Unum Group quarterly report, Q2 FY2023

Unum Group 2023 Q2 SEC Filing Summary

Business Context and Reporting Period

Unum Group is a provider of workplace financial protection products, including disability, life, accident, critical illness, dental and vision insurance, principally in the United States, United Kingdom and Poland. The filing covers the quarter and six months ended June 30, 2023. Prior-period amounts were recast for the modified-retrospective adoption of ASU 2018-12, the long-duration insurance accounting standard.

Key Financial Metrics

Metric	Three Months Ended June 30	Six Months Ended June 30
Premium income	$2,509.1 million, up 3.9%	$4,968.4 million, up 3.1%
Total revenue	$3,112.2 million, up 2.4%	$6,148.3 million, up 2.1%
Net income	$392.9 million, up 7.0%	$751.2 million, up 23.6%
Diluted EPS	$1.98, versus $1.81	$3.78, versus $2.99
After-tax adjusted operating income	$408.8 million, or $2.06 per diluted share	$781.4 million, or $3.93 per diluted share
Income before income tax	$498.4 million	$949.7 million
Net investment income	$531.1 million, down 5.0%	$1,039.9 million, down 4.3%
Operating cash flow	Not separately reported for the quarter	$464.2 million, versus $784.6 million

Calculated net margins were approximately 12.6% for the second quarter and 12.2% for the first six months. Adjusted operating income was $518.4 million before tax in the second quarter and $987.9 million before tax for the first six months.

The consolidated benefit ratio improved to 69.9% for the quarter and 70.2% for the six months, compared with 74.5% and 77.1%, respectively, in the prior-year periods. The improvement primarily reflected favorable claims experience, particularly in Unum US disability, Unum UK and Colonial Life.

Balance Sheet, Debt and Liquidity

Total assets were $61.9 billion at June 30, 2023, compared with $61.1 billion at December 31, 2022.
Total stockholders’ equity was $9.25 billion, compared with $8.74 billion at year-end 2022.
Total investments were $44.4 billion, including $35.4 billion of fixed maturity securities.
Long-term debt was $3.43 billion and short-term debt was $2.0 million. No amounts were outstanding under the $500 million revolving credit facility; letters of credit totaled $0.4 million.
Holding company liquidity was $1.072 billion, held primarily in bank deposits, money market funds, commercial paper, corporate and municipal bonds, and asset-backed securities.
The weighted-average risk-based capital ratio for traditional U.S. insurance subsidiaries was approximately 450% at June 30, 2023.
Cash and bank deposits were $108.3 million at June 30, 2023, compared with $119.2 million at December 31, 2022.

Material Changes Versus the Prior Comparable Period

Net income and adjusted operating income increased materially as claims experience improved and premium income grew.
Unum US adjusted operating income increased 17.5% in the quarter and 42.5% for the six months. Its benefit ratio improved to 59.9% and 60.4%, respectively.
Unum International adjusted operating income increased 54.8% in the quarter and 51.7% for the six months, aided by improved Unum UK claims experience and higher premium income.
Colonial Life adjusted operating income increased 19.6% in the quarter and 5.0% for the six months; its benefit ratio improved to 48.3% and 50.7%, respectively.
Closed Block adjusted operating income declined 41.1% in the quarter and 33.9% for the six months. Long-term-care interest-adjusted loss ratios increased to 92.4% and 89.5%, compared with 84.9% and 83.5%.
Net investment income declined because of lower miscellaneous investment income, including smaller increases in private equity partnership net asset values, partly offset by higher invested assets and yields on some investments.
Operating cash flow declined by $320.4 million year over year, while investing cash usage declined to $273.2 million from $514.3 million. Financing cash usage increased modestly to $201.9 million.
Unum Group repurchased 2.4 million shares for $100.6 million during the first six months. The remaining authorization at June 30 was $150.0 million. In July 2023, the company paid $50.0 million under an accelerated share repurchase agreement.

Guidance, Outlook, Risks and Unusual Items

Management expects positive operating trends and continued adjusted operating income growth in 2023, supported by premium growth and improved claims experience. Management also expects claims volatility and higher investment in employees, technology and operating capabilities.
Sales increased 20.0% at Unum US, 69.3% at Unum International and 3.2% at Colonial Life in the second quarter. Management expects continued sales and premium growth, although growth rates may normalize.
Management expects Closed Block premium income and adjusted operating revenue to decline over time as the business runs off. Long-term-care loss ratios are expected to remain in an 85% to 90% long-term range, with quarterly volatility.
Rising interest rates may improve yields on new investments but may create additional unrealized losses. The fixed maturity portfolio had a $2.7 billion net unrealized loss at June 30, 2023. Management stated that it did not intend, and was not required, to sell securities before recovery.
Unum America is phasing in an additional statutory long-term-care premium deficiency reserve following a Maine Bureau of Insurance examination. The remaining reserve to be recognized was $1.4765 billion at June 30, 2023, with $183.5 million recognized during the first half of 2023. GAAP long-term-care reserves and results are not affected by this statutory reserve conclusion.
Unum Group contributed $400.0 million to affiliated captive reinsurer Fairwind during the first six months. Fairwind paid no dividends in 2022, and the company does not anticipate dividends from Fairwind in 2023.
The company has $840.1 million of unfunded private equity partnership commitments and $97.8 million of commitments for private placement fixed maturity securities.
The company reported a MOVEit third-party software incident affecting a limited number of policyholders or customers, primarily related to U.S. dental and vision operations. The filing states that financial systems and business operations were not materially affected.
Litigation and regulatory matters arise in the ordinary course. The company states that outcomes of certain matters cannot be predicted and that adverse punitive-damages litigation could materially affect results in a particular period.
The company adopted ASU 2018-12, which significantly changed reserve discounting, assumption updates, deferred acquisition cost amortization and disclosures. The adoption materially affected reported historical equity and other comprehensive income, so comparisons should use the recast amounts.
The filing states that there were no material changes to the risk factors disclosed in the 2022 Form 10-K.

Most Important Facts for Investors to Verify

Whether favorable claims experience, especially in disability and life products, persists or normalizes in subsequent quarters.
The development of Closed Block long-term-care loss ratios, premium rate increases and statutory reserve funding requirements.
The adequacy and liquidity impact of the $1.4765 billion remaining statutory premium deficiency reserve, including future capital contributions.
The effect of interest rates, credit spreads and private equity valuations on investment income, unrealized losses, reserves and statutory capital.
The company’s ability to maintain approximately 450% RBC, holding company liquidity of $1.072 billion and access to subsidiary dividends.
Progress and final settlement of the July 2023 accelerated share repurchase agreement and the remaining $150.0 million repurchase authorization.
Unfunded investment commitments, reinsurance counterparty performance and the continuing amortization and earnings impact of the Closed Block individual disability reinsurance transaction.
Any additional regulatory, litigation, cyber or data-privacy developments arising after the filing date.