We retain our Neutral recommendation on
) as lower-than-expected performance in the company's U.K.
division, low interest rate environment and increasing debt
burden overshadow the positives. This accident and health insurer
carries a Zacks Rank #3 (Hold).
Why the Reiteration?
Results at Unum U.K. have remained soft over the last few
quarters. This decline resulted from a waning premium income in
the segment owing to the company's engagement in reinsurance
agreements effective Jan 2013, to cede a portion of its group
life business to other insurance companies. The reinsurance
agreements are expected to continue pressurizing group life
premium income and benefit payments through 2013. The company is
also witnessing an increasing benefit ratio.
The company is also experiencing higher debt burdens in recent
years with deterioration in debt-to-capital ratio. The increasing
debt burden has thereby resulted in an increase in interest and
debt expenses. Unum Group should continue to service its debt
uninterruptedly, else creditworthiness might be dented.
Nevertheless, counting on the positives, Unum is solidly
positioned as a disability income writer and writer of voluntary
business in the United States. Over the past few years, the
company's conservative pricing and reservation practices have
contributed towards improving its overall profitability.
Two of the major operating segments of Unum, namely Unum US
and Colonial Life, have been reporting increased operating income
for the past few years. Unum expects its operating income per
share to grow in the band of 0-6% for full year 2013.
ACE LIMITED (ACE): Free Stock Analysis Report
AFLAC INC (AFL): Free Stock Analysis Report
EMPLOYERS HLDGS (EIG): Free Stock Analysis
UNUM GROUP (UNM): Free Stock Analysis Report
To read this article on Zacks.com click here.
Unum Group has consistently enhanced shareholders value through
dividend increases and share buybacks. During the first six
months of 2013, Unum bought back 7.3 million shares for $193.5
million and is left with $356.6 million under its $750 million
share repurchase program approved in Jul 2012. With respect to
dividend, its new payout of 58 cents which annually yields 1.90%,
also scores better than the industry average of 1.59%.
With regard to earnings performance, the company delivered
positive surprises in the last four quarters with an average beat
of 3.5%. We expect the trend to continue, driven by the company's
strengths, when it reports its third-quarter 2013 results. The
Zack Consensus estimate for the third quarter is currently pegged
at 82 cents, translating to a year-over-year increase of nearly
Other Stocks to Consider
Other better-placed accident and health insurance providers
Employers Holdings, Inc
) with a Zacks Rank #1 (Strong Buy), and
), each with a Zacks Rank #2 (Buy), are worth considering.