Unum Beats by 2 Cents - Analyst Blog

Unum Group’s (UNM) second quarter operating earnings came in at 69 cents per share, a couple of pennies ahead of the Zacks Consensus Estimate. The company earned 65 cents in the year-ago quarter. Earnings benefited primarily from improved performance in Unum U.S. , Colonial Life and Individual Disability–Closed Block segments, partially offset by a decline in Unum UK.
 
Total revenues of $2.5 billion came in line with the Zacks Consensus Estimate. It was, however, down 3.8% from $2.6 billion in the prior-year quarter. Net investment income increased 5.4% to $629.8 million.
 
Net income came in at $209.7 million or 63 cents per share, compared with $267.2 million or 80 cents in the year-ago quarter. The decline was triggered by net realized losses of $29.5 million in its investment portfolio. Last year the company incurred investment gains of $87.3 million.
 
Unum’s capital position remained strong, with a risk-based capital ratio of 400%, leverage of 19.9%, significantly less than the target of 25%, along with holding company liquidity of $773 million.
 
Segment Results
 
Unum U.S. reported an operating income of $216 million, up 13% year over year. Premium income was, however, modestly down by 0.6% to $1.2 billion due to the high level of unemployment and the company’s continued adherence to disciplined pricing, renewals, and risk selection. The benefit ratio remained almost unchanged at 79.5% from 79.6% in the year-ago quarter.
 
Unum U.K. posted an operating income of $52.9 million, down 21.4% from the prior-year period. Operating income was down 18.9% in local currency, the British pound. Premium income decreased 11.8% to $152.9 million. Benefit ratio deteriorated 1,160 basis points to 66% due to a decrease in premium income, less favorable claims experience in group life line of business coupled with a higher level of incidence for group long-term disability line of business. 
 
Unum’s Colonial Life segment experienced a 3.6% increase in operating income to $73.9 million. Premium income was up 6.7% to $267.7 million driven by strong sales in the commercial market, partially offset by a decline in sales in the public sector market. The benefit ratio deteriorated 190 basis points to 48.3% due to higher benefit ratios in the accident, sickness, and disability line and the cancer and critical illness line, partially offset by a lower benefit ratio in the life business line.
 
The Individual Disability segment’s operating income was up 24% year over year to $12.4 million due to a decline in operating expenses. Premium income was down 6.8% to $212.5 million. Interest adjusted loss ratio was 85.4% in the quarter was up 340 basis points, compared with 82% in the year-ago period.
 
Adjusted book value per share increased 9.9% to $25.78 from $23.45 in the year-ago quarter.
 
2010 Outlook
 
Management reiterated operating earnings growth for 2010 within its previous expectations of 4% to 6%.
 
Unum is ranked as the leading disability income writer and the second-largest writer of voluntary business in the United States. Despite the ongoing turmoil in the U.S. economy, Unum reported favorable operating results across the majority of its insurance entities in 2009, a trend which continues into 2010. Over the past few years, the company’s conservative pricing and reserving practices have contributed to its improved overall profitability. Its return on equity has remained above the industry median for the past couple of years. Management intends to continue with its disciplined underwriting approach, which we believe will keep the company out of trouble and pave the path for long term growth.
 
 
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