Unum Group Q2 FY2026 earnings call

• Core Business Strategy and Diversification

  • The company's diversified employee benefits franchise consistently generates attractive returns, free cash flow, and long-term shareholder value, with diversification offsetting underperformance in specific lines.
  • Investments in digital employer-facing capabilities (HR Connect, Total Leave, Broker Connect) have scaled: ~half of Unum U.S. in-force business (excluding IDI) is now tied to these platforms, with related premium/fees growing nearly 70% since year-end 2023. These capabilities represented over 20% of Q2 new sales, and total leave-related sales more than doubled YoY.

• Closed Block Long-Term Care Risk Reduction

  • The recently announced reinsurance transaction transfers an additional $3.8 billion of long-term care statutory reserves, removing 100% of remaining individual LTC reserves from the Fairwind closed block, representing another meaningful step in the company's deliberate risk reduction strategy.
  • Post-transaction, the remaining retained block is predominantly group LTC with a simpler benefit structure and ongoing natural runoff, materially improving the closed block's risk profile.

• Capital Deployment and Position

  • The company maintains a robust capital position, with holding company liquidity of $1.5 billion and traditional RBC of 480% as of Q2, above long-term targets.
  • In Q2, $275 million was returned to shareholders via dividends and share repurchases, bringing year-to-date capital return to $750 million, on track to hit the full-year target of $1.3 billion (equal to full-year expected free cash flow). Capital is also allocated to organic growth investments and potential M&A opportunities.

• Operational Performance

  • Overall Q2 adjusted operating after-tax EPS was $2.16, up 4.9% YoY, with year-to-date EPS growth of 7.5%. Consolidated adjusted operating ROE was 15.9% in Q2 (16% year-to-date), within the company's outlook range. Core earned premium grew 3.6% Q2 YoY (3.7% year-to-date), or ~5% year-to-date excluding prior-year transaction impacts.
  • Disciplinary actions are already underway to address underperformance in PFML (U.S. group disability) and UK Group Income Protection, with strong performance in other lines (group life, Colonial Life) offsetting these pressures.

1. Unum US (UMUS): Adjusted operating income was $329.6 million in Q2 2026, up from $318.2 million in Q2 2025, accounting for approximately 67.3% of total consolidated adjusted operating income. Within the segment:

• Group Life and AD&D: Adjusted operating income of $93.2 million (up from $70.2 million YoY), with a 66% benefit ratio (down from 69.7% YoY) driven by lower mortality incidents.
• Supplemental and Voluntary: Adjusted operating income of $133.3 million (up from $123.2 million YoY), with a 47.4% benefit ratio, below the 48-50% outlook range, supported by strong multi-life individual disability claims experience.
• Group Disability: Benefit ratio of 65.8%, above the 62-64% expectation, with ~2 percentage points of pressure driven mostly by elevated paid family and medical leave (PFML) claims in new state markets. Overall segment premium grew 3.3% YoY (over 5% YoY excluding stop-loss runoff and 2025 IDI transaction impacts), Q2 sales grew 7.4% YoY to $281.8 million, and year-to-date sales grew 14.3% YoY. Total U.S. Group persistency is 91.5%, up nearly 2 percentage points YoY.

1. Unum International: Adjusted operating income was $24.3 million in Q2 2026, down from $41.6 million in Q2 2025, accounting for approximately 5.0% of total consolidated adjusted operating income. The segment benefit ratio was 78.4%, up from 72.4% YoY, driven entirely by underperformance in the UK Group Income Protection business. Within the segment:

• Unum UK: Adjusted operating income of 15.3 million pounds (down from 29.4 million pounds YoY), with an 82.2% benefit ratio (up from 75% YoY). Premium grew 5.2% YoY, while sales were relatively flat YoY.
• Poland: Premium grew 8.8% YoY, with no material negative earnings pressure.

1. Colonial Life: Adjusted operating income was a record $131.4 million in Q2 2026, up from $117.4 million in Q2 2025, accounting for approximately 26.8% of total consolidated adjusted operating income. The benefit ratio was 46.7%, down from 48.3% YoY and better than the 48-50% expected range. Premium income was $477.4 million (up from $462.1 million YoY), Q2 sales grew 6% YoY to $134.1 million, and adjusted operating ROE reached 19.4%. Over 70% of the segment's 12,000+ agents use the proprietary AgentAssist productivity platform.

2. Closed Block (Long-Term Care): Q2 2026 earnings remain volatile due to ongoing group LTC case terminations. Approximately 3% of group LTC cases (20,000 insured lives) terminated in Q2, bringing total terminations to 10% of cases (50,000 lives) since the start of 2026. The alternative investment portfolio supporting LTC generated an annualized yield of 6.1% in Q2, below the 8-10% long-term expectation. Following the announced $3.8 billion reinsurance transaction (expected to close Q4 2026), the remaining retained block will be 100% group LTC with materially reduced risk sensitivity, down 28-42% from pre-transaction levels.

• Full-year 2026 after-tax adjusted operating income per share guidance of $8.60 to $8.90 is reaffirmed, despite expected continued pressure from PFML and UK Group Income Protection in the second half.
• Full-year core premium growth is expected to hit the 4% to 7% target, as prior-year transaction impacts will no longer dampen growth in the second half of 2026.
• Year-end 2026 capital guidance is unchanged: RBC is expected to be 400% to 425%, and holding company liquidity is expected to be 1.5 billion to 2 billion USD. A temporary third-quarter RBC increase is expected due to capital positioning for the LTC reinsurance transaction, but this will not change year-end results.
• Full-year 2026 adjusted statutory after-tax operating earnings are expected to be $1.2 billion to $1.4 billion, adjusting for the expected impact of the recent LTC reinsurance transaction.
• The 2026 effective tax rate is expected to be approximately 22% for the remainder of the year, driven by the impact of UK results on the international tax profile.
• For U.S. group disability, 65% is reaffirmed as the long-term sustainable target benefit ratio, even with near-term PFML pressure.
• UK segment earnings pressure is expected to decrease in the second half of 2026 from Q2's elevated level, as pricing and underwriting actions take effect.

• Elevated claims experience in U.S. paid family and medical leave (PFML) in new state markets is pushing group disability benefit ratios above expectations, with continued elevated pressure expected through the end of 2026 as new pricing takes time to embed across the block.
• UK Group Income Protection has seen higher-than-expected average claim values driven by a greater share of claims from high-income employees, leading to material Q2 earnings misses and continued pressure through the near term.
• Ongoing group long-term care case terminations in the closed block create quarter-to-quarter earnings volatility, and future termination volumes cannot be predicted accurately, creating uncertainty for closed block performance.
• The alternative investment portfolio supporting the closed block LTC business generated a 6.1% annualized yield in Q2, below the 8-10% long-term target, pressuring closed block returns.
• Typical underwriting and pricing uncertainty exists for new PFML state mandates, requiring ongoing adjustment to pricing as experience develops.
• Multi-year rate guarantee periods in the UK market mean that pricing adjustments for higher Group Income Protection claims will take time to fully embed into results, extending the period of earnings pressure.

Q: PFML benefit ratio was 2 points above expectation. What limitations exist on how quickly pricing increases can be implemented, and how will they phase in? / A: Around 60-70% of the 2-point benefit ratio elevation comes from PFML, with long-term disability experience meeting expectations. Most PFML contracts have 1-year rate guarantees rather than multi-year, so only a very small share of the book is locked into longer-term fixed pricing. Double-digit rate increases are already being implemented as contracts come up for renewal, with a large batch of renewals effective in January 2027 that will embed most of the adjustments. Past rate flexibility on LTD gives the company credibility to implement these PFML increases with customers.

Q: 3% of group LTC cases terminated in Q2, adding to 10% terminations YTD. How much more termination should we expect going forward, and what is driving this trend? / A: Terminations are a result of two recent changes the company made: stopping new employee enrollments in group LTC announced last fall, and ongoing premium rate increases. Employers are choosing to terminate coverage because they do not want to maintain differing benefit packages for existing vs new employees. While it is impossible to predict exact future termination volumes, there is a high probability of continued terminations as contracts renew throughout the year, and the company will monitor the trend.

Q: Has elevated PFML claims changed the company's appetite to expand into new PFML states? / A: The company's appetite to be a leader in leave management remains unchanged. PFML and leave management are core strategic offerings that solve critical compliance and operational problems for multi-state employers, and the company's large existing investments in leave capabilities give it a strong market position. Each new PFML state has unique rules, so the company will continue to evaluate each opportunity carefully using the growing body of PFML claims experience to price accurately, but there is no plan to pull back from expansion.

Q: After removing all individual LTC via reinsurance, would the company consider additional reinsurance transactions for group LTC? What is the state of the market for group LTC reinsurance? / A: The company continues to hold discussions with reinsurers and asset managers about potential group LTC reinsurance. The group LTC block has new dynamics following 10% YTD case terminations, so management is waiting to see how current organic runoff trends play out before pursuing a transaction, to avoid giving up unintended upside to reinsurers. Bid-ask spreads vary by tranche of the block, rather than being a single aggregate spread, and management is being thoughtful about matching tranches to the right counterparties. The company's core goal remains removing LTC risk, whether organically via runoff or via reinsurance.

Q: What is driving the consistently favorable group life mortality experience, and how will it impact pricing? / A: The strong group life performance is driven entirely by lower than expected claim counts, which is an industry-wide trend that Unum has been experiencing for multiple quarters. Severity of claims has not changed meaningfully. This lower mortality experience is expected to continue through the second half of 2026. The company will adjust pricing over time to reflect this sustained favorable experience, consistent with its approach of matching pricing to actual experience.