Unum Group (UNM)

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Unum Group (UNM)

Q3 2010 Earnings Call Transcript

November 3, 2010 9:00 am ET

Executives

Tom White – IR

Tom Watjen – President and CEO

Rick McKenney – EVP and CFO

Jack McGarry – CEO, Unum UK Limited

Kevin McCarthy – President and CEO, Unum US

Randy Horn – President and CEO, Colonial Life

Analysts

Darin Arita – Deutsche Bank

Mark Finkelstein – Macquarie

John Nadel – Sterne Agee

Tom Gallagher – Credit Suisse

Chris Giovanni – Goldman Sachs

Mark Hughes – SunTrust

Ed Spehar – Bank of America Merrill Lynch

Colin Devine – Citi

Randy Binner – FBR Capital Markets

Ryan Krueger – KBW

Presentation

Operator

Good day, and welcome to the Unum Group third quarter 2010 earnings results conference call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Senior Vice President of Investor Relations, Mr. Tom White. Please go ahead, sir.

Tom White

Great. Thank you, Tim. Good morning, everyone, and welcome to Unum’s third quarter 2010 analyst 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 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, 2009, and also in any subsequently filed Forms 10-Q. Our SEC filings can be found in the Investors section of our Web site at www.unum.com.

Please also note 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 the Web site in the Investors section.

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

Now, I’d like to turn the call over to Unum’s President and CEO, Tom Watjen. Tom?

Tom Watjen

Thank you, Tom and good morning. We had another solid quarter with operating income growth for the quarter and year-to-date remaining in line with our 2010 outlook of growth of between 4% and 6%.

I would say too that we certainly benefited from our more diverse business mix as the relatively strong performance of Unum U.S. and Colonial operations driven frankly generally by stable risk trends offset the relatively weaker performance of our Unum U.K. operation.

While the economic and competitive environment in both the U.S. and U.K. remain a challenge, by staying disciplined we have continued to generate solid profitability including strong statutory earnings, which has enabled us to continue repurchase stock while still maintaining a strong capital position.

Now, let me just touch on just a few highlights from the quarter. First, as I indicated, third quarter after-tax operating income grew 3.9%, earnings per share grew 6.5% which are both consistent with our 2010 outlook of growth between 4% and 6%.

Second, while we saw very little change in the business and economic environment this quarter and no substantive changes in the competitive environment, we are capitalizing on profitable growth opportunities as they arise.

I point especially to our voluntary benefits businesses in both Unum U.S. where their sales grew 27% in the third quarter and Colonial where our commercial sales grew 5.7% are good indications of how we’re actually capitalizing on today’s market conditions.

Don’t get me wrong. The combination of the economy and aggressive competitors make it challenging to profitably grow the business, but we feel very good about our market position.

Third, our investment portfolio remains in excellent shape with the net unrealized gain in our fixed maturities securities portfolio increasing as a result of the decline in interest rates and ongoing tightening of credits spreads to $5.7 billion this quarter. The flipside, however, is that today’s low level of interest rate and investment yield can create some challenges, but we have positioned the company to effectively manage through this environment.

Finally, with our solid financial results and strong investment performance, we continue to build on our very strong capital position. Our weighted average risk-based capital ratio is currently at 410% and holding company’s cash and marketable securities position is slightly above $1 billion, giving us continued financial flexibility in these uncertain times. We have built these strong capital levels while also purchasing $198 million of stock during the third quarter and $328 million of stock year-to-date.

In summary, I feel very good about our results so far this year. I think the diversity of our company is becoming more apparent. The relatively strong performance of Unum U.S. and Colonial Life operations offset the lower level of performance in the U.K.

As you know, we made a management change there. I’m confident that under Jack McGarry’s leadership we can more effectively operate in this difficult market environment and capitalize on the growth opportunities, which I believe exist in this market.

While we continue to face premium growth challenges in certain lines of business, we continue to benefit from our disciplined business approach which has allowed us to generate capital that can be used to repurchase stock at a very opportune time.

Now, I’ll ask Tom White to provide an overview on our operating results this quarter. Tom?

Tom White

Thanks, Tom. Net income for the third quarter was $220.8 million or $0.68 per diluted common share compared to net income of $221.1 million or $0.66 per diluted common share last year. Included in the results of third quarter of 2010, our net realized after-tax investment gains of $0.9 million or less than $0.01 per diluted common share compared to net realized after-tax gains of $9.5 million or $0.02 per diluted common share in the third quarter of 2009.

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