Unum Group (UNM)

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Unum Group (UNM)

Q2 2010 Earnings Call

August 4, 2010 9:00 am ET

Executives

Tom White – VP, IR

Tom Watjen – President and CEO

Rick McKenney – EVP and CFO

Kevin McCarthy – President and CEO, Unum U.S.

Analysts

Mark Finkelstein – Macquarie Research Equities

Bob Glasspiegel – Langen-McAlenney

Colin Devine – Citigroup Investment Research

Thomas Gallagher – Credit Suisse

Darin Arita – Deutsche Bank

John Nadel – Sterne, Agee & Leach

Jeff Schuman – KBW

Jack Shirk – SunTrust Robinson Humphrey

Eric Berg – Barclays Capital

Presentation

Operator

Good day, and welcome to the Unum Group Second Quarter 2010 Earnings Results Conference Call. As a reminder, this call is being recorded.

At this time, for opening remarks and introductions, I would like to the call over to the Head of Investor Relations, Mr. Tom White. Please go ahead, sir.

Tom White

Thank you, Pat. Good morning, everyone and welcome to Unum’s Second Quarter 2010 Analysts and Investor Conference Call.

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 Securities and Exchange Commission, and are also located in the section titled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” in our Annual Report on Form 10K for the fiscal year ended December 31, 2009, and also in any subsequently file Form 10Q.

Our SEC filings can be found in the Investor Section of our website at www.unum.com.

Please take note that the 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 Investor Section.

Participating in this morning’s conference call are Rick McKenney, Executive Vice President and CFO; and our business segment President Kevin McCarthy, Randy Horn, and Jack McGarry.

And now would like to turn the call over to Unum President and CEO, Tom Watjen. Tom?

Tom Watjen

Thank you, Tom, and good morning. Despite the challenging business and economic environment, I’m generally pleased with our results for the second quarter; both our operating and investment performance, and the strength of our capital position.

And let me touch on four basic takeaways for the quarter.

First, our business has continued to produce solid margins and profitability. Excluding net realized after-tax investment gains and losses, we reported $0.69 per share in operating income for the second quarter, an increase of 6.2% compared to the year-ago quarter.

Our Core Operations continue to produce generally solid results, especially Unum U.S., with operating earnings growth of 12.9% and Colonial with a growth rate of 3.6%.

On a constant currency basis, operating earnings for our three core segments combined, which is Unum U.S., Unum U.K., Colonial Life was 4.4% higher than the second quarter of last year.

Second, we’re generating these results in obviously what continues to be a challenging business and economic environment. Unemployment in the U.S. and in the U.K. remains high and continues to pressure premium growth in both of these markets.

Additionally, we continue to see some very aggressive pricing and underwriting action by certain competitors, both in the U.S. and in the U.K. While these pressures impact our overall sales results, I am encouraged by the trends we’re seeing in the market segments we have targeted for growth, specifically the core, or smaller-case marketplace and the voluntary benefit marketplace.

While we did not see growth across all of our targeted market, our Unum U.S. voluntary benefit sales grew 51%, our Unum U.K. core market sales grew 45% on a local currency basis, and Colonial Life core market sales were up 14%.

We are continuing to take a disciplined targeted approach to growth, which is serving us well in this environment.

Third, our investment portfolio remains in very good shape. With this quarter’s net-realized investment losses, excluding the accounting for the ModCo embedded derivative, again at very low levels.

The net unrealized gain in our fixed income portfolio grew to $3.7 billion this quarter, which much of which was obviously as a result of the climbing interest rate.

While today’s low level of interest rates can present challenges to some, as Rick will discuss in his comments, as a result of our disciplined approach to interest rate management, we are well positioned to effectively manage our exposure of today’s environment.

And lastly, given our solid operating results and strong investment performance, we continue to build on our already strong capital position.

Our weighted-average risk-based capital ratio was approximately 400% at the end of the second quarter. And our holding company cash and market security position remains above $770 million. Both consistent with our March 31st levels.

We maintained these levels while also repurchasing approximately $130 million of our shares in the marketplace this last quarter.

In summary, I feel very good about our results so far this year. We continue to face premium growth challenges in certain lines of business, but our operating and investment results remains strong and we can continue to generate excess capital, which we are using to repurchase stock and support our previously announced dividend increase.

With the passage of both Healthcare Reform Legislation, and some of the changes involving the financial services sector, the insurance sector and the broader financial services industries are undergoing unparallel change.

We continue to believe though that our basic business of providing benefits to employees at the work place remains a good business where we can both make a difference in the lives of our customers and create attractive returns for our shareholders.

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