Unum Group’s (NYSE:UNM) third-quarter 2016 operating net income of 99 cents per share beat the Zacks Consensus Estimate of 95 cents. The bottom line also improved 8.8% year over year.
Strong performance at Unum U.S. and Colonial Life was partially offset by underperformance of Unum U.K. The quarter witnessed solid premium increase in the core business.
Including after-tax realized investment gains and losses on investment portfolio as well as amortization of prior period actuarial losses on pension plans, net income grew 22% year over year to $1.01 per share.
Total revenue of Unum Group was $2.7 billion, up 2.6% year over year. Revenues were in line with the Zacks Consensus Estimate. Premium income improved a slightly, whereas net investment income declined year over year.
Total benefits and expenses increased 3% year over year to $2.4 billion. Rise in commissions, interest and debt expenses, benefits and change in reserves for future benefits and other expenses led to overall increase in costs.
Quarterly Segment Update
Unum U.S.: Premium income was $1.3 billion, up 5.9% year over year. Operating income was $231 million, up 5.6% year over year.
Unum U.K.: Premium income decreased 12% year over year to $127.3 million. In local currency, income improved 3.9% year over year to £96.9 million.
Operating income was $28.2 million, down 13.8% year over year. In local currency, the figure inched up 1.9% year over year to £21.5 million.
Benefit ratio was 71.8%, up 400 basis points (bps). A higher benefit ratio reflects improved average claim size and an increase in the claim incidence rate in group life as well as a higher average claim size in group long-term disability.
Colonial Life: Premium income increased 6.3% year over year to $354.1 million on sales growth and stable persistency. Operating income grew 3.5% to $79 million.
Benefit ratio increased 40 bps year over year to 51.6%. This primarily reflects less favorable mortality experience in the life product line, which was partially offset by favorable claims experience in the accident, sickness, and disability product lines and the cancer and critical illness product lines.
Closed Block: Premium income fell 2.8% from the year-ago quarter. The decline stemmed from expected policy terminations and maturities for the individual disability line of business. Nonetheless, an improvement in premium income for the long-term care line of business owing to premium rate increases on certain in-force policies limited the downside.
Operating income came in at $28.6 million, down 3.2% year over year.
Corporate: The segment incurred an operating loss of $41.6 million, wider than an operating loss of $26.9 million in the year-ago quarter. Lower investment income, higher interest and debt expense and higher acquisition expenses resulted in the wider loss.
Capital Management
As of Sep 30, 2016, the weighted average risk-based capital for Unum’s traditional U.S. insurance companies was nearly 395%. Unum exited the quarter with cash and marketable securities worth $598 million.
Book value per share of Unum increased 14.4% year over year to $40.33 as of Sep 30, 2016.
The company spent $100 million to buy back 2.9 million shares in the quarter.
Business Update
Unum Group acquired H&J Capital, L.L.C., the parent of Starmount Life Insurance Company and AlwaysCare Benefits, on Aug 1. The buyout was funded with an initial cash consideration of $140.1 million, along with contingent cash consideration of $10.0 million, subject to conditions.
Guidance
Unum Group now projects 2016 operating earnings growth at the higher end of the previously projected 3–6% band from the 2015 level.
Zacks Rank
Unum presently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Performance of Other Insurers
Among other players in the insurance industry that have reported their third-quarter earnings so far, earnings at Progressive Corp. (NYSE:PGR) and MGIC Investment Corp. (NYSE:MTG) beat their respective Zacks Consensus Estimate, while RLI Corp. (NYSE:RLI) missed the same.
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UNUM GROUP (UNM): Free Stock Analysis Report
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