Unum Group (UNM)
Q3 2012 Earnings Call
November 01, 2012 9:00 am ET
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
Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division
Suneet L. Kamath - UBS Investment Bank, Research Division
Daniel K. Altscher - FBR Capital Markets & Co., Research Division
Sean Dargan - Macquarie Research
Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division
Christopher Giovanni - Goldman Sachs Group Inc., Research Division
John M. Nadel - Sterne Agee & Leach Inc., Research Division
Steven D. Schwartz - Raymond James & Associates, Inc., Research Division
A. Mark Finkelstein - Evercore Partners Inc., Research Division
Previous Statements by UNM
» Unum Group Management Discusses Q2 2012 Results - Earnings Call Transcript
» Unum Group's CEO Discusses Q1 2012 Results - Earnings Call Transcript
» Unum Group's CEO Discusses Q4 2011 Results - Earnings Call Transcript
Great. Thank you. Good morning, everyone, and welcome to the third 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 Forms 10-Q. Our SEC filings can be found in the Investors section of our website at unum.com.
I 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, also 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 for Unum US and Unum UK; and Randy Horn for Colonial Life.
So now I'll turn the call over to Tom Watjen.
Thomas R. Watjen
Thank you, Tom, and good morning. Overall, the third quarter was a solid one for the company, with operating earnings per share growing by 6.7% and I'm generally pleased with the results around the company and let me touch on a few of those here just to start the call.
First, we continue to generate solid results in our 2 largest operating businesses, Unum US and Colonial Life. In both business segments, we again experienced positive year-over-year growth in premium income and operating income.
The Unum US premium income grew 3.5% this quarter as we can continue to see positive sales momentum in our target markets and strong persistency across our major product lines. Rich results also remain generally stable, helping to produce a 3.4% increase in operating income for the third quarter.
At Colonial Life, we saw similar results this quarter with 5.5% premium growth and operating income growth of 3%. While Colonial sales results were down somewhat, which is an area of focus for our team, we continue to enjoy strong persistency across most of our market segments.
The return on equity for both of these businesses is very strong, in the 13% to 14% range for Unum US and in the 16% to 17% range for Colonial Life, and I'm very pleased with the consistency of performance of these 2 businesses.
Results of our Unum UK operations continue to underperform our expectations in the quarter. The business in general remains very profitable, and has produced a 12% return in equity so far in 2012, with our Group Disability business continuing to generally meet our expectations.
Our Group Life results though are disappointing, and we are taking aggressive pricing actions and repositioning our Life Block to address this issue.
We've done this before, and I'm confident that we will see gradual improvement here as well, as we execute on this plan. Rick will touch on this further in his comments.
Next, the results of our Closed Block segment were in line with our expectations, as the more favorable result from our Individual Disability line offset the somewhat weaker results in our long-term care line, which not surprisingly continues to somewhat -- be somewhat more volatile quarter-to-quarter. Rick will cover the performance of our Closed Block in his comments.
Now moving to our investment results. We continue to generate very solid investment performance this quarter. Today's low-interest rates though continue to put pressure on our net investment income and on those products which are more interest rate sensitive.
Since we are not expecting the rate environment to improve anytime soon, nor willing to sacrifice investment quality in order to stretch for yield, we are taking the actions needed to maintain our solid profit and reserve margins, particularly in our Unum US and LTD business.
This includes adjusting our discount rate and increasing our pricing in the market. You'll hear more about this in Rick's comments.
And finally, our capital position remains in very good shape. Our quarter end risk-based capital level of approximately 407% remains above our target range of 375% to 400%, and our holding company cash position is $762 million, providing us with significant financial flexibility.
We continue to balance maintaining a strong capital position with our goal of returning capital to shareholders.
In the third quarter, we repurchased $100 million of stock, which keeps us on pace to complete our plan of $500 million of repurchases for full year 2012.
When completed, we will have repurchased over $2 billion of our common stock, or almost 25% of our shares over the past 5 years.
While operating earnings growth in this environment remains challenging, we remain committed to maintaining our consistent, steady program of returning capital to our shareholders.