Continued Strong Performance across All Operating Segments;
Securitization of Closed Block Announced;
$700 million Share Repurchase Authorized;
Claims Reassessment Process Substantially Completed
CHATTANOOGA, Tenn.--(BUSINESS WIRE)--Oct. 31, 2007--Unum Group
(NYSE: UNM) announced today its results for the third quarter of 2007.
The Company reported net income of $187.0 million ($0.52 per diluted
common share), compared to a net loss of $63.7 million ($0.19 per
diluted common share) for the third quarter of 2006.
Included in the results for the third quarter of 2007 are net
realized after-tax investment losses of $30.0 million ($0.08 per
diluted common share), compared to net realized after tax investment
gains of $3.1 million ($0.01 per diluted common share) in the third
quarter of 2006. Net realized investment losses for the third quarter
of 2007 include after-tax losses of $18.0 million related to changes
in the fair values of the embedded derivatives in certain modified
coinsurance contracts and after-tax losses of $12.0 million related to
write-downs of certain investments which the Company no longer has the
intent to hold to maturity due to changes in the capital requirements
resulting from the reinsurance transaction involving the Individual
Income Protection - Closed Block segment and the Company's related
capital redeployment plans. Results for the third quarter of 2006
included an increase in the claim reassessment reserve of $325.4
million before tax, or $211.5 million after tax ($0.62 per diluted
common share) and $18.5 million before tax, or $12.7 million after tax
($0.04 per diluted common share), for the settlement agreement
concerning the Company's broker compensation practices.
Adjusting for the respective aforementioned items, income from
continuing operations on an after-tax basis was $217.0 million ($0.60
per diluted common share) in the third quarter of 2007, compared to
$155.8 million ($0.46 per diluted common share) in the third quarter
of 2006.
"The third quarter continues a trend of steadily improving
operating performance that began in early 2006," said Thomas R.
Watjen, president and chief executive officer. "I'm pleased to say
that all three of our businesses made significant contributions during
the quarter, as both Colonial and Unum UK once again delivered
outstanding results and Unum US continued to achieve consistent,
solid improvement in its operating performance. Based on the results
for this and the past several quarters, it's clear our strategy is
working.
As our performance has improved, we've transitioned from a company
that just a few years ago needed to raise capital to one that now
generates capital. The successful completion of the securitization of
our Individual Income Protection - Closed Block business we announced
today accelerates the pace of capital generation at the Company. As a
result, we have formalized our capital management strategy, and with
this in mind I'm pleased to say that our board of directors has
authorized the repurchase of up to $700 million of our common stock."
RESULTS BY SEGMENT
In the following discussions of the Company's operating segment
results, "operating revenue" excludes net realized investment gains
and losses. "Operating income" or "operating loss" excludes income tax
and net realized investment gains and losses.
Unum US Segment
Unum US reported operating income of $164.3 million in the third
quarter of 2007, compared to an operating loss of $173.2 million in
the third quarter of 2006. Included in the results for the third
quarter of 2006 is a claim reassessment charge of $291.4 million.
Excluding this charge, income for the segment was $118.2 million for
the third quarter of 2006. Premium income declined 1.8 percent to
$1,255.3 million in the third quarter of 2007, from $1,278.6 million
in the third quarter of 2006.
Within Unum US, the group income protection line of business
reported operating income of $50.4 million in the third quarter of
2007, compared to an operating loss of $275.0 million in the third
quarter of 2006. Results for the third quarter of 2006 include a claim
reassessment charge of $291.4 million in 2006. Excluding the charge,
operating income was $16.4 million for the third quarter of 2006. The
benefit ratio for the third quarter of 2007 was 92.1 percent, compared
to 139.4 percent in the third quarter of 2006, or 94.5 percent
excluding the charge taken in the third quarter of 2006. The
improvement in the benefit ratio continues to be driven by
improvements in the claims management process along with a reduction
in paid claims in both the group long-term and short-term income
protection lines of business relative to the third quarter of 2006.
Premium income in group income protection declined 3.6 percent to
$593.3 million in the third quarter of 2007, compared to $615.7
million in the third quarter of 2006. The decline continues to be
attributable to the Company's disciplined approach to pricing,
renewals, and risk selection. Sales of fully insured group long-term
income protection products in the third quarter of 2007 decreased by
5.9 percent to $23.9 million, compared to $25.4 million in the year
ago quarter. Sales of fully insured group short-term income protection
products declined by 13.3 percent to $8.5 million in the third quarter
of 2007, compared to $9.8 million in the third quarter of 2006.
Premium persistency in the group long-term income protection line of
business was 84.9 percent through the third quarter of 2007, compared
to 87.5 percent in the first nine months of 2006. Case persistency for
this line was 88.1 percent for the first nine months of 2007, compared
to 86.9 percent for the comparable year ago period. Premium
persistency in the group short-term income protection line of business
was 75.5 percent for the first nine months of 2007, compared to 85.3
percent for the comparable period in 2006. Case persistency for the
line was 87.1 percent for the first nine months of 2007, compared to
85.8 percent in the first nine months of 2006.
The group life and accidental death and dismemberment line of
business reported a 30.7 percent increase in operating income to $56.2
million in the third quarter of 2007, compared to $43.0 million in the
third quarter of 2006. Results for the line continue to reflect a
lower claim incidence rate in group life, outweighing a higher level
of incidence in the accidental death and dismemberment line during the
quarter. Premium income for this line of business declined 6.4 percent
to $309.6 million in the third quarter of 2007, compared to $330.6
million in the third quarter of 2006, continuing to reflect the
Company's ongoing disciplined approach to pricing, renewals, and risk
selection. Sales of group life products in the third quarter of 2007
declined 2.3 percent to $17.3 million, compared to $17.7 million in
the third quarter of 2006. Premium persistency in the group life line
of business was 79.3 percent for the first nine months of 2007,
compared to 80.3 percent for the comparable period in 2006. Case
persistency for the first nine months of 2007 was 87.2 percent and for
the comparable period in 2006 was 86.5 percent.
The Unum US supplemental and voluntary lines of business reported
a 1.9 percent decrease in operating income to $57.7 million in the
third quarter of 2007, compared to $58.8 million in the third quarter
of 2006. Premium income for supplemental and voluntary lines increased
6.0 percent to $352.4 million in the third quarter of 2007, compared
to $332.3 million in the third quarter of 2006. Sales in the voluntary
workplace benefits line of business increased 11.0 percent in the
third quarter of 2007, sales in the individual income protection -
recently issued line increased 7.8 percent, and long-term care sales
increased 23.8 percent compared with the year ago quarter.
Unum UK Segment
Unum UK reported operating income of $101.0 million in the third
quarter of 2007, a 54.2 percent increase, compared to $65.5 million in
the third quarter of 2006. Operating income benefited from a decline
in the benefit ratio to 53.3 percent in the third quarter of 2007,
compared to 67.2 percent in the third quarter of 2006. The lower
benefit ratio for the current quarter was primarily the result of a
third quarter 2007 adjustment to long-term assumptions for claim
reserves due to emerging experience and the Company's view of future
events. The adjustment increased third quarter segment operating
income by approximately $16.6 million. Favorable currency exchange
rates continued to benefit reported results for the segment. In local
currency, operating income for the third quarter of 2007 increased
43.3 percent from the third quarter of 2006. Premium income increased
12.7 percent to $247.6 million in the third quarter of 2007, compared
to $219.7 million in the third quarter of 2006. In local currency,
premium income increased 4.5 percent compared to the third quarter of
2006. Sales decreased 12.6 percent to $22.2 million in the third
quarter of 2007, compared to $25.4 million in the third quarter of
2006. In local currency, sales for the third quarter of 2007 decreased
18.5 percent compared to the third quarter of 2006.
Colonial Segment
Colonial reported a 20.0 percent increase in operating income to
$62.5 million in the third quarter of 2007, compared to $52.1 million
in the third quarter of 2006. Results in the third quarter of 2007
were driven by continued favorable claims experience across all major
product lines: income protection, life, and cancer and critical
illness. The benefit ratio in the third quarter of 2007 was 48.6
percent, compared to 52.6 percent for the same period in 2006. The
Colonial operating segment continued to build on its product portfolio
with the introduction of two new products: Medical Bridge 3000 in the
third quarter of 2007 and Colonial Health Advantage early in the
fourth quarter. Premium income for the third quarter of 2007 increased
to $227.0 million, compared to $212.8 million in the third quarter of
2006. Sales increased 2.2 percent to $74.5 million in the third
quarter of 2007 from $72.9 million in the third quarter of 2006. New
accounts increased 7.0 percent in the third quarter of 2007 compared
to the third quarter of 2006. Average weekly producers increased 4.2
percent in the third quarter of 2007 compared to the third quarter of
2006, while average weekly premium per agent decreased 2.0 percent.
Individual Income Protection - Closed Block Segment
The Individual Income Protection - Closed Block segment reported
operating income of $29.4 million in the third quarter of 2007,
compared to a loss of $5.3 million in the third quarter of 2006.
Results for the third quarter of 2006 include a claim reassessment
charge of $34.0 million. Excluding this charge, operating income for
the segment was $28.7 million in the third quarter of 2006. The
interest adjusted loss ratio for the segment was 92.4 percent in the
third quarter of 2007, compared to 106.2 percent in the prior year
third quarter. Excluding the claim reassessment charge in the third
quarter 2006, the ratio was 93.0 percent in the year ago quarter.
Other Segment
The Other segment reported operating income of $3.6 million in the
third quarter of 2007, compared to $7.8 million in the third quarter
of 2006.
Corporate Segment
The Corporate segment, which includes investment earnings on
corporate assets not specifically allocated to a line of business,
corporate interest expense, and certain other corporate expenses,
reported a loss of $35.7 million in the third quarter of 2007,
compared to a loss of $49.1 million in the third quarter of 2006. The
results for 2006 include the $18.5 million charge related to the
broker compensation settlement agreement. Interest expense in the
third quarter 2007 was $43.9 million, compared to $44.2 million in the
third quarter of 2006.
OTHER INFORMATION
Securitization Transaction Announced
In a separate announcement issued today, Unum Group announced the
completion of the securitization of its closed block of individual
income protection reserves with the private offering of $800.0 million
of floating rate insured notes due December 1, 2037, by the Company's
wholly-owned subsidiary Northwind Holdings, LLC (Northwind Holdings).
The transaction included the intercompany reinsurance of $11.1 billion
of statutory reserves, representing approximately 95 percent of the
Individual Income Protection - Closed Block segment, to Northwind
Reinsurance Company (Northwind Re), a newly formed special purpose
financial captive insurance company domiciled in Vermont and owned by
Northwind Holdings. With the risk transfer to Northwind Re, the
Company's traditional U.S. insurance subsidiaries will release excess
statutory capital previously supporting this reinsured closed block
business. The excess capital will be transferred to Unum Group from
the ceding companies through extraordinary dividends. This capital
structure will allow the Company to continue to fully support the risk
profile of this closed block of business while allowing for
redeployment of excess capital to other uses. The redeployment is
expected to build additional value and financial strength to the
benefit of Unum Group's policyholders, shareholders, and creditors.
Capital Management Strategy Announced
In response to numerous questions from investors on the Company's
intentions for utilizing any excess capital, it has recently
formalized its capital management goals and objectives. The first
priority is to maintain sufficient financial flexibility to support
its operations over various economic cycles and to respond to
opportunities in the marketplace while positioning the Company for
improvements in its credit ratings. It has set in place several
financial targets which will guide its capital management decisions
including:
- Maintain a risk based capital ratio of 300 percent or greater
for its traditional U.S. insurance subsidiaries. This is to be
measured on a weighted-average basis using the NAIC Company
Action Level formula.
- Maintain leverage at approximately 25 percent. Leverage will
be measured as debt to total capital (defined as debt plus
stockholders' equity, excluding the net unrealized gain or
loss on securities and the net gain or loss on cash flow
hedges), excluding the non-recourse debt and associated equity
of Tailwind Holdings and Northwind Holdings.
- Maintain excess capital at its holding companies sufficient to
cover one year of fixed charges (measured as interest expense
plus common stock dividends) plus a capital fund which will
vary with business and economic conditions.
- Maintain a common stock dividend yield that is near the median
of its peer companies.
The Company considers any capital above that needed to achieve and
maintain these metrics to be excess capital available to fund share
repurchases, business growth, or acquisitions. The goal in allocating
excess capital is to maximize risk-adjusted shareholder returns over a
three to five year time period, with share repurchase used as the
benchmark for evaluating uses for excess capital.
Shares Outstanding
The Company's average number of shares (000s) outstanding,
assuming dilution, was 360,906.3 for the third quarter of 2007,
compared to 340,727.7 for the third quarter of 2006.
Book Value
Book value per common share as of September 30, 2007 was $21.70,
compared to $22.17 at September 30, 2006. Excluding the net unrealized
gain on securities and the net gain on cash flow hedges, book value
per common share at September 30, 2007 was $20.36, compared to $19.63
at September 30, 2006.
Claim Reassessment Update
The Company has now substantially completed the claim reassessment
process, as required by the regulatory settlement agreements. During
the third quarter of 2007, 2,533 claims were reviewed, and the review
on the remaining balance of 210 claims will be completed in the fourth
quarter. For the third quarter of 2007, the overturn rate was 53
percent, and for the process to date the overturn rate is 41 percent.
Any remaining reassessment cost will not have a material effect on the
Company's operations. The final examination under the multi-state
regulatory settlement agreement has begun, with an anticipated
completion by mid-year 2008. Supplemental disclosure on the claim
reassessment results for the third quarter of 2007 has been posted to
the Company's website.
OUTLOOK
The Company is revising upward its full year 2007 operating
earnings guidance to a range of $2.14 to $2.17 per share, excluding
the second quarter claim reassessment charge, from previous guidance
of $2.01 to $2.04 per share, based on the nine months performance and
current expectations for the remainder of the year. Incorporated in
the Company's estimates is continued improvement in the benefit ratio
for the Unum US group income protection line to within its previously
stated guidance of a range of 90.0 percent to 92.0 percent by the end
of 2007.
The Company will hold an investor meeting in New York on November
19, 2007, at which time it intends to review its outlook for 2008.
NON-GAAP RECONCILIATION
The Company analyzes its performance using non-GAAP financial
measures which exclude certain items and the related tax thereon from
net income. The Company believes operating income or loss, excluding
realized investment gains and losses, which are recurring, and
excluding certain other items specified in the non-GAAP
reconciliation, is a better performance measure and a better indicator
of the profitability and underlying trends in its business. Realized
investment gains and losses are primarily dependent on market
conditions and general economic events and are not necessarily related
to decisions regarding the Company's underlying business. The
exclusion of certain other items specified in the non-GAAP
reconciliation also enhances the understanding and comparability of
the Company's performance and the underlying fundamentals in its
operations, but this exclusion is not an indication that similar items
may not recur. The Company believes book value per common share
excluding unrealized gains and losses on securities and the net gain
or loss on cash flow hedges, which also tend to fluctuate depending on
market conditions and general economic trends, is an important
measure. For a reconciliation to the most directly comparable GAAP
measures, refer to the attached digest of earnings.
CONFERENCE CALL INFORMATION
Unum Group senior management will host a conference call on
Thursday, November 1, 2007 at 9:00 a.m. (EDST) to discuss the results
of operations for the third quarter. Included in the discussion will
be forward-looking information, such as guidance on future results and
trends in operations, as well as other material information.
The dial-in number for the conference call is (888) 713-4486 for
U.S. and Canada. For International, the dial-in number is (913)
312-1439. A live webcast of the call will also be available at
www.unum.com in a listen-only mode. It is recommended that webcast
viewers access the "Investor Information" section of the Company's
website and opt-in to the webcast fifteen minutes prior to the start
of the call. A replay of the call will be available by telephone and
on the Company's website through Thursday, November 8. In conjunction
with the Company's earnings announcement, the Company's Statistical
Supplement for the third quarter of 2007 has been made available on
the "Investor Information" section of the Company's website.
ABOUT UNUM GROUP
Unum (www.unum.com) is one of the leading providers of employee
benefits products and services and the largest provider of group and
individual disability income protection insurance in the United States
and the United Kingdom.
SAFE HARBOR STATEMENT
Statements in this press release that are not historical facts,
such as The Company's earnings per share and Unum US group income
protection benefit ratio guidance, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995 and involve risks and uncertainties that could
cause actual results to differ materially from those contained in the
forward-looking statements. These risks and uncertainties include such
matters as general economic or business conditions; events or
consequences relating to terrorism, acts of war and catastrophes,
including natural and man-made disasters; competitive factors,
including pricing pressures; legislative, regulatory, accounting, or
tax law changes; and the interest rate environment. More specifically,
they include fluctuations in insurance reserve liabilities; changes in
projected new sales and renewals; variations between projections and
actual experience in persistency rates, incidence and recovery rates,
pricing and underwriting; retained risks in the Company's reinsurance
operations; availability and cost of reinsurance; the level and
results of litigation, rating agency actions, and regulatory actions
and investigations; actual experience in implementing and complying
with the multistate market conduct regulatory settlement agreements
and the California Department of Insurance settlement agreement;
negative media attention; changes in assumptions relating to deferred
acquisition costs, value of business acquired, or goodwill; the level
of pension benefit costs and funding; investment results, including
credit deterioration of investments; the ability of the Company's
insurance company subsidiaries to pay dividends or extend credit to
the Company and certain of its intermediate holding company
subsidiaries and/or finance subsidiaries; and effectiveness of product
support and customer service. For further information of risks and
uncertainties that could affect actual results, see the Company's
filings with the Securities and Exchange Commission, including
information in the sections titled "Cautionary Statement Regarding
Forward-Looking Statements" and "Risk Factors" in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2006 and
subsequently filed Form 10-Qs. The forward-looking statements in this
press release are being made as of the date of this press release, and
the Company expressly disclaims any obligation to update or revise any
forward-looking statement contained herein.
DIGEST OF EARNINGS
(Unaudited)
Unum Group (UNM:NYSE)
and Subsidiaries
($ in millions, except share
data)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- --------------------
2007 2006 2007 2006
---------- ---------- ---------- ---------
Operating Revenue by
Segment $2,656.3 $2,612.6 $7,915.8 $7,837.7
Net Realized Investment
Gain (Loss) (46.1) 4.8 (39.4) 1.5
---------- ---------- ---------- ---------
Total Revenue $2,610.2 $2,617.4 $7,876.4 $7,839.2
========== ========== ========== =========
Operating Income (Loss) by
Segment $325.1 $(102.2) $811.2 $198.3
Net Realized Investment
Gain (Loss) (46.1) 4.8 (39.4) 1.5
Income Tax (Benefit) 92.0 (32.1) 259.9 70.4
---------- ---------- ---------- ---------
Income (Loss) from
Continuing Operations 187.0 (65.3) 511.9 129.4
Income from Discontinued
Operations, Net of Tax - 1.6 6.9 5.5
---------- ---------- ---------- ---------
Net Income (Loss) $187.0 $(63.7) $518.8 $134.9
========== ========== ========== =========
PER SHARE INFORMATION
Assuming Dilution:
Income (Loss) from
Continuing Operations $0.52 $(0.19) $1.44 $0.39
Income from Discontinued
Operations, Net of Tax - - 0.02 0.02
---------- ---------- ---------- ---------
Net Income (Loss) $0.52 $(0.19) $1.46 $0.41
========== ========== ========== =========
Basic:
Income (Loss) from
Continuing Operations $0.52 $(0.19) $1.46 $0.40
Income from Discontinued
Operations, Net of Tax - - 0.02 0.02
---------- ---------- ---------- ---------
Net Income (Loss) $0.52 $(0.19) $1.48 $0.42
========== ========== ========== =========
Weighted Average Common
Shares - Basic (000s) 359,741.2 340,727.7 350,665.9 319,209.4
Weighted Average Common
Shares - Assuming Dilution
(000s) 360,906.3 340,727.7 354,109.5 331,312.5
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Three Months Ended Three Months Ended
September 30, 2007 September 30, 2006
-------------------- --------------------
(in per (in per
millions) share(a) millions) share(a)
---------- --------- ---------- ---------
Income from Continuing
Operations, As Adjusted $217.0 $0.60 $155.8 $0.46
Adjustments, After Tax
Net Realized Investment
Gain (Loss) (30.0) (0.08) 3.1 0.01
Regulatory Reassessment
Charge - - (211.5) (0.62)
Broker Compensation
Settlement - - (12.7) (0.04)
---------- --------- ---------- ---------
Income (Loss) from Continuing
Operations 187.0 0.52 (65.3) (0.19)
Income from Discontinued
Operations - - 1.6 -
---------- --------- ---------- ---------
Net Income (Loss) $187.0 $0.52 $(63.7) $(0.19)
========== ========= ========== =========
Three Months Ended
September 30, 2006
--------------------
(in benefit
millions) ratio(b)
---------- ---------
Unum US Group Income
Protection
Premium Income $615.7
Benefits and Change in
Reserves for Future
Benefits 858.4 139.4%
Regulatory Reassessment
Charge 276.4
Benefits and Change in
Reserves for Future
Benefits, Excluding
Regulatory Reassessment
Charge 582.0 94.5%
As of September 30
-----------------------------------------
2007 2006
-------------------- --------------------
(in (in
millions) per share millions) per share
---------- --------- ---------- ---------
Total Stockholders' Equity,
As Adjusted $7,347.2 $20.36 $6,725.4 $19.63
Net Unrealized Gain on
Securities 346.6 0.96 687.9 2.01
Net Gain on Cash Flow Hedges 137.0 0.38 181.1 0.53
---------- --------- ---------- ---------
Total Stockholders' Equity
(Book Value) $7,830.8 $21.70 $7,594.4 $22.17
========== ========= ========== =========
Outlook Range
Twelve Months Ended December 31, 2007
-----------------------------------------
(in per (in per
millions) share(c) millions) share(c)
---------- --------- ---------- ---------
After-tax Operating Income by
Segment Excluding Net
Realized Investment Gains
and Losses and Regulatory
Reassessment Charge $761.4 $2.14 $772.1 $2.17
Regulatory Reassessment
Charge, Net of Tax (34.5) (0.10) (34.5) (0.10)
---------- --------- ---------- ---------
After-tax Operating Income
Excluding Net Realized
Investment Gains and Losses $726.9 $2.04 $737.6 $2.07
========== ========= ========== =========
(a) Assuming Dilution
(b) Benefits and Change in Reserves for Future Benefits as a percent
of Premium Income
(c) Assuming Dilution - Forecasted Weighted Average Shares of 355.8
million
CONTACT: Unum Group
Investors:
Thomas A. H. White, 423-294-8996
Madhavi Venkatesan, 423-294-1630
or
Media:
Jim Sabourin, 423-294-6043
SOURCE: Unum Group
