decline in the yield on fixed-rate bonds.  The benefit ratio in the first quarter of 2020 was 80.5 percent, compared to 70.2 percent in the first quarter of 2019, due to higher claims incidence in the group critical illness product line and lower claim resolutions in the group long-term disability product line due to disruption in our claims processes related to COVID-19.  Also contributing to the unfavorable experience was higher inflation-linked increases in benefits related to our group products.  Sales increased 12.2 percent to £16.5 million in the first quarter of 2020, compared to £14.7 million in the first quarter of 2019.  Persistency in the group long-term disability product line was 90.1 percent in the first quarter of 2020, compared to 89.3 percent in the first quarter of 2019.  Persistency in the group life product line was 86.3 percent in the first quarter of 2020, compared to 85.7 percent in the first quarter of 2019.  Persistency in the supplemental product line was 91.2 percent in the first quarter of 2020, compared to 91.5 percent in the first quarter of 2019.

Colonial Life Segment

Colonial Life reported a 4.8 percent decrease in adjusted operating income to $81.1 million in the first quarter of 2020, compared to $85.2 million in the first quarter of 2019.  Premium income increased 3.7 percent to $434.7 million in the first quarter of 2020, compared to $419.3 million in the first quarter of 2019, driven primarily by growth in the in-force block resulting from prior period sales growth, offset partially by lower persistency.  Net investment income increased 2.2 percent to $37.7 million in the first quarter of 2020, compared to $36.9 million in the first quarter of 2019, due to an increase in the level of invested assets and higher miscellaneous investment income, partially offset by a decline in the yield on invested assets.  The benefit ratio was 52.4 percent in the first quarter of 2020, compared to 51.1 percent in the first quarter of 2019, with unfavorable experience in the accident, sickness, and disability line of business partially offset by favorable experience in the cancer and critical illness and life product lines.

Sales decreased 8.7 percent to $99.3 million in the first quarter of 2020, compared to $108.8 million in the first quarter of 2019.  Persistency in Colonial Life was 76.8 percent in the first quarter of 2020, compared to 77.3 percent in the first quarter of 2019.

Closed Block Segment

The Closed Block segment reported adjusted operating income of $29.7 million in the first quarter of 2020, compared to $31.0 million in the first quarter of 2019.  Premium income for this segment declined 7.2 percent in the first quarter of 2020, compared to the first quarter of 2019, due to a one-time reinsurance cost related to a small block of policies and continued policy terminations and maturities in the individual disability line of business, partially offset by premium rate increases on certain in-force business in the long-term care line of business.  Net investment income decreased 3.0 percent to $336.1 million in the first quarter of 2020, compared to $346.6 million in the first quarter of 2019, due to a decrease in yield on invested assets driven primarily by losses on certain of our perpetual preferred securities, partially offset by an increase in the level of invested assets and higher miscellaneous investment income.  The interest adjusted loss ratio for the long-term care line of business was 81.0 percent in the first quarter of 2020, compared to an interest adjusted loss ratio of 88.5 percent in the first quarter of 2019, driven primarily by higher claimant mortality.  The interest adjusted loss ratio for long-term care for the rolling twelve months ended March 31, 2020 was 86.2 percent which remains within our expected range.  The interest adjusted loss ratio for the individual disability line of business was 84.5 percent in the first quarter of 2020, compared to 80.1 percent in the first quarter of 2019, driven primarily by the impact of the one-time reinsurance cost as previously discussed.    

Corporate Segment   

The Corporate segment reported an adjusted operating loss of $45.9 million in the first quarter of

Shares Outstanding

The company's weighted average number of shares outstanding, assuming dilution, was 203.4 million for the first quarter of 2020, compared to 214.4 million for the first quarter of 2019.  Shares outstanding totaled 203.3 million at March 31, 2020.  The company did not repurchase shares during the first quarter of 2020 and will not repurchase shares in the remainder of 2020.

Capital Management

At March 31, 2020, the weighted average risk-based capital ratio for the company's traditional U.S. insurance companies was approximately 365 percent, and cash and marketable securities in the holding companies equaled $1,025 million.

The company intends to continue to pay its common stock dividend at the current rate.

Book Value

Book value per common share as of March 31, 2020 was $48.21, compared to $42.68 at March 31, 2019.

Outlook 

Due to the uncertain economic environment caused by the COVID-19 pandemic, the company is suspending its financial guidance for the remainder of 2020.


COVID-19 Testing Site At Brainerd High Has Extended Hours This Week

Get Emailed Headlines From Chattanoogan.com; Like Us On Facebook, Twitter For Instant News

Nearly 3,000 Tennesseans Answered Secretary Of State’s Call To Become Poll Officials


The COVID-19 testing site at Brainerd High School has extended hours, thanks to support from the National Guard medical staff. Instead of 7-11 a.m., the Brainerd site will be open this week from ... (click for more)

We send out headlines each week day of the latest Chattanooga news. Our news headlines have links that take you to the stories with a click. We also send out special emails if there ... (click for more)

Since the Secretary of State’s office launched a new statewide poll official recruitment campaign in June, thousands of Tennesseans have stepped up to serve in the Aug. 6 State and Federal Primary ... (click for more)



Breaking News

COVID-19 Testing Site At Brainerd High Has Extended Hours This Week

The COVID-19 testing site at Brainerd High School has extended hours, thanks to support from the National Guard medical staff. Instead of 7-11 a.m., the Brainerd site will be open this week from 7 a.m.-2 p.m. Brainerd High School is at 1020 N Moore Road. The testing site is open to the public without an appointment. Call the COVID-19 hotline at 209-8383 for more information. ... (click for more)

Get Emailed Headlines From Chattanoogan.com; Like Us On Facebook, Twitter For Instant News

We send out headlines each week day of the latest Chattanooga news. Our news headlines have links that take you to the stories with a click. We also send out special emails if there is a highly significant local news story breaking so you will be aware of it quickly. To be added to the email headline list, just email us at news@chattanoogan.com. In addition, ... (click for more)

Opinion

Mayors And Legislators Have Demonstrated Bold Leadership In Mandating Masks

The Honorable Jim Coppinger The Honorable Andy Berke The Honorable members of the Hamilton County, TN legislative delegation: Sen. Todd Gardenhire and Bo Watson; Rep. Mike Carter, Yusuf Hakeem, Patsy Hazelwood, Esther Helton, and Robin Smith Dear Mayors, Senators, and Representatives: Thank you for your bold leadership! As healthcare leaders on the front lines of the ... (click for more)

Roy Exum: B.B., Jesus Loves You

Minutes after I learned one of my very earliest friends, B.B. Branton, died early Sunday morning, another friend sent me an email that just fit the moment perfectly. When I was growing up, our back yard butted up against the Brantons' backyard, so B.B. and I were quite sure we started out as playpen partners and were close ever since. Both of our fathers were from Mississippi - ... (click for more)

Sports

Sports Are Back: CFC Wins First Professional Sporting Event In Tennessee Since March

As the tallest player on the pitch, the Chattanooga Football Club’s towering and burly Ian McGrath rumbled down the pitch with aplomb, an inviting target for a pass five minutes into CFC’s 3-1 win over the Georgia Revolution. He graciously welcomed a sterling diagonal pass from fullback Richard Dixon, who was a good 20 to 30 yards away from McGrath when he let the pass go. ... (click for more)

Tee Times Announced For 2020 CWGA City Women's Amateur Golf Championship

The 2020 City Women's Amateur Golf Championship will be held on Tuesday at Black Creek Country Club. Listed below are the first round tee times. Hole 1 Name H.I. C.H. TEE 8:00 AM Ryon, Carlene 7.4 6 White-CWGA ... (click for more)