Unum Group Q4 FY2025 earnings call

Management Statement and Operational Highlights

• 2025 was a year of disciplined operational performance across core businesses, with investment in digital capabilities creating differentiation. Progress in the closed block improved its risk profile.
• Core operations premium grew ~4.5% excluding transaction impacts, with Colonial Life up 5.3% and International up 10%.
• Digital capabilities like HR Connect, Broker Connect, and AI-enabled tools are driving engagement and persistency.
• Closed block saw $4B reduction in LTC reserves via reinsurance, morbidity and mortality assumptions derisked, and new employee coverage on existing group LTC cases discontinued.
• Returned ~$1.3B to shareholders in 2025 through share repurchases and dividends, ending the year with 440% risk-based capital and $3.2B cash at holding company.

Segment Performance

• Unum US: In the fourth quarter, Unum US group disability had a 64.2% benefit ratio, above expectations due to lower average recoveries and mortality. Group life and AD&D had a 64.8% benefit ratio in Q4. Full-year core operations premium grew 3.7%, with adjusted ROE for core operations approximately 20%.
• Colonial Life: 4Q adjusted operating earnings declined 7.2% to $113.9M, and full-year declined 0.7% to $463.6M. 4Q sales increased 10% to $203.9M, the largest quarterly sales since 2019, and full-year sales were up 5.3% to $560.3M, with premium up 3.1% to $1.8B.
• Unum International: 4Q premiums grew 11.5% to $283.9M, full-year up 10% to $1.1B. Underlying earnings declined due to unfavorable claims experience in UK group disability, but healthy sales and persistency supported double-digit top-line growth.
• Closed Block: 4Q adjusted operating income was $21.1M, full-year $63.5M. LTC claim counts were in line with expectations, net premium ratio decreased slightly to 97.5%. Alternative investment portfolio generated $25.9M income, 7.6% annualized return.

Guidance

• 2026 top-line growth expected in the range of 4% to 7%, with EPS returning to growth of 8% to 12%.
• Unum US expects premium growth 4%-6%, group disability benefit ratio 62%-64%, supplemental and voluntary earnings $120M-$130M quarterly.
• Colonial Life expects top-line growth 2.2%-4% with ROEs in high teens.
• Unum International expects benefit ratio 70%-72% in 2026.
• Capital generation expected $1.4-$1.6B, free cash flow $1.2-$1.4B, with $1B share repurchases and 10% dividend increase planned for 2026.

Risks

• Higher than expected benefits experience variability impacting margins in certain quarters.
• Market competition affecting pricing and margins, particularly in group disability.
• Unfavorable claims experience in segments like UK group disability impacting international earnings.

Question and Answer

Q: Can you give us a little more detail on the drivers of the group's disability loss ratio and the outlook in '26? What gives you the confidence for the result to stay strong this year?

A: Christopher Wallace Pyne and Steven Andrew Zabel discussed market receptiveness to solutions, pricing discipline, and expected benefit ratio range of 62%-64% in 2026, with confidence in sustainable claims performance and pricing dynamics.

Q: Could you give us a little bit of color on how you view the '26 EPS outlook on an apples-to-apples basis?

A: Steven Andrew Zabel explained that higher top-line growth, improved core business premium margin, better ratio levels, disciplined expense management, and capital deployment contribute to the 8%-12% EPS growth outlook.

Q: I just wanted to follow up on the decision to move the definition of operating earnings. What are you seeing in the reinsurance market that is maybe motivating you to do some of these things?

A: Richard Paul McKenney stated that they are actively working to reduce LTC exposure through reinsurance, with ongoing discussions with counterparties and interest from multiple parties in the reinsurance market.

Q: I just wanted to ask is on artificial intelligence. We are getting a lot of questions from investors around this, and related to group benefits, a lot of it is around your client base and if they have layoffs and so forth. I would be interested if you could comment at all about the types of industries you are exposed to, if you have done any work or put any thought behind how relatively more or less exposed you are and maybe even just broader thoughts on risk and opportunities related to AI.

A: Richard Paul McKenney mentioned that their book of business is well-diversified across industries, with no specific sector shifts seen in their book, and AI is early in its impact on the workforce but they are monitoring macroeconomic conditions.

Q: Well, thank you all for letting the call run so long and giving me an opportunity. Appreciate it. There are a couple of companies that have some issues in medical stop-loss. One of them said that they have seen a rise in cancer among young people that that is causing some of those issues. Are you seeing anything in that sort of cohort and experience that is causing you to make any changes in how you price disability or group life business?

A: Richard Paul McKenney stated that they have not seen a significant change in younger mortality from cancer diagnosis in their group life block, with group life results remaining favorable over the year.

Q: Good morning. Thanks. I had a question on group disability, but maybe from a little bit of a different angle. I know everybody focuses on the benefit ratio. If I go back a couple of years to the outlook from 2023, I remember there was a slide on efficiency and investments you were making that I think you showed the expense ratio peaking in 2023 and declining post that. I know you continue to invest in this business and lead management, etcetera. Just curious if we go forward, is there a point where you think expenses can kind of inflect and we can get some operating leverage in the segment?

A: Richard Paul McKenney and Steven Andrew Zabel discussed ongoing investment in digital capabilities and productivity, expecting operating expense leverage to stabilize and decrease over time as productivity overwhelms investments.