Unum Group Releases 2Q Results

Unum Group reported net income of $218.6 million ($0.82 per diluted common share) for the second quarter of 2013, compared to net income of $216.4 million ($0.76 per diluted common share) for the second quarter of 2012.

In a release on August 5, the Company noted that included in the results for the second quarter of 2013 is a net after-tax gain of $0.1 million (less than a penny per diluted common share) resulting from the combined impact of 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. This compares to a net after-tax loss of $8.9 million ($0.03 per diluted common share) in the second quarter of 2012. Adjusting for these items, after-tax operating income was $218.5 million ($0.82 per diluted common share) in the second quarter of 2013, compared to $225.3 million ($0.79 per diluted common share) in the second quarter of 2012.

"Driven primarily by very good risk results across our core business lines, operating performance in the second quarter remained strong with solid returns in our core business segments. I am also encouraged by the performance we are seeing in those areas which had been operating below our expectations, especially in our Unum UK segment where the repricing actions we are taking are beginning to emerge in our results," said Thomas R. Watjen, president and chief executive officer. "While sales growth continues to be a challenge in the US, we remain committed to maintaining the pricing and underwriting discipline that has served us so well in the past. Although the environment is expected to gradually improve, it still remains challenging, and we will continue to take the actions necessary to maintain the momentum we have worked so hard to create at the Company."

RESULTS BY SEGMENT

Unum US Segment

Unum US reported operating income of $214.0 million in the second quarter of 2013, an increase of 0.6 percent from $212.7 million in the second quarter of 2012. Premium income for the segment increased 1.5 percent to $1,131.5 million in the second quarter of 2013, compared to premium income of $1,115.0 million in the second quarter of 2012.

Within the Unum US operating segment, the group disability line of business reported a 3.7 percent increase in operating income, with $73.0 million in the second quarter of 2013 compared to $70.4 million in the second quarter of 2012. Premium income in group disability increased 1.5 percent to $523.9 million in the second quarter of 2013, compared to $516.0 million in the second quarter of 2012, as the impact of premium rate increases was partially offset by a decline in premium persistency and lower sales during the quarter. The benefit ratio for the second quarter of 2013 was 83.9 percent, compared to 84.7 percent in the second quarter of 2012. Underlying these results were improved risk results in group short- term disability. Unum US reported less favorable risk results in group long-term disability due primarily to the impact of a 50 basis point decrease in the discount rate during the third quarter of 2012 for new claim incurrals, partially offset by favorable new claim incidence. Group long-term disability sales declined 8.9 percent to $32.8 million in the second quarter of 2013, compared to $36.0 million in the second quarter of 2012. Group short-term disability sales decreased 20.8 percent to $18.7 million in the second quarter of 2013, compared to $23.6 million in the second quarter of 2012. Premium persistency in the group long-term disability line of business was 88.5 percent through the first two quarters of 2013, compared to 91.7 percent through the first two quarters of 2012. Case persistency for this line was 88.3 percent through the first two quarters of 2013, matching the level from the comparable period in 2012. Premium persistency in the group short-term disability line of business was 88.5 percent through the first six months of 2013, compared to 89.8 percent for the same period of 2012. Case persistency for the short-term disability line was 87.6 percent through the first six months of 2013, compared to 87.8 percent through the first six months of 2012.

The group life and accidental death and dismemberment line of business reported operating income of $57.3 million in the second quarter of 2013, in line with the results from the second quarter of 2012, as growth in premium income and favorable risk experience were offset by slightly higher operating expenses and lower net investment income. Premium income for this line of business increased 3.4 percent to $333.8 million in the second quarter of 2013, compared to $322.9 million in the second quarter of 2012, reflecting growth from prior year sales and rate increases, partially offset by lower premium persistency. The benefit ratio in the second quarter of 2013 was 71.1 percent, compared to 71.9 percent in the second quarter of 2012, reflecting more favorable experience related to the waiver of group life premium benefit. Sales of group life and accidental death and dismemberment products decreased 27.1 percent in the second quarter of 2013 to $36.5 million, compared to $50.1 million in the second quarter of 2012. Premium persistency in the group life line of business was 89.1 percent through the first six months of 2013, compared to 91.6 percent for the same period of 2012. Case persistency in the group life line of business through the first six months of 2013, at 88.3 percent, was up slightly from 88.1 percent through the first six months of 2012.

The supplemental and voluntary line of business reported a 1.5 percent decrease in operating income to $83.7 million in the second quarter of 2013, compared to $85.0 million in the second quarter of 2012. Premium income for supplemental and voluntary decreased 0.8 percent to $273.8 million in the second quarter of 2013, compared to $276.1 million in the second quarter of 2012. This decrease results from a reinsurance agreement entered into during the second quarter of 2013 to cede a small block of individual disability - recently issued business, partially offset by increased premium income in the voluntary benefits business. The interest adjusted loss ratio for the individual disability - recently issued product line in the second quarter of 2013 rose to 31.3 percent from 30.8 percent in the second quarter of 2012, with stable claim experience but slightly higher reserve increases related to claim inventories as compared to the second quarter of 2012. The benefit ratio for voluntary benefits, at 48.2 percent in the second quarter of 2013, was up from 46.8 percent in the second quarter of 2012. Favorably impacting the benefit ratio for the second quarter of 2012 was the release of active life reserves associated with a voluntary benefits large case customer who terminated the existing individual contracts and bought voluntary group coverage during the second quarter of 2012. Relative to the second quarter of 2012, sales in the voluntary benefits line of business decreased 9.3 percent in the second quarter of 2013 to $33.2 million. Sales in the individual disability - recently issued line of business decreased 33.3 percent in the second quarter of 2013 to $10.2 million. Premium persistency in the individual disability - recently issued product line was 90.7 percent through the first six months of 2013, compared to 90.3 percent for the same period of 2012. Premium persistency in the voluntary benefits product line was 76.5 percent through the first six months of 2013, compared to 79.4 percent through the first six months of 2012.

Unum UK Segment

Unum UK reported operating income of $33.5 million in the second quarter of 2013, an increase of 11.7 percent from $30.0 million in the second quarter of 2012. In local currency, operating income for the second quarter of 2013 increased 14.1 percent, to GBP21.8 million from GBP19.1 million in the second quarter of 2012.

Premium income decreased 20.6 percent to $137.6 million in the second quarter of 2013, compared to $173.2 million in the second quarter of 2012, due primarily to reinsurance agreements entered into in the first quarter 2013 to cede an additional portion of the group life business. In local currency, premium income decreased 18.1 percent to GBP89.6 million in the second quarter of 2013, compared to GBP109.4 million in the second quarter of 2012. The benefit ratio in the second quarter of 2013 was 84.2 percent, compared to 85.4 percent in the comparable quarter in 2012. The lower benefit ratio in the second quarter of 2013 reflects favorable risk experience in the group long-term disability line resulting from favorable claim incidence and claim recovery rates.

Persistency in the group long-term disability line of business was 82.0 percent through the first six months of 2013, compared to 84.1 percent through the first six months of 2012. Persistency in the group life line of business was 74.0 percent through the first six months of 2013, compared to 82.4 percent through the comparable period of 2012. Sales decreased 9.6 percent to $21.7 million in the second quarter of 2013, compared to $24.0 million in the second quarter of 2012. In local currency, sales for the second quarter of 2013 decreased 7.2 percent to GBP14.2 million, compared to GBP15.3 million in the second quarter of 2012, reflecting a significant decline in group life sales due to rate increases and scaling back sales in certain market sectors, partially offset by stronger group long-term disability sales.

Colonial Life Segment

Colonial Life reported a 5.2 percent increase in operating income to $71.1 million in the second quarter of 2013, compared to $67.6 million in the second quarter of 2012.

Premium income for the second quarter of 2013 increased 3.7 percent to $307.9 million, compared to $296.9 million in the second quarter of 2012, driven by continued favorable persistency. The benefit ratio in the second quarter of 2013 was 52.1 percent, down from 52.5 percent in the second quarter of 2012, as less favorable incurred claims experience in the cancer and critical illness product line was more than offset by improved risk experience in the accident, sickness, and disability product line as well as the life product line.

Sales decreased 2.0 percent to $84.1 million in the second quarter of 2013 from $85.8 million in the second quarter of 2012, as a decrease in commercial sector sales in the second quarter of 2013 was only partially offset by an increase in public sector sales in the second quarter of 2013 relative to the comparable period in 2012.

Closed Block Segment

The Closed Block segment reported operating income of $29.6 million in the second quarter of 2013, compared to $25.7 million in the second quarter of 2012.

Premium income for this segment declined 4.0 percent in the second quarter of 2013 compared to the comparable year-ago quarter, primarily due to the expected run-off of the individual disability block of business. Net investment income was higher in the second quarter of 2013 relative to the same period of last year due primarily to an increase in assets supporting the long-term care block of business. The interest adjusted loss ratio for the individual disability line of business was 82.7 percent in the second quarter of 2013, in-line with the second quarter of 2012. The interest adjusted loss ratio for the long-term care line of business rose to 90.1 percent in the second quarter of 2013 from 87.8 percent in the second quarter of 2012 due to an increase in the level of submitted claims and slightly higher group long-term care persistency driving higher active life reserve changes.

Corporate Segment

The Corporate segment reported an operating loss of $37.1 million in the second quarter of 2013, compared to a loss of $25.9 million in the second quarter of 2012. The higher operating loss in the second quarter of 2013 was driven primarily by lower net investment income and slightly higher interest expense due to the issuance of $250 million of debt during the third quarter of 2012. Net investment income was lower in the second quarter of 2013 compared to the second quarter of 2012 due to lower yielding assets and a decrease in investment income attributable to tax credit partnerships. However, the negative impact on net investment income from the tax credit partnerships was offset by a lower income tax rate due to the tax benefits recognized as a result of these investments.

OTHER INFORMATION

Shares Outstanding

The Company's average number of shares outstanding, assuming dilution, was 266.7 million for the second quarter of 2013, compared to 283.7 million for the second quarter of 2012. Shares outstanding totaled 263.6 million at June 30. During the second quarter of 2013, the Company repurchased approximately 3.6 million shares at a cost of $98 million.

Capital Management

At June 30, the weighted average risk-based capital for the Company's traditional US insurance companies was approximately 398 percent, and cash and marketable securities in the holding companies equaled $597 million.

Book Value

Book value per common share as of June 30, was $31.80, compared to $29.94 at June 30, 2012.

Outlook

The Company anticipates growth in after-tax operating earnings per share for full-year 2013 to be in the range of zero percent to six percent, including the effect of expected share repurchases.

Unum is a provider of employee benefits products and services and a provider of disability insurance products in the United States and the United Kingdom.

More information:

www.unum.com

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