Unum Group Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Rick McKenney noted 2024 EPS growth is on track for 10%-15%, exceeding original outlook. Adjusted EPS was $2.13 per share, statutory earnings over $300M in Q3, over $1B for the year. Top line had 4.6% core operations premium growth, year-to-date 5.5%. Persistency high, sales down but optimistic for Q4.
• Steve Zabel discussed segment results, GAAP assumption review with $357.4M reserve release, boosting book value per share. LTC reserve decrease, Group Disability, IDI, and Colonial Life reserve releases. Investments, strong cash generation, capital deployment including share repurchase, with plans to repurchase ~$1B in 2024.

Segment Performance

• Unum U.S.: Adjusted operating income in 2024 Q3 was $363.3 million, up from $357.8 million in 2023 Q3. Group Disability had adjusted operating income of $156.7 million in 2024 Q3 (vs $170.1 million in 2023 Q3) with a benefit ratio of 59.1%. Group Life and AD&D adjusted operating income increased 80% in 2024 Q3. Supplemental and voluntary lines had adjusted operating income of $112.6 million in 2024 Q3 (vs $135.7 million in 2023 Q3). Core operations premium growth was 4.6% in Q3, year-to-date 5.5%.
• Unum International: Adjusted operating income increased to $40.3 million in 2024 Q3 (vs $36.8 million in 2023 Q3). Unum U.K. had adjusted operating income of £29.5 million in 2024 Q3 (vs £28.4 million in 2023 Q3) with a benefit ratio of 69.5%. U.K. premium growth 11.7%, Poland premium growth 22.1%.
• Colonial Life: Adjusted operating income was $113.4 million in 2024 Q3 (vs $102.9 million in 2023 Q3). Premium income was $441.9 million, up 2.5%. Sales in 2024 expected to be in line with 2023 levels.
• Closed Block: Adjusted operating income was consistent at $34.2 million in 2024 Q3. Higher net investment income offset by lower premium income for long-term care.

Guidance

• EPS growth target of 10%-15% for full year 2024, higher than initial outlook. Unum U.S. expects to achieve 5%-10% sales growth. Unum International is on track for its sales target, while Colonial Life is expected to be flat for the year. Share repurchase is projected to be approximately $1B in 2024, up from $250M in 2023.

Risks

• Potential shift in group disability margins if pricing dynamics change. Challenges in long-term care risk transfer, which could impact reserves if not pursued. Volatility in supplemental and voluntary benefits benefit ratios due to period-to-period fluctuations.

Q: On the actuarial review, how do premium increases relative to assumption find their way into statutory results in Q4?

A: Steve Zabel explained LTC had two assumption changes: rate increase expectations and persistency adjustments, with rate increases mostly reflected in earnings, and persistency changes affecting net premium ratio. Statutory already considered rate increases, with buffers remaining meaningful.

Q: On cash flow and holding company liquidity, thoughts on capital deployment?

A: Rick McKenney and Steve Zabel discussed confidence in cash flow generation, focus on core growth, organic/inorganic investments, and returning capital to shareholders via dividends and share repurchase, with PCAP dissolution enhancing Q4 buyback.

Q: On group disability, expectation of favorable recoveries continuing?

A: Rick McKenney stated group disability benefit ratio around 60% is achievable and sustainable, with no immediate reversion expected, though pricing dynamics could impact future margins.

Q: On LTC trends, recent incident trends?

A: Rick McKenney said LTC incident inventories continue to dissipate, with trends slowing but remaining favorable, and no material adjustment to long-term assumptions.

Q: On group disability pricing and renewals?

A: Chris Pyne noted competitive market, with fair pricing, renewing business case-by-case, balancing rate increases/decreases for long-term stability.

Q: On PCAPs dissolution and buyback decision?

A: Rick McKenney and Steve Zabel explained confidence in cash flow, consistent share repurchase pace, and balance sheet optimization leading to PCAPs dissolution and increased buyback.

Q: On Colonial Life sales growth challenges?

A: Tim Arnold mentioned existing client sales down 3% due to execution issues, new sales up 6.7%, and new sales SVP expected to improve 2025 performance.

Q: On voluntary benefits benefit ratios?

A: Steve Zabel said volatility in supplemental/voluntary benefits is normal, with run rates around 120M per quarter.