Unum Group Wednesday reported net income of $224.3 million ($0.90 per diluted common share) for the second quarter of 2015, compared to net income of $239.4 million ($0.93 per diluted common share) for the second quarter of 2014.
After-tax operating income, which excludes after-tax realized investment gains and losses on the company’s investment portfolio, including a second quarter of 2014 hedge gain associated with the retirement of debt, the amortization of prior period actuarial losses on the company’s pension plans, and costs related to the second quarter of 2014 early retirement of debt, was $222.6 million ($0.89 per diluted common share) in the second quarter of 2015, compared to $231.7 million ($0.90 per diluted common share) in the second quarter of 2014. The combined impact of the amounts excluded resulted in a net after-tax gain of $1.7 million ($0.01 per diluted common share) for the second quarter of 2015, compared to a net after-tax gain of $7.7 million ($0.03 per diluted common share) in the second quarter of 2014.
“Our second quarter results remained solid," said Richard P. McKenney, president and chief executive officer. "The favorable growth trends we have been experiencing continued into the second quarter with premium growth in our core segments continuing to show positive momentum. In addition, our overall benefits experience remained within our range of expectations, helping us generate solid results and capital generation for the quarter. Our financial position remains very healthy, enabling us to invest in the growth of our business and return capital to our shareholders through share repurchase and dividends.”
Effective Jan. 1, the company adopted an accounting standards update for tax credit partnership investments in qualified affordable housing projects and applied the amendments retrospectively, adjusting all prior periods presented in this release, as applicable.
RESULTS BY SEGMENT
Unum US Segment
Unum US reported operating income of $202.8 million in the second quarter of 2015, a decline of 6.0 percent from $215.8 million in the second quarter of 2014. Premium income for the segment increased 6.8 percent to $1,236.4 million in the second quarter of 2015, compared to
premium income of $1,157.7 million in the second quarter of 2014. Net investment income for the segment declined 1.1 percent to $215.7 million in the second quarter of 2015 from $218.2 million in the second quarter of 2014, primarily reflecting lower yields on invested assets.
Within the Unum US operating segment, the group disability line of business reported a 15.8 percent decline in operating income, with $61.2 million in the second quarter of 2015 compared to $72.7 million in the second quarter of 2014. Premium income in group disability increased 7.1 percent to $561.0 million in the second quarter of 2015, compared to $524.0 million in the second quarter of 2014, primarily due to favorable persistency in the group long-term disability product line, sales growth, and premium rate increases. Net investment income declined by 1.8 percent to $125.2 million in the second quarter of 2015, compared to $127.5 million in the second quarter of 2014, primarily due to a decrease in the level of invested assets supporting this line of business and a decline in yields. The benefit ratio for the second quarter of 2015 was 83.4 percent, compared to 81.9 percent in the second quarter of 2014, reflecting higher new claim incidence levels and a higher average claim size, driven in part by the 50 basis point decrease in the discount rate implemented in the fourth quarter of 2014 for group long-term disability new claim incurrals. Group long-term disability sales increased 10.9 percent to $51.9 million in the second quarter of 2015, compared to $46.8 million in the second quarter of 2014. Group short-term disability sales increased 39.1 percent to $32.4 million in the second quarter of 2015, compared to $23.3 million in the second quarter of 2014. Persistency in the group long-term disability line of business improved to 91.4 percent through the first half of 2015, compared to 89.0 percent through the first half of 2014. Persistency in the group short-term disability line of business was 86.4 percent through the first half of 2015, compared to 88.3 percent for the same period of 2014.
The group life and accidental death and dismemberment line of business reported operating income of $52.5 million in the second quarter of 2015, a decline of 13.4 percent from $60.6 million in the second quarter of 2014, reflecting unfavorable risk experience which offset an increase in premium income. Premium income for this line of business increased 7.3 percent to $369.3 million in the second quarter of 2015, compared to $344.3 million in the second quarter of 2014, primarily due to sales growth, partially offset by a decline in persistency. Net investment income increased by 1.8 percent to $33.8 million in the second quarter of 2015, compared to $33.2 million in the second quarter of 2014, primarily due to an increase in the level of invested assets supporting this line of business, partially offset by a decline in yields. The benefit ratio in the second quarter of 2015 was 73.1 percent, compared to 70.1 percent in the second quarter of 2014, reflecting unfavorable experience in the group life line of business due to a higher average claim size. Sales of group life and accidental death and dismemberment products declined 21.8 percent in the second quarter of 2015 to $48.7 million, compared to $62.3 million in the second quarter of 2014. Persistency in the group life line of business was 88.0 percent in the first half of 2015, compared to 89.4 percent for the same period of 2014.
The supplemental and voluntary line of business reported an increase of 8.0 percent in operating income to $89.1 million in the second quarter of 2015, compared to $82.5 million in the second quarter of 2014. Premium income for supplemental and voluntary increased 5.8 percent to $306.1 million in the second quarter of 2015, compared to $289.4 million in the second quarter of 2014. Net investment income declined slightly to $56.7 million in the second quarter of 2015, compared to $57.5 million in the second quarter of 2014, due to a decrease in yield on invested assets, partially offset by an increase in the level of invested assets. The interest adjusted loss ratio for the individual disability product line was 30.6 percent for the second quarter of 2015 and 2014, reflecting more favorable claim incidence rates which were offset by lower claim recoveries. The benefit ratio for voluntary benefits was 43.1 percent in
the second quarter of 2015, compared to 48.2 percent in the second quarter of 2014, due primarily to favorable mortality experience in the life product line. Relative to the second quarter of 2014, sales in the individual disability line of business increased 11.1 percent in the second
quarter of 2015 to $13.0 million. Sales in the voluntary benefits line of business declined 1.5 percent in the second quarter of 2015 to $39.3 million. Persistency in the individual disability product line was 90.4 percent in the first half of 2015, compared to 90.0 percent for the same
period of 2014. Persistency in the voluntary benefits product line was 75.2 percent in the first half of 2015, compared to 78.1 percent through the first half of 2014.
Unum UK Segment
Unum UK reported operating income of $38.3 million in the second quarter of 2015, a decline of 3.3 percent from $39.6 million in the second quarter of 2014. In local currency, operating income increased by 5.9 percent to £25.0 million in the second quarter of 2015, compared to £23.6 million in the second quarter of 2014.
Premium income declined 7.7 percent to $142.2 million in the second quarter of 2015, compared to $154.0 million in the second quarter of 2014. In local currency, premium income was £92.8 million in the second quarter of 2015, compared to £91.5 million in the second quarter of 2014. Net investment income declined to $38.6 million in the second quarter of 2015 compared to $44.3 million in the second quarter of 2014. In local currency net investment income declined 4.2 percent to £25.2 million in the second quarter of 2015, compared to £26.3 million in the second quarter of 2014, primarily due to lower income from inflation index-linked bonds. The benefit ratio in the second quarter of 2015 was 70.7 percent, compared to 74.0 percent in the second quarter of 2014, resulting from lower claim incidence and average claim size in the group life line.
Persistency in the group long-term disability line of business was 87.5 percent in the first half of 2015, consistent with the first half of 2014. Persistency in the group life line of business improved to 79.9 percent in the first half of 2015, compared to 70.4 percent in the first half of 2014. Sales declined 2.8 percent to $20.5 million in the second quarter of 2015, compared to $21.1 million in the second quarter of 2014. In local currency, sales for the second quarter of 2015 increased 6.3 percent to £13.4 million, compared to £12.6 million in the second quarter of 2014.
Colonial Life Segment
Colonial Life reported a 3.6 percent increase in operating income to $77.6 million in the second quarter of 2015, compared to $74.9 million in the second quarter of 2014.
Premium income for the second quarter of 2015 increased 6.0 percent to $335.9 million, compared to $316.8 million in the second quarter of 2014, driven by sales growth and favorable persistency. Net investment income increased 3.1 percent to $36.9 million in the second quarter of 2015, compared to $35.8 million in the second quarter of 2014, due to an increase in the level of assets and higher miscellaneous income, partially offset by a decrease in yield on invested assets. The benefit ratio in the second quarter of 2015 was 50.4 percent, compared to 52.0 percent in the second quarter of 2014, primarily reflecting favorable mortality experience in the life product line.
Sales increased 5.7 percent to $95.8 million in the second quarter of 2015 from $90.6 million in the second quarter of 2014, with favorable sales trends in both the core commercial and public sector market segments.
Closed Block Segment
The Closed Block segment reported operating income of $36.6 million in the second quarter of 2015, consistent with the second quarter of 2014.
Premium income for this segment declined 3.8 percent in the second quarter of 2015 compared to the second quarter of 2014, primarily due to expected policy terminations and maturities for the individual disability line of business, partially offset by a slight increase in premium income for the long-term care line of business due primarily to rate increases on in-force business. Net investment income increased 1.8 percent to $331.7 million in the second quarter of 2015, compared to $325.8 million in the second quarter of 2014, due to an increase in the level of invested assets, partially offset by a decrease in yield on invested assets. The interest adjusted loss ratio for the individual disability line of business was 83.6 percent in the second quarter of 2015, compared to 89.4 percent in the second quarter of 2014, due primarily to favorable claim incidence and mortality experience. The interest adjusted loss ratio for the long-term care line of business was 83.4 percent in the second quarter of 2015 compared to 80.8 percent in the second quarter of 2014, reflecting higher claim incidence rates relative to the very favorable
experience of the year ago quarter.
Corporate Segment
The Corporate segment reported an operating loss of $33.4 million for the second quarter of 2015 compared to an operating loss of $41.6 million in the second quarter of 2014, including costs related to the second quarter of 2014 early retirement of debt. The operating loss in the second quarter of 2014, excluding the retirement of debt costs, was $28.4 million. The higher operating loss in the second quarter of 2015 was due primarily to lower net investment income and higher operating expenses.
OTHER INFORMATION
Shares Outstanding
The company’s average number of shares outstanding, assuming dilution, was 249.2 million for the second quarter of 2015, compared to 257.9 million for the second quarter of 2014. Shares outstanding totaled 246.6 million at June 30, 2015. During the second quarter of 2015, the Company repurchased 3.0 million shares at a cost of approximately $103 million.
Capital Management
At June 30, the weighted average risk-based capital ratio for the company’s traditional U.S. insurance companies was approximately 400 percent, and cash and marketable securities in the holding companies equaled $481 million.
Book Value
Book value per common share as of June 30, 2015 was $34.53, compared to $36.19 at June 30, 2014.
Outlook
The company anticipates growth in after-tax operating earnings per share for full-year 2015 to be towards the lower end of the outlook range announced in December 2014 of two percent to five percent.