Unum Group 2023 Q1 SEC Filing Summary
Business context and reporting period
Unum Group provides workplace financial protection products, including disability, life, accident, critical illness, dental, vision, and related services. Its principal operating segments are Unum US, Unum International, and Colonial Life; Closed Block and Corporate are additional segments. The filing covers the three months ended March 31, 2023, with prior-period amounts recast for the adoption of ASU 2018-12.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $3,036.1 million | $2,980.6 million | +1.9% |
| Premium income | $2,459.3 million | $2,401.4 million | +2.4% |
| Net investment income | $508.8 million | $527.2 million | -3.5% |
| Income before tax | $451.3 million | $295.7 million | +52.6% |
| Net income | $358.3 million | $240.4 million | +49.0% |
| Diluted EPS | $1.80 | $1.18 | +52.5% |
| After-tax adjusted operating income | $372.6 million | $271.4 million | +37.3% |
| Operating cash flow | $150.6 million | $325.8 million | -53.8% |
Net income margin was approximately 11.8%, compared with approximately 8.1% in the prior-year quarter. The consolidated benefit ratio improved to 70.6% from 79.7%. Adjusted operating income was $469.5 million before tax, excluding investment gains and losses, cost-of-reinsurance amortization, and non-contemporaneous reinsurance effects.
At March 31, 2023, total assets were $62.4 billion, stockholders’ equity was $9.2 billion, and total investments were $44.9 billion. Future policy benefits were $39.4 billion and reinsurance recoverable was $9.6 billion. Short-term debt was $2.0 million and long-term debt was $3.4 billion. Holding-company liquidity was $1.343 billion, and the revolving credit facility had no borrowings outstanding, with $0.4 million of letters of credit issued.
Material changes versus the prior comparable period
- Unum US adjusted operating income increased 85.7% to $312.5 million, primarily from favorable benefits experience; its benefit ratio improved to 60.8% from 72.5%.
- Unum International adjusted operating income increased 48.3% to $38.4 million, supported by higher premium income and favorable claims experience.
- Colonial Life adjusted operating income decreased 8.7% to $93.9 million, mainly because of higher operating expenses; premium income declined 0.3%.
- Closed Block adjusted operating income decreased 26.0% to $58.2 million. Long-term-care interest-adjusted loss ratio worsened to 86.6% from 82.2%, but remained within management’s stated long-term expectation range.
- Premium income increased in Unum US and Unum International, while Closed Block premium income continued to decline as expected.
- Net investment income declined due primarily to lower miscellaneous investment income and lower income from certain inflation-linked investments and private-equity partnerships.
- Operating cash flow fell substantially, reflecting changes in insurance liabilities and other accrued liabilities. Cash used for share repurchases was $51.2 million and dividends paid were $69.2 million.
- The company repurchased 1.3 million shares for $53.6 million during the quarter. The remaining authorization was approximately $196.6 million at March 31, 2023.
Accounting, outlook, risks, and unusual items
Unum adopted ASU 2018-12 effective January 1, 2023 using a modified retrospective approach, with changes applied as of January 1, 2021. The standard materially changed long-duration insurance accounting, including discount-rate updates through other comprehensive income, cash-flow assumption reviews, and deferred acquisition cost amortization. All historical information in the filing was adjusted for comparability.
Lower U.S. Treasury rates during the quarter increased the liability for future policy benefits, net of reinsurance, by approximately $0.7 billion through other comprehensive income. Fixed-maturity securities had a net unrealized loss of approximately $1.9 billion at March 31, 2023, versus $3.0 billion at December 31, 2022. Management stated that it did not intend to sell securities in an unrealized-loss position and did not expect to be required to sell them before recovery.
Management expects positive operating trends and continued earnings recovery in 2023, supported by premium growth, strong sales, and improved claim experience. It also expects claims volatility, increased investment in people and technology, and potential volatility in investment income. Closed Block long-term-care premium rate increases remain an important management action; the company continues to seek regulatory approvals for additional increases.
A significant contingency is the Maine Bureau of Insurance examination conclusion that Unum America’s long-term-care statutory reserves were deficient by $2.1 billion as of December 31, 2018. The company is phasing in additional statutory reserves through 2026. It recognized $53.5 million during the first quarter, leaving $1.6065 billion to be recognized as of March 31, 2023. Unum Group contributed $200 million to affiliated captive reinsurer Fairwind during the quarter and does not anticipate receiving dividends from Fairwind in 2023.
Other risks include morbidity and mortality deviations, long-term-care assumptions, interest-rate and credit-spread changes, investment defaults, liquidity and capital constraints, regulatory changes, litigation, reinsurance counterparty performance, cyber and technology risks, foreign exchange movements, and rating downgrades. The filing states that there were no material changes to previously disclosed risk factors and that disclosure controls were effective.
Important facts for investors to verify
- Reconcile GAAP net income of $358.3 million with after-tax adjusted operating income of $372.6 million and assess the recurring nature of excluded items.
- Monitor long-term-care claim experience, premium-rate approvals, statutory reserve phase-in requirements, and the remaining $1.6065 billion reserve obligation.
- Evaluate the sustainability of favorable disability and life claims experience and the potential for normalization or volatility.
- Review investment portfolio credit quality, the $1.9 billion unrealized fixed-maturity loss, private-equity commitments of $772.2 million, and commercial real-estate exposure.
- Assess liquidity and capital resources, including $1.343 billion of holding-company liquidity, $3.4 billion of long-term debt, insurance-subsidiary dividend restrictions, and the approximately 425% weighted-average U.S. RBC ratio.
- Track operating cash flow, which declined to $150.6 million from $325.8 million, and the effect of ongoing dividends and share repurchases on capital flexibility.