Unum Group Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Core businesses have delivered consistent performance with 4% YTD premium growth, disciplined execution, and industry-leading margins. Technology initiatives like HR Connect and Total Leave are driving engagement and retention.
• Closed Block actions include a successful LTC reinsurance transaction, reserve assumption updates to derisk the block, and efforts to reduce the size of the legacy business. The annual reserve assumption review led to a net increase in reserves of $478.5 million pretax.
• Balance sheet is strong with an investment portfolio performing well, holding company liquidity at $2 billion, and an RBC ratio over 450%. Over $1 billion has been returned to shareholders via share repurchases and dividends.
• Capital priorities include investing in strategic initiatives, pursuing selective M&A, and continuing shareholder-friendly actions.

Segment Performance

• Unum US: Adjusted operating income for Q3 2025 was $334.9 million, down from $363.3 million in Q3 2024. Premium growth was impacted by factors like ceded IDI premium for LTC reinsurance and stop-loss runoff, but adjusting for these, premium increased nearly 4%. Sales grew 16.1%, and persistency was 89.8%. Group disability had adjusted premium growth of ~3%, with a benefit ratio of 61.3%. Group Life and AD&D had an adjusted operating income of $88.1 million, with a 66% benefit ratio. Supplemental and voluntary lines saw an increase in operating income.
• Colonial: Adjusted operating income was $116.6 million in Q3 2025, up from $113.4 million in Q3 2024. Premium grew 3.3%, persistency was 78.7% (70 basis points higher than the prior year), and sales increased 3.1%.
• International: Adjusted operating income totaled $38.8 million in Q3 2025, down from $40.3 million in the prior year. Premium growth was 9.5%, sales growth was 24.9%, but Unum UK results were slightly below expectation due to higher disability claims.
• Closed Block: Adjusted operating income was $14.1 million in Q3 2025, down from $34.2 million in Q3 2024. Reserves increased $640.5 million, primarily due to long-term care reserve changes, including actions like removing morbidity and mortality improvement assumptions and discontinuing new employee coverage on existing LTC cases.

Guidance

• Core operations premium growth is expected to continue, with adjustments for impacts like ceded IDI and stop-loss runoff. Share repurchases are on track to reach the top end of the $500 million to $1 billion range for 2025.
• Closed Block actions are positioning the company to reduce risk and the size of the block, with confidence that no future capital contributions are needed for LTC reserves.
• The company remains confident in its ability to deliver sustainable results into 2026, with focus on innovation and operational excellence.

Risks

• Modeling uncertainty in Closed Block assumptions, particularly around morbidity and mortality improvements.
• Potential impact of regulatory approval on the pace and magnitude of premium rate increases.
• Volatility in group disability benefit ratios due to period-to-period fluctuations in incidents.

Question and Answer

• Q: On the statutory side of the LTC assumption review, what are the moving parts?

A: Steve Zabel states the impact on stat reserving is minimal, with changes flowing through to Fairwind protections and being de minimis to capital plans.

• Q: Follow-up on upstreaming $200 million of capital from Fairwind?

A: Steve Zabel says intent is to leave capital in Fairwind, feeling good about the $2 billion protections there.

• Q: On group disability incidence and recoveries?

A: Steven Zabel notes favorable recovery trends, with a 62% benefit ratio expected for the back half, and confidence in further reserve releases in the business.

• Q: On potential future risk transfer deals for the Closed Block?

A: Rick McKenney states the market is constructive, and actions like removing new lives make it simpler for counterparty modeling.