Unum Group (UNM)

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Unum Group (UNM)

December 17, 2012 2:00 pm ET


Thomas White

Thomas R. Watjen - Chief Executive Officer, President and Director

Kevin P. McCarthy - Chief Operating Officer, Executive Vice President, President of Unum Us and Chief Executive Officer of Unum Us

Richard P. McKenney - Chief Financial Officer, Executive Vice President and Principal Accounting Officer


Suneet L. Kamath - UBS Investment Bank, Research Division

Eric N. Berg - RBC Capital Markets, LLC, Research Division

John M. Nadel - Sterne Agee & Leach Inc., Research Division

Jay Gelb - Barclays Capital, Research Division

Sean Dargan - Macquarie Research

Miranda Davidson


Thomas White

Well, good afternoon, and welcome

[Audio Gap]

My name is Tom White, Senior Vice President, Investor Relations with the company, and it's my pleasure to welcome the folks who are here in person as well as the people who are joining us on our webcast.

Today's meeting is a little bit of a transition for us. In the past, we've done kind of a full analyst meeting in the middle of November where we talk about strategy, we talk about our outlook. And what we'll be transitioning to is more of an outlook-type meeting held this time of year, and then we'll complement that with a more -- a little more strategic discussion, which we'll do in midyear. So you can kind of think of this meeting as a little bit of a hybrid because we will cover our 2013 outlook, but we will do a kind of a short assessment of the position of the company right now.

So for those of you in the room, hopefully you got a presentation book when you came in. If you didn't, we'd be happy to get you one. And for the folks on the webcast, the slides are available on our website. So I will ask you to take a quick look and call your attention to the Safe Harbor statement.

But representing management today are, to my left, Thomas Watjen, President and Chief Executive Officer of the company; Kevin McCarthy, Executive Vice President and Chief Operating Officer; and on the far end of the table is Rick McKenney, Executive Vice President and Chief Financial Officer. So with that, I'll turn the program over to Tom.

Thomas R. Watjen

Thank you, Tom, and good afternoon, everybody. As Tom said, it's great to have you here. This is an exciting time, obviously, we believe, for the company.

Tom mentioned there was a format change. So one of the things we are going to try to do is circle -- certainly get to the discussion of the 2013 outlook. But before we do, we thought we'd actually step back a little bit and talk about the business today just at a very high level, how it's performing, what's working. And frankly, there are some challenges that we all face, and we'll certainly want to talk about those challenged areas and use that discussion as the basis to sort of talk about what happened in -- both in 2012, and we'll go back to the analyst meeting we had about a year ago and reconcile sort of where we were last year to where we are right now. But then we will certainly get -- have some time to talk about the 2013 outlook and, again, some of the foundational discussion that we'll have at the front end and I think you'll find it'd be very helpful in understanding how and why we got to where we did in 2012 but, most importantly, how you can then see some of the things that we see emerging as we look to 2013.

So with that little bit of a preview, you can see actually again what we're going to do is get a little more deeply into some of the, we think, the highlights of the year in terms of just some of the trends that we see in the business. You'll see we'll spend some time on operating performance. You'll see we'll spend some time on the strength of the brand. We'll spend some time talking about the investment portfolio, including how we're managing interest rates in this very difficult environment. We'll spend some time, obviously, talking about the balance sheet. And last, we'll certainly talk about how the capital strategy component is but a big piece of our strategy going forward. I don't think anything -- any of these things are new to you. It may be a little more clear, as we go through them, why the company is actually doing pretty well on a number of fronts actually as we go through some of the detail for that.

As I mentioned, too, we also want to spend some time talking about the challenges. There's really nothing new here as you've watched the company over the last few quarters as we've talked about the outlook for the business as part of our releasing of our financial results each quarter.

There's a couple of operating areas where, obviously, we need to continue to improve some of the performance in those businesses, and we'll talk through those. But obviously, even though we think we've done a good job with investment management and interest rate management to this point, where rates are today obviously continue to be a very significant headwind for us and everybody else in the industry.

As I mentioned, the other couple of things we'll do is we'll then connect that to what changed between our outlook last year and today for 2012 but, most importantly, get to a discussion of 2013 and we'll leave plenty of time for your questions.

I just want to touch on one of those aspects that you see above, which is the balanced earnings, because frankly, this is a very strategic decision we made as a company about 6 or 7 years ago. And that strategic decision was to understand that we as an organization, certainly we're very proud of our disability legacy. The things we've done in that business certainly are behind much of our success as a company in building a brand, building some awareness in the marketplace.

But we made a decision 6 or 7 years ago to really emphasize the voluntary portions of our business, not to the detriment of our disability business, mind you, but actually that we saw a tremendous opportunity to grow that portion of our business. We saw customers needing that more balanced portfolio of group products and voluntary products, and we thought we had a significant competitive advantage actually being able to do that. And Kevin will talk about that in some of his reports.

The other part of it, though, is it presents a much more balanced company, which, obviously, in these choppy financial times, is a real asset. And you look at the wheel on the right-hand side now, you look at the significant growth you saw on the voluntary business within Unum US, look at the significant growth you saw on Colonial. Those things just didn't happen as a result of just market forces. They happened because we made a strategic decision at that time to truly emphasize the voluntary business. So the company you see today, again, certainly has its disability legacy, which is a very important part of our history, but we're much more of a broad-based benefits provider. And again, that will come forward in the discussions that we're going to have right now. Again, that was a very strategic decision. It's obviously one that we're very pleased we made because we've actually been able to capitalize on some things in the market that we couldn't otherwise capitalize on, but it also gives us a lot more components to our story as we think about managing through difficult financial and economic times.

And with that, let me turn things over to Kevin to begin the process of walking us through some of the operating results.

Kevin P. McCarthy

Great. Thanks, Tom, and good afternoon, everyone. It's good to be here with you. What I'm going to try to do here is walk you through the operating performance that -- from which we build our earnings trajectories from. And I'm going to approach it from the standpoint of giving you a sense of from the top line all the way through to the bottom line, how do we manage our business.

Let me start with sort of our market segmentation. As you know from prior discussions, we really break our markets into really 2 kinds of categories. Those who we're targeted at and focused on growth, and those that we're more disciplined and opportunistic around making sure that we're very selective in our underwriting process.

In our growth businesses, we aspire to grow those businesses at about 1.5 to 2x the market growth rates; whereas in our opportunistic businesses, we basically aspire to be about flat with the marketplace, not trying to steal share but rather to be more disciplined about the way in which we capture share.

So for example, in Unum U.S., in the core marketplace, the industry is growing at above 3% through 2012. Unum US is growing at 5% and sales were up 10% during that same period of time. If we take a look at our voluntary businesses, our Colonial Life operation and our Unum US EB businesses, again those businesses are up, combined, about 8% in sales year-to-date, and the industry is up more in the 5% to 6% range. So consistent with our story of trying to outperform the marketplace in terms of growth.

On the other hand, in our opportunistic markets, as I said, we try to basically grow sort of at the market rate. We're always selective, particularly in Unum US large case business, looking for the right opportunities to establish a business relationship with an account that can be long-term and sustainable and profitable for both parties. Consistently, that's turned into a basically roughly flat sales year-over-year with some choppiness. Every once in a while, we get a large case that has a long-standing relationship with us and that segment of the business grows more. At other times, we just don’t see the opportunities during the course of the year.

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