Unum Swings to Profit, Exceeds Expectations

Unum Group comfortably beat expectations for fourth-quarter 2015 earnings, the company reported Tuesday.

The company cited premium increases, higher sales, favorable renewal ratios, lower new claims incidence, higher claims recoveries in group long-term care and operating income generated from a closed block of disability policies as factors boosting its quarterly performance.

The company, which booked a big charge of $698.2 million in the fourth-quarter 2014 for long-term care reserve increases, reported operating income of $28.1 million for the closed block.

The block is made up of individual disability, group and individual long-term care, and other insurance products no longer marketed.

Fourth-quarter net income was $226.1 million, or 93 cents per share diluted, compared with a loss of $282.2 million, or $1.12 per share diluted, in the year-ago period, the company reported.

After-tax operating income was $230.6 million, or 95 cents per share, the company said. The average estimate of 10 analysts surveyed by Zacks Investment Research was for 92 cents per share.

Revenue rose to $2.72 billion compared to $2.63 billion in the year ago period, the company said.

“Our fourth-quarter results were strong, capping off a very good year for our company,” said Unum Group president and CEO Richard P. McKenney. “2015 was a year where we experienced favorable growth trends in our core business lines and stable benefits experience, which combine to drive strong profitability and capital generation.”

Based in Chattanooga, Tenn., Unum sells insurance in the U.S. and in the United Kingdom. In the U.S., it sells life, accident, disability and supplemental medical policies. Unum also sells life insurance through Colonial Life in Columbia, S.C.

CEO Sees Top-Line Growth, Profits Maintained

In a conference call with analysts Wednesday, Unum Group executives said the company was raising prices on group insurance products every 18 to 24 months to make up for the low interest rates. While this has meant some decline in business, the softness was well “in line with expectations,” the executives said.

Broad-based education campaigns within companies about the importance and value of insurance, particularly with higher deductibles from the Affordable Care Act hitting consumers, are having an impact on employee and consumer buying habits.

Lower oil prices have also meant that employees can spend more on insurance products, Unum executives added.

The company is ready for a “resumption of top-line growth without sacrificing profitability,” and is well positioned to execute share buy backs in 2016, McKenney said.

Fourth-quarter premium income from U.S. group disability policies rose 5.5 percent to $570.6 million compared to the year-ago period as large companies with thousands of employees enroll, Unum said.

Premium income for the U.S. group life and accidental death and dismemberment rose 5.2 percent to $373.6 million compared to the year-ago period, the company reported.

Premium income for supplemental and voluntary benefits increased 5.7 percent to $307.4 million compared to the year-ago period.

Energy Holdings an Issue

With several large life insurers reporting after market close Wednesday, analysts will be looking closely at the life insurer energy holdings. In particular, companies’ exposure to below-investment-grade bonds will be scrutinized due to the collapse in the price of oil.

Unum executives said that about $5 billion, or 11.6 percent of the company’s fixed-maturity securities, are tied up in energy holdings.

Asked by one analyst how and when corporate managers decide to write off a bond that no longer pays principal and interest, Unum executives said there are no strict rules governing when to take an impairment.

Questions corporate investment managers and auditors will ask themselves are, Unum executives said, include: Is there any chance of recouping principal and interest? Do managers decide whether to hold the bond until they recover principal and interest? Is the bond issuer current on payment?

Unum Group stopped selling individual disability policies in 2004, and stopped offering individual long-term care in 2009 and group long-term care in 2012. These policies have been relegated to the closed block.

Other insurance products no longer sold by the company — group pension, individual life and corporate-owned life insurance, reinsurance pools and management operations, and other miscellaneous product lines — make up the closed block.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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