Unum Group · NYSE:UNM
Unum — UnumProvident — Investor Day (October 2005)
199 slides from Unum's investor day presentation, Oct 17, 2005
Slide 1: 2005 Investor Meeting October 17, 2005
2005 Investor Meeting October 17, 2005
Slide 2: Safe Harbor Statement
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Statements in this meeting regarding the business of UnumProvident Corporation which are not historical facts are “forward-looking statements” that involve risks and uncertainties. For a discussion of such risks and
Slide 3: Welcome
Welcome
Slide 4: Agenda
Agenda Welcome Tom White New Reporting Format CEO State of the Company Address Tom Watjen The New Paradigm Joe Zubretsky Financial Goals Performance and Capital Management Investment and Interest Rate Management Regulatory Update LUNCH The Business Reviews U.S. Brokerage Kevin McCarthy Group Income
Slide 5: The New Reporting Format
The New Reporting Format
Slide 6: Business Profile
Business Profile UnumProvident Group U.S. Brokerage Operations U.K. Operations Colonial GENEX #1 Group Income Protection #1 Individual Income Protection #2 Voluntary Benefits #3 Group Life #3 Group LTC #1 Group Income Protection #2 Group Life #2 Group Critical Illness #3 Voluntary Benefits #3 Case M
Slide 7: The New Reporting Format: Why re-segment?
The New Reporting Format Why re-segment? We believe the new segments will better align our external reporting with the internal management of our business lines, in accordance with SFAS 131. The growth of our UK business, Unum Limited, suggests that it be reported separately. Provide better transpar
Slide 8: The New Reporting Format
The New Reporting Format The New Reporting Format Creation of a Unum Limited operating segment. Our UK lines are currently combined with our US business lines and reported in the Income Protection and Life and Accident segments. Prior to this change, the US Group Income Protection and Group Life res
Slide 9: New Segments
The New Reporting Format New Segments U.S. Brokerage Unum Limited (UK) Colonial (No Change) Closed Disability Block (No Change) Other (Former Other segment plus Disability Management Services from Income Protection) Corporate (No Change)
Slide 10: U.S. Brokerage Sub-Segment Detail
The New Reporting Format U.S. Brokerage – Sub-Segment Detail Reported: Includes: Group Income Protection Long-term Income Protection Short-term Income Protection Reported: Includes: Group Life Group Life AD&D and Special Risk Reported: Includes: Supplemental and Voluntary Individual Income Protectio
Slide 11: Premium Income
The New Reporting Format Premium Income Year 2005 2003 2004 1Q 2Q U.S. Brokerage Group Income Protection $2,662.6 $2,644.7 $635.4 $636.8 Group Life and AD&D 1,662.4 1,623.4 369.7 371.5 Supplemental and Voluntary 1,057.4 1,153.5 304.1 309.0 Total $5,382.4 $5,421.6 $1,309.2 $1,317.3 Unum Limited 477.0
Slide 12: Premium Income Distribution 2Q-2005
New Reporting Format Premium Income Distribution 2Q-2005 Other 0.1% CDB 12.0% Unum Limited 10.0% Colonial 10.1% Total Company $1,940.0 mm U.S. Brokerage 67.8% Group Life & AD&D 28.2% Supplemental and Voluntary 23.5% U.S. Brokerage $1,317.3 mm Group Income Protection 48.3%
Slide 13: Before-tax Operating Income
The New Reporting Format Before-tax Operating Income Year 2005 2003 2004 1Q 2Q U.S. Brokerage Group Income Protection $24.0 $48.8 $3.5 $20.1 Group Life and AD&D 222.7 209.0 55.5 47.9 Supplemental and Voluntary 216.1 178.5 41.5 43.4 Total $462.8 $436.3 $100.5 $111.4 Unum Limited 112.0 151.3 47.3 41.3
Slide 14: Balance Sheet – 6/30/2005
The New Reporting Format Balance Sheet – 6/30/2005 $millions Total Investments Assets Reserves U.S. Brokerage Group Income Protection $9,548.2 $11,071.7 $8,359.4 Group Life and AD&D 2,460.2 2,979.1 1,645.4 Supplemental and Voluntary 4,330.3 6,177.7 3,626.9 Total 16,338.7 20,228.5 13,631.7 Unum Limit
Slide 15: Distribution of Total Assets 2Q-2005
New Reporting Format Distribution of Total Assets 2Q-2005 Corporate Other 15.7% CDB 29.7% Unum Limited Colonial 7.4% 4.2% U.S. Brokerage 43.0% Total Company $52.4 billon Group Life & AD&D 15.1% Supplemental and Voluntary 26.5% U.S. Brokerage $20.2 billion Group Income Protection 58.4%
Slide 16: 2005 Investor Meeting
2005 Investor Meeting October 17, 2005
Slide 17: State of the Company Address: CEO Update
State of the Company Address CEO Update
Slide 18: CEO Update
CEO Update Rebuilding the Industry Leader Unfinished Business Outlook
Slide 19: Rebuilding the Industry Leader
CEO Update Rebuilding the Industry Leader Strengthening Financial Foundation Improving Company Risk Profile Business Investment Positioning Service as a Differentiator Leveraging our Human Capital Changing Governance and Improving Regulatory/Compliance
Slide 20: Strengthening Financial Foundation
Strengthening Financial Foundation Statutory Capital $5.0 $4.0 $3.0 $2.0 $1.0 $0.0 $billions 2002 2003 2004 1Q05 2Q05 Consolidated Risk Based Capital 350% 300% 250% 200% 150% 100% 2002 2003 2004 1Q05 2Q05 Debt/Capital * 40% 30% 20% 10% 2002 2003 2004 1Q05 2Q05 Inter Company Loans * Moody’s Calculati
Slide 21: Improving Company Risk Profile - Business
Improving Company Risk Profile - Business Business Mix – Total Sales % of Total 2002 1H-2005 U.S. Brokerage 74% 57% Colonial 19% 23% Unum Limited 7% 20% Total 100% 100% Business Mix – U.S. Brokerage Sales % of Total 2002 1H-2005 Case Size Core Market 45% 58% Large Employers 55% 42% Total 100% 100% P
Slide 22: Improving Company Risk Profile - Investments
Improving Company Risk Profile - Investments High Yield as % of Bond Portfolio 15.0% 12.5% 10.0% 7.5% 5.0% 2.5% 0.0% 11.3% 8.9% 13.9% 10.0% 8.4% 7.6% 6.9% 6.4% 7.0% 6.3% 2001 2002 2003 2004 2Q-2005 Book Market Interest Margins (Basis Points) 100 90 80 70 60 50 40 30 2Q-2004 3Q-2004 4Q-2004 1Q-2005 2
Slide 23: Quality as a Differentiator - Customers
Positioning Service Quality as a Differentiator - Customers Overall Quality of Product and Service Offerings 100% 80% 60% 40% 20% 0% 69% 26% 43% 76% 31% 45% 75% 26% 49% 76% 26% 50% 74% 26% 48% Spring ‘03 Fall ‘03 Spring ‘04 Fall ‘04 Spring ‘05 Very Good Excellent Source: Employer Loyalty Survey – Sp
Slide 24: Quality as a Differentiator - Claimants
Positioning Service Quality as a Differentiator - Claimants Claimant Rating of Claims Handling – LTD * 86% 49% 37% 9% 87% 54% 33% 7% 92% 57% 35% 5% 4Q02 4Q03 4Q04 Very Satisfied Satisfied Net Dissatisfied New LTD Claim Litigation 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 Disability Complaint
Slide 25: Leveraging Our Human Capital
Leveraging Our Human Capital Tom Watjen President and Chief Executive Officer Dean Copeland Special Advisor to CEO Joe Zubretsky SEVP, Finance, Investments and Corporate Development Bob Best EVP and CIO CSC & IT Roger Edgren EVP Field Sales Kevin McCarthy EVP Underwriting Peter Madeja EVP Benefits J
Slide 26: Changing Governance and Improving Regulatory/Compliance
Changing Governance and Improving Regulatory/Compliance Recent Additions Board of Directors Aug 04 Michael Caulfield* Tom Kinser Bill Ryan 2003 Nov 04 Pamela Godwin Gloria Larson July 05 Ed Muhl * Resigned July 05 as a result of business conflict 2005 Regulatory Actions 14 states consider initiation
Slide 27: Rebuilding the Industry Leader
Rebuilding the Industry Leader We have maintained our franchise and competitive position. United States Brokerage Operations U.K. Operations Colonial #1 Group Income Protection #1 Individual Income Protection #2 Voluntary Benefits #3 Group Life #3 Group LTC #1 Group Income Protection #2 Group Life #
Slide 28: Rebuilding the Industry Leader: Earnings and Cash Flow
Rebuilding the Industry Leader We have significantly improved earnings and cash flow over the past several quarters. Trailing 4 Quarters Statutory After-tax Operating Earnings—U.S. Insurance Operations (Millions) $650 $600 $550 $500 $450 $400 $350 $300 $250 $200 $150 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
Slide 29: Rebuilding the Industry Leader: Predictable Earnings
Rebuilding the Industry Leader Our earnings are more predictable and stable. Reported GAAP Results vs. Consensus $0.50 $0.45 $0.40 $0.35 $0.30 $0.25 $0.20 2Q- 3Q- 4Q- 1Q- 2Q- 3Q- 4Q- 1Q- 2Q-2003 2003 2003 2004 2004 2004 2004 2005 2005 Actual Operating EPS Consensus EPS
Slide 30: Unfinished Business
Unfinished Business Key Areas of Focus Continued operating improvement Particular focus on U.S. Brokerage Group Income Protection Improve Ratings Develop appropriate capital management plan Improve perception of Company with regulators/media Continue to reduce business volatility Consistent executio
Slide 31: Outlook: Financial Goals
Outlook Financial Goals Operational improvement expectations: Double digit BTOE growth over the next three years, primarily driven by margin improvement in Group Income Protection line Stable performance in other major lines ROE expansion from current 8.7% to a range of 9%—11% over the next three ye
Slide 32: Outlook: Financial Goals (cont.)
Outlook Financial Goals (cont.) Deployment of excess capital offers opportunity to enhance ROE beyond that created by operational improvements Potential for generation of $1 billion of excess capital over 3 year timeframe Deployment of capital could enhance ROE by 75 to 100 basis points We are comfo
Slide 33: Outlook: Growth and Profitability Goals
Outlook Growth and Profitability Goals Premium Growth Rate CAGR Projected CAGR 2002-2005 2006-2008 U.S. Brokerage 1.3% 2 - 4% Colonial 6.9% 10 - 12% Unum Limited 34.7% 8 - 10% Other NM NM Corporate NM NM Subtotal 4.0% 4 - 6% Closed Block -4.0% -5.0% Total 2.7% 3 - 5% Return on Equity First Half Targ
Slide 34: Outlook: Greatest Risks Facing Company
Outlook Greatest Risks Facing Company Claims performance during this period of transition Economic – interest rates and general economic strength Maintain disciplined plan and consistent execution
Slide 35: Operating Segment Outlook
Outlook Operating Segment Outlook U.S. Brokerage Strong franchise and market position retained VWB presents a profitable growth opportunity Intense focus on improving profitability of Group Income Protection Colonial Solid VWB play – complementary distribution and customer base Objective is to reach
Slide 36: The New Paradigm
The New Paradigm 36
Slide 37: Valuation and Performance Management
Valuation and Performance Management Price to book value (Ex. FAS 115) 4.5x 4.0x 3.5x 3.0x 2.5x 2.0x 1.5x 1.0x 0.5x 0.0x 0.0 2.5 5.0 7.5 10.0 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0 y=14.915X-0.3863 R²=0.8134 Phoenix Cos UnumProvident Conseco Genworth Prudential Principal Torchmark AFLAC Nationwide
Slide 38: Valuation and Performance Management
Valuation and Performance Management Management Change (Mar 31, 2003) Price to Book (ex. AOCI) 3.0x 2.0x 1.0x 0.0x 0% 5% 10% 15% 20% 25% P/B = 10.0180 x ROE + 0.0546 R2 = 0.8324 Discount to Line: (53.0%) 2003E Return on Average Common Equity (ex. AOCI) Price to Book (ex. AOCI) 3.0x 2.0x 1.0x 0.0x 0%
Slide 39: Valuation and Performance Management: Financial Goals
Valuation and Performance Management Financial Goals Double digit growth in BTOE over the next three years from operational improvements. Primarily driven by U.S. Brokerage operation, particularly the Group Income Protection line Stable performance in other major lines ROE improvement potential from
Slide 40: Growth and Profitability Goals
Valuation and Performance Management Growth and Profitability Goals Premium Growth Rate Return on Equity CAGR Projected CAGR First Half Target 2002-2005 2006-2008 2005 Range U.S. Brokerage 1.3% 2 - 4% 7.4% 9 - 11% Colonial 6.9% 10 - 12% 21.4% 20% Unum Limited 34.7% 8 - 10% 23.2% 20% Other NM NM 16.9
Slide 41: Performance Management
Performance Management How are we going to accomplish these financial goals? Performance management Capital management Risk management The segment presentations will cover the business and operating plans to get there. The headlines are: U.S. Brokerage – Group Income Protection margin and capital ac
Slide 42: Performance Management
Performance Management 42
Slide 43: Managing the Numerator
Performance Management Managing the Numerator Our New Performance Management System Focuses on the key business levers Results in resource allocations to high ROE levers and initiatives Focuses and measures on revenue quality; Measures and manages volatility and cyclicality Action oriented: When off
Slide 44: Profitability Analysis: Group Income Protection
Profitability Analysis Group Income Protection Earnings Measures Premium BTOE ATOE ROE Allocated GAAP Equity Underwriting Margin Investment Margin Taxes Benefit Ratio New vs Runout Expense Ratio Int. on Capital & Surp Excess Int. on Rsvs Financial Metrics Persistency Renewals New Sales Natural Growt
Slide 45: Capital Management
Capital Management 45
Slide 46: New Capital Management Model
Capital Management We have developed a new Capital Management Model Shifting Emphasis: From: Ensure subsidiaries are adequately capitalized To: Maximize free cash flow to holding company Product and Business Risk: Intense understanding and management of what consumes capital at the product level Dyn
Slide 47: Managing the Denominator: Product Level
Capital Management Managing the Denominator At the Product Level Capital is consumed by: Disabled Life Reserves Underwriting & Pricing Risks Surplus Strain on Heaped Commission Products We are a C-2 Intensive Company
Slide 48: Managing the Denominator: Holding Company
Capital Management Managing the Denominator We are managing the holding company to create shareholder value: Dividend capacity from insurance subsidiaries Drive to investment grade from high yield Optimal mix of debt, hybrids, pure equity Debt Structure; balance: Maturity Laddering Cost Rate-roll ri
Slide 49: Capital Plan Events
Capital Management These capital events, together with the recurring cash flows, underpin the Company’s Capital Plan: ACES Notes Remarketing ACES Equity Conversion
Slide 50: Projected Holding Company Cash Flow
Capital Management Projected Holding Company Cash Flow ($millions) 2005 2006 2007 Beginning holding company cash balance $271 $155 $989 Operating cash flows Dividends from insurance subsidiaries $372 $295 $255 Dividends from non-insurance subsidiaries, net of tax 43 130 105 Other intercompany items,
Slide 51: Capital planning objectives - 2006
Capital Management Capital planning objectives - 2006: Maintain 300% consolidated RBC ratio Reduce leverage ratio to 25% (based on Moody’s calculation assuming 50% equity credit for ACEs) Maintain liquidity to meet 24 month maturities Hold excess cash at holding company
Slide 52: 2006 Capital Initiative
Capital Management 2006 Capital Initiative – Reduce leverage by $330 million to achieve 25% Moodys’ leverage ratio Projected Projected 2005 2006 RBC 295% - 300% 300% Leverage Ratio: Moody’s 27.2 - 27.7% 25.0% Coverage Ratio * Moody’s 2.4x 2.8x Holding Company Liquidity $150 mm $659 mm 24 Month Matur
Slide 53: Capital planning objectives - 2007
Capital Management Capital planning objectives - 2007: Maintain 300% consolidated RBC ratio Maintain leverage ratio at 25% Maintain liquidity to meet 24 month maturities Hold excess cash at holding company and evaluate alternative uses
Slide 54: 2007 Capital Initiatives
Capital Management 2007 Capital Initiatives – Maintain leverage and evaluate deployment of excess capital. Projected Projected Projected 2005 2006 2007 RBC 295% - 300% 300% 300% Leverage Ratio: Moody’s 27.2 - 27.7% 25.0% 25.0% Coverage Ratio * Moody’s 2.4x 2.8x 2.9x Holding Company Liquidity $150 mm
Slide 55: 2007 Possible Alternative Use of Excess Capital
Capital Management 2007 Possible Alternative Use of Excess Capital: Assumptions Maintain 25% leverage and 300% RBC Term out short maturity debt Repurchase $635 million of common equity Pay down $375 million of existing debt Results EPS potential improvement of $0.08 to $0.10 in 2007 ROE potential im
Slide 56: Existing Debt Maturity Profile
Capital Management Existing Debt Maturity Profile $ millions $800 $400 $0 $ millions $800 $400 $0 -$400 -$800 $575 $308 $575 $200 $2 $10 $500 $250 $300 -$575 -$300 Senior Trust Preferred Mandatory Senior Notes Mandatory Convertible
Slide 57: Excess capital deployment – decision model
Capital Management Excess capital deployment – decision model Risk profile Rating agencies De-leveraging Balance Invest in growth Repurchase shares Market sentiment Lack of growth opportunities Business Development Organic growth Will de-leveraging help us obtain our single A rating? Will ratings ag
Slide 58: Opportunities for Shareholder Value
Capital Management Opportunities for Shareholder Value Centre Re Recapture – completed U.K. Dividend Repatriation – under consideration Risk adjusted capital allocation to Closed Block – in development Risk adjusted capital deployment to claim tail – in development
Slide 59: Rating Agency Outlook
Capital Management Rating Agency Outlook Improving the A.M. Best rating and re-gaining investment grade debt status are important objectives for us. With questions around investment portfolio and capital largely addressed, we believe the rating agencies are focused on: Consistent operating performan
Slide 60: Investment and Interest Rate Management
Investment and Interest Rate Management
Slide 61: Economic Conditions
Investment and Interest Rate Management Economic Conditions U.S. Government 2-Year and 10-Year Treasuries Yield 7 6 5 4 3 2 1 2001 2002 2003 2004 2005 Source: LehmanLive.com U.S. 2-Year U.S. 10-Year Dramatic flattening of Treasury yield curve. 10-Year Treasury remains low.
Slide 62: Capital Market Conditions
Investment and Interest Rate Management Capital Market Conditions U.S. Credit Index Spread 85 80 75 8/04 10/04 12/04 2/05 4/05 6/05 Source: Lehman Investment grade, intermediate maturity spreads continue to tighten. U.S. High Yield Defaults $bil 35 30 25 20 15 10 5 0 1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q
Slide 63: Risk Management
Investment and Interest Rate Management Risk Management: Disciplined duration match; no interest rate bets Maintain a 50 to 60 bp spread between portfolio rate and average reserve discount rates Target low single –A average credit quality Manage to book yield Core Holding; Corporate Bonds Yield enha
Slide 64: Duration Matching
Investment and Interest Rate Management Duration Matching: Core duration management tool; forward starting swaps Occasional swaption to protect downside Dynamic decision model: When to hedge? Time Value Volatility Risk Appetite Accounting Constraints
Slide 65: Interest Margin
Investment and Interest Rate Management Interest Margin The interest margin remained above the 60 b.p. target in 2Q05 as downward adjustments in the new claim incurrals made in previous quarters lowered the overall claim discount rate. The low level of rates continues to pressure the portfolio yield
Slide 66: Results: Cash Flow and Duration Match
Investment and Interest Rate Management Results Key results are monitored closely to assess our interest rate risk management. Combined Major Lines – Cash Flow 3,000 2,000 1,000 -1,000 -2,000 -3,000 -4,000 -5,000 -6,000 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035
Slide 67: Hedging
Investment and Interest Rate Management Hedging Hedges are added to reduce exposure to falling interest rates. When rates hit our target levels, we are ready to execute. Historic 10 & 20 yr Swap Rates – 3 yrs Forward ($MM) $302 $157 $100 $221 $2,900 $800 $110 Swap Rates 7.0 6.5 6.0 5.5 5.0 4.5 Sourc
Slide 68: Hedge Results
Investment and Interest Rate Management Hedge Results $ Millions We have $269MM of gains on closed hedges resulting in the amortization of $18.8MM income annually. Total Program Results Total Notional Gain/Loss Realized Annual Notional Gain/Loss Est. Annual Program Closed Closed NII – Closed Open Op
Slide 69: Schedule of Hedged Cash Flows
Investment and Interest Rate Management Schedule of Hedged Cash Flows $ Millions IIP LTD ILTC 2H - 2005 $150 $315 $168 2006 250 335 325 2007 170 — 310 2008 160 — 325 2009 85 — 295 2010 — — 240 2011 — — 205 2012 — — 185 2013 — — 150 Other 60 — — Total $875 $650 $2,203
Slide 70: Cash Flow to be Hedged
Investment and Interest Rate Management Cash Flow to be Hedged $ Millions IDI LTD LTC 2005 $8 $21 $24 2006 41 256 68 2007 38 273 77 2008 26 — 50 2009 — — 29 2010-2015 35 — 460 Total $148 $550 $708
Slide 71: Invested Assets Distribution
Investment and Interest Rate Management Invested Assets Distribution MBS 13.32% Private Placements 11.08% High Yield 6.89% Gov’t Securities 6.82% Municipal 0.03% Stocks 0.36% Mortgage Loans 1.95% Real Estate 0.06% Policy Loans 0.62% Other 1.01% Public 57.88% Book Value as of 6/30/05 $38.0 billion
Slide 72: Sector Distribution
Investment and Interest Rate Management Sector Distribution June 30, 2005 Electric 10% FHLMC 7% Other Agency 7% FNMA 4.1% Banking 5% Oil-Integrated 3.5% Telecom 3.4% Gas-Pipelines 3.2% Media-NonCable 3.1% Food 3.2% Beverages 2.9% Oil and Gas-Ind 2.4% Bldg Materials 2.3% Automotive 2.2% Gas-Distribut
Slide 73: Quality Ratings of Bond Portfolio
Investment and Interest Rate Management Quality Ratings of Bond Portfolio – 6/30/05 (Market Value) The weighted average quality of the bond portfolio remained at a high A3 during 2Q05. A 24.5% Aa 6.6% AAA 25.6% Caa & Below 0.6% B 2.1% Ba 3.8% Baa 36.8%
Slide 74: Regulatory Update
Regulatory Update 74
Slide 75: California Settlement Summary
California Settlement Summary Key terms of settlement: Fine Reassessment of 1997-2005 and changed claim practices New policy forms – Group LTD and IIP approved for use November 1, 2005 California Department of Insurance intention to apply same standards to entire insurance industry Non-recurring cha
Slide 76: California Settlement Summary (cont.)
California Settlement Summary (cont.) On-going Impact: New interpretations will pressure California based earnings for UNM and entire industry. New interpretations suggest price increases are needed on LTD. Clients will either pay higher premium or buy a product with reduced benefits to offset incre
Slide 77: California Business Profile
California Settlement California Business Profile Premium by Line STD 12% Life 16% IDI - - Recent 6% VWB 4% LTC 10% AD&D 2% IDI-Closed 19% LTD 31% California Premium Income totals $743 mm, approximately 9.5% of total company premiums
Slide 78: Reassessment Update
Reassessment Update The emerging performance is consistent with the original assumptions used to develop the $127 million charge. Reserves continue to be adequate. Results as of September 30, 2005 232,483 notices mailed 27.4% opt-in rate 20.7% completion rate of reassessment information forms 87.2%
Slide 79: Summary
Summary 79
Slide 80: Summary
Summary Financial goals of double digit BTOE growth over the next three years from operational improvements while generating $1 billion of excess capital Performance Manage U.S. Brokerage Optimize capital allocations to various businesses Free Cash Flow First to Leverage Continue Disciplined Risk Ma
Slide 81: Questions
Questions 81
Slide 82: 2005 Investor Meeting
2005 Investor Meeting October 17, 2005
Slide 83: The Business Reviews
The Business Reviews
Slide 84: Business Review - U.S. Brokerage
Business Review - U.S. Brokerage
Slide 85: U.S. Brokerage Executive Management Team
Business Review – U.S. Brokerage Introduction Executive Management Team Years Experience UnumProvident Industry Kevin McCarthy EVP Underwriting 27 30 Bob Best EVP Client Service Center & Chief Info Officer 32 Roger Edgren EVP Field Sales 1 26 Bob Greving EVP and Chief Financial Officer 9 32 Joe Fole
Slide 86: U.S. Brokerage Introduction
Business Review – U.S. Brokerage Introduction Our U.S. Brokerage business is the largest part of UnumProvident, and its results are the largest potential driver of improvement in shareholder value. The lynchpin of our U.S. Brokerage business is our Group Income Protection franchise. The long-term ch
Slide 87: U.S. Brokerage Introduction: Immediate Focus
Business Review – U.S. Brokerage Introduction Our immediate focus is on continuing to improve the profitability of the “core” Group Income Protection line. Multi-year strategy launched in 2003 following corporate restructuring Claims disruption from multi-state settlement has masked the improvement
Slide 88: U.S. Brokerage Financial and Risk Profile
Business Review – U.S. Brokerage Financial and Risk Profile Price to book value (x) 2.75 2.50 2.25 2.00 1.75 1.50 1.25 1.00 0.75 0.50 0.25 0.00 Size of circle is book value US Brokerage Colonial Unum Ltd UNM IIP Closed Block U.S. Brokerage is by far the largest part of UnumProvident and its results
Slide 89: First Half 2005 GAAP Financial Summary
Business Review – U.S. Brokerage First Half 2005 GAAP Financial Summary Premium Income % Premium ROE BTOE as Margin Leveraged Group Income Protection $1,272.2 $23.6 1.9% 0.8% Group Life and AD&D 741.2 103.4 14.0% 15.8% Supplemental and Voluntary 613.1 84.9 13.8% 9.8% Total $2,626.5 $211.9 8.1% 7.4%
Slide 90: U.S. Group Income Protection
Business Review – U.S. Brokerage U.S. Group Income Protection ($millions) 2003 2004 1Q 2005 2Q 2005 1H 2005 Before Tax Operating Income As reported ($870.0) ($58.0) $3.5 $20.1 $23.6 Adjusted $24.0 $58.7 $33.5 $40.1 $73.6 Benefit Ratio As reported 128.1% 95.8% 95.3% 93.5% 94.4% Adjusted 94.1% 92.7% 9
Slide 91: Operational Plans
Operational Plans 9
Slide 92: Where will the margin improvement come from?
Business Review – U.S. Brokerage Operational Plans Where will the margin improvement come from? Stable benefit center performance at our long-range expectations Underwriting initiatives Operating effectiveness
Slide 93: Stable Benefit Center Performance
Business Review – U.S. Brokerage Operational Plans Stable Benefit Center Performance at our long range expectations Our immediate focus is on reducing the disruption associated with the implementation of the Regulatory Settlement Agreement. Operating performance improved in 2Q compared to 1Q with mo
Slide 94: Reassessment mailing and claims review
Business Review – U.S. Brokerage Operational Plans Stable Benefit Center Performance at our long range expectations Reassessment mailing and claims review continue to progress. Early results consistent with expectations. Continue efforts toward achieving quality and performance. Reduce operating cos
Slide 95: Claim recovery experience
Business Review – U.S. Brokerage Claim recovery experience is moving back to long range expectations LTD Recovery Trends 100% 1Q05 2Q05 Experience resulting from claim disruption Long range expectation
Slide 96: Quality of decision indicators
Business Review – U.S. Brokerage Quality of decision indicators show continued improvement in lower complaints and litigation LTD Complaints 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 IDI Complaints 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 LTD New Litigation 1Q03 2Q03 3Q03 4Q03 1Q04
Slide 97: Underwriting Initiatives
Business Review – U.S. Brokerage Underwriting Initiatives Our underwriting strategy: Continue to stay the course Selectively increase new business pricing Execute renewal program Manage persistency Shift new sales toward desired segments Increased emphasis on segmentation
Slide 98: LTD Inforce Premium Per Life
Business Review – U.S. Brokerage Underwriting Initiatives LTD Inforce Premium Per Life INDEX: Premium Per Life 2000=100 2005 1H UnumProvident Market Average UP PPL $191 $205 $217 $229 $252 $265 Market Avg. $185 $195 $205 $216 $218 $227 Source: JHA Disability Market Survey
Slide 99: LTD Persistency Sensitivity - 2004
Business Review – U.S. Brokerage Underwriting Initiatives LTD Persistency Sensitivity - 2004 Persistency 0-4% 5-9% 10-19% 20-29% 30-39% % Renewal Increase
Slide 100: LTD Renewal Program
Business Review – U.S. Brokerage Underwriting Initiatives LTD Renewal Program % of Block Renewed (premium) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 6.5% 7.9% 13.6% ~ 10% 6 – 10% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Retained % Increase 2005 Outlook 2006 Plan % of LTD Block Renewed (premium) Reta
Slide 101: LTD Margins on Terminated Renewal Business
Business Review – U.S. Brokerage Underwriting Initiatives LTD Margins on Terminated Renewal Business – Spread Relative to Aggregate 2002 2003 2004 2005 Outlook % Margin 10 0 -10 -20 -30 -40 -27 -29 -30 -25
Slide 102: LTD Persistency by Size Segment
Business Review – U.S. Brokerage Underwriting Initiatives LTD Persistency by Size Segment Persistency 95 90 85 80 75 2005 Outlook Small Mid Large Total
Slide 103: Business Mix in U.S. LTD
Business Review – U.S. Brokerage Operational Plans Business Mix in U.S. LTD to shift to targeted weightings Inforce Current Mix 36% Small 17% Mid 47% Large 1H-2005 New Sales 41% Small 17% Mid 42% Large Inforce Goal 40% Small 20% Mid 40% Large
Slide 104: LTD Relative Incidence by Case Size
Business Review – U.S. Brokerage LTD Relative Incidence by Case Size Actual/Expected 2005 1H* 0-499 500-1,999 2,000+ Total * 2005 1H adjusted for claims disruption
Slide 105: LTD Relative Incidence by Industry
Business Review – U.S. Brokerage LTD Relative Incidence by Industry Relative Incidence Trans. &Util Manuf acturing Wholesale/Ret Lawyers Fin. /Ins. /RE Other Data Proc. Education Banking Doctors Hospitals Other Health
Slide 106: Segmentation Strategy
Business Review – U.S. Brokerage Segmentation Strategy: Strong understanding of segment costs allows us to more efficiently target our resources Small Case Market: Continue to refine pricing by area, size and industry. Continue to emphasize cross selling of supplemental product lines Mid Case Market
Slide 107: Operating Effectiveness
Operating Effectiveness 107
Slide 108: U.S. Brokerage Operations Expense Ratio
Business Review – U.S. Brokerage U.S. Brokerage Operations Expense Ratio* 30% 25% 20% 15% 10% 5% 0% 21.9% 22.0% 21.4% 21.5% 1H-05 Operating Expenses (mm) $1,357 $1,418 $1,380 $1,334 Our target is to reduce expense ratio by 50 to 100 basis points in two years *Includes U.S. Brokerage segment, Closed
Slide 109: Operating Effectiveness Actions
Business Review – U.S. Brokerage Our Operating Effectiveness actions can be described by short term actions, continual improvement and business transformation. 2004 – 2005 Short Term Expense Actions Supported by outside firm (Nolan & Co.), “E3” results generated significant expense savings Deloitte
Slide 110: Investments Paying Off: iServices
Business Review – U.S. Brokerage The investments we are making are paying off with less dependence on people and materials. Employer iServices Registered Customers 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 - 4,508 12,426 24,938 33,742 1H-05 Producer iServices Registered Users 25,000 20,
Slide 111: Operations Transformation Initiative
Business Review – U.S. Brokerage Earlier this year we began an initiative that will transform our small and mid size group and supplemental market (approximately 30% of expense base): The following solutions are being undertaken to begin a transformation of our operations: A single integrated custom
Slide 112: Other U.S. Brokerage Product Lines
Other U.S. Brokerage Product Lines
Slide 113: Other U.S. Brokerage Product Lines
Business Review – U.S. Brokerage Other U.S. Brokerage Product Lines Group Life and AD&D Supplemental and Voluntary Individual Income Protection Long-term Care Voluntary Worksite Benefits Whole life ISTD Critical Illness Accident MedSupport
Slide 114: Group Life and AD&D
Business Review – Other U.S. Brokerage Product Lines Group Life and AD&D Benefit Ratio 100% 80% 60% 40% 20% 0% 77.8% 77.0% 76.6% 75.5% 1H-05 Highly competitive, price sensitive product. Bundled sale with LTD provides for efficient distribution. Mortality and premium waiver benefit drives the benefit
Slide 115: Individual Income Protection
Business Review – Other U.S. Brokerage Product Lines Individual Income Protection Multi-Life Sales as % IIP Sales 100% 90% 80% 70% 60% 50% 70.5% 73.1% 76.6% 81.0% 84.3% 1H-05 80% of our block in a multi-life setting. Long-tail morbidity risk. Long investment horizon. Summary: Will continue to focus
Slide 116: Long-term Care
Business Review – Other U.S. Brokerage Product Lines Long-term Care $ millions LTC Sales 100% 80% 60% 40% 20% 0% $87.2 $70.9 $38.2 $19.2 $16.8 27% 38% 49% 41% 62% 1H-04 1H-05 Group LTC Individual LTC Very long morbidity tail. Lapse supported product, high persistency risk. Very long liability durati
Slide 117: Voluntary Worksite Benefits
Business Review – Other U.S. Brokerage Product Lines Voluntary Worksite Benefits Sales $120 $100 $80 $60 $40 $20 $0 $79.1 $105.8 $114.1 $64.6 $75.2 1H-04 1H-05 Employer cost shifting drives high growth expectations. Simple products, short claims tail. Underwriting risk: participation and early durat
Slide 118: Competitive Position
Competitive Position 118
Slide 119: Top Carriers by Inforce Premium
Top Carriers by Inforce Premium LTD Total Cases Total Premium (millions) % Mkt Share (Prem) Unum- Provident 56,653 $2,018.8 25.8% Hartford 23,040 $1,090.0 13.9% MetLife 10,179 $777.0 9.9% Standard 17,950 $668.2 8.5% CIGNA 2,229 $555.2 7.1% Prudential 4,576 $413.2 5.3% JP 14,175 $284.3 3.6% Assurant
Slide 120: Top Carriers by Inforce Premium
Top Carriers by Inforce Premium GLTC Total Cases Total Premium (000) % Mkt Share (Prem) Federal LTCI Program* 1 $275,723 22.3% CalPERS** 1 $249,697 20.2% Unum- Provident 4,832 $151,393 12.2% John Hancock 266 $143,516 11.6% MetLife 245 $126,142 10.2% Total Top 5 Carriers 5,345 $946,471 76.5% VWB Tota
Slide 121: Competing Successfully in Employee Benefits
Competing Successfully in Employee Benefits % of Total Employer Costs for Selected Benefits Pension (Defined benefit & contribution) 25% Medical 70% “Ancillary” lines 5% Competing Successfully Strong service for brokers & employers Differentiated benefits across a broad portfolio Exceptional value f
Slide 122: Differentiation
Differentiation Hard $ Total Benefit $ Spent Medical, Dental, Retirement VWB Services Life, AD&D STD, LTD, etc. Differentiators Contract Provisions Riders Embedded Features Clinical Support Data & Data Analysis IT Know How/Data Transfers Internet Services Related Services/Admin. Breadth of Products
Slide 123: Competitive Performance Snapshot
Competitive Performance Snapshot Survey of Brokers - 2005 UnumProvident Competitor Competitor Competitor Competitor Competitor 2003 2005 #1 #2 #3 #4 #5 Overall quality Value/competitive price Ease of doing business Positive corporate reputation Overall product quality Sales representatives Customer
Slide 124: Service & Products Leadership
Service & Products Leadership UnumProvident Improved From Prior Years and Leads the Competition on Service and Product Metrics Customer Service Easy to do business with Makes administration of benefit plans easy for clients Service reps respond quickly Problems and errors are resolved quickly and ac
Slide 125: Effectively Serving a Broad Market
Effectively Serving a Broad Market Strong Local Presence 34 field offices across the U.S. 300 sales reps Average of 7 years with UnumProvident 40 market managers Average of 16 years with UnumProvident 700 field service members Diverse Producer Base 135,400 producers licensed 33,200 producers inforce
Slide 126: Strength of Sales Team is Critical
Strength of Sales Team is Critical UnumProvident Improved From Prior Years and Leads the Competition on Sales Support to Brokers Sales Rep Relationship Overall quality of services and support from sales rep Sales rep is very knowledgeable and well-trained Sales rep follows through on commitments Sal
Slide 127: Broad Geographic Penetration
Broad Geographic Penetration West/Southwest % of U.S. Employers: 37% % of UP Sales: 36% Northeast/Mid Atlantic % of U.S. Employers: 30% % of UP Sales: 30% Southeast/Mid West % of U.S. Employers: 33% % of UP Sales: 34% * For time period: 2000 - 2004
Slide 128: Sales – Group Income Protection
Business Review – U.S. Brokerage Sales – Group Income Protection $ Millions $400 $300 $200 $100 $0 $325.2 $129.3 $299.1 $127.2 $180.4 $79.5 $76.8 $42.6 $84.7 $30.7 1H04 1H05 Group LTD Group STD Note: Fully insured sales only
Slide 129: Sales – Group Life
Business Review – U.S. Brokerage Sales – Group Life $ Millions $400 $300 $200 $100 $0 $274.1 $41.1 $241.6 $26.6 $166.5 $12.8 $69.2 $6.1 $70.2 $6.7 1H04 1H05 Group Life AD&D
Slide 130: Sales – Supplemental and Voluntary
Business Review – U.S. Brokerage Sales – Supplemental and Voluntary $ Millions $150 $100 $50 $0 2002 2003 2004 1H04 1H05 IIP - Recently Issued $83.9 $72.9 $61.6 $31.9 $25.3 LTC $87.2 $70.9 $38.2 $19.2 $16.8 Voluntary Workplace Benefits $79.1 $105.8 $114.1 $64.6 $75.2
Slide 131: Summary
Summary 131
Slide 132: Performance Bridge for Group Income Protection
Business Review – U.S. Brokerage Performance “Bridge” to 2007 Group Income Protection Line Minimize claims “disruption” and stabilize claims management effectiveness Underwriting Initiatives Expense Initiatives 6 to 7% Benefit Ratio Improvement* 0.5% to 1% Expense Ratio Improvement Drives Group Inco
Slide 133: U.S. Brokerage Summary
Business Review – U.S. Brokerage Summary Our U.S. Brokerage business is the cornerstone of UnumProvident. Lynchpin is Group Income Protection franchise Growing voluntary worksite business provides opportunity for growth and diversification Plans for driving margin improvement in Group Income Protect
Slide 134: Questions
Questions 134
Slide 135: Business Review - Colonial
Business Review - Colonial 135
Slide 136: Colonial Executive Management Team
Business Review –Colonial Introduction Executive Management Team Years Experience Colonial Industry *Randy Horn President & CEO 2 31 *Tom Gilligan SVP Marketing and Branding 21 26 David Parker SVP Finance 14 Henry Price SVP Customer Acquisition Services 26 29 Annaclair Kiger SVP Customer Service and
Slide 137: Colonial Introduction
Colonial Introduction Founded in 1939 with more than 50 years of worksite marketing expertise Payroll deduction pioneer 6,000-member nationwide career independent contractor sales organization sells direct and through 12,000 contracted brokers 1,000 home office employees based in Columbia, S.C. 50,0
Slide 138: Our Vision and Mission
Our Vision Colonial will be the company of choice for voluntary benefits programs offered through the workplace. Our Mission Colonial is committed to helping working Americans and their families minimize personal financial risk with a comprehensive offering of voluntary benefits through the workplac
Slide 139: Employer Segments and Market Opportunity
Employer Segments and Market Opportunity $20+ billion market with < 20% penetration 110 million total employees Source: Datamonitor/Eastbridge 1-19 20-99 100-499 500-999 1,000-2,499 2,500-4,999 5,000-9,999 10,000+ 18% 18% 14% 5% 7% 5% 5% 27% Source: Bureau of Labor Statistics
Slide 140: 2004 Worksite Sales
2004 Worksite Sales Company Sales ($M) AFLAC $1,186 UnumProvident – U.S. Brokerage 305 Colonial 279 Allstate Workplace Division 207 Guardian Life Insurance Company 133 American Fidelity Assurance Company 94 Sales from LIMRA Worksite Marketing of Voluntary Products Quarterly U.S. Sales Survey, 2004
Slide 141: Colonial 2004 Sales & In-Force Premium By Product
Colonial 2004 Sales & In-Force Premium By Product Sales (millions) $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 $69.2M $85.1M $18.2M $58.6M $47.4M Accident Disability Supplemental Health Life Special Risk Total Company $278.5 Million In-Force Premium (millions) $300 $250 $200 $150 $100 $50 $0 $187.9M $257
Slide 142: Colonial Sales by Region
Colonial Sales by Region Mid-Atlantic Southeast Southwest Northeast West Midwest 18% 28% 22% 9% 14% 9%
Slide 143: Colonial Market Distribution
Colonial Market Distribution 2004 Results % of Total Market Accounts Sales In-Force Premium Commercial (less than 100) 68% 32% 25% Commercial (100-249) 11% 16% 13% Commercial (250-1,000) 4% 10% 10% Commercial (over 1,000) 2% 11% 12% Public Sector 15% 31% 39% Total Company 100% 100% 100%
Slide 144: Growth Initiatives
Growth Initiatives Implement Agency Growth System across the field organization
Slide 145: Agency Growth System
Agency Growth System People Development Recruit & Develop Talent Build Management Depth Develop Specialized Teams Market Development Drive New Account Sales Market & Deliver Products, Enrollment Services & Benefits Communications
Slide 146: Sales Management Structure
Sales Management Structure National Sales Manager Regional Sales Managers Territory Managers District Managers Unit Managers
Slide 147: Building for Growth
Building for Growth 1H-04 1H-05 % Increase New Rep Contracts 986 1,127 14.3% New Accounts 2,984 3,239 8.5% New District Managers 56 65 16.1% Total District Managers 295 320 8.5% Tier 1 Producers 285 337 18.2% Average Weekly Producers 1,887 1,902 0.8%
Slide 148: Growth Initiatives
Growth Initiatives Implement Agency Growth System across the field organization Focus on small to medium-sized employer markets Leverage position in the Public Sector market Expand and refresh product platform Leverage enrollment and benefits communication capabilities
Slide 149: Industry-Leading Service
Industry-Leading Service E-Services for plan administrators: paperless billing, electronic reconciliation, online bill view and payment Flexible billing cycles Claims filing by phone, fax, Internet and mail Proactive phone notification of claim receipt and payment 90% of claims resolved in 10 days o
Slide 150: Effective Use of Technology
Effective Use of Technology Single administrative platform supporting all products enables comprehensive customer view 90% of business submitted electronically 70% of policies jet-issued Pioneers in laptop enrollment technology New web-based enrollment platform enables offline/online, group meeting,
Slide 151: The Colonial Advantage
The Colonial Advantage Benefits communication solutions Competitive supplemental insurance products Enrollment services
Slide 152: Colonial Sales
Colonial Sales $ Millions $300 $250 $200 $150 $100 $50 $0 $226.8 $243.0 $257.5 $285.2 $278.5 $124.9 $127.2 1H-04 1H-05
Slide 153: Growth of Worksite Market
Growth of Worksite Market 20% 16% 12% 8% 4% 0% 18.2% 19.2% 12.9% 15.1% 1.8% 3.0% 1999 $2.6 B 2000 $3.1 B 2001 $3.5 B 2002 $4.0 B 2003 $4.1 B 2004 $4.2 B $ = New Sales Premium Sales from Eastbridge US Worksite Study, July 2005
Slide 154: Colonial Premium Income
Colonial Premium Income $ Millions $800 $700 $600 $500 $400 $300 $200 $100 $0 $573.8 $611.9 $636.7 $693.5 $741.0 $365.1 $389.1 1H-04 1H-05
Slide 155: Colonial Benefit Ratios
Colonial Benefit Ratios As a Percentage of GAAP Premium 60% 55% 50% 45% 40% 54.4% 56.6% 56.1% 57.0% 55.1% 55.4% 53.8% 1H-04 1H-05
Slide 156: Colonial Expense Ratios
Colonial Expense Ratios As a Percentage of GAAP Premium Operating Expenses 22% 20% 18% 16% 14% 12% 10% 19.6% 18.2% 18.9% 18.4% 19.1% 19.0% 20.1% 1H-04 1H-05
Slide 157: Colonial Pretax Operating Earnings
Colonial Pretax Operating Earnings $ Millions $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 $131.7 $138.0 $137.5 $146.7 $155.6 $76.0 $87.4 1H-04 1H-05
Slide 158: Colonial Pretax Profit Margins
Colonial Pretax Profit Margins As a Percentage of GAAP Premium 25% 20% 15% 10% 5% 0% 23.0% 22.6% 21.6% 21.2% 21.0% 20.8% 22.5% 1H-04 1H-05
Slide 159: Colonial Market Opportunities and Challenges
Colonial Market Opportunities Highly under-penetrated market Consumer-driven benefits trend Demand for effective enrollment and benefits communication services Expectation of excellent customer service and administration Challenges Developing a strong growth culture in the sales organization Respond
Slide 160: Colonial Summary
Colonial Summary Strong market position and business model. Well positioned to capitalize on growth opportunities. Focused on maintaining financial stability while growing the business. Providing diversification and predictable cash flows for parent company.
Slide 161: Questions
Questions UyowPrompent 161
Slide 162: Business Review – Unum Limited (UK)
Business Review – Unum Limited (UK)
Slide 163: Unum Limited Executive Management Team
Business Review – Unum Limited Introduction Executive Management Team Years Experience Unum Industry *Susan Ring Chairman & Managing Director 10 23 *Andrew Stacy Chief Operating Officer 5 25 Paul Davies Marketing & Business Development Director 2 20 Peter Dewis Customer Care Director 5 21 Joanne Hin
Slide 164: Unum Limited Introduction
Unum Limited Introduction Unum Corporation (UNM) acquired Unum Limited in 1990. 840 employees in 3 operational centers; 7 regional offices. Unum Limited is well positioned as the leader in the group risks market in the UK, with significant market positions in the Group Income Protection and Group Li
Slide 165: Unum Limited: The Market
Unum Limited The Market Group IP 2004 Market Share 1) Unum Limited 52% 2) Canada Life 17% 3) Legal & General 7% 4) Swiss Life - run-out 5% 5) Norwich Union 3% Group Life 2004 Market Share 1) Canada Life 29% 2) Unum Limited 18% 3) Legal & General 16% 4) Norwich Union 7% 5) Swiss Life - run-out 6% Unu
Slide 166: Unum Limited - Strategy
Unum Limited - Strategy Our Vision is to “keep dreams and ambitions alive even when accident or illness strikes” Corporate position specialist niche player in chosen markets primary focus on UK protection and adjacent markets look to be a category winner then market leader in chosen segments – outpe
Slide 167: Unum Limited – Strategic Focus
Unum Limited – Strategic Focus Corporate differentiation Continue to develop a clearly understood, valued and unique corporate proposition/position around Pricing for risk Risk selection Claims management Customer service Business growth Growing the group and individual markets and our share of mark
Slide 168: Our Principal Brokers
Our Principal Brokers Mercer Human Resource Consulting
Slide 169: Broker Feedback
Broker Feedback Which insurer would you actively consider? BUPA Canada Life Friends Provident Legal & General Norwich Union Scottish Equitable UnumProvident
Slide 170: Acquisitions have enhanced strong organic growth
Unum Limited Acquisitions have enhanced strong organic growth Earned Premium (£m) £400 £350 £300 £250 £200 £150 £100 £50 £0 Net of Non-Organic Growth Non Organic Growth Earned Premium has grown 23% annually since 2000 with 16% organic growth strongly enhanced by acquisitions. 2001 Zurich block of gr
Slide 171: Unum Limited Business Mix
Unum Limited Business Mix 1H-2005 Other 6.1% Group Life 20.6% Group Long-term Income Protection 73.3% Earned Premium $383.1 million Other 6.4% Group Life 25.1% Group Long-term Income Protection 68.5% New Sales $82.6 million
Slide 172: Unum Limited Sales Growth
Unum Limited Sales Growth $ Million $200 $160 $120 $80 $40 $0 $94.2 $128.6 $182.4 $104.6 $82.6 1H 2004 1H 2005 Group Long-term Income Protection Group Life Other
Slide 173: Unum Limited Premium Income
Unum Limited Premium Income $ Million $700 $600 $500 $400 $300 $200 $100 $0 $313.8 $477.0 $659.1 $312.0 $383.1 1H 2004 1H 2005 Group Long-term Income Protection Group Life Other
Slide 174: Unum Limited Persistency
Unum Limited Persistency 100% 95% 90% 85% 80% 75% 1H-2005 Group Disability Group Life
Slide 175: Unum Limited Before-Tax Operating Income
Unum Limited Before-Tax Operating Income $ Million $200 $150 $100 $50 $0 $69.5 $112.0 $151.3 $66.5 $88.6 1H 2004 1H 2005
Slide 176: Unum Limited Benefit Ratio
Unum Limited Benefit Ratio 100% 75% 50% 25% 0% 73.6% 72.2% 70.5% 72.7% 70.4% 1H 2004 1H 2005
Slide 177: Unum Limited Expense Ratio
Unum Limited Expense Ratio 30% 25% 20% 15% 10% 5% 0% 27.9% 23.9% 21.4% 21.3% 20.0% 1H 2004 1H
Slide 178: Unum Limited Margin
Unum Limited Margin (BTOE as % Premium Income) 30% 25% 20% 15% 10% 5% 0% 22.1% 23.5% 23.0% 21.3% 23.1% 1H 2004 1H
Slide 179: Unum Limited Market Opportunities and Challenges
Unum Limited Market Opportunities Capitalizing on withdrawals from individual market. Taking attractive income protection claims block acquisition opportunities. Identifying any opportunities related to “pension simplifications”. Leveraging infrastructure improvements to benefit quality, efficiency
Slide 180: Unum Limited Summary
Unum Limited Summary Uniquely positioned within the U.K. market. Continue to develop ways to share U.K./U.S. best practices. Strong management team-best in U.K. market. Set to continue to deliver sustainable profitable growth and dividend stream to parent company.
Slide 181: Questions
Questions UyowPrompent 181
Slide 182: Business Review - Individual Income Protection Closed Block
Business Review - Individual Income Protection Closed Block
Slide 183: Individual Income Protection – Closed Block Introduction
Individual Income Protection – Closed Block Introduction In the first quarter of 2004, the Company set up a separate GAAP reporting segment comprised of the older blocks of IDI business (the “CDB”). The primary objectives for this reporting change were to improve the transparency of reporting and sh
Slide 184: Closed Block Introduction: Stable and Predictable
Individual Income Protection – Closed Block Introduction The CDB is stable, predictable, and relatively insensitive to changes over time. CDB is profitable and generates significant positive cash flows worth an estimated $1 billion on NPV basis. Claim results and liability cash flows expected to rem
Slide 185: CDB Overview
CDB Overview Current Financial Profile of CDB at UNM ($ millions) Annual Premium $961 Reserves (GAAP) $12,859 Policyholders 668,177 Claimants 31,583 Data as of June 30, 2005 CDB Inforce Premium by Company FU 2% PRL 42% PLA 28% UA 25% PLC 3% CDB Overview Included in the CDB are: Provident Life and Ac
Slide 186: Current Status of the CDB
Current Status of the CDB Profile The CDB is a seasoned, stable book of business. The CDB has a strong balance sheet – it has adequate reserves, a high level of capital, and a high quality investment portfolio backing it. There is significant reinsurance protection in place, particularly the NICO co
Slide 187: The CDB Comprises Long-time Customers and Benefit Recipients
The CDB Comprises Long-time Customers and Benefit Recipients Premium by Issue Year 1984 & prior: 10% 1985-1990 34% 1991-1996 50% 1997 & later: 6% Attained Age of Inforce Policies 30 to 39 4% 40 to 49 31% 50 to 59 46% 60 plus 19% Occupational Mix – by Inforce Premium1 5% or less Accountant Engineer N
Slide 188: The CDB has a High Quality Investment Portfolio
The CDB has a High Quality Investment Portfolio Current Profile of CDB Assets CDB assets under management as of 6/30/05 totaled approximately $11.3 billion. Investment philosophy – align the asset cash flows with the duration and cash flow pattern of the liabilities. The asset portfolio duration is
Slide 189: Seasoning and Occupational Mix Make Downside Scenario Unlikely
Seasoning and Occupational Mix Make Downside Scenario Highly Unlikely Stable Block of Older Claims > 5 years: 54% 2-5 years: 24% < 2 years: 22% 54% of the open claims are long duration, and behave like payout annuities. Doctors > 3X Next Largest Occupation Occupation % of Inforce Physician 36% Execu
Slide 190: Existing Reinsurance Provides Valuable Capital Support
Existing Reinsurance Provides Valuable Capital Support Through Risk Transfer NICO Structure During 2004, three of the company’s insurance subsidiaries (PLA, PLC, and PRL) entered into an excess of loss reinsurance agreement that provides additional protection against losses above basic reserve level
Slide 191: Centre Re Recapture
Centre Re Recapture The Company announced its intention to the Centre Re block effective prior to December 31, 2005. With our RBC ratio currently above our 300% target level and the benefits of the agreement largely discounted, we felt it was the appropriate time to execute the recapture. Recapture
Slide 192: Summary
Summary The CDB is a relatively stable, mature block of business which represents real value to the Company. The block ties up a significant amount of capital and its low ROE produces a drag on the corporate ROE. There is significant effort underway at the Company to better realize the value we beli
Slide 193: Questions
Questions UyowPrompent 193
Slide 194: Looking Forward – The Next Chapter
Looking Forward – The Next Chapter
Slide 195: UnumProvident's Core Assets
Looking Forward – The Next Chapter UnumProvident’s Core Assets Position in employee benefit market Including worksite distribution and enrollment capability Broker and customer relationships Disability expertise and operating capability
Slide 196: Looking Forward: Immediate and Longer-term
Looking Forward – The Next Chapter Immediate Improve U.S. Group Disability Performance Pricing discipline Expense management Stabilize claims performance Continue to diversify business exposure Restoration of growth at Colonial Maintain strong performance in U.K. Continue to de-risk U.S. Brokerage b
Slide 197: Restoration of Valuation for a Franchise Business
Looking Forward – The Next Chapter Restoration of Valuation for a “Franchise” Business Price to book value (x) 2.75 2.50 2.25 2.00 1.75 1.50 1.25 1.00 0.75 0.50 0.25 0.00 Size of circle is book value US Brokerage IIP Closed Block Colonial Unum Ltd Return on equity (%)
Slide 198: Restoration of Valuation for a Franchise Business
Looking Forward – The Next Chapter Restoration of Valuation for a “Franchise” Business Price to book value (Ex. FAS 115) 4.5x 4.0x 3.5x 3.0x 2.5x 2.0x 1.5x 1.0x 0.5x 0.0x 0.0 2.5 5.0 7.5 10.0 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0 Phoenix Cos UnumProvident Conseco Genworth Prudential Nationwide Lin
Slide 199: Questions
Questions Uw Munn 199