Unum Group 2022 Form 10-K Summary
Business context and reporting period
Unum Group is a workplace-focused provider of disability, life, accident, critical illness, dental, vision, long-term care, and related services in the United States, United Kingdom, and Poland. Its principal segments are Unum US, Unum International, Colonial Life, Closed Block, and Corporate. The filing covers the fiscal year ended December 31, 2022, with comparisons to 2021 and 2020. This is an annual filing rather than a standalone fourth-quarter report.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenue | $11,991.0 million | $12,013.8 million | (0.2%) |
| Premium income | $9,623.4 million | $9,481.0 million | 1.5% |
| Net investment income | $2,122.2 million | $2,213.2 million | (4.1%) |
| Income before tax | $1,631.4 million | $1,063.0 million | 53.5% |
| Net income | $1,314.2 million | $824.2 million | 59.5% |
| Diluted EPS | $6.50 | $4.02 | 61.7% |
| After-tax adjusted operating income | $1,254.3 million | $890.7 million | 40.8% |
| Operating cash flow | $1,418.7 million | $1,387.5 million | 2.2% |
| Stockholders’ equity | $9,197.5 million | $11,416.4 million | (19.4%) |
The consolidated benefit ratio improved to 72.1% from 80.1%; excluding reserve assumption updates and the Closed Block individual disability reinsurance transaction, it improved to 73.7% from 80.7%. The earned book yield on investments declined to 4.57% from 4.85%.
At December 31, 2022, total assets were $61.4 billion, reserves for future policy and contract benefits were $42.3 billion, long-term debt was $3.4 billion, and cash and bank deposits were $119.2 million. Holding company liquidity was $1.571 billion. The weighted-average risk-based capital ratio for traditional U.S. insurance subsidiaries was approximately 420%.
Segment performance
- Unum US: Adjusted operating income increased 108.8% to $970.7 million, including a $155.0 million reserve decrease. Excluding that update, income before tax and investment gains increased 65.6%. Sales increased 18.4% to $1,115.3 million, and the benefit ratio improved to 65.5% from 74.9%.
- Unum International: Adjusted operating income increased 20.2% to $127.0 million. Sales increased 26.4% to $133.7 million. Unum UK’s local-currency adjusted operating income increased 37.7%, although its benefit ratio deteriorated to 81.1% from 79.6%.
- Colonial Life: Adjusted operating income increased 13.8% to $374.6 million. Sales increased 5.9% to $508.1 million, and the benefit ratio improved to 47.2% from 53.9%.
- Closed Block: Adjusted operating income decreased 37.2% to $247.9 million excluding specified reserve and reinsurance items. Long-term care premium income declined 1.0%, and the interest-adjusted loss ratio increased to 82.0% from 77.3%.
Material changes versus the prior comparable period
- Net income benefited from materially better claims experience, particularly in Unum US and Colonial Life, and from a $155.0 million pretax reserve decrease related to assumption updates.
- COVID-19-related mortality was lower in 2022 than in 2021, improving group life and voluntary-benefit results. Management nevertheless continues to monitor possible pandemic effects on mortality, disability incidence, expenses, and sales.
- Net investment income declined as lower miscellaneous investment income and portfolio yields offset higher invested assets and inflation-linked bond income in the United Kingdom.
- Rising interest rates produced a $3.0 billion net unrealized loss on fixed maturity securities at year-end, compared with a $5.9 billion net unrealized gain in 2021. Management stated that it did not intend, and was not required, to sell securities before recovery of amortized cost.
- Stockholders’ equity declined primarily because accumulated other comprehensive income fell by $3.1 billion, driven largely by unrealized investment losses and foreign currency effects.
- The company repurchased 5.7 million shares for approximately $200.1 million and paid $254.2 million of common dividends in 2022. Quarterly dividends increased to $0.330 per share in the third and fourth quarters from $0.300 in the first and second quarters.
- Unum redeemed $350.0 million of senior notes due 2024 and drew a $350.0 million variable-rate term loan due 2027. Total debt was $3.43 billion at year-end versus $3.44 billion in 2021.
Outlook, accounting, risks, and unusual items
Management expects positive operating trends to continue in 2023, including premium growth, improved claims experience, and continued sales momentum. It expects favorable but normalizing wage and employment-related in-force block growth, continued investment in people, technology, digital capabilities, and leave-management services, and ongoing pricing actions on new and renewal business.
Management expects higher yields on new investments in the current interest-rate environment but continued unrealized losses and volatility in miscellaneous investment income. Unum International earnings may be pressured as inflation-linked investment income normalizes. Closed Block premium income is expected to decline over time as the business runs off; management expects the long-term-care interest-adjusted loss ratio to remain within its prior guidance range of 85% to 90% over the long term, with quarterly volatility.
Effective January 1, 2023, Unum adopted ASU 2018-12, which significantly changes long-duration insurance accounting, including reserve discount rates, cash-flow assumption updates, deferred acquisition cost amortization, and disclosures. Management estimated that adoption would reduce accumulated other comprehensive income by approximately $0.6 billion to $0.8 billion at December 31, 2022 and increase recast 2022 net income by approximately $80 million to $110 million. The update does not affect cash flows, statutory results, or management’s view of the underlying businesses.
A significant statutory contingency remains Unum America’s long-term-care premium deficiency reserve. The gross deficiency was $2.851 billion at year-end 2022, with $1.660 billion remaining to be recognized through the permitted seven-year phase-in ending in 2026. Unum Group contributed $515.1 million to affiliated captive reinsurer Fairwind in 2022; Fairwind paid no dividend and is not expected to pay one in 2023.
Key risks include adverse disability and long-term-care claims development, reserve assumption changes, interest-rate and credit-spread volatility, unrealized investment losses, commercial real-estate exposure, reinsurance counterparty risk, regulatory capital requirements, litigation, cybersecurity and technology execution, inflation, foreign currency movements, competition, and restrictions on dividends from insurance subsidiaries. The filing states that general claim litigation reserves are not expected to be material to consolidated financial condition, but adverse outcomes, including punitive damages, could materially affect results in a period.
Most important facts for investors to verify
- Whether 2022’s earnings improvement persists after excluding the $155.0 million reserve release and other favorable claims developments.
- The effects of ASU 2018-12 on reported equity, reserves, earnings patterns, OCI, and comparability with prior periods.
- Progress in funding the remaining $1.660 billion Unum America statutory long-term-care premium deficiency reserve through 2026.
- Long-term-care claims incidence, morbidity, mortality, claim resolution, persistency, approved premium-rate increases, and loss-ratio trends.
- The realizability of the $3.0 billion net unrealized investment loss and exposure to further interest-rate, credit-spread, commercial-real-estate, and private-equity volatility.
- Capital and liquidity at the parent and insurance subsidiaries, including the approximately 420% U.S. RBC ratio, $1.571 billion of holding-company liquidity, dividend capacity, and the $350.0 million variable-rate term loan.
- Dependence on reinsurance recoverables, particularly Commonwealth, which represented 59% of total reinsurance recoverables at year-end.
- Management’s ability to deliver 2023 premium and sales growth while controlling expenses and maintaining pricing discipline.