UNUM-GROUP Earningcall Transcript Of Q2 of 2024

Unum's president and CEO, Rick McKenney; Chief Financial Officer Steve Zabel; Tim Arnold, who

heads  our  colonial  life  and  voluntary  benefits  lines;  Chris  Pyne  for  group  benefits;  and  Mark  Till,

CEO of Unum International. Now, let me turn it to Rick for his comments. 

Richard Paul McKenney -- President and Chief Executive Officer

Thank  you,  Matt.  Good  morning,  everyone,  and  thank  you  for  joining  us  today.  We're  excited  to

discuss our second-quarter results, the robust performance in the first half of the year, and trends

we see carrying us into the back half of 2024 and into 2025. Our purpose-driven team has done an

excellent job navigating the change in the environment and our market over the last several years,

and we are most appreciative of their efforts.

This  quarter,  we  saw  the  continuation  of  some  favorable  trends  and  notable  improvements  in

multiple areas of performance, leading us to increase our earnings per share outlook for 2024. Our

results thus far in 2024 evidence the way we approach the employee benefits markets, and growth

orientation  is  really  paying  off.  We  are  actively  engaging  with  new  and  existing  customers  and

growing  our  top  line  while  maintaining  healthy  industry-leading  margins.  As  we  move  forward,  we

are poised to continue on a growth trajectory in the second half of the year.

Our strategic initiatives and diligent execution have set a strong foundation, and we are confident in

our ability to sustain this momentum. We're excited to see our outlook for opportunities for the next

year, building and reflecting the prospects for continued success. As we stand here today, our team

is  supported  by  distinctive  technologies  and  remains  fully  committed  to  delivering  for  our  clients

each  and  every  day.  Focusing  on  our  second  quarter,  it  reflects  sustained  broad-based

performance.

We saw statutory earnings surpassing 350 million and earnings per share reaching $2.16 per share,

marking yet another record level of earnings for the company. Our top line was healthy with a 5.4%

increase in core operations premium growth, and capital metrics significantly exceeded our targets.

Given  our  robust  results  and  positive  outlook,  we're  adjusting  our  full-year  earnings-per-share

growth  outlook  from  the  previous  7%  to  9%  to  double-digit  growth  of  10%  to  15%.  Our  exclusive

focus on the group benefits market continues to offer a promising landscape for client growth and

expansion.

This is further bolstered by the inherent tailwinds in our business, stemming from what we consider

natural  growth  factors  such  as  an  increasing  covered  employee  base  and  wage  levels.

Consequently, we are well positioned to enhance our top-line growth through various cycles, a trend

we have consistently observed over this past decade. The second quarter was consistent with this

view and the outlook for the economy with job growth continuing and wage increases more than the

norm. We see this reflected in our existing client base where we witnessed sustained natural growth

that contributed to our trajectory.

In addition to the labor market, we continue to be happy with where rates are for the 10- and 30-year

treasury  at  levels  similar  to  those  during  our  prior  call.  Current  rate  levels  are  beneficial  as  we

continue  to  invest  new  money  above  our  portfolio  yield.  While  we  were  able  to  adjust  our  core

businesses  based  on  longer-term  movements  in  rates,  we  continue  to  take  steps  to  derisk  our

exposure  within  the  closed  block,  which  we've  now  done  for  the  last  10  consecutive  quarters

through both our hedging program and asset repositioning. Altogether, the macro backdrop aids us

in  steadily  and  consistently  building  on  our  solid  foundation  and  delivering  profitable  growth  and

strong returns across all of our businesses.

Looking  across  the  franchise,  results  in  Unum  U.S.  were  highlighted  by  a  5.5%  top-line  premium

growth and strong persistency levels. The opportunistic nature of large case sales drove the lighter

headline  result  for  our  group  products.  However,  we  were  pleased  with  the  underlying  results,

including  nearly  12%  sales  growth  in  our  less  than  2,000  employee  group  segment,  and  remain

confident in achieving our full year growth expectations from a margin perspective.

Group  disability  experienced  another  strong  quarter  where  recoveries  drove  low  historical  benefit

levels, and we expect similar experience trends to persist. The group life and AD&D segment had

another  standout  quarter,  with  both  strong  top-line  premium  as  well  as  favorable  benefits

experienced in the quarter. In our colonial life franchise, margins continued to be excellent with an

ROE  of  20%.  Premiums  grew  nearly  4%  through  the  first  six  months  of  the  year  with  strong

persistency and sales, which rebounded nicely compared to the first quarter.

Rounding  out  our  core  segments,  our  international  business  had  another  quarter  operating  at  full

strength  with  robust  premium  growth  of  nearly  9%  and  U.K.  underlying  earnings  in  excess  of  30

million  pounds.  We  continue  to  see  excellent  growth  momentum  in  our  growing  Poland  business

and,  in  the  U.K.,  continue  to  redefine  the  broker  experience  seeing  a  market-leading  --  setting  a

market-leading  standard  that  is  distinctively  Unum  and  enhancing  our  relationship  management

model.  From  an  overall  return  perspective,  our  commitment  to  innovation,  prudent  capital

management, and shareholder returns remains unwavering.

As anticipated, our Long-Term Care's capital buffer is in a healthy position. So, substantial free cash

flow  generation  of  our  core  businesses  flows  straight  to  a  capital  position  of  strength  and

deployment flexibility. Statutory earnings through the first half of the year totaled over $700 million,

putting us on pace to reach the top end of our outlook range for the year for capital generation. This

adds to a balance sheet that is strong with ample levels of cash and RBC at 470%.

Considering  these  factors,  we're  pleased  with  our  new  board  authorization  of  $1  billion  for  share

repurchase  as  it  illustrates  the  level  of  confidence  we  have  in  the  sustainability  of  our  business

results.  Our  capital  priorities  remain  intact,  that  is  investing  in  our  businesses  organically  and

inorganically  and  then  returning  capital  to  shareholders  through  dividends  and  share  repurchases.

As such, we will be prudent with the pace at which we exhaust the authorization but plan to increase

our pace in the back half of the year. This is significant as, entering the year, we plan to repurchase

$500 million of stock which represents a doubling of the amount we repurchased in 2023.

This  increased  authorization  is  a  testament  to  the  robust  position  of  the  business  as  well  as  the

immense value we see in our shares. With book value per share, excluding AOCI, crossing the $70

mark.  In  summary,  we're  pleased  by  the  positive  trends  across  our  operations  and  the  supportive

macro  environment.  The  second  quarter  marked  another  period  of  strength  of  the  company  and

served as an important milestone for the year.

We remain forward-looking, ensuring we are well positioned to execute our strategy and achieve our

revised outlook of 10% to 15% earnings-per-share growth. Thank you once again for joining us, and

let me turn it over to Steve for some of the details.

Steven A. Zabel -- Executive Vice President, Chief Financial Officer

Great. Thank you, Rick, and good morning, everyone. As Rick described, the second quarter was

another  very  good  quarter  for  the  company,  with  adjusted  after-tax  operating  income  per  share  of

$2.16  as  we  benefited  from  strong  operating  performance  across  our  businesses.  Based  on  this

performance,  the  performance  that  we've  achieved  through  the  first  half  of  the  year,  compared  to

our  expectations  presented  in  January  and  our  view  that  improved  margins  will  continue,  we  are

increasing our 2024 after-tax adjusted operating earnings-per-share growth outlook from 7% to 9%

to 10% to 15%.

I will provide additional context to where we see the sustainability of the margins as we get into the

segment financial results. In addition to the great margins we're seeing, our growth momentum has

also continued into the second quarter, with core operations premium growing 5.4%, putting us well

on  pace  to  achieve  our  full-year  outlook  of  premium  growth  in  the  5%  to  7%  range.  Aiding  this

growth were a combination of strong levels of persistency, continued benefits from natural growth,

and in-line new sales. Although sales growth was muted this quarter, we remain optimistic that we'll

receive our growth goals for the year as we enter into the second half of 2024.

As Rick mentioned in his opening, our high-performing teams and industry-leading technology are a

differentiator for us in the market and our reason why we are seeing the healthy levels of growth and

strong market margins today. While we continue to expect expense ratios to decline over time, we

continue  to  invest  heavily  in  these  areas  and  see  that  reflected  through  increased  expense  ratios

across  the  company  this  quarter.  We  are  happy  with  our  investments,  and  are  confident  in  the

payoff  they  will  provide  driving  future  growth  and  profitability.  So,  now,  let's  dive  into  our  quarterly

operating results across the segments, beginning with Unum U.S.

Adjusted  operating  income  in  the  Unum  U.S.  segment  increased  4.2%  to  $357.5  million  in  the

second quarter of 2024, compared to $343.1 million in the second quarter of 2023. Results finished

above  prior  year,  primarily  due  to  favorable  benefits  experience  across  multiple  lines.  The  group

disability  line  reported  another  robust  quarter  with  a  benefit  ratio  of  59.1%,  driving  adjusted

operating income of $153.2 million.

Although  this  result  was  lower  than  the  second  quarter  of  2023's  result  of  $159.8  million  due  to

higher expenses, we do continue to be very pleased with the sustained margins in this business as

the strong claim recovery performance has continued. Results for Unum U.S. group life and AD&D

increased significantly compared to the second quarter of last year, with adjusted operating income

of $89.1 million for the second quarter of 2024, compared to $51.6 million in the same period a year

ago. The benefit ratio decreased to 65.4%, compared to 73% in the second quarter of 2023.

This  improvement  was  driven  by  lower  incidence  levels  in  group  life.  We  believe  the  favorable

experience  in  this  segment  will  continue  for  the  next  several  quarters,  and  therefore,  we  are  now

expecting  a  benefit  ratio  range  around  70%  for  the  remainder  of  the  year.  Adjusted  operating

earnings  for  the  Unum  U.S.  supplemental  and  voluntary  lines  in  the  second  quarter  were  $115.2

million, a decrease from $131.7 million in the second quarter of 2023.

The  decrease  is  driven  by  underlying  benefits  experience  and  voluntary  benefits  and  higher

expenses  in  the  segment.  The  voluntary  benefits  benefit  ratio  of  45.1%  was  higher  than  the  prior

year's  result  of  39.2%  due  primarily  to  less  favorable  experience  in  disability,  critical  illness,  and

hospital  indemnity  product  lines.  This  was  partially  offset  by  an  improvement  in  the  individual

disability benefit ratio to 39%, compared to 42.1% a year ago, driven by favorable recoveries. So,

then turning to premium trends and drivers.

Unum U.S. premium grew 5.5% with support from natural growth and a strong level of persistency.

Unum U.S. quarterly sales were $313.2 million, compared to $314.6 million in the second quarter of

2023.

Total group persistency of 92.4% maintained a sequentially strong level and was significantly above

the same period a year-ago result of 89.8%, which is more in line with historical norms. Moving to

Unum  international.  The  segment  experienced  exceptional  results.  Adjusted  operating  income  for

the second quarter of $42.5 million was down from $43.5 million in the second quarter of 2023 as

inflation benefits in the U.K.

did decline approximately $10 million compared to the year-ago period and to the lowest levels we

have  seen  since  the  pandemic.  Adjusted  operating  income  for  the  Unum  U.K.  business  was  32.5

million  pounds  in  the  second  quarter,  compared  to  34.3  million  pounds  in  the  second  quarter  of

2023.  When  removing  the  inflationary  benefits  referred  to  earlier,  adjusted  operating  income

increased nearly 30% and was in excess of 30 million pounds.

These  strong  results  reflect  strong  underlying  performance,  including  an  improved  benefit  ratio  of

69.5%,  compared  to  72.3%  a  year  ago.  International  premiums  continue  to  show  strong  growth,

supported by solid sales trends and increasing persistency. Unum U.K. generated premium growth

of 6.1% on a year-over-year basis in the second quarter, while our Poland operation grew 24.6%.

The  international  businesses  continued  to  generate  year-over-year  sales  growth,  up  4.8%,  driven

primarily  by  Unum  U.K.  growth  of  5.7%.  Next,  adjusted  operating  income  for  the  colonial  life

segment was $116.9 million in the second quarter, compared to $115.5 million in the second quarter

of 2023, with the increase driven by premium growth and favorable benefits experience. The benefit

ratio of 47.8% improved from 48.3% in the year-ago period and was within our expectations.

Colonial  premium  income  of  $446.2  million  grew  3.6%,  compared  to  $430.6  million  in  the  second

quarter of 2023, driven by higher levels of persistency and the growing trends we've seen in sales

momentum.  Premium  income  growth  of  3.8%  for  the  first  half  of  2024,  compares  favorably  to  the

full-year  growth  outlook  of  2%  to  4%,  which  we  communicated  in  January.  Sales  in  the  second

quarter of $122.9 million increased just under 1% from prior year, primarily driven by new account

sales. In the closed block segment, adjusted operating income of $51.6 million was higher than last

quarter's result of $24.3 million.

The increase was due primarily to improved alternative asset income and higher earnings from other

products within the closed block. Annualized yield on the alternative asset portfolio of 9.9% was at

the  top  end  of  our  long-term  expectation  of  8%  to  10%  returns.  The  LTC  net  premium  ratio  was

93.7% at the end of second quarter of 2024, which is higher than the reported 86.1% in the same

year-ago period, due primarily to the assumption update in the third quarter of 2023. Sequentially,

the NPR decreased 10 basis points compared to the first quarter of 2024, driven by the impacts of

favorable experience in non-capped cohorts.

Let me also provide an update on the underlying LTC claims experience. As we have discussed on

prior  calls,  the  LTC  claim  inventory  is  in  a  period  of  normalization  as  we  continue  to  return  to

pre-pandemic claim patterns in this block. Similar to last quarter, recent trends continue to support

these expectations as incidents experienced in the second quarter while still elevated compared to

our long-term expectations improved compared to the first quarter of 2024. Finally, we continue to

advance our closed block strategy through actions such as pursuing rate increases and expanding

our hedging program.

This  active  management  contributes  to  our  goals  of  creating  value,  reducing  the  footprint,  and

increasing predictability of outcomes for the block. I'll now highlight the specific actions we took in

the  second  quarter  to  progress  these  goals.  First,  we  continue  to  see  success  in  the  execution  of

our rate increase program. Since the rate increase program refresh in the third quarter of 2023, we

have achieved approximately 25% of our target and continue to feel confident in achieving our best

estimate assumption.

Next, we took the opportunity to continue the expansion of our interest rate hedging program, which

reduces interest rate risk in the LTC product line by locking in this favorable macro environment for

years to come. During the quarter, we entered into $458 million of treasury forwards, and the value

of open notional hedges was approximately $2.4 billion at the end of the second quarter. So, then

wrapping up my commentary on the segment's financial results, the adjusted operating loss in the

corporate  segment  was  $45.3  million,  compared  to  a  $34.9  million  loss  in  the  second  quarter  of

2023,  primarily  driven  by  lower  allocated  net  investment  income.  As  discussed  last  quarter,  we

expect losses in the corporate segment will stay relatively consistent in the mid-$40 million range for

the remainder of the year.

Moving  now  to  investments.  We  continue  to  see  a  good  environment  for  new  money  yields  with

purchases  made  in  the  quarter  once  again  at  levels  above  our  earned  portfolio  yield.  Overall,

miscellaneous investment income increased to $35.4 million, compared to $21.1 million a year ago

as  both  alternative  investment  income  and,  to  a  lesser  extent,  traditional  bond  call  premiums

increased. Income from our alternative invested assets was $32.7 million in the quarter.

We continue to be pleased with and benefit from the composition of the portfolio. As of the end of

the  second  quarter,  our  total  alternative  invested  assets  were  valued  at  just  over  1.4  billion,  with

42%  in  private  equity  partnerships,  36%  in  real  asset  partnerships,  and  22%  in  private  credit

partnerships. This diversified construction helps manage acute volatility that can be experienced in

portfolios with asset class concentration. Year to date and since inception, our diversified alternative

portfolio has achieved returns that meet our long-term expectations.

So, I'll end my commentary with an update on our capital position. As expected, our capital levels

remain  well  in  excess  of  our  targets  and  operational  needs,  offering  tremendous  protection  and

flexibility. The weighted average risk-based capital ratio for our traditional U.S. insurance companies

is approximately 470% and holding company liquidity remains robust at $1.3 billion.

We are on track to end the year at or above our expected levels with no capital contributions to LTC

as we previously communicated. I will also add that dividends from our insurance subsidiaries are

traditionally weighted toward the fourth quarter, which will change the geography of excess capital

from risk-based capital to holding company cash as we get into the fourth quarter. Capital metrics

benefited  in  the  second  quarter  from  strong  statutory  results  with  statutory  after-tax  operating

income of $366.1 million for the second quarter and $716.6 million for the first half of the year. This

does put us on pace to generate capital near the top end of our range of $1.4 billion to $1.6 billion,

which we laid out earlier this year.

Our  strong  cash  generation  model  drives  our  ability  to  return  capital  to  shareholders.  And  in  the

second quarter, we paid $69 million in common stock dividends and repurchased $179.8 million of

shares.  As  Rick  referenced,  our  board  of  directors  has  approved  a  new  share  repurchase

authorization  of  up  to  $1  billion.  This  new  authorization  is  effective  tomorrow,  August  1st,  and  will

replace the current authorization.

This  provides  us  additional  flexibility  to  dynamically  utilize  this  deployment  option  as  we  remain

committed to our capital deployment priorities. In the first half of 2024, we returned $300 million of

capital through share repurchase, and we now expect that amount to be greater in the second half

of the year. So, to close, we're encouraged by the momentum that we have built throughout the first

half of 2024 and expect similar operating trends to persist in the second half, which will drive strong

sales, premiums, and earnings growth across our core businesses. For the past 12 months, group

disability  results  have  been  a  focal  point  in  driving  higher  earnings  power,  and  we  expect  this  to

sustain for the foreseeable future.

Coupled  with  our  improved  outlook  for  group  life,  our  expectation  for  full-year  EPS  growth  is  now

10% to 15%. Now, I'll turn the call back to Rick for his closing comments, and I do look forward to

your questions.

Richard Paul McKenney -- President and Chief Executive Officer

Great.  Thank  you,  Steve.  And  I'd  like  to  reiterate,  we  thank  everybody  for  joining  us  this  morning.

We  are  in  a  great  position  halfway  through  the  year  and  the  momentum  created  as  we  look  to

execute on our growth strategy.

We  are  here  to  respond  to  your  questions.  So,  I'd  like  to  open  up  the  call  and  turn  it  over  to

Mandeep, our operator. Mandeep?

Operator

Questions & Answers: