Unum Group · NYSE:UNM
Unum — Investor Day (December 2018)
89 slides from Unum's investor day presentation, Dec 12, 2018
Slide 1: 2019 Outlook Meeting
2019 Outlook Meeting December 12, 2018 | New York 1
Slide 2: Safe Harbor Statement and Non-GAAP Financial Measures
Safe Harbor Statement and Non-GAAP Financial Measures Certain information in this presentation 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 rel
Slide 3: Today's Participants
Today’s Participants Rick McKenney President and Chief Executive Officer Jack McGarry Executive Vice President and Chief Financial Officer Tom White Senior Vice President, Investor Relations Business Segment Leaders Mike Simonds President and Chief Executive Officer, Unum US Tim Arnold President and
Slide 4: Agenda
Agenda Overview Financial Performance 2019 Outlook State of the Business ● Unum US ● Colonial Life ● Unum International ● Closed Block Closing Comments Questions and Answers Appendix 4
Slide 5: Overview
Overview @e e UNUMGROUP
Slide 6: Introduction
Overview INTRODUCTION A trusted provider of employee benefits Leading positions in our markets Strong margins and a growing core business Strong capital generation and financial flexibility Disciplined operator with a reputation of consistency * Excludes Corporate; Last Nine Months Ending Se
Slide 7: A Focused Strategy
Overview A FOCUSED STRATEGY 7
Slide 8: A Leading Franchise
Overview A LEADING FRANCHISE 8
Slide 9: Delivering for Our Customers
Overview DELIVERING FOR OUR CUSTOMERS 9
Slide 10: Advancing Our Strategic Growth Plans
Overview ADVANCING OUR STRATEGIC GROWTH PLANS Product line expansion ● Dental and Vision ● Stop Loss Geographic expansion ● Acquisition of Pramerica Życie ● Dental and Voluntary in UK Premium income for our core businesses ● Growth driven by sales and strong persistency * Last Twelve Months En
Slide 11: 2018 Outlook Update
Overview 2018 OUTLOOK UPDATE Adjusted operating earnings per share growth trending toward higher end of our 17% to 23% outlook Annualized adjusted operating ROE of over 13% (over 18% in core businesses) Capital deployment – acquisitions, share repurchase, dividend increase Active year managi
Slide 12: 2019 Execution Strategy
Overview 2019 EXECUTION STRATEGY 12
Slide 13: Our Approach to Digital
Overview OUR APPROACH TO DIGITAL We are accelerating our digital pace Enhancing the Expanding our Enabling a growth customer experience footprint platform Journey-driven Integrations with Development of digital approach for benefit administration digitally-enabled customers platforms sales and
Slide 14: 2019 Outlook Summary
Overview 2019 OUTLOOK SUMMARY Outlook Adjusted operating earnings per share growth 4% to 7% Continued solid core business segment premium growth and return on equity Maintaining strong margins and cash flow generation Capital deployment remains steady Continued focus on effectively managin
Slide 15: Closing Comments
Overview CLOSING COMMENTS Consistent results, positioned for the future $42.92 Leading positions in attractive markets Strong core operations Financial flexibility Resilient franchise * Last Nine Months Ending September 30, 2018 15
Slide 16: Financial Performance
Financial Performance @e e UNUMGROUP
Slide 17: 2018 – A Dynamic Year
Financial Performance 2018 – A DYNAMIC YEAR Strong core business segment performance overshadowed by LTC concerns LTC addressed with reserve update, cash contributions, and increased disclosure of our block demographics, reserve assumptions and sensitivities Adjusted operating EPS growth expec
Slide 18: 2018 Outlook Update
Financial Performance 2018 OUTLOOK UPDATE 4Q 2018 operating results, including long-term care, tracking in-line with our outlook and consensus Full year 2018 adjusted operating earnings per share growth tracking toward upper end of our 17% to 23% outlook range (excluding LTC charge) Unum Polan
Slide 19: Drivers of Performance
Financial Performance DRIVERS OF PERFORMANCE * Excluding 3Q 2018 LTC reserve charge 19
Slide 20: Strong Core Business Premium Growth
Financial Performance STRONG CORE BUSINESS PREMIUM GROWTH In millions of US dollars and British pounds, as indicated 20
Slide 21: Stable Benefits Experience
Financial Performance STABLE BENEFITS EXPERIENCE † Excluding UDB Reserve Increase * Last Nine Months Ending September 30, 2018 21
Slide 22: Excellent Adjusted Operating Return on Equity
Financial Performance EXCELLENT ADJUSTED OPERATING RETURN ON EQUITY 22
Slide 23: Strong Statutory Earnings Drives Free Cash Flow
Financial Performance STRONG STATUTORY EARNINGS DRIVES FREE CASH FLOW † Our traditional U.S. life insurance companies are Provident Life and Accident Insurance Company, Unum Life Insurance Company of America, The Paul Revere Life Insurance Company, Colonial Life & Accident Insurance Company, Provide
Slide 24: Topics
Financial Performance Topics Long-term Care Capital Management Investment Portfolio FASB Long Duration Targeted Improvements 24
Slide 25: Long-Term Care
Financial Performance LONG-TERM CARE Actions taken in 2018: ● Updated reserve assumptions to reflect current trends and relevant industry data ● Capital contributions ● Refreshed our rate increase request strategy ● Active voice in the industry Provided substantial disclosure to assist investors
Slide 26: Capital Management
Financial Performance CAPITAL MANAGEMENT Our capital positions remain in good shape ● 2018 YE estimates: Risk-Based Capital 370% to 375% Holding Company Cash $550 to $600 million Our targets for capital metrics going forward include: ● Maintain RBC above 350% ● Maintain holding company cash abov
Slide 27: Capital Management: Strong, Consistent Sources of Capital
Financial Performance CAPITAL MANAGEMENT Strong, Consistent Sources of Capital Our sources of holding company cash remain healthy ● Dividends generated by our US traditional insurance companies ● The ongoing benefits of tax reform to our statutory earnings ● Services agreements ● Dividends from th
Slide 28: Capital Management
Financial Performance CAPITAL MANAGEMENT 28
Slide 29: Capital Management Summary Points
Financial Performance CAPITAL MANAGEMENT Summary Points Total Adjusted Capital remains strong Much of the tax reform and RBC factor impacts have been non-economic Much of the tax reform-related impacts are reflected in our year-end 2018 capital metrics 2019 impacts are expected to be lower t
Slide 30: Investment Portfolio
Financial Performance INVESTMENT PORTFOLIO UNUM INVESTMENT PORTFOLIO* Portfolio Management Strategy Tax- Advantaged Cash & Cash Prtnrshp. 0.2% Equiv. 2.8% The portfolio is designed to perform Commercial Other Mortgage Investments through cycles over the long term Loans 5.0% 2.0% Municipals 4.6%
Slide 31: Investment Portfolio
Financial Performance INVESTMENT PORTFOLIO Excellent default record in 2008-2010 recession Active management of High Yield exposure – downgrades offset by upgrades in 2018 Favorable default experience in 2015-2016 during “energy crisis” ● Manageable impact from ratings migration ● Current ener
Slide 32: FASB Long-Duration Targeted Improvements
Financial Performance FASB LONG-DURATION TARGETED IMPROVEMENTS The new standard was recently finalized and we continue to evaluate; implementation scheduled for 1Q 2021 The new standard does not affect the economics of our business, the cash flows, or statutory accounting No modification for d
Slide 33: 2019 Outlook
2019 Outlook @e e UNUMGROUP
Slide 34: Key Messages
2019 Outlook KEY MESSAGES Expect continued solid performance from our US core business segments − Good premium growth from disciplined sales growth and strong persistency − Stable benefits experience − Continued investments in growth and customer experience Unum International − Brexit impacting
Slide 35: Outlook for 4% to 7% Growth
2019 Outlook OUTLOOK FOR 4% TO 7% GROWTH * Growth is based off 2018 estimated adjusted operating earnings per share excluding the 3Q LTC reserve increase 35
Slide 36: 2019 Capital Plans
2019 Outlook 2019 CAPITAL PLANS Strong operating performance and tax reform expected to drive strong statutory earnings and cash flow Maintain RBC Ratio above 350% Total adjusted capital at stronger levels Maintain holding company cash above 1x fixed charges Continue current pace of share bu
Slide 37: An Outlook with Continued Growth
2019 Outlook AN OUTLOOK WITH CONTINUED GROWTH ** † 2018 Base excludes the impact of 3Q LTC reserve charge * Consolidated After-Tax Adjusted Operating Earnings including Corporate Segment 37
Slide 38: Closing Comments
2019 Outlook CLOSING COMMENTS 4% to 7% Operating EPS Growth Generally consistent operating trends ●Stable margins in core business segments ●Challenging UK business environment ●Reduced drag from interest rates Good leverage over time to stronger economy, higher wage inflation and rising inter
Slide 39: State of the Business
State of the Business @e e UNUMGROUP
Slide 40: Unum US
Unum US @e e UNUMGROUP
Slide 41: Unum US Business Snapshot
Unum US BUSINESS SNAPSHOT Singular focus on employee benefits at the worksite Broad set of products; top 5 market share in each of: ● Group Long-Term and Short-Term Disability ● Group Life and AD&D ● Voluntary Benefits ● Individual Disability Benefits Growing Dental and Vision platform Emerg
Slide 42: Unum US Business Strategy Overview
Unum US BUSINESS STRATEGY OVERVIEW 42
Slide 43: Unum US Key Messages
Unum US KEY MESSAGES We continue to generate strong and consistent returns through disciplined distribution, underwriting and risk management In the context of a declining expense ratio, we are investing in capabilities to drive long-term growth, efficiency and customer experience Near-term ea
Slide 44: Disciplined Underwriting
Unum US DISCIPLINED UNDERWRITING 44
Slide 45: Investments & Expense
Unum US INVESTMENTS & EXPENSE Favorable trend in the operating expense ratio Baseline expenses to “run” the business are flat as lean and automation take hold Investment spending increasing over the period, focused on: ● Client experience ● Dental & Vision platform ● New Supplement & Voluntary
Slide 46: Focus on Client Experience
Unum US FOCUS ON CLIENT EXPERIENCE Building digital transformation based on customer journeys Simplifying and harmonizing product portfolio Investing in brand that * Last Nine Months Ending September 30, 2018 promises simplicity, expertise and empathy 46
Slide 47: Growing Dental Platform
Unum US GROWING DENTAL PLATFORM Strong outlook for our US dental franchise with Unum and Colonial Life brand and distribution leverage Dental sales and premium increases expected to contribute: ● 3% to our 2019 Unum US sales growth ● 1% to 2020 earned premium growth Measurable adjusted before
Slide 48: New Supplemental & Voluntary Product Enhancements
Unum US NEW SUPPLEMENTAL & VOLUNTARY PRODUCT ENHANCEMENTS New Voluntary Accident & Critical Illness products designed for Group packaging New Individual Disability Product for middle market earners utilizing digital acquisition process Expanded Medical Stop Loss offering ● Data-focused strateg
Slide 49: Large & Mid-Sized Employer Solutions
Unum US LARGE & MID-SIZED EMPLOYER SOLUTIONS Leave Management Services Integration with SaaS HCM 1st platform launched January 2018 (Workday) ● Evidence of insurability from days to seconds ● Payment with one click ● Real-time access to leave data ● 80% close ratios for prospects 2019: $1B+ in p
Slide 50: Short & Mid-Term Earnings Growth
Unum US SHORT & MID-TERM EARNINGS GROWTH Net investment income is anticipated to pressure 2019 earnings: ● Efficient capital management leads to lower asset balances ● Lower yields expected on these asset balances ● Favorable miscellaneous investment income unlikely to persist In 2019, we antici
Slide 51: Unum US 2019 Financial Outlook
Unum US 2019 FINANCIAL OUTLOOK 51
Slide 52: Colonial Life
Colonial Life @e e UNUMGROUP
Slide 53: Colonial Life Business Snapshot
Colonial Life BUSINESS SNAPSHOT Market Share3 ● #2 in STD, Cancer, and UL & WL ● #3 in Accident ● #4 in Hospital Indemnity ● #5 in Critical Illness Size and Scale ● Over 85,000 clients served ● Over 4 million policies in force ● Over 14,000 career agents and 17,000 brokers under contract 1 Last
Slide 54: Colonial Life Strategy
Colonial Life STRATEGY * Protect 5 million of America’s workers and their families by 2020 GOALS & Soci 4 ASPIRATIONS | * Be known as the company that provides simple, modern, personal benefit experiences * Grow and leverage our unique distribution to reach more employers and individuals Reach custo
Slide 55: Colonial Life Key Messages
Colonial Life KEY MESSAGES Remain confident in our strategy and ability to deliver on our business plan given recent performance and market growth opportunities Colonial Life’s sales and premium growth expectations will continue to outpace the market while yielding profit margins above our peer
Slide 56: 2019 Key Priorities
Colonial Life 2019 KEY PRIORITIES 56
Slide 57: Territory Expansion
Colonial Life TERRITORY EXPANSION We continue to expand our geographic footprint to more effectively reach customers, opening 3 new territories in 2018 We expect to continue adding 2-4 new territories per year for the foreseeable future to drive longer-term growth 57
Slide 58: Capitalizing on New Dental Offering
Colonial Life CAPITALIZING ON NEW DENTAL OFFERING Launched PPO product in 40 states late-March ● Currently 46 states (all 50 states soon) Provides our distribution a uniquely designed, highly demanded core benefit Strong initial results, accounting for over 5% of YTD* sales Opening doors on
Slide 59: 2019 Digital Capabilities
Colonial Life 2019 DIGITAL CAPABILITIES Customer Experience – investing in digital capabilities to simplify the experience for consumers plan administrators and our agents ●New mobile app allowing our agents to manage all aspects of the sales process up to the time of enrollment ●Increasing adopti
Slide 60: Operating Efficiency
Colonial Life OPERATING EFFICIENCY 60
Slide 61: Premium Growth
Colonial Life PREMIUM GROWTH Colonial Life will continue to deliver strong premium income growth in 2019 driven primarily by sales growth and stable persistency levels Over the last 3 years, Colonial Life’s sales growth rate has outpaced the industry growth rate1; premium growth has been more th
Slide 62: Colonial Life Summary
Colonial Life SUMMARY Colonial Life continues to deliver consistent results with good growth trends and very strong margins We continue to invest in our future growth: ● New, or enhanced, products and offerings ● New territory expansion ● New and advanced capabilities ● Improved customer experie
Slide 63: Colonial Life 2019 Financial Outlook
Colonial Life 2019 FINANCIAL OUTLOOK 63
Slide 64: Unum International
Unum International @e e UNUMGROUP
Slide 65: Unum International Business Snapshot
Unum International BUSINESS SNAPSHOT Primary Products ● Group Income Protection ● Group Life ● Supplementary and Voluntary products (Group Critical Illness, Dental, Individual Life) Market Share ● #1 Group Income Protection ● #5 Group Life ● #3 Group Critical Illness ● Top 3 UK Dental business ●
Slide 66: Unum International Business Strategy Overview
Unum International BUSINESS STRATEGY OVERVIEW 66
Slide 67: Unum International Key Messages
Unum International KEY MESSAGES Brexit negotiations continue to generate uncertainty in the UK economy; our baseline projection anticipates an orderly Brexit with economic conditions similar to 2018 in the UK and also in Poland We continue to monitor and adapt our plans to respond to external ch
Slide 68: Introduction to Unum Życie (Poland)
Unum International INTRODUCTION TO UNUM ŻYCIE (POLAND) Purchase of Pramerica Życie completed on October 1, 2018 Business being rebranded as Unum Poland Poland is an attractive economy, with significant growth prospects in the employee benefits market Business provides individual and group fi
Slide 69: Operating Environment
Unum International OPERATING ENVIRONMENT 69
Slide 70: 2019 Key Priorities
Unum International 2019 KEY PRIORITIES UK POLAND Continue to focus on being easy to do business with by Complete the integration of the improving our service, simplifying our customer journeys business, including rebranding and accelerating the digitalization of our business and IT separation
Slide 71: Unum International 2019 Financial Outlook
Unum International 2019 FINANCIAL OUTLOOK * 2019 Earnings and ROE are adversely impacted by one-off Poland acquisition costs 71
Slide 72: Closed Block
Closed Block @e e UNUMGROUP
Slide 73: Closed Block Business Snapshot
Closed Block BUSINESS SNAPSHOT Legacy Discontinued Blocks Closed Disability Block ● Mature block with sales discontinued in mid-1990s ● Block largely in claim status ● Average attained age of ALR is 60 Closed LTC Block ● Discontinued ILTC sales in 2009 & GLTC in 2011 ● Largely group plans o 52%
Slide 74: Closed Block Financial Analysis and Operational Effectiveness
Closed Block FINANCIAL ANALYSIS Use new experience analysis tools to * Continue pursuit of justified * Continue to implement manage the blocks rate increases structural changes to enhance * Continue to build out LTC and IDI * Stratify rate requests and financial flexibility financial platforms enhan
Slide 75: Closed Block 2019 Key Priorities
Closed Block 2019 KEY PRIORITIES Our strategy for the Closed Block remains unchanged and we are making strong progress in our focus areas ● Our near-term focus will be on executing LTC rate increases, while also continuing to enhance our day-to-day operational effectiveness and financial analysis by
Slide 76: Long-Term Care Demographics Profile
Closed Block LONG-TERM CARE DEMOGRAPHICS PROFILE (as of 9/30/2018) Our LTC block is predominantly group-sponsored plans These group policies generally have higher lapse rates and less rich benefits (less lifetime benefits, lower avg. daily benefits and less inflation protection) 76
Slide 77: Long-Term Care Morbidity Improvement
Closed Block LONG-TERM CARE MORBIDITY IMPROVEMENT Our morbidity assumption is 1.0%, supported by our actual experience of 3.2% improvement over 10-year period It is important to assess a company’s underlying morbidity assumption relative to its actual experience We believe our assumption of mo
Slide 78: 2018 Rate Increase Strategy Update
Closed Block 2018 RATE INCREASE STRATEGY UPDATE The success rate assumed in our 2018 rate increase filings is informed by our historical experience Our 2018 rate increase program focuses on GLTC policies California filings are important for achieving our target 78
Slide 79: Closed Individual Disability Block
Closed Block CLOSED INDIVIDUAL DISABILITY BLOCK Northwind Securitization The Northwind securitization continues to perform as expected Non-recourse debt currently $155 million, with payoff expected in 2021 Cash flows in excess of Northwind debt service available as dividend to Unum Group 79
Slide 80: Closed Block Summary
Closed Block SUMMARY Earnings for the Closed Block for 2019 are expected in-line to slightly higher than 2018 Net investment income will create quarterly volatility for this business segment The Closed Disability Block continues to wind down as expected, highlighting the predictability of this
Slide 81: Closed Block 2019 Financial Outlook
Closed Block 2019 FINANCIAL OUTLOOK 81
Slide 82: Closing Comments
Closing Comments @e e UNUMGROUP
Slide 83: Key Takeaways
Closing Comments KEY TAKEAWAYS We remain confident in our businesses, our strategy, and our financial outlook Our core businesses are delivering strong operating results, excellent margins and profitability, and significant cash generation We continue to actively manage the legacy LTC block
Slide 84: Questions and Answers
Questions and Answers @e e UNUMGROUP
Slide 85: Appendix: Reconciliation of Non-GAAP Financial Measures
Appendix Reconciliation of Non-GAAP Financial Measures 85
Slide 86: Reconciliation of Non-GAAP Financial Measures
Appendix RECONCILIATION OF NON-GAAP FINANCIAL MEASURES 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 w
Slide 87: Reconciliation of Non-GAAP Financial Measures
Appendix RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Annualized After-tax Adjusted Average Adjusted Operating Operating Income Allocated Equity(1) Return (in millions) on Equity Nine Months Ended September 30, 2018 Unum US $ 606.1 $ 4,251.9 Unum UK 67.6 632.5 Colonial Life 197.5 1,444.1 Core Opera
Slide 88: Reconciliation of Non-GAAP Financial Measures
Appendix RECONCILIATION OF NON-GAAP FINANCIAL MEASURES September 30 December 31 2018 2017 2016 2015 2014 2013 (in millions) (per share) (in millions) (per share) (in millions) (per share) (in millions) (per share) (in millions) (per share) (in millions) (per share) Total Stockholders' Equity, As Rep
Slide 89: Reconciliation of Non-GAAP Financial Measures
Appendix RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Nine Months Ended September 30, 2018 Year Ended December 31, 2017 (in millions) per share* (in millions) per share* Net Income $ 274.3 $ 1.24 $ 994.2 $ 4.37 Excluding: Net Realized Investment Gain (net of tax expense (benefit) of $(2.2); $15.0)