Unum Group's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Unum Group (UNM)

Q1 2012 Earnings Call

May 02, 2012 9:00 am ET

Executives

Thomas A. H. Corbett - Senior Vice President of Investor Relations

Thomas R. Watjen - Chief Executive Officer, President and Director

Richard P. McKenney - Chief Financial Officer, Executive Vice President and Principal Accounting Officer

Kevin P. McCarthy - Chief Operating Officer, Executive Vice President, President of Unum Us and Chief Executive Officer of Unum Us

John F. McGarry - Executive Vice President, Chief Executive Officer of Unum UK and President of Unum UK

Randall C. Horn - Executive Vice President, President and Chief Executive Officer of Colonial Life and Colonial life & Accident Insurance Company

Analysts

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

A. Mark Finkelstein - Evercore Partners Inc., Research Division

Edward A. Spehar - BofA Merrill Lynch, Research Division

Jay Gelb - Barclays Capital, Research Division

Thomas G. Gallagher - Crédit Suisse AG, Research Division

Steven D. Schwartz - Raymond James & Associates, Inc., Research Division

Randy Binner - FBR Capital Markets & Co., Research Division

Eric N. Berg - RBC Capital Markets, LLC, Research Division

John M. Nadel - Sterne Agee & Leach Inc., Research Division

Sean Dargan - Macquarie Research

Ryan Krueger - Dowling & Partners Securities, LLC

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the Unum Group First Quarter 2012 Earnings Results Conference. Just a reminder that today's program is being recorded. At this time, for opening remarks, for introductions I would like to turn the conference over to the Senior Vice President, Investor Relations, Mr. Tom White (sic) [Thomas Corbett]. Please go ahead, sir.

Thomas A. H. Corbett

Thank you, Lisa. Good morning, everyone, and welcome to the First Quarter 2012 Analyst and Investor Conference Call for Unum Group. Our remarks this morning will include forward-looking statements, which are statements that are not of current or historical fact. As a result, actual results might differ materially from results suggested by these forward-looking statements. Information concerning factors that could cause results to differ appears in our filings with the Securities and Exchange Commission and are also located in the section titled Cautionary Statement Regarding Forward-Looking Statements and Risk Factors in our annual report on Form 10-K for the fiscal year ended December 31, 2011. Our SEC filings can be found in the Investors section of our website at unum.com.

I also remind you that statements in today's call speak only as of the date they are made, and we undertake no obligation to publicly update or revise any forward-looking statements. A presentation of the most directly comparable GAAP measures and reconciliations of any non-GAAP financial measures included in today's presentation can be found on our website also in the Investors section.

Participating in this morning's conference call are Tom Watjen, the President and CEO of Unum; Rick McKenney, Executive Vice President and CFO; and also the presidents of our 3 business segments, Kevin McCarthy for Unum US; Randy Horn for Colonial Life; and Jack McGarry for Unum UK. And now I will turn the call over to Tom Watjen.

Thomas R. Watjen

Thank you, Tom, and good morning. While our overall results were somewhat below our expectations. The vast majority of our business has met or exceeded expectations, and I sum up the quarter as follows: First, we grew operating earnings per share by 4.3% with solid performance in our Unum US and Colonial businesses, which was off somewhat by -- offset somewhat by the lower-than-expected performance in our Unum UK and Closed Block segment. While this quarter's growth and operating earnings per share was below our outlook, we expect growth trends to improve throughout the year, and we are therefore are maintaining our 6% to 12% operating earnings per share growth outlook for 2012, though at the low end of the range.

Second, our core business segments generated healthy returns on equity of between 13.5% and 17.5% for the first quarter. Additionally, we are seeing signs of improving growth trends across these businesses. At Unum US, we saw solid sales results in the 2 segments we targeted for growth, our core group and voluntary benefit lines which were up 14% in the first quarter, an improvement over the 8.3% growth rate in 2011.

Colonial Life sales were somewhat below our expectations, but we are seeing positive trends in the core commercial market, a targeted market for us, and our overall premium grew almost 6% in the quarter. Finally, with firming in the pricing environment in the U.K., we are seeing better new sales opportunities in that market.

Thirdly, I'd point out that our capital position remains strong, with risk-based capital of 406% and holding company cash and marketable securities of $575 million. This gives us significant financial flexibility, flexibility that allowed us to repurchase $175 million of stock during the first quarter. Since year-end 2007, we have repurchased over $1.8 billion of stock and reduced our shares outstanding by over 20%.

And lastly, with our relatively consistent cash flow generation from operations, as you know, we have also established a pattern of returning capital to our shareholders to regular dividend increases. You saw yesterday that we announced a 23.8% increase in our quarterly dividend, which brings our cumulative dividend increase since year-end 2007 to over 73%.

So in summary, in spite of the results in our Unum UK and Closed Block businesses, we continue to feel good about where things stand at the company. We are growing operating earnings per share, generating attractive returns on equity, and maintaining the financial flexibility needed to continue to consistently return capital to our shareholders. I can assure that we will be very focused on improving the performance of those areas not meeting our expectations, while also building on the momentum we have established around the rest of the company.

Now I'll ask Tom to provide an overview on our operating results. Tom?

Thomas A. H. Corbett

Great, thank you, Tom. As we discuss our financial results this quarter, I'll first remind you that prior period results have been adjusted for our retrospective adoption of the accounting standards update for deferred acquisition cost, and also for our treatment of the nonoperating retirement-related gains and losses which we now exclude from the operational performance of our businesses.

Adjusted prior period results are available on our website in an 8-K and supplemental exhibit which we filed on April 17. As a benchmark, for full year 2011, our after-tax operating income per share -- this adjusted for the retrospective adoption of the DAC accounting standards update and excluding the after-tax nonoperating retirement-related losses, after-tax realized investment gains and losses and certain other items was $2.98 per share.

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