Unum Group · NYSE:UNM
Unum — Investor Day (February 2023)
77 slides from Unum's investor day presentation, Feb 23, 2023
Slide 1: 2023 Outlook Meeting
2023 Outlook Meeting February 23, 2023
Slide 2: Safe Harbor Statement
SAFE HARBOR STATEMENT Certain information in this news release constitutes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those not based on historical information, but rather relate to our outlook, future opera
Slide 3: Non-GAAP Financial Measures; Long-Duration Targeted Improvements
NON-GAAP FINANCIAL MEASURES We analyze our performance using non-GAAP financial measures which exclude or include amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. We believe the following non-GAAP financial m
Slide 4: Agenda and Presenters
AGENDA AND PRESENTERS INTRODUCTION & STRATEGY FINANCIAL STRENGTH Opening Remarks & Company Overview Investments Rick McKenney, President & Chief Executive Officer Martha Leiper, EVP, Chief Investment Officer Growth Strategy Closed Block Strategy Mike Simonds, EVP, Chief Operating Officer Steve Mitch
Slide 5: Opening Remarks and Company Overview
Opening Remarks and Company Overview Rick McKenney CHIEF EXECUTIVE OFFICER 5
Slide 6: Key Messages
KEY • Purpose-driven employee benefits franchise with leading market positions established through multiple cycles MESSAGES • Emerged from pandemic stronger and better positioned to grow our leading market positions – Year-over-year earnings per share (EPS)1 growth of 43% – Accelerated return to lon
Slide 7: Financial Information and Premium Distribution
FINANCIAL INFORMATION PREMIUM DISTRIBUTION After-tax Adjusted Operating Earnings International 7% $1,254 million Group Disability Colonial Life 30% 18% Total Revenue $12 billion $9.6B Supplemental Operating Return on Equity (ROE) & Voluntary 16% 11.6% Closed Block 10% Group Life and AD&D Book Value
Slide 8: Unum: Helping the working world thrive
UNUM: Helping the working world thrive A DIVERSIFIED EMPLOYEE throughout life’s momentsTM BENEFITS LEADER Paid nearly Protecting $8 billion 45 million in benefits in 2022 workers and their families Serving Helped more than 181,000 348,000 companies individuals as they attract, protect and return to
Slide 9: The Market Need
THE MARKET NEED 63% 1 in 4 30% 1 in 10 live paycheck to workers will be covered by high on family leave at paycheck disabled deductible any given time 9
Slide 10: The Workforce Remains a Powerful Distribution Channel
THE WORKFORCE REMAINS A EMPLOYEE POWERFUL • Trust: 75% of employees trust DISTRIBUTION their employer to do what is right EMPLOYER CHANNEL • Access: 90% of Disability and 78% of Life Insurance is acquired • Attract and retain talent through the workplace Our unique position of • Workforce management
Slide 11: Doing the Right Thing the Right Way
DOING THE RIGHT THING THE RIGHT WAY Our purpose guides all that we do, supported by efforts in environmental, social and governance and recognized externally for our strong culture ENVIRONMENTAL Mitigating and adapting to how environmental matters, including climate change, will affect us and our im
Slide 12: Market Leadership and Industry Evolution
MARKET 1 US Disability 2 US Voluntary Benefits (Individual and Group) (Unum and Colonial Life) LEADERSHIP 1 UK Disability 4 US Life (Unum and Colonial Life) INDUSTRY • Group benefits consolidation over the last five years EVOLUTION • Growing competitor investments in Voluntary Benefits • Solutions a
Slide 13: Resilient Business Model
RESILIENT BUSINESS MODEL Core Operations Premium Book Value per Share (excluding AOCI) $8.68B $60.45 $8.49B $8.33B $8.38B $54.63 $51.54 $48.92 $7.91B $43.98 $42.45 $39.24 $7.47B $35.90 $7.19B $32.25 $33.12 $6.87B $6.54B $6.31B 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2013 2014 2015 2016 201
Slide 14: Capital Strength
CAPITAL STRENGTH Emerged from 2022 with 2023 Expected Actions record strength • Maintain ample capital flexibility for • 420% RBC executing on growth priorities • $1.6B holding company cash • Increase common stock dividend • Leverage 23.7% • Increase run rate of share repurchase to • Repurchased $20
Slide 15: Our Goals & Aspirations
OUR GOALS & ASPIRATIONS We will focus on key actions GROW OUR MITIGATE LTC RETURN to drive our strategy and CORE OVERHANG VALUE deliver market leading Exceed market growth Reduce capital demands Continue existing returns for our rates for our core through improving value dividend approach, sharehold
Slide 16: Growth Strategy
Growth Strategy Mike Simonds CHIEF OPERATING OFFICER 16
Slide 17: Key Messages for Core Operations
KEY MESSAGES FOR CORE OPERATIONS • Our markets are largely under-penetrated with strong demand for our products and services • Rapidly expanding HR technology and Unum's investment in innovation is enabling greater reach across and within employer groups • Our strategy is focused on growth, underpin
Slide 18: Growing Demand for Benefits
TOTAL MARKET PENETRATION GROWING DEMAND FOR 25% of small employers, and 40% of mid/large employers, say they are very likely to add new benefits in the next 2 years1 BENEFITS GROUP BENEFITS 80% 77% 90% EMPLOYEE DEMAND 80% 70% 71% 61% 66% 67% 61% 60% 56% 54% 46% 41% • 97% of millennials say insurance
Slide 19: Employers Rapidly Adopting Cloud HR Technology
EMPLOYERS RAPIDLY ADOPTING CLOUD HR TECHNOLOGY HR PLATFORMS (Employer-Centric) LEADING BENEFIT PLATFORMS (Broker-Centric) Market projected to grow EMPLOYER-SIZE MIX FOR PLATFORMS 10% per year through 2029 WITH UNUM’S HRCONNECT GROWTH FUELED BY... Smaller Employers Smaller Employers 30% 20,000 • Rapi
Slide 20: How We Will Win Across Our Businesses
HOW WE WILL WIN ACROSS OUR BUSINESSES US EMPLOYEE BENEFITS INTERNATIONAL Best bundled Best Best and most Differentiated Market-leading admin absence experience productive broker experience products and experience for employers sales force value add for employers and employees proposition 20
Slide 21: Building Innovation Competence
BUILDING INNOVATION COMPETENCE INVESTING IN CAPABILITIES INVESTING IN TALENT +100% Growing our tech and ...and setting up for success change teams... Internal Movement External Hires • 85% of Unum employees agree that the company provides them with opportunities for L&D, top 10% of all companies • 8
Slide 22: Disability Risk Management
US LTD PAID INCIDENCE & RECOVERIES DISABILITY RISK Indexed to 2018 MANAGEMENT ⏺ Recoveries ⏹ Paid Incidence Disability Market Share Unum + Unum 19% 32% Colonial Life UK #2 14% #2 21% 2018 2019 2020 2021 2022 2023 Outlook #3 12% #3 16% #4 11% #4 11% #5 10% #5 10% US GROUP DISABILITY Benefit Ratio1 Le
Slide 23: Efficiency Initiatives
INVESTMENTS WILL YIELD EFFICIENCY IMPROVEMENTS EFFICIENCY Adjusted Operating Expense Ratio1 INITIATIVES Investments in people and technology • Wage increases to keep pace with market 2018 2019 2020 2021 2022 2023 2024 2025 2026 • Staffing ahead of strong OE ratio expected to peak in 2023, increasing
Slide 24: Key Drivers of Growth
SALES OUTLOOK PREMIUM OUTLOOK Core Businesses 3-5% 8-12% growth growth KEY DRIVERS OF GROWTH • Market dynamics and 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 Outlook Outlook innovation accelerating top line ADJUSTED OPERATING ROE OUTLOOK INCOME OUTLOOK • Predictable loss ratios 10-13% 17-19%
Slide 25: Unum US Strategy
Unum US Strategy Chris Pyne GROUP BENEFITS Polly Nicholas UNUM SERVICES 25
Slide 26: Business Snapshot
2022 PREMIUM DISTRIBUTION BUSINESS SNAPSHOT 13.4% 7.4% Over 60,000 employers and 38 million policies in-force Voluntary Individual Disability Benefits Providing Value for our Customers 4.4% • Employee benefits provider serving all market sizes Dental & Vision • Broad portfolio of products and servic
Slide 27: How We Go to Market, How We Win
HOW WE GO TO MARKET HOW WE WIN Small Employers (Under 100 employees) • Sales and client management aligned by market size • 75 Small Business Sales Consultants • Specialized sales teams for select products • Digital-first bundled products enabled by broker or – Individual Disability, Large Voluntary
Slide 28: Investing in the Future: Unum US
INVESTING IN THE FUTURE: UNUM US • Enhance benefits packages to attract and • Investing in Dental retain talent – Complete claim re-platform: • Technology associated with administering Enhanced auto-adjudication benefits has become critical – Growing Unum Dental network • MyUnum coordinated enrollme
Slide 29: Delivering a unique advantage that is outpacing the competition
Delivering a unique advantage that is outpacing the competition Our technology strategy enables greater reach and more efficient service models UNUM HR CONNECT UNUM TOTAL LEAVE • Data Exchange • Enrollment Leave Landscape Employee Expectations • Eligibility • Billing • FMLA • Leave is second-most im
Slide 30: Key Drivers of Growth
SALES OUTLOOK PREMIUM OUTLOOK 4-6% Unum US 8-12% growth growth KEY DRIVERS OF GROWTH • Earnings demonstrate resilience throughout the pandemic 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 Outlook Outlook • Further, our success in these market segments with this set of capabilities allows us to
Slide 31: Colonial Life and Unum Voluntary Benefits Strategy
Colonial Life and Unum Voluntary Benefits Strategy Tim Arnold COLONIAL LIFE AND VOLUNTARY BENEFITS 31
Slide 32: Business Snapshot
2022 PREMIUM DISTRIBUTION Colonial Life Cancer and BUSINESS SNAPSHOT Critical Illness, Over 95,000 clients served and 4.5 million policies in-force 20.7% Providing Value for our Customers FOR EMPLOYEES FOR EMPLOYERS Accident, Sickness, and • Benefits education • Core enrollment Disability, • Protect
Slide 33: How We Go to Market, How We Win
HOW WE GO TO MARKET HOW WE WIN Colonial Life • National network of 12,000 independent agents • Comprehensive suite of relevant products and services committed to developing strong long-term relationships • Accelerating investment in tools to support agents, clients and policyholders • Nationwide net
Slide 34: Investing in the Future: Colonial Life
INVESTING IN THE FUTURE: COLONIAL LIFE • Gathr Product investments driving – Modern Enrollment Experience $250M+ of incremental value over – Benefits Administration System 3-year horizon from 2024-2026 Best bundled – Payroll – HCM LIFE ADMIN EXPERIENCE • Data Connectivity Strategic investments to mo
Slide 35: Key Drivers of Growth
SALES OUTLOOK PREMIUM OUTLOOK 8-12% Colonial Life growth 1-3% growth KEY DRIVERS OF GROWTH • Record earnings in 2022 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 Outlook • Earned premium 1% above Outlook year-end 2019 ADJUSTED OPERATING ROE OUTLOOK • Strong digital tool adoption by agents, INCO
Slide 36: Unum International Strategy
Unum International Strategy Mark Till UNUM INTERNATIONAL 36
Slide 37: Business Snapshot
2022 PREMIUM DISTRIBUTION BUSINESS SNAPSHOT Poland 12.5% Over 19,000 employers and 2.5 million people insured Supplemental Providing Value for our Customers Group Long- 15.9% term FOR EMPLOYEES FOR EMPLOYERS Disability • Strong claims & rehab proposition • Only specialist in Group Risk 52.4% • Marke
Slide 38: How We Go to Market, How We Win
HOW WE GO TO MARKET HOW WE WIN Core Segment (Under 500 employees) • Strongly intermediated UK market (sales, admin and claim). Distribution through large-scale 'Employee Benefit Consultancies' • Innovative products with tangible service add-ons (EBC’s), mid-size brokers and extensive network of smal
Slide 39: Investing in the Future: Unum UK & Unum Poland
INVESTING IN THE FUTURE: UNUM UK & UNUM POLAND UNUM UK UNUM POLAND DIFFERENTIATED BROKER EXPERIENCE BEST & MOST PRODUCTIVE • Segmented omni-channel broker service SALES FORCE • Structured broker experience change program • Scale up Group business broker channel • Enhanced online services for brokers
Slide 40: Key Drivers of Growth
SALES OUTLOOK2 PREMIUM OUTLOOK2 5-7% Unum International growth 5-7% KEY DRIVERS OF growth GROWTH • 2022 earnings at highest level in 10 years, driven by top-line growth and UK inflation 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 tailwind1 Outlook Outlook • UK 2023 top-line growth driven by st
Slide 41: Key Takeaways
Key Takeaways Mike Simonds CHIEF OPERATING OFFICER 41
Slide 42: Deliver Products and Services
DELIVER Market-leading growth and returns in our core business PRODUCTS AND • Disability & Absence Management SERVICES • Life OUR CURRENT • Supplemental Health That help the FOCUS • Dental & Vision working world thrive throughout Building expanded competencies life’s moments at the workplace • Medic
Slide 43: Key Messages for Core Operations
KEY MESSAGES FOR CORE OPERATIONS • Sustained demand for our products and services at the workplace • Technology enabling greater reach and more efficient service models • Market-leading positions with strong track record of value creation for clients • Advantaged business model through business cycl
Slide 44: Q&A
Q&A Rick, Mike, Chris, Polly, Tim, Mark 44
Slide 45: Intermission
Intermission see UNMUMGROUP 45
Slide 46: Investments
Investments Martha Leiper CHIEF INVESTMENT OFFICER 46
Slide 47: Key Messages
KEY MESSAGES Our resilient • Higher rates contributing to an improved book yield investment portfolio, • Portfolio size allowing us to be selective and pursue constructed to relative value opportunities support our liabilities, is aided by • Execution of core-tail investment strategy and interest ra
Slide 48: Portfolio Snapshot
ASSET ALLOCATION1 PORTFOLIO SNAPSHOT Cash Commerical Alternatives Mortgage Loans 3% 4% Constructed to support our liabilities 6% Mortage Backed Securities Investment Approach 2% Corporates • Lack of disintermediation risk facilities a through-the-cycle approach Gov’t 3% 54% • Active management of po
Slide 49: Well-Diversified Fixed-Maturity Portfolio Specialized in BBB
WELL-DIVERSIFIED FIXED-MATURITY PORTFOLIO SPECIALIZED IN BBB Fixed Maturity Securities $37.8B (Book Value) • Concentration in corporate credit aligns < BBB- with core competency 5.7% A • Underweight to more cyclical industries 27.1% • High yield exposure at historically low level BBB 23.8% • Watch-l
Slide 50: Opportunities in Other Asset Classes
OPPORTUNITIES IN OTHER ASSET CLASSES Alternatives & High Yield Commercial Office 12.0% Mortgage Loan 17.4% 10.0% Property Type 8.0% Distribution Industrial Apartment 30.6% Alternatives 28.3% 6.0% 4.0% High Yield Retail 2.0% 21.9% 0.0% Other 2017 2018 2019 2020 2021 2022 1.8% • High yield has decline
Slide 51: Credit Outlook: Demonstrated Track-Record
CREDIT OUTLOOK: Portfolio consistently outperforms Moody’s default benchmark DEMONSTRATED TRACK-RECORD Simulated a moderate recession (%) in our most recent portfolio stress test • Haircut individual credit financial forecasts • Evaluated individual credit metrics (post-stress) • Identified and revi
Slide 52: Credit Outlook: Tool Set to Calibrate and Monitor Trends
Tracking changes in credit quality CREDIT OUTLOOK: 1,200 300 1,000 200 TOOL SET TO 800 100 CALIBRATE AND 0 600 -100 MONITOR TRENDS 400 -200 200 -300 0 -400 • Fewer IG downgrades (to HY) Q3:19 Q4:19 Q1:20 Q2:20 Q3:20 Q4:20 Q1:21 Q2:21 Q3:21 Q4:21 Q1:22 Q2:22 Q3:22 Q4:22 despite heavy BBB exposure Pot
Slide 53: Closed Block Strategy
Closed Block Strategy Steve Mitchell CLOSED BLOCK 53
Slide 54: Key Messages
KEY MESSAGES Focused strategy on Improve Value Reduce the Increase Predictability Creation Footprint of Outcomes reducing the footprint and capital demands of the • Actively managing the capital demands through multiple actions closed block • Ongoing rate increase program and active risk management
Slide 55: Closed Block Overview
CLOSED BLOCK OVERVIEW Unum’s Closed Block segment consists of group and individual long-term care, individual disability, and a de minimis block of other insurance products no longer actively marketed Closed Long Term Care Closed Disability Block (LTC) Block (included in All Other) LTC Block: 2022 K
Slide 56: Progress working with regulators on LTC rate increases
We continue to make meaningful progress, working with regulators, to obtain approval for LTC rate increases $4.5 To date, have achieved a total net 4.2 4.2 Approved present value (NPV) of ~$4.0B in rate $4.0 increase approvals 3.8 4.0 $3.5 Since 2018 we have achieved ~$1.6B NPV of approvals 3.4 $3.0
Slide 57: Enabling Risk Management through changes in LTC claim process
Enabling Risk Management through changes in LTC claim process Unified data and intelligence to fuel interactions and flag intervention DATA & INTELLIGENCE PRE-CLAIM ON CLAIM Wellness interventions Enhanced data and aimed at longer term Paid Caregiver technology to Unpaid Caregiver manage risk, impac
Slide 58: Recent IDI transaction shows a market for risk transfer
Recent IDI transaction shows a willingness, a capability, and a market for risk transfer Committed to pursuing additional risk transfer strategies provided the economics make sense IDI CLOSED BLOCK • Have continued to grow our capabilities and actively REINSURANCE seek partners in the risk transfer
Slide 59: Our LTC investment strategy and hedging program
Our LTC investment strategy allows us to capitalize on alternative investments and market conditions to manage interest rate risk Our investment strategy aims to take advantage of We’ve taken measured steps to advance our duration and the illiquid nature of LTC cash flows hedging program during 2022
Slide 60: Strong capital and statutory reserve positions behind LTC
Strong capital and statutory reserve positions behind LTC provide meaningful flexibility and protection As of December 31, 2022, we have recognized As of December 31, 2022, total statutory reserves $1.2B of PDR balance exceed GAAP reserves by nearly 20%2 • Improved interest rates continue to reduce
Slide 61: Financial Performance
Financial Performance Steve Zabel CHIEF FINANCIAL OFFICER 61
Slide 62: Key Messages
KEY MESSAGES Strong business fundamentals experienced in 2022 are expected to continue in 2023, driving earnings growth, capital generation, and ability to expand capital return and fully recognize PDR by year-end. FINANCIAL OUTLOOK CAPITAL PLAN • Core operations premium growth back in • Stable capi
Slide 63: Outlook
Outlook see UNMUMGROUP 63
Slide 64: Outlook and Long-Term Expectations
OUTLOOK AND LONG-TERM EXPECTATIONS 2020 2023 LONG-TERM OUTLOOK OUTLOOK EXPECTATION Core Operations Premium 4-6% 3-5% 4-7% Consolidated After-tax Adjusted Operating Earnings1 0-2% 6-9% 4-7% Adj. Operating Earnings Per Share1 4-7% 8-12% 8-10% • 2023 Core Operations expected premium growth is within th
Slide 65: Considering LDTI
CONSIDERING LDTI Directional Impact to Earnings DAC Benefit Net MA JOR LDTI OUTLOOK CONSIDERATIONS BY LINE Amortization Ratio Earnings Impact Impact Impact • Reserve margin runoff Voluntary Products • Longer DAC amortization period (Colonial Life & Unum US) • Buffered claims volatility • No DAC or m
Slide 66: 2023 Segment Outlooks
2023 SEGMENT OUTLOOKS Sales Premium Adjusted Benefit Ratios Growth Growth Operating ROE Unum US Unum US 8-12% 4-6% 16-18% Group Disability 64-67% Unum International Group Life and AD&D 73-76% 2-5% 2-4% 12-14% ($) Individual Disability 48-52% Colonial Life 8-12% 1-3% 20-22% Voluntary Benefits 40-43%
Slide 67: Capital Management
Capital Management see UNMUMGROUP 67
Slide 68: Capital Generation
CAPITAL GENERATION SOURCES OF CAPITAL ($M) US Statutory Earnings1 $950 – 1,050 • The primary sources of our holding company International Dividends $50 – 100 cash are dividends from our US traditional insurance companies Services Agreements $100 – 150 • Our statutory earnings provide for strong Capi
Slide 69: 2023 Expectations for Cash Use
2023 EXPECTATIONS FOR CASH USE Unum’s capital position at the end of 2022 provides immense financial flexibility to fully recognize the PDR and begin returning more capital to shareholders 2023 OUTLOOK 5-YEAR HORIZON LTC Capital Contributions $800-900M None expected Dividends $250-275M Expected to i
Slide 70: Capital Targets & Priorities
CAPITAL TARGETS & PRIORITIES LONG-TERM 2022 2023 YEAR-END TARGET RESULT OUTLOOK Risk-Based Capital Ratio >350% 420% ~400% Our capital target Holding Company >1x fixed costs1 metrics remain constant $1.6B ~$1.5B Liquidity (~$450M) and support an “A” financial strength rating Leverage2 <30% 23.7% ~23%
Slide 71: Q&A
Q&A Rick, Martha, Steve M, Steve Z, Mike 71
Slide 72: Closing Comments
Closing Comments Rick McKenney CHIEF EXECUTIVE OFFICER 72
Slide 73: Appendix: LTC Demographics, Non-GAAP Reconciliations
Appendix: LTC Demographics Non-GAAP Reconciliations 73
Slide 74: LTC Block Demographic Profile
LTC BLOCK DEMOGRAPHIC PROFILE Employee-Paid Employer-paid Total • Our LTC block is DEMOGRAPHICS PROFILE (As of 9/30/2022) ILTC GLTC GLTC LTC Block predominately group- Average issue date 2002 2002 2005 2003 sponsored plans Number of policies/lives (approx.) 126,000 318,000 484,000 928,000 • These gr
Slide 75: Reconciliation of Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES December 31 December 31 December 31 December 31 December 31 2022 2021 2020 2019 2018 (in millions) per share (in millions) per share (in millions) per share (in millions) per share (in millions) per share Total Stockholders' Equity, As Reported $ 9,197.5
Slide 76: Reconciliation of Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES After-Tax Adjusted Adjusted Operating Return Average Allocated Equity1 Operating Income on Equity Year Ended December 31, 2022 Unum US $ 767.2 $ 4,706.9 16.3% Unum International 156.7 772.7 20.3% Colonial Life 295.7 1,549.1 19.1% Core Operating Segments
Slide 77: Reconciliation of Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Year Ended December 31 2022 (in millions) Net Income $ 1,314.2 Excluding: Net Investment Loss (net of tax benefit of $3.5) (12.2) Amortization of the Cost of Reinsurance (net of tax benefit of $13.4) (50.4) Net Reserve Change Related to Reserve Assumptio