Unum Group (UNM)

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Unum Group (UNM)

Q4 2012 Earnings Call

February 06, 2013 10:00 am ET

Executives

Thomas White

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

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

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

Randall C. Horn - Executive Vice President, President and Chief Executive Officer of Colonial Life and Colonial life & Accident Insurance Company

Analysts

Suneet L. Kamath - UBS Investment Bank, Research Division

Jay Gelb - Barclays Capital, Research Division

Yaron Kinar - Deutsche Bank AG, Research Division

Randy Binner - FBR Capital Markets & Co., Research Division

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

Mark D. Hughes - SunTrust Robinson Humphrey, Inc., Research Division

Steven D. Schwartz - Raymond James & Associates, Inc., Research Division

A. Mark Finkelstein - Evercore Partners Inc., Research Division

Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division

Seth Weiss - BofA Merrill Lynch, Research Division

Sean Dargan - Macquarie Research

Presentation

Operator

Good day, everyone, and welcome to the Unum Group Fourth Quarter 2012 Earnings Results Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to the Senior Vice President, Investor Relations, Mr. Tom White. Please go ahead.

Thomas White

Great. Thank you, Kim. Good morning, everyone, and welcome to the fourth quarter 2012 analyst and investor conference call for Unum. Our remarks this morning will include forward-looking statements, which are statements that are not of current or historical fact. As a result, actual results might differ materially from results suggested by these forward-looking statements. Information concerning factors that could cause results to differ appears in our filings with the SEC and are also located in the sections titled Cautionary Statement Regarding Forward-Looking Statements and Risk Factors in our annual report on Form 10-K for the fiscal year ended December 31, 2011, as well as our subsequently filed Form 10-Qs. Our SEC filings can be found in the Investors section of our website at unum.com.

I also remind you that statements in today's call speak only as of the date they are made, and we undertake no obligation to publicly update or revise any forward-looking statements.

A presentation of the most directly comparable GAAP measures and reconciliations of any non-GAAP financial measures included in today's presentation can be found on our website in the Investors section.

So participating in this morning's conference call are Tom Watjen, President and CEO; and Rick McKenney, Executive Vice President and CFO; and also Kevin McCarthy speaking for Unum US and Unum UK; and Randy Horn for Colonial Life.

And now I'd like to turn the call over to Tom Watjen.

Thomas R. Watjen

Thank you, Tom, and good morning, everybody. Our fourth quarter was another solid one with operating earnings per share growth of 5.1%, and for the full year, our earnings per share grew 5.7%. This represents the seventh consecutive year of operating earnings per share growth at the company.

In the fourth quarter, we saw a continuation of many of the positive trends we discussed with our Investor Day meeting in December. First, our operating performance remains solid. We continue to see premium growth in our target market and continue to generate solid operating results across most of our businesses, which allowed us to maintain our strong profitability and returns. For the fourth quarter, our return on equity was 12.2%, and full year return on equity was 12.3%.

Second, our investment performance and asset quality remains strong. We have not deviated from our investment strategy to chase yield but are continuing to take the actions we discussed with you at our December meeting to manage through this low interest rate environment.

Third, our overall balance sheet remains in very good shape, and our book value per share, excluding AOCI, grew by 12% this past year to $29.55 per share. Our past 3 years, even with our restructuring actions last year, our book value has grown by an annual rate of 8.4%.

And finally, our capital position remains strong, and we have maintained our financial flexibility. We continue to generate strong cash flow from operations, with statutory net income for the total year totaling $625 million from our traditional U.S. insurance companies. For year end 2012, we are estimating our combined risk-based capital ratio to be 396% and holding company cash at just over $800 million.

We are continuing to return capital to our shareholders, and in the fourth quarter, we repurchased another $100 million of stock, bringing us to $500 million for the full year and $2.2 billion over the past 5 years.

At our December meeting, we also discussed 2 areas which represented some challenges for us, and I'm pleased that we saw some improvement in both of those in the fourth quarter. First, results for Unum UK improved relative to the prior quarter. While much of that improvement resulted from strong group long-term disability results, our group life line of business, which has been the greatest challenge, stabilized in the quarter. We are in the process of repricing the life block, and while still early, we are generally pleased with the results to date.

And secondly, within our Closed Block segment, our long-term care loss ratio was lower in the fourth quarter relative to the prior quarter, and we continue to take the pricing actions we discussed with you in December.

So in summary, 2012 was another very solid year for the company. As we look to 2013, we still have a generally cautious view of the environment with continued low employment growth and low interest rates. However, we are confident we can continue to create value for our shareholders by maintaining our disciplined growth strategy, delivering consistently strong returns in our ongoing businesses, maintaining our solid financial foundation and returning excess capital to our shareholders through share repurchases and dividend increases.

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