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Q4 Earnings Beat at Unum, Strong View

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Unum Group (UNM - Free Report) reported fourth-quarter 2013 operating earnings of 85 cents per share, beating the Zacks Consensus Estimate by a penny.  Results also improved nearly 3.6% year over year.

Unum benefited from disciplined pricing, underwriting and risk results across its primary business segments and derived consolidated returns and profitability.

Including net realized investment gains of 2 cents, Unclaimed Death Benefits Reserve Increase of 24 cents, and Group Life Waiver of Premium Benefit Reserve Reduction of 21 cents, Unum reported net income of 84 cents in the quarter, a penny lower than the year-ago number.

Operating earnings in 2013 were $3.32 per share, up 5.4% year over year, close to the top end of the company’s earnings expectation of 0–6%. Results outpaced the Zacks Consensus Estimate by 0.6%.

Revenue Update

Total revenue in the reported quarter declined about 2% year over year to $2.58 billion. The top line also missed the Zacks Consensus Estimate of $2.59 billion. Decelerated sales from the Unum U.K. and Group long-term disability in Unum U.S. accounted for the overall top-line shortfall.

Full-year 2013 revenues declined 2% year over year to $10.35 billion.

Quarterly Segment Update

Unum U.S. Segment: Premium income in the quarter was $1.12 billion, up 0.4% year over year. Operating income was $217.1 million, compared with $212.2 million in the year-ago quarter.

Benefit ratio in the quarter stood at 83.2%, down 130 basis points (bps) over the prior-year quarter. The improvement was driven by favorable rates of incidence and strong experience in claim recovery.

Unum U.K. Segment: Premium income decreased 21.4% year over year to $137.9 million mainly due to the reinsurance agreements entered into in the first quarter of 2013 to cede an additional portion of the group life business. In local currency, the figure decreased 22.1% year over year to £85.1 million.

Operating income was $35.9 million, up 2.6% year over year. In local currency, the figure came in at £22.2 million, up 1.8% year over year.

Benefit ratio was 70.6% in the quarter, down 320 bps from 73.0% in the year-ago quarter. The lower benefit ratio is attributable to the group life line’s favorable risk experience, which in turn offset unfavorable risk experience from higher claim incidence levels in the group long-term disability line of business.

Colonial Life Segment: Premium income in the quarter was $308.1 million, up 21% year over year, driven by consistent growth in the active block of business. Operating income improved to $69.4 million, from $68.3 million in the year-ago quarter, driven by an increase in premium income and stable risk experience.

However, benefit ratio increased 640 bps year over year to 58.9%. Unfavorable risk experience in the accident, sickness & disability product line and cancer & critical illness product line neutralized improved incurred claims in life product line.

Closed Block Segment: Premium income fell 5.5% from the year-ago quarter. The decline was attributable to the expected run-off of the individual disability business.

Operating income in the segment was $26.8 million, up 6.9% year over year.

Corporate Segment: The segment reported an operating loss of $39.8 million, wider than the year-ago loss of $34.6 million. A wider operating loss resulted from lower net investment income and higher operating expenses.

Capital Management

As of Dec 31, 2013, the weighted average risk-based capital for Unum’s traditional U.S. insurance companies was nearly 405% up from 396% as of 2012-end. Unum’s cash and marketable securities were $514 million at the end of fourth quarter, down 36% from $805 million at 2012-end.

During the fourth quarter, Unum purchased 1.4 million shares for $50 million taking the full year tally to 11.2 million shares bought back for $319 million.

Book value per share of Unum increased 4.5% year over year to $33.30 as of Dec 31, 2013.

2014 Guidance

Unum expects full-year 2014 operating earnings to grow in the range of 5%–10% over the 2013 level.

Performance of Other Insurers

ACE Ltd reported fourth-quarter 2013 operating net earnings of $2.39 per share, which surpassed the Zacks Consensus Estimate by 19.5%. Moreover, earnings surged nearly 67% on a year-over-year basis.

StanCorp Financial Group Inc. reported fourth-quarter operating earnings of $1.49 per share exceeding the Zacks Consensus Estimate by 26.3%. The result also outpaced the year-ago quarter’s earnings by a substantial 67%.

Genworth Financial Inc. (GNW - Free Report) reported fourth-quarter 2013 net operating income of 38 cents per share. The results were nearly 27% higher than the Zacks Consensus Estimate and 15% ahead of the year-ago level.

Zacks Rank

Unum presently carries a Zacks Rank #3 (Hold).

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