Unum Group Management Discusses Q2 2012 Results - Earnings Call Transcript

Unum Group (UNM)

Q2 2012 Earnings Call

August 02, 2012 10:00 am ET


Thomas White

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

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

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

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


Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division

Suneet L. Kamath - UBS Investment Bank, Research Division

Edward A. Spehar - BofA Merrill Lynch, Research Division

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

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

Ryan Krueger - Dowling & Partners Securities, LLC

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



Good day and welcome to the Unum Group's Second Quarter 2012 Earnings Results Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the Senior Vice President of Investor Relations, Mr. Tom White. Please go ahead, sir.

Thomas White

Great. Thank you, operator. Good morning, everyone, and welcome to the Second Quarter 2012 Conference Call for Unum. 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 the results to differ appears in our filings with the SEC and are also located in the section titled Cautionary Statement Regarding Forward-Looking Statements and Risk Factors on our annual report on Form 10-K for the fiscal year ended December 31, 2011, as well as our subsequently filed Form 10-Q. Our SEC filings can be found in the Investors section of our website at www.unum.com.

I'll 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, our President and CEO; and 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 so now I'll turn the call over to Tom Watjen.

Thomas R. Watjen

Thank you, Tom, and good morning. As you saw from our announcement last evening, operating earnings per share grew by 3.9% this quarter and despite the headwinds, I'm pleased with the performance of most of our businesses.

Let me highlight a few points. First, Unum US and Colonial continue to generate solid results, striking a good balance between growing the businesses while maintaining strong, predictable profitability. The Unum US premium grew 4% as we continue with strong sales growth, especially in our core markets and voluntary benefit lines and persistency as found across most of our product lines. When combined with a stable benefit ratio, this business continues to generate a consistent ROE of between 13% and 14%. At Colonial, premium grew at about 5% this quarter. And while sales were relatively flat year-over-year, the margins in this business continue to hold up quite well, and the result is that this businesses continues to generate a consistent return on equity of between 16% and 17%. You'll see that the earnings for this business are down slightly year-over-year and this is due to extraordinary high investment income last year and not weakening the underlying business.

Next [indiscernible] I am generally pleased with our operating performance but more exceptionally with our Unum UK business. While it remains solidly profitable and generated a return on equity around 12% this quarter, the level of profitability and the volatility of our results in this business are below our expectations. While this is our smallest business, it is a business and marketplace to have [ph] a great deal and I am confident that we can, over time, improve the performance of this business through pricing actions, rebalancing our mix of business and more consistent operating performance, and Rick will touch on that further on his remarks.

We you'll also -- you will see too the results for the quarter in our Closed Block segment improve somewhat over our first quarter results. That was the case for both our Individual Disability business as well as our Long-term Care business which, as you may recall, was added to our Closed Block segment in the fourth quarter of last year. New claim incidence in Long-term Care returned to more normal levels this quarter from the spike we saw in the first quarter. We said at the time that it would take a few quarters for the Long-term Care block to settle down and that seems to have been the case. That block will continue to be a challenge though, and Tom and Rick will both touch on this further in their remarks.

Now turning to our investment results. This past quarter was another strong quarter despite what obviously remains a very challenging investment environment. Today's extremely low rates will continue to pressure our investment income results, but we are working to mitigate this impact by implementing rate increases on new sales and renewals. While interest rate pressure will likely persist for some time, our credit quality remains strong and we are not going to deviate from the disciplined investment strategy which has served us so well through these difficult financial and economic times. We will sacrifice yield as need be to maintain a solid high-quality investment portfolio.

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