Unum Group (UNM) Q1 Earnings Beat Estimates, Improve Y/Y

Unum Group’s (NYSE:UNM) first-quarter 2017 operating net income of $1.02 per share beat the Zacks Consensus Estimate of $1.00 by 2%. The bottom line also improved 8.5% year over year.

Strong performance at Unum U.S. and Colonial Life was partially offset by weakness at Unum U.K.

In the reported quarter, the company displayed growth and disciplined execution of strategy. It also efficiently returned capital to shareholders. Unum Group’s record earnings levels and an overall sustained performance reflect its focus on catering to clients’ needs. We expect this trend to continue.

Including after-tax realized investment gains and losses on investment portfolio as well as loss from a guaranty fund assessment, net income grew 13.6% year over year to $1.00 per share.

Total operating revenue of Unum Group was $2.8 billion, up 1.8% year over year. Revenues were in line with the Zacks Consensus Estimate. Premium income improved, whereas net investment income declined, both on a year-over-year basis.

Total benefits and expenses were up 2.3% year over year to $2.5 billion. Rise in benefits and change in reserves for future benefits, commissions, interest and debt expenses, deferral of acquisition costs, amortization of deferred acquisition costs and other expenses led to the overall increase in costs.

Quarterly Segment Update

Unum U.S.: Premium income was $1.4 billion, up 4.5% year over year. Operating income grew 10.7% year over year to $239.1 million.

Unum U.K.: Premium income decreased 12.9% year over year to $121.3 million. In local currency, income inched up 0.6% year over year to £97.9 million. This was mainly due to growth in the supplemental line of business on favorable persistency and prior period sales improvent in the group critical illness product.

Operating income was $26.6 million, down 20.8% year over year. In local currency, the figure declined 8.9% year over year to £21.4 million.

Benefit ratio was 71.4%, up 350 basis points (bps). This was owing to a higher average size of new claims for the group long-term disability line of business and the impact of inflation-linked increases in benefits. Favorable claims activity in the group life product line partially limited the downside.

Colonial Life: Premium income increased 6.6% year over year to $374.3 million on sales growth in recent quarters. Operating income grew 6.5% to $82.4 million.

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Benefit ratio contracted 10 bps year over year to 50.8%.

Closed Block: Premium income decreased 3% from the year-ago quarter. The decline stemmed from expected policy terminations and maturities for the individual disability line of business. Nonetheless, improvement in premium income for the long-term care line of business, owing to premium rate increases on certain in-force policies, limited the downside.

Operating income was $31.6 million, down 6.2% year over year.

Corporate: The segment incurred an operating loss of $60.4 million, wider than an operating loss of $35.9 million in the year-ago quarter.

Capital Management

As of Mar 31, 2017, the weighted average risk-based capital ratio for Unum’s traditional U.S. insurance companies was in excess of 390%. Unum exited the quarter with cash and marketable securities worth $648 million.

Book value per share of Unum increased 6.4% year over year to $39.91 as of Mar 31, 2017.

The company spent around $100 million to buy back about 2.1 million shares in the quarter.

Guidance

Unum Group projects 2017 operating earnings per share growth between 3% and 6%.