CHATTANOOGA, Tenn.--(BUSINESS WIRE)--
Unum Group (NYSE: UNM) today announced its results for the fourth
quarter of 2008. The Company reported net income of $41.8 million ($0.13
per diluted common share) in the fourth quarter of 2008, compared to net
income of $160.5 million ($0.44 per diluted common share) in the fourth
quarter of 2007.
Included in the results for the fourth quarter of 2008 are net realized
after-tax investment losses of $167.6 million ($0.50 per diluted common
share), compared to net realized after-tax investment losses of $16.5
million ($0.05 per diluted common share) in the fourth quarter of 2007.
Net realized investment losses for the fourth quarter of 2008 include
after-tax losses of $120.1 million ($0.36 per diluted common share)
related to changes in the fair value of an embedded derivative in a
modified coinsurance contract. Changes in the fair values of certain
embedded derivatives are reported as realized investment gains and
losses, as required under the provisions of Statement of Financial
Accounting Standards No. 133 Implementation Issue B36 (DIG Issue B36), Embedded
Derivatives: Modified Coinsurance Arrangements and Debt Instruments That
Incorporate Credit Risk Exposure That Are Unrelated or Only Partially
Related to the Creditworthiness of the Obligor Under Those Instruments. For
the fourth quarter of 2007 the after-tax realized investment loss
attributable to DIG Issue B36 was $23.3 million. The net after-tax
realized investment losses related to the sale or write-down of
securities was $47.5 million in the fourth quarter of 2008 compared to
net gains of $6.8 million in the fourth quarter of 2007.
In addition to the investment gains and losses discussed above, results
for the fourth quarter of 2007 included after-tax debt extinguishment
costs of $36.1 million ($0.10 per diluted common share).
Adjusting for these items, income on an after-tax basis was $209.4
million ($0.63 per diluted common share) in the fourth quarter of 2008,
compared to $213.1 million ($0.59 per diluted common share) in the
fourth quarter of 2007.
"Overall, we are pleased with our operating performance for the fourth
quarter of 2008, which capped a very solid year for us," said Thomas R.
Watjen, president and chief executive officer. "These results reflect
the steps we have taken over the last few years to improve our operating
effectiveness and strengthen our financial position and are a testament
to the hard work of our people. We enter 2009, an extremely challenging
time, with a solid operating plan and a strong balance sheet and capital
position. I'm confident that by continuing to execute on our business
plan, we can continue to successfully meet the challenges that lie
ahead."
RESULTS BY SEGMENT
In the following discussions of the Company's operating segment results,
"operating revenue" excludes net realized investment gains and losses.
"Operating income" or "operating loss" excludes income tax and net
realized investment gains and losses. Effective with the fourth quarter
of 2008, we made slight modifications to our reporting segments to
better align the debt of our securitizations with the business segments
and to align the allocation of capital for Unum UK similar to that of
Unum US and Colonial Life. Specifically, we transferred the assets,
non-recourse debt, and associated capital of Tailwind Holdings, LLC
(Tailwind Holdings) and Northwind Holdings, LLC (Northwind Holdings)
from our former Corporate segment to Unum US group disability and
Individual Disability - Closed Block, respectively. We transferred
excess assets, capital in excess of target, and the associated
investment income from Unum UK to our Corporate and Other segment. We
also modified the investment income allocation on capital supporting
certain of our group disability and long-term care product lines within
Unum US and have also aggregated our former Other segment and Corporate
segment into one reporting segment. Financial results previously
reported have been revised to reflect these reclassifications.
Unum US Segment
Unum US reported operating income of $182.6 million in the fourth
quarter of 2008, compared to operating income of $160.9 million in the
fourth quarter of 2007. Premium income declined slightly to $1,246.6
million in the fourth quarter of 2008, from $1,248.1 million in the
fourth quarter of 2007.
Within Unum US, the group disability line of business reported operating
income of $59.7 million in the fourth quarter of 2008, compared to
operating income of $43.2 million in the fourth quarter of 2007. The
benefit ratio for this line in the fourth quarter of 2008 was 88.7
percent, compared to 91.5 percent in the fourth quarter of 2007.
Continued improvement in the ratio resulted from a higher rate of claim
recoveries in group long-term disability and favorable claims experience
in group short-term disability. Underlying the favorable risk trends,
improvements in the claims management process, implemented in prior
periods, have continued to enhance the efficiency of our claims
management processes, contributing to benefit ratio results. Premium
income for the group disability line declined 3.3 percent to $569.2
million in the fourth quarter of 2008, compared to $588.6 million in the
fourth quarter of 2007. Increasing competition, along with softening
economic conditions and the Company's fundamental commitment to a
disciplined approach to pricing, renewals, and risk selection, were all
contributing factors to the decline in current quarter premium. Sales of
fully insured group long-term disability products increased by 2.8
percent to $77.4 million in the fourth quarter of 2008, compared to
$75.3 million in the fourth quarter of 2007. Sales of fully insured
group short-term disability products increased by 25.0 percent to $31.0
million in the fourth quarter of 2008, compared to $24.8 million in the
fourth quarter of 2007. Premium persistency in the group long-term
disability line of business was 87.8 percent for full year 2008,
compared to 85.1 percent in 2007. Case persistency for this line was
89.2 percent for full year 2008, compared to 88.4 percent for 2007.
Premium persistency in the group short-term disability line of business
was 82.1 percent for full year 2008, compared to 74.0 percent for 2007.
Case persistency for the line was 88.2 percent for full year 2008,
compared to 87.4 percent for 2007.
The group life and accidental death and dismemberment line of business
reported a 16.3 percent decrease in operating income to $50.3 million in
the fourth quarter of 2008, compared to $60.1 million in the fourth
quarter of 2007. The benefit ratio for the line increased slightly to
70.0 percent in the fourth quarter of 2008, from 69.5 percent in the
same quarter a year ago, due to a decline in premium income and an
increase in average claim size. Premium income for this line of business
declined 3.0 percent to $297.1 million in the fourth quarter of 2008,
compared to $306.4 million in the fourth quarter of 2007, continuing to
reflect the Company's ongoing disciplined approach to pricing, renewals,
and risk selection, as well as increased competition and the effect of
the slowing economy. Sales of group life and accidental death and
dismemberment products in the fourth quarter of 2008 increased 36.0
percent to $91.8 million, compared to $67.5 million in the fourth
quarter of 2007. Premium persistency in the group life line of business
was 83.8 percent for full year 2008, compared to 78.8 percent for the
comparable period in 2007. Case persistency for full year 2008 was 89.1
percent and for the comparable period in 2007 was 87.7 percent.
The Unum US supplemental and voluntary lines of business reported a 26.0
percent increase in operating income to $72.6 million in the fourth
quarter of 2008, compared to $57.6 million in the fourth quarter of
2007. All product lines reported year-over-year improvement in operating
performance and contributed to overall improvement in the performance of
the business line. Premium income for supplemental and voluntary lines
increased 7.7 percent to $380.3 million in the fourth quarter of 2008,
compared to $353.1 million in the fourth quarter of 2007. Sales in the
voluntary benefits line of business increased 0.7 percent in the fourth
quarter of 2008, and sales in the individual disability - recently
issued line decreased 12.9 percent. Long-term care sales decreased 19.0
percent compared with the year ago quarter due to the Company's strategy
to de-emphasize sales of individual long-term care policies and due to
lower sales in the group long-term care line during the quarter.
Unum UK Segment
Unum UK reported operating income of $54.6 million in the fourth quarter
of 2008, a 33.2 percent decrease, compared to $81.7 million in the
fourth quarter of 2007. In local currency, operating income for the
fourth quarter of 2008 decreased 13.5 percent to £34.6 million from
GBP40.0 million in the fourth quarter of 2007. Results for the quarter,
when translated into dollars, have been impacted by increased volatility
in the foreign exchange markets, specific to the exchange rate of the
dollar to British pound sterling. With the increased potential for
further economic softening on a global scale, considerable uncertainty
remains with respect to foreign exchange stabilization.
Operating income was impacted due to a higher benefit ratio and expense
ratio in the fourth quarter of 2008 relative to the year ago quarter.
The benefit ratio was 63.0 percent in the fourth quarter of 2008,
compared to 60.8 percent in the fourth quarter of 2007. The increase in
the benefit ratio for the current quarter resulted primarily from lower
premium income in the quarter; claims experience across all product
lines remained favorable as higher claim recoveries offset increased
claims incidence in the group disability line. Expenses for the fourth
quarter 2008 included $6.2 million, or £3.9 million in local currency,
of expenses primarily related to employee termination costs. These
expenses were incurred to implement a disciplined cost management
process intended to reduce future operating expenses and better align
expenses with premium growth. Premium income decreased 27.5 percent to
$182.3 million in the fourth quarter of 2008, compared to $251.4 million
in the fourth quarter of 2007. In local currency, premium income
decreased 5.9 percent to £115.8 million in the fourth quarter of 2008,
compared to £123.0 million in the fourth quarter of 2007. Premium
persistency in the group long-term disability line of business was 87.4
percent for full year 2008, compared to 88.0 percent for the comparable
period in 2007. Premium persistency in the group life line of business
was 74.9 percent for full year 2008, compared to 70.5 percent for full
year 2007. Sales decreased 22.0 percent to $27.0 million in the fourth
quarter of 2008, compared to $34.6 million in the fourth quarter of
2007. In local currency, sales for the fourth quarter of 2008 increased
2.4 percent to £17.4 million, compared to £17.0 million in the fourth
quarter of 2007.
Colonial Life Segment
Colonial Life reported a 12.8 percent increase in operating income to
$66.3 million in the fourth quarter of 2008, compared to $58.8 million
in the fourth quarter of 2007. The benefit ratio in the fourth quarter
of 2008 was 48.3 percent, compared to 48.0 percent for the same period
in 2007, with unfavorable claims experience in the accident, sickness,
and disability line of business and in the cancer and critical illness
line offsetting the favorable experience in the life line of business.
Premium income for the fourth quarter of 2008 increased to $249.1
million, compared to $232.0 million in the fourth quarter of 2007. Sales
increased 1.1 percent to $115.4 million in the fourth quarter of 2008
from $114.2 million in the fourth quarter of 2007. New accounts
increased 6.2 percent in the fourth quarter of 2008 compared to the
fourth quarter of 2007. Average weekly producers increased 5.6 percent
in the fourth quarter of 2008 compared to the fourth quarter of 2007,
while average weekly premium per agent decreased 4.3 percent.
Individual Disability - Closed
Block Segment
The Individual Disability - Closed Block segment reported operating
income of $7.1 million in the fourth quarter of 2008, compared to $15.0
million in the fourth quarter of 2007. The interest adjusted loss ratio
for the segment was 82.6 percent in the fourth quarter of 2008, compared
to 83.8 percent in the prior year fourth quarter, reflecting favorable
risk experience in the quarter. Net investment income for the segment
declined 8.3 percent, to $188.9 million in the fourth quarter of 2008
from $206.0 million in the fourth quarter of 2007, primarily due to
lower bond call premiums in the fourth quarter of 2008 relative to the
fourth quarter of 2007.
Corporate and Other Segment
The Corporate and Other segment, which includes investment earnings on
corporate assets not specifically allocated to a line of business,
corporate interest expense, and certain other corporate expenses, in
addition to results from certain insured products not actively marketed,
reported a loss of $0.4 million in the fourth quarter of 2008, compared
to a loss of $65.2 million in the fourth quarter of 2007. Results for
the fourth quarter 2008 include $7.6 million of other income related to
a refund of interest primarily attributable to prior tax years. Interest
and debt expense in the fourth quarter of 2008 was $26.9 million,
compared to $94.3 million in the fourth quarter of 2007, which includes
before-tax debt extinguishment costs of $55.6 million in the fourth
quarter of 2007.
OTHER INFORMATION
Capital Management
With the results of the fourth quarter 2008, the Company continued to
exceed the target capital management metrics it formally outlined in
October 2007. At the end of the fourth quarter of 2008, combined
risk-based capital for its traditional US insurance companies was 327
percent, leverage equaled 21.5 percent, and holding company liquidity
was $526 million. Leverage is measured as total debt to total capital,
which the Company defines as total long-term and short-term debt plus
stockholders' equity, excluding the net unrealized gain or loss on
securities and the net gain or loss on cash flow hedges. Leverage also
excludes the non-recourse debt and associated capital of Tailwind
Holdings, LLC and Northwind Holdings, LLC. Additionally, as previously
reported, in December 2008, the Company established a new $250 million
credit facility. The facility was established to provide a capital
buffer equal to approximately a single year of fixed charges and was
implemented as a prudent measure given current market and economic
conditions.
Shares Outstanding
The Company's average number of shares outstanding, assuming dilution,
was 331.0 million for the fourth quarter of 2008, compared to 360.7
million for the fourth quarter of 2007. The actual number of shares
outstanding at the end of the fourth quarter of 2008 was 331.1 million.
Book Value
Book value per common share as of December 31, 2008 was $19.32, compared
to $22.28 at December 31, 2007. Excluding net unrealized gains and
losses on securities and the net gain on cash flow hedges, book value
per common share at December 31, 2008 was $20.45, compared to $20.79 at
December 31, 2007.
OUTLOOK
The Company is revising its previously stated guidance for full-year
2009 operating earnings per share from a range of $2.65 to $2.70 per
share to a range of $2.45 to $2.55 per share. Since the Company provided
its initial 2009 guidance on November 11, 2008, economic and financial
market conditions have deteriorated and resulted in two primary
adjustments to the Company's expectations for results in 2009; first,
with the weakening of the British pound relative to the US dollar, the
Company is now projecting an exchange rate of 1.50 instead of 1.65, and
second, with the unfavorable rate of return on pension plan assets and
lower discount rates for the Company's pension liability, the Company
now expects its 2009 pension costs (before tax) to be approximately
$42.5 million higher than previously assumed. In addition, but to a
lesser extent, with the significant weakening of the US economy over the
past three months, the Company now expects operating earnings, after
translating Unum UK into US dollars, to be slightly below the level of
2008, compared to its initial guidance of growth of 4 percent to 6
percent. The Company's guidance for holding company liquidity and
consolidated risk based capital for its US insurance companies is
unchanged, and the Company's guidance for its leverage ratio is adjusted
to a range of 20 percent to 21 percent from its previous guidance of 18
percent to 19 percent.
CONFERENCE CALL INFORMATION
Unum Group senior management will host a conference call on Wednesday,
February 4, 2009 at 9:00 a.m. (EST) to discuss the results of operations
for the fourth quarter. Included in the discussion will be
forward-looking information, such as guidance on future results and
trends in operations, as well as other material information.
The dial-in number for the conference call is (866) 293-8973 for U.S.
and Canada. For international callers, the dial-in number is (913)
312-1240. A live webcast of the call will also be available on the
Company's website, at www.unum.com
in a listen-only mode. It is recommended that webcast viewers access the
"Investors" section of the Company's website and opt-in to the webcast
fifteen minutes prior to the start of the call. A replay of the call
will be available on the Company's website through Wednesday, February
11, 2009. In conjunction with the Company's earnings announcement, the
Company's Statistical Supplement for the fourth quarter of 2008 will be
available under "Quarterly Financials" in the "Investors" section of the
Company's website.
NON-GAAP RECONCILIATION
The Company analyzes its performance using non-GAAP financial measures
which exclude certain items and the related tax thereon from net income.
The Company believes operating income or loss, excluding realized
investment gains and losses, which are recurring, and excluding certain
other items specified in the non-GAAP reconciliation, is a better
performance measure and a better indicator of the profitability and
underlying trends in its business. Realized investment gains and losses
are primarily dependent on market conditions and general economic events
and are not necessarily related to decisions regarding the Company's
underlying business. The exclusion of certain other items specified in
the non-GAAP reconciliation also enhances the understanding and
comparability of the Company's performance and the underlying
fundamentals in its operations, but this exclusion is not an indication
that similar items may not recur. The Company believes book value per
common share excluding unrealized gains and losses on securities and the
net gain or loss on cash flow hedges, which also tend to fluctuate
depending on market conditions and general economic trends, is an
important measure. For a reconciliation to the most directly comparable
GAAP measures, refer to the attached digest of earnings.
ABOUT UNUM GROUP
Unum (www.unum.com)
is one of the leading providers of employee benefits products and
services and the largest provider of group and individual disability
insurance in the United States and the United Kingdom.
SAFE HARBOR STATEMENT
Statements in this press release that are not historical facts, such as
the Company's earnings per share guidance and related analysis under "OUTLOOK"
and management's statements about the Company's financial flexibility
and business plan, constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are made based on management's expectations,
plans and beliefs concerning future developments. These forward-looking
statements are not a guarantee of future performance and involve risks
and uncertainties that could cause actual results to differ materially
from those suggested by the forward-looking statements. These risks and
uncertainties include such matters as (1) unfavorable economic or
business conditions, both domestic and foreign, including the continued
financial market disruption; (2) investment results, including, but not
limited to, realized investment losses resulting from impairments that
differ from our assumptions and prior experience; (3) rating agency
actions, state insurance department market conduct examinations and
other inquiries, other government investigations and actions, and
negative media attention; (4) changes in interest rates, credit spreads,
and securities prices; (5) currency exchange rates; (6) changes in our
financial strength and credit ratings; (7) changes in claim incidence
and recovery rates due to, among other factors, the rate of unemployment
and consumer confidence, the emergence of new diseases, epidemics, or
pandemics, new trends and developments in medical treatments, and the
effectiveness of risk management programs; (8) increased competition
from other insurers and financial services companies due to industry
consolidation or other factors; (9) legislative, regulatory, or tax
changes, both domestic and foreign, including the effect of potential
legislation and increased regulation in the current political
environment; (10) the level and results of litigation; (11)
effectiveness in supporting new product offerings and providing customer
service; (12) actual experience in pricing, underwriting, and reserving
that deviate from our assumptions; (13) lower than projected persistency
and lower sales growth; (14) fluctuation in insurance reserve
liabilities; (15) ability and willingness of reinsurers to meet their
obligations; (16) changes in assumptions related to intangible assets
such as deferred acquisition costs, value of business acquired and
goodwill; (17) ability of our subsidiaries to pay dividends as a result
of regulatory restrictions; (18) events or consequences relating to
terrorism and acts of war, both domestic and foreign; (19) changes in
accounting standards, practices or policies; (20) effectiveness of our
risk management program; and (21) ability to recover our systems and
information in the event of a disaster or unanticipated event.
For further information about risks and uncertainties that could affect
actual results, see the Company's filings with the Securities and
Exchange Commission, including information in the sections titled
"Cautionary Statement Regarding Forward-Looking Statements" and "Risk
Factors" in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2007 and subsequently filed Form 10-Qs. The
forward-looking statements in this press release are being made as of
the date of this press release, and the Company expressly disclaims any
obligation to update or revise any forward-looking statement contained
herein, even if made available on our website or otherwise.
DIGEST OF EARNINGS
(Unaudited)
Unum Group (UNM:NYSE)
and Subsidiaries
($ in millions,
except share
data)
Three Months Ended December 31 Twelve Months Ended December 31
2008 2007 2008 2007
Operating
Revenue by $ 2,581.4 $ 2,669.3 $ 10,448.2 $ 10,585.1
Segment
Net Realized (257.7 ) (25.8 ) (465.9 ) (65.2 )
Investment Loss
Total Revenue $ 2,323.7 $ 2,643.5 $ 9,982.3 $ 10,519.9
Operating
Income by $ 310.2 $ 251.2 $ 1,289.9 $ 1,062.4
Segment
Net Realized (257.7 ) (25.8 ) (465.9 ) (65.2 )
Investment Loss
Income Tax 10.7 64.9 270.8 324.8
Income from
Continuing 41.8 160.5 553.2 672.4
Operations
Income from
Discontinued - - - 6.9
Operations, Net
of Tax
Net Income $ 41.8 $ 160.5 $ 553.2 $ 679.3
PER SHARE
INFORMATION
Assuming
Dilution:
Income from
Continuing $ 0.13 $ 0.44 $ 1.62 $ 1.89
Operations
Income from
Discontinued - - - 0.02
Operations, Net
of Tax
Net Income $ 0.13 $ 0.44 $ 1.62 $ 1.91
Basic:
Income from
Continuing $ 0.13 $ 0.45 $ 1.62 $ 1.90
Operations
Income from
Discontinued - - - 0.02
Operations, Net
of Tax
Net Income $ 0.13 $ 0.45 $ 1.62 $ 1.92
Weighted
Average Common 330,846.0 359,809.2 341,022.8 352,969.1
Shares - Basic
(000s)
Weighted
Average Common
Shares - 330,981.5 360,707.6 341,560.3 355,776.5
Assuming
Dilution (000s)
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Three Months Ended Three Months Ended
December 31, 2008 December 31, 2007
(in millions) per share * (in millions) per share *
After-tax
Operating $ 209.4 $ 0.63 $ 213.1 $ 0.59
Income, As
Adjusted
Adjustments,
After Tax
Net Realized (167.6 ) (0.50 ) (16.5 ) (0.05 )
Investment Loss
Debt
Extinguishment - - (36.1 ) (0.10 )
Cost
Net Income $ 41.8 $ 0.13 $ 160.5 $ 0.44
As of December 31
2008 2007
(in millions) per share (in millions) per share
Total
Stockholders' $ 6,397.9 $ 19.32 $ 8,039.9 $ 22.28
Equity (Book
Value)
Net Unrealized
Gain (Loss) on (832.6 ) (2.51 ) 356.1 0.99
Securities
Net Gain on
Cash Flow 458.5 1.38 182.5 0.50
Hedges
Total
Stockholders' $ 6,772.0 $ 20.45 $ 7,501.3 $ 20.79
Equity, As
Adjusted
As of
December 31
2008
(in millions)
Debt, As $ 2,449.9
Reported
Exclude
Non-recourse 843.2
Debt
Debt, As $ 1,606.7
Adjusted
Total
Stockholders' $ 6,397.9
Equity, As
Reported
Exclude Net
Unrealized Loss
on Securities (374.1 )
and Net Gain on
Cash Flow
Hedges
Exclude
Northwind and 911.7
Tailwind
Capital
5,860.3
Debt, As 1,606.7
Adjusted
Total Capital, $ 7,467.0
As Adjusted
Debt to Capital 21.5 %
Ratio
* Assuming
Dilution
Source: Unum Group
Contact: Unum Group
MEDIA:
Jim Sabourin, 423-294-6300
or
INVESTORS:
Thomas A. H. White, 423-294-8996
Madhavi Venkatesan, 423-294-1630