Unum Group Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Earnings and Variability: Q2 results fell short of expectations, particularly in GAAP earnings, due to higher benefits in several lines, but core fundamentals like premium growth remained solid.
• Market Dynamics: Premium growth near 5% across almost all product lines. Sales were slower in the first half but expected to improve in the second half. Persistency improved in the second quarter.
• Capital Levels and Deployment: Strong capital position with $2 billion in holding company cash and a 485% risk-based capital ratio. Made acquisitions in U.K. and U.S. to enhance franchise. Increased dividend by 10% and repurchased $300 million in shares in Q2.

Segment Performance

• Unum U.S.: Adjusted operating income was $318.2 million in Q2 2025 compared to $357.5 million in Q2 2024. Group disability had a benefit ratio of 62.2% (vs 59.1% in 2024), group life and AD&D had a benefit ratio of 69.7% (vs 65.4% in 2024), and supplemental and voluntary lines had adjusted operating earnings of $123.2 million (up from $115.2 million in 2024).
• Unum International: Adjusted operating income was $41.6 million in Q2 2025 compared to $42.5 million in Q2 2024. Premium growth was 12% on a constant currency basis.
• Colonial Life Segment: Adjusted operating income was $117.4 million in Q2 2025 compared to $116.9 million in Q2 2024. Premium growth was 3.6%, and benefit ratio was 48.3% (vs 47.8% in 2024).
• Closed Block: Adjusted operating income was $3.9 million in Q2 2025, significantly lower than $24.4 million in Q2 2024. Impacted by unfavorable LTC benefits experience and lower alternative investment yields (annualized yield 7% vs target 8%-10%).

Guidance

• Full-year EPS expected to be approximately $8.50.
• Core operations premium growth target 3%-6%.
• Closed Block earnings expected between $90 million and $110 million for the full year.
• Share repurchases expected to be at the top end of the $500 million to $1 billion range for 2025.

Risks

• Higher-than-expected benefits experience in group products and Closed Block impacting earnings.
• Volatility in LTC benefits experience and lower alternative investment yields affecting Closed Block results.
• Competitive dynamics potentially impacting pricing and market share.

Question and Answer

Q: On group disability, what are the underlying drivers of elevated claims and impact on guidance?

A: Steve Zabel noted recoveries were lower than expected, with a bit higher incident size in Q2, but expects 62% benefit ratio to hold for the back half.

Q: On LTC, is the current quarter result a one-off or normal volatility?

A: Steve Zabel said the experience was volatility, with counts consistent but average claim size off, expecting it to normalize.

Q: On buybacks, why not more given excess capital?

A: Rick McKenney said capital generation is good, with $300M repurchased in Q2 and expecting to repurchase at top end of range to return capital to shareholders.

Q: On further reducing LTC exposure, update on future transactions?

A: Rick McKenney said continuing to look to reduce LTC exposure, active in market but timing hard to predict.

Q: On persistency with HR Connect, what's the percentage of customers with integration?

A: Chris Pyne said it's a multiyear process, with more customers expected to have connection points over time.

Q: On net premium ratio in LTC, movement in quarter?

A: Steve Zabel said unfavorable experience was across capped and uncapped cohorts, impacting NPR and earnings differently.

Q: On disability competitive environment, seeing prices come down?

A: Chris Pyne said seeing enough in market, focusing on capabilities and problem-solving to avoid major price-driven shifts.