Unum Group Reports Second Quarter 2018 Results
Included in net income are net after-tax realized investment gains and losses on the Company’s investment portfolio. Excluding net after-tax realized investment gains and losses, after-tax adjusted operating income was
“Second quarter results for the Company were solid, with continued favorable fundamentals driving our core business segments,” said
“During the quarter, we accelerated our reserve studies for our long-term care block of business,” added McKenney. “Given the current market sentiment around this line of business throughout our industry, we will look to finalize this work in the third quarter to provide greater clarity to our shareholders.”
RESULTS BY SEGMENT
We measure and analyze our segment performance on the basis of "adjusted operating income" or "adjusted 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 Segment
Unum US reported adjusted operating income of
Within the Unum US operating segment, the group disability line of business reported an 11.7 percent decline in adjusted operating income to
The group life and accidental death and dismemberment line of business reported adjusted operating income of
The supplemental and voluntary line of business reported an increase of 8.3 percent in adjusted operating income to
Unum
Unum
Premium income increased by 9.5 percent to
Sales increased by 12.3 percent to
Colonial Life Segment
Colonial Life reported a 3.4 percent increase in adjusted operating income to
Sales increased 13.6 percent to
Closed Block Segment
The Closed Block segment reported adjusted operating income of
Premium income for this segment declined 3.9 percent in the second quarter of 2018 compared to the second quarter of 2017, primarily due to policy terminations and maturities for the individual disability line of business. Premium income for long-term care was generally consistent with the year ago quarter due primarily to rate increases on in-force business offsetting policy terminations. Net investment income increased 1.6 percent to
Corporate Segment
The Corporate segment reported an adjusted operating loss of
OTHER INFORMATION
Shares Outstanding
The Company’s weighted average number of shares outstanding, assuming dilution, was 221.1 million for the second quarter of 2018, compared to 228.2 million for the second quarter of 2017. Shares outstanding totaled 218.7 million at
Capital Management
At
Book Value
Book value per common share as of
Update on Long-term Care Reserve Analysis
During the second quarter of 2018, the Company accelerated the work on its long-term care annual reserve analysis, which is now anticipated to be completed in the third quarter of 2018. When completed, this work will incorporate the Company’s most recent experience and will include a review of all assumptions. The review will also utilize internal and external data and an outside consulting firm for quality assurance and industry benchmarking. Subject to completion of the work, the Company believes that it may need to increase its reserves for long-term care as part of its third quarter 2018 closing process. Although there is work to be completed and it is still assessing its assumptions, the Company currently expects that any increase will likely be predominately a GAAP event and will likely not exceed
The Company does not expect that any potential reserve increase will impact its ability to execute its capital deployment plans, including its share repurchase strategy. Consistent with its past practices regarding trading windows, the Company does not expect to execute on share repurchases until the result of the reserve review is announced. The Company currently intends to resume share repurchases of approximately
Outlook
The Company continues to expect after-tax adjusted operating income growth per share, excluding any impact from an increase of its long-term care reserves, for full-year 2018 to be within the range of 17 percent to 23 percent.
NON-GAAP FINANCIAL MEASURES
We analyze our performance using non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of a company's performance, financial position, or cash flows that excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP financial measure of "after-tax adjusted operating income" differs from net income as presented in our consolidated operating results and income statements prepared in accordance with GAAP due to the exclusion of net realized investment gains and losses and certain other items as specified in the reconciliations in the Financial Highlights section below. We believe after-tax adjusted operating income is a better performance measure and better indicator of the profitability and underlying trends in our business.
Realized investment gains or losses depend on market conditions and do not necessarily relate to decisions regarding the underlying business of our segments. Our investment focus is on investment income to support our insurance liabilities as opposed to the generation of realized investment gains or losses. Although we may experience realized investment gains or losses which will affect future earnings levels, a long-term focus is necessary to maintain profitability over the life of the business since our underlying business is long-term in nature, and we need to earn the interest rates assumed in calculating our liabilities.
We may at other times exclude certain other items from our discussion of financial ratios and metrics in order to enhance the understanding and comparability of our operational performance and the underlying fundamentals, but this exclusion is not an indication that similar items may not recur and does not replace net income or net loss as a measure of our overall profitability.
Information reconciling the Company’s outlook on after-tax adjusted operating income growth per share to the comparable GAAP financial measure is not provided. The only amounts excluded from after-tax adjusted operating income are those described in the preceding paragraphs. The Company is unable to predict with reasonable certainty realized investment gains and losses, which are affected by overall market conditions and also by factors such as an economic or political change in the country of the issuer, a regulatory change pertaining to the issuer’s industry, a significant improvement or deterioration in the cash flows of the issuer, unforeseen accounting irregularities or fraud committed by an issuer, movement in credit spreads, ratings upgrades or downgrades, a change in the issuer’s marketplace or business prospects, or any other event that significantly affects the issuers of the fixed maturity securities which the Company holds in its investment portfolio.
CONFERENCE CALL INFORMATION
Members of
The dial-in number for the conference call is (888) 224-1005, for
In conjunction with today’s earnings announcement, the Company’s Statistical Supplement for the second quarter of 2018 is available on the “Investors” section of the Company’s website.
ABOUT
Unum (www.unum.com) is one of the leading providers of employee benefits products and services and the largest provider of disability insurance products in
SAFE HARBOR STATEMENT
Certain information in this news release constitutes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those not based on historical information, but rather relate to our outlook, future operations, strategies, financial results, or other developments and speak only as of the date made. These forward-looking statements, including statements about anticipated growth in after-tax adjusted operating income per share and any potential reserve increase, are subject to numerous assumptions, risks, and uncertainties, many of which are beyond our control. The following factors, in addition to other factors mentioned from time to time, may cause actual results to differ materially from those contemplated by the forward-looking statements: (1) sustained periods of low interest rates; (2) fluctuation in insurance reserve liabilities and claim payments due to changes in claim incidence, recovery rates, mortality and morbidity rates, and policy benefit offsets due to, among other factors, the rate of unemployment and consumer confidence, the emergence of new diseases, epidemics, or pandemics, new trends and developments in medical treatments, the effectiveness of our claims operational processes, and changes in governmental programs; (3) unfavorable economic or business conditions, both domestic and foreign, that may result in decreases in sales, premiums, or persistency, as well as unfavorable claims activity; (4) legislative, regulatory, or tax changes, both domestic and foreign, including the effect of potential legislation and increased regulation in the current political environment; (5) investment results, including, but not limited to, changes in interest rates, defaults, changes in credit spreads, impairments, and the lack of appropriate investments in the market which can be acquired to match our liabilities; (6) a cyber attack or other security breach could result in the unauthorized acquisition of confidential data; (7) the failure of our business recovery and incident management processes to resume our business operations in the event of a natural catastrophe, cyber attack, or other event; (8) execution risk related to our technology needs; (9) increased competition from other insurers and financial services companies due to industry consolidation, new entrants to our markets, or other factors; (10) changes in our financial strength and credit ratings; (11) damage to our reputation due to, among other factors, regulatory investigations, legal proceedings, external events, and/or inadequate or failed internal controls and procedures; (12) actual experience in the broad array of our products that deviates from our assumptions used in pricing, underwriting, and reserving; (13) changes in accounting standards, practices, or policies; (14) effectiveness of our risk management program; (15) contingencies and the level and results of litigation; (16) availability of reinsurance in the market and the ability of our reinsurers to meet their obligations to us; (17) ineffectiveness of our derivatives hedging programs due to changes in the economic environment, counterparty risk, ratings downgrades, capital market volatility, changes in interest rates, and/or regulation; (18) fluctuation in foreign currency exchange rates; (19) ability to generate sufficient internal liquidity and/or obtain external financing; (20) recoverability and/or realization of the carrying value of our intangible assets, long-lived assets, and deferred tax assets; and (21) terrorism, both within the
For further discussion of risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see Part 1, Item 1A “Risk Factors” of our annual report on Form 10-K for the year ended
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FINANCIAL HIGHLIGHTS | |||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||
($ in millions, except share data) | |||||||||||||||||||||
Three Months Ended |
Six Months Ended |
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2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
Revenue | |||||||||||||||||||||
Premium Income | $ | 2,221.0 | $ | 2,142.2 | $ | 4,471.0 | $ | 4,285.1 | |||||||||||||
Net Investment Income | 623.6 | 620.5 | 1,225.9 | 1,222.9 | |||||||||||||||||
Net Realized Investment Gain (Loss) | (2.6 | ) | 8.1 | (4.8 | ) | 19.1 | |||||||||||||||
Other Income | 48.3 | 51.2 | 97.8 | 101.4 | |||||||||||||||||
Total Revenue | 2,890.3 | 2,822.0 | 5,789.9 | 5,628.5 | |||||||||||||||||
Benefits and Expenses | |||||||||||||||||||||
Benefits and Change in Reserves for Future Benefits | 1,804.1 | 1,752.0 | 3,612.0 | 3,501.0 | |||||||||||||||||
Commissions | 273.5 | 261.3 | 555.8 | 531.5 | |||||||||||||||||
Interest and Debt Expense | 42.4 | 39.9 | 82.6 | 79.7 | |||||||||||||||||
Deferral of Acquisition Costs | (165.7 | ) | (153.2 | ) | (335.0 | ) | (315.3 | ) | |||||||||||||
Amortization of Deferred Acquisition Costs | 140.2 | 138.3 | 291.7 | 279.8 | |||||||||||||||||
Other Expenses | 441.0 | 422.1 | 886.9 | 859.9 | |||||||||||||||||
Total Benefits and Expenses | 2,535.5 | 2,460.4 | 5,094.0 | 4,936.6 | |||||||||||||||||
Income Before Income Tax | 354.8 | 361.6 | 695.9 |
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691.9 | ||||||||||||||||
Income Tax | 69.3 | 116.5 | 136.9 | 216.9 | |||||||||||||||||
Net Income | $ | 285.5 | $ | 245.1 | $ | 559.0 | $ | 475.0 | |||||||||||||
PER SHARE INFORMATION | |||||||||||||||||||||
Net Income Per Common Share | |||||||||||||||||||||
Basic | $ | 1.29 | $ | 1.08 | $ | 2.53 | $ | 2.08 | |||||||||||||
Assuming Dilution | $ | 1.29 | $ | 1.07 | $ | 2.52 | $ | 2.07 | |||||||||||||
Weighted Average Common Shares - Basic (000s) | 220,776.7 | 227,454.4 | 221,335.7 | 228,437.0 | |||||||||||||||||
Weighted Average Common Shares - Assuming Dilution (000s) | 221,062.7 | 228,178.7 | 221,820.2 | 229,273.8 | |||||||||||||||||
Outstanding Shares - (000s) | 218,681.9 | 226,102.1 | |||||||||||||||||||
Reconciliation of Non-GAAP Financial Measures | |||||||||||||||||||||
Three Months Ended |
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2018 | 2017 | ||||||||||||||||||||
(in millions) | per share * | (in millions) | per share * | ||||||||||||||||||
Net Income | $ | 285.5 | $ | 1.29 | $ | 245.1 | $ | 1.07 | |||||||||||||
Excluding: | |||||||||||||||||||||
Net Realized Investment Gain (Loss) (net of tax expense (benefit) of |
(2.1 | ) | (0.01 | ) | 4.7 | 0.02 | |||||||||||||||
After-tax Adjusted Operating Income | $ | 287.6 | $ | 1.30 | $ | 240.4 | $ | 1.05 | |||||||||||||
* Assuming Dilution | |||||||||||||||||||||
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2018 | 2017 | ||||||||||||||||||||
(in millions) | per share | (in millions) | per share | ||||||||||||||||||
Total Stockholders' Equity (Book Value) | $ | 9,446.4 | $ | 43.20 | $ | 9,316.6 | $ | 41.21 | |||||||||||||
Excluding: | |||||||||||||||||||||
Net Unrealized Gain on Securities | 224.5 | 1.03 | 558.2 | 2.47 | |||||||||||||||||
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266.8 | 1.22 | 304.5 | 1.35 | |||||||||||||||||
Subtotal | 8,955.1 | 40.95 | 8,453.9 | 37.39 | |||||||||||||||||
Excluding: | |||||||||||||||||||||
Foreign Currency Translation Adjustment | (268.8 | ) | (1.23 | ) | (297.1 | ) | (1.31 | ) | |||||||||||||
Subtotal | 9,223.9 | 42.18 | 8,751.0 | 38.70 | |||||||||||||||||
Excluding: | |||||||||||||||||||||
Unrecognized Pension and Postretirement Benefit Costs | (498.7 | ) | (2.28 | ) | (460.7 | ) | (2.04 | ) | |||||||||||||
Total Stockholders' Equity, Excluding Accumulated Other Comprehensive Income (Loss) | $ | 9,722.6 | $ | 44.46 | $ | 9,211.7 | $ | 40.74 |
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