Unum Group Keeps Earnings Streak Alive

Zacks Equity Research
May 8, 2014

Unum Group (UNM) has successfully managed to keep its positive surprise streak alive with its first quarter 2014 earnings results. With operating earnings of 88 cents per share surpassing the Zacks Consensus Estimate by 2.4%, the accident and health insurer outperformed the same for straight eight quarters. Earnings also improved nearly 8.8% year over year.

Better performances in core business largely drove the upside.

Including net realized investment gain of 1 cent per share, Unum reported net income of 88 cents in the quarter, up 11.4% year over year.

Total revenue declined about 0.4% year over year to $2.60 billion. The top line also slightly missed the Zacks Consensus Estimate of $2.61 billion.

Quarterly Segment Update

Unum U.S.: Premium income in the quarter was $1.15 billion, up 1.1% year over year. Operating income was $210.8 million, up 1.3% year over year.

Unum U.K.: Premium income increased 5.5% year over year to $151.7 million. In local currency, the income decreased 1.3% year over year to £91.6 million.

Operating income was $36.5 million, down 16.6% year over year. In local currency, the figure came in at £22.2 million, up 8.9% year over year.

Benefit ratio was 70.1% in the quarter, up 60 basis points (bps) from 69.5% in the year-ago quarter. The higher benefit ratio is attributable to favorable risk experience in the group disability line of business, which in turn offset lesser mortality in the group life line.

Colonial Life: Premium income increased 3% year over year to $316.4 million  driven by consistent growth in the active block of business. Operating income improved 5.3% to $79.4 million.

Benefit ratio improved 200 bps year over year to 50.5% driven by favorable risk experience across all lines of business.

Closed Block: Premium income fell 6% from the year-ago quarter. The decline was due to the expected run-off of the individual disability business.

Operating income came in at $29.1 million, up 6.6% year over year.

Corporate: The segment reported an operating loss of $34.2 million versus the year-ago loss of $33.7 million. Lower net investment income can be blamed for the wider loss.

Capital Management

As of March 31, 2014, the weighted average risk-based capital for Unum’s traditional U.S. insurance companies was nearly 400%  down from 405% as of 2013 end. Unum exited the quarter with cash and marketable securities of $514 million, improving 60% from $514 million at 2013 end.

During the first quarter, Unum repurchased 2.9 million shares for $100 million.

Book value per share of Unum increased 8.4% year over year to $34.77 as of March 31, 2014.

2014 Guidance Reiterated

Unum expects full-year 2014 operating earnings to grow in the range of 5–10% over the 2013 level.

Zacks Rank and Other Picks

Unum presently carries a Zacks Rank #3 (Hold). Among other accident and health insurers, AFLAC Inc. (AFL) and Employers Holdings, Inc. (EIG) beat the respective Zacks Consensus Estimate in the first quarter while Amerisafe, Inc. (AMSF) missed the same.
 

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