Unum Group (UNM)

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Unum Group (UNM)

Q1 2011 Earnings Call

May 04, 2011 9:00 am ET

Executives

Jack McGarry - Executive Vice President, Chief Executive Officer of Unum UK and President of Unum UK

Thomas White - Senior Vice President of Investor Relations

Randall Horn - Executive Vice President, Chief Executive Officer of Colonial Life and President of Colonial Life

Kevin McCarthy - Executive Vice President, Chief Executive Officer of Unum US and President of Unum US

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

Thomas Watjen - Chief Executive Officer, President and Director

Analysts

Darin Arita - Deutsche Bank AG

John Nadel - Sterne Agee & Leach Inc.

Randy Binner - FBR Capital Markets & Co.

Jeffrey Schuman - Keefe, Bruyette, & Woods, Inc.

Jamminder Bhullar - JP Morgan Chase & Co

Mark Hughes - SunTrust Robinson Humphrey, Inc.

A. Mark Finkelstein - Macquarie Research

Eric Berg - Lehman Brothers

Edward Spehar - BofA Merrill Lynch

Christopher Giovanni - Goldman Sachs Group Inc.

Colin Devine - Citigroup Inc

Presentation

Operator

Good day, and welcome to the Unum Group First Quarter 2011 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 the Senior Vice President, Investor Relations, Mr. Tom White. Please go ahead, sir.

Thomas White

Thank you, operator, and good morning everyone, and welcome to the first quarter 2011 analyst and investor call for Unum Group.

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 the 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, 2010. Our SEC filings can be found in the Investors section of our website at www.unum.com.

I also remind you 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 statement. 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 also in the Investors section.

Participating in this morning's conference call are Tom Watjen, President and CEO; and Rick McKenney, Executive Vice President and CFO; and also our Business Segment Presidents, Kevin McCarthy, Randy Horn and Jack McGarry. And now I'll turn the call over to Tom Watjen. Tom?

Thomas Watjen

Thank you, Tom, and good morning. Our first quarter results were a good solid start to 2011 and are in line with our expectations. We continue to see generally stable risk experience particularly in Unum US, but also in Unum UK and Colonial Life, where we've seen some volatility in past quarters. Now Rick and Tom will talk in greater depth about our results for the quarter, but before they do, let me just touch on a few highlights that I think are noteworthy.

First, we have continued to report modest earnings per share growth, in part driven by our continued improvement in Unum US earnings as well as we also continue to benefit from our share repurchase programs. Second, we continue to maintain a very strong capital position, driven by our solid operating results and strong investment performance. Our weighted average risk-based capital ratio ended the first quarter at approximately 395% and our holding company's cash and marketable securities position is over $800 million.

Third, we are growing in most of our target markets. Unum US operation showed a 10% growth in new sales this quarter, with a 10% growth in voluntary benefits, 7% growth in Group LTD and 8% in Group Life. At Colonial, we continue to see modest growth in our core commercial markets, which remains the sweet spot for Colonial, with pressures certainly continuing to come from our sales in the public sector and the large-case marketplace, which we expect to continue to be choppy.

As we expected, given the pricing actions we're taking in the U.K. market, sales were down in the Unum UK, but we continue to have a very positive outlook about that marketplace. I might add that we have not seen any material change in the economic or competitive environment. We fully expect the environment obviously to improve at some point, but until it does, we remain committed to maintaining a disciplined strategy that has served us so well over the last several years.

Fourth, our investment portfolio remains in excellent shape, with strong credit quality and generally stable portfolio yield. As you know, our current Chief Investment Officer, David Fussell has been trying to retire for some time, and we are pleased that his replacement, Breege Farrell has joined the company as our Chief Investment Officer. We look forward to the contributions that Breege will be making with our already strong investment team.

Next, as I mentioned early, we continue to aggressively repurchase stock with a total of $224 million repurchased this quarter and $580 million repurchased over the past 12 months or about 8% of our outstanding shares. Our capital strength and flexibility remains a significant asset.

The last point I wanted to make before turning things over to Tom is that the consistency we are experiencing in our results today is no accident, but the result of a several-year process to reinvent the company. Our strategy is grounded on maintaining a disciplined approach to the market with a focus on profitability, not just top line growth. As a result of our more disciplined targeted efforts, we have shifted our business mix to a better balance of core markets versus large-case businesses and a better spread of business, including a greater portion of our business coming from non-Disability lines. We have, therefore, not experienced the volatility that some others have had, and we remain committed to following this more disciplined and measured approach to the business. Now I'll ask Tom White to provide an overview of our operating results. Tom?

Thomas White

Great. Thanks, Tom. Net income for the first quarter was $225.4 million or $0.72 per diluted common share, compared to net income of $229.8 million or $0.69 per diluted common share last year. Included in the results for the first quarter of 2011, our net realized after-tax investment gains of $9.7 million or $0.03 per diluted common share compared to net realized after-tax investment gains of $16.5 million or $0.05 per diluted common share in the first quarter of 2010. Also included in the results for the first quarter of 2010 is a tax charge of $10.2 million or $0.03 per diluted common share related to the change in tax treatment of the Medicare subsidy for retiree health benefit plans.

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