Unum Group · NYSE:UNM
Unum — Investor Day (December 2017)
91 slides from Unum's investor day presentation, Dec 13, 2017
Slide 1: 2018 Outlook Meeting
1 2018 Outlook Meeting December 13, 2017 | New York Exhibit 99.1
Slide 2: Safe Harbor Statement and Non-GAAP Financial Measures
2 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 r
Slide 3: Today's Participants
3 Mike Simonds President and Chief Executive Officer, Unum US Peter O’Donnell President and Chief Executive Officer, Unum UK Tim Arnold President and Chief Executive Officer, Colonial Life Today’s Participants Business Segment Presidents Jack McGarry President and Chief Executive OfficerRick McKenne
Slide 4: Agenda
4 Agenda Corporate Overview Financial Performance 2018 Outlook State of the Business ● Unum US ● Colonial Life ● Unum UK ● Closed Block Closing Comments Questions and Answers Appendix
Slide 5: Introduction
5 Introduction
Slide 6: Corporate Overview Key Messages
6 Corporate Overview KEY MESSAGES Introduction Leading provider of ancillary employee benefits at the worksite in the US and UK Positive operating trends and market position Improving capital generation and deployment High returning and growing core businesses Disciplined and consistent op
Slide 7: 2017 Outlook Update
7 Corporate Overview 2017 OUTLOOK UPDATE Earnings outlook revised higher; at the top end of new range Good sales and premium growth trends Positive improvement for disability benefits experience and expenses Challenging UK operating environment Stable underlying Closed Block results Shar
Slide 8: Environment
8 Corporate Overview ENVIRONMENT
Slide 9: 2018 Outlook
9 Corporate Overview 2018 Outlook Consistent earnings growth 4% to 7% Mid-single-digit sales and premium growth Strong margins despite interest rate headwinds UK market to see continued uncertainty Steady capital deployment – Share repurchases, dividends and M&A Tax reform expected to be
Slide 10: Diversified Employee Benefits Provider
10 Corporate Overview DIVERSIFIED EMPLOYEE BENEFITS PROVIDER *Before tax results excluding corporate segment
Slide 11: Workers and Families Need a Safety Net
11 Corporate Overview WORKERS AND FAMILIES NEED A SAFETY NET
Slide 12: Our Strategy
12 Corporate Overview OUR STRATEGY
Slide 13: A Leading Franchise
13 Corporate Overview A LEADING FRANCHISE
Slide 14: Strong Market Positions
14 Corporate Overview STRONG MARKET POSITIONS All market positions based on inforce premiums, 2016
Slide 15: Quality and Reputation
15 Corporate Overview QUALITY AND REPUTATION 1 Unum US; Source: Versta Research, 2017 Unum Benefits Broker Study (2017) 2 Unum US, Classic Group (11-1,999); Source: Nielsen, “2016 Employer Loyalty Study” (2017) 3 Long Term Disability, Source: 2016 Unum LTD Claimant Satisfaction Research (2017)
Slide 16: Execution of Our Strategy Drives Strong Financial Performance
16 Corporate Overview EXECUTION OF OUR STRATEGY DRIVES STRONG FINANCIAL PERFORMANCE
Slide 17: 2018 Execution Strategy
17 Corporate Overview 2018 EXECUTION STRATEGY
Slide 18: Our Journey Over the Last Decade
18 Closing Comments Our Journey Over the Last Decade Repurchased over 40% of common stock outstanding Raised the dividend 9 consecutive years, maintained a yield consistent with the market Effectively managing the Closed Block Financial flexibility to capitalize on opportunities Built on r
Slide 19: Franchise Positioned for the Future
19 Closing Comments Franchise Positioned for the Future Strong operational performance Leading market positions in attractive markets Deep relationships with customers and partners Solid financial foundation to capitalize on opportunities
Slide 20: Financial Performance
20 Financial Performance
Slide 21: 2017 Outlook Update
21 Financial Performance 2017 OUTLOOK UPDATE 2017 has been an exceptional year for Unum, with financial results surpassing our original Outlook of 3% to 6% operating EPS growth 2017 outperformance has been primarily driven by strong performance in Unum US, with a relatively even mix of operating
Slide 22: Comparison to Original 2017 Outlook
22 Financial Performance COMPARISON TO ORIGINAL 2017 OUTLOOK
Slide 23: Another Year of Continued Strong Business Trends
23 Financial Performance ANOTHER YEAR OF CONTINUED STRONG BUSINESS TRENDS… *Last Twelve Months Ending September 30, 2017 In billions of US dollars unless otherwise noted
Slide 24: Steady, Favorable Risk Experience
24 Financial Performance STEADY, FAVORABLE RISK EXPERIENCE… † Excluding Reserve Adjustments *Last Nine Months Ending September 30, 2017
Slide 25: Well Managed Expense Trends
25 Financial Performance WELL MANAGED EXPENSE TRENDS… *Last Nine Months Ending September 30, 2017
Slide 26: Results in Strong Operating Margins
26 Financial Performance RESULTS IN STRONG OPERATING MARGINS *Last Nine Months Ending September 30, 2017
Slide 27: Improving Mix of EPS Growth
27 Financial Performance IMPROVING MIX OF EPS GROWTH We have produced a 6.5% earnings per share CAGR since 2012, with consistent growth year-to-year in a challenging and volatile economic environment 2017 growth is above the recent trend due to the acceleration of favorable benefits experience i
Slide 28: Strong Performance Drives Strong Trends in Capital Management
28 Financial Performance STRONG PERFORMANCE DRIVES STRONG TRENDS IN CAPITAL MANAGEMENT
Slide 29: Topics
29 Financial Performance Topics Interest Rates Long-term Care Capital Management
Slide 30: Invested Asset Quality
30 Financial Performance INVESTED ASSET QUALITY Investment grade bonds remain our core holding. *Excludes Policy Loans 1 Formerly 5.12% due to Lehman; Moody’s has subsequently removed it *Trailing 12 month default rates
Slide 31: High Yield and Alternatives
31 High Yield Our allocation to high yield has remained very consistent over time at roughly 7% of invested assets. Our allocation of new purchases to high yield tend to be higher, driven by our desire to maintain our current exposure and the following: ● Higher turnover – High yield is typicall
Slide 32: LTD Interest Margin
32 Unum US LTD Discount Rate We made a 50 basis point reduction in the new claims discount rate for Unum US LTD implemented in 4Q2016 The current margin is very healthy and at the upper end of our target range We are comfortable with our current discount rate, and we anticipate the group disab
Slide 33: Long-Term Care
33 Financial Performance LONG-TERM CARE We have exceeded the new money yield assumption every quarter since 4Q2014, building margin in the reserve We have experienced a higher interest-adjusted loss ratio recently and expect that to continue in 2018 Interest margins have offset the higher loss
Slide 34: Capital Management
34 Capital sources are driven primarily by our US traditional insurance companies statutory earnings, enhanced by: ● Unum UK dividends ● Dividends from other affiliates ● Other receipts Our deployment priorities remain constant: ● Invest in the growth of our core businesses ●M&A ● Support the sh
Slide 35: Capital Management: 2018 Expectations
35 2018 Expectations Strong statutory earnings continue to drive robust dividend capacity Repayment of $200 million debt maturity Share buybacks consistent with 2017 Capital deployment to captives comparable to previous years Exploring M&A opportunities to enhance our business lines Financ
Slide 36: Closing Comments
36 2017 has been an exceptionally strong year for Unum ● Provides additional flexibility moving into 2018 Our success remains grounded in the disciplined execution of all aspects of our business plan Capital generation remains strong; providing additional flexibility for capital deployment W
Slide 37: 2018 Outlook
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Slide 38: 2018 Outlook Key Messages
38 2018 Outlook KEY MESSAGES Core business lines in US expected to generate solid performance − Good premium growth based on continued sales trends and steady persistency − Stable benefits experience − Expense ratios generally flat with 2017 Brexit continues to pressure Unum UK − Lack of “natura
Slide 39: Factors Impacting Our 2018 Outlook
39 2018 Outlook FACTORS IMPACTING OUR 2018 OUTLOOK
Slide 40: 2018 Expectations
40 Our strong statutory results in recent years has positioned our balance sheet very well; Enables high level of return to shareholders Maintain RBC Ratio above 375% Holding Company cash position greater than1X fixed charges Leverage reduced by approximately 2% $400 million of share repurch
Slide 41: An Outlook with Continued Growth
41 2018 Outlook AN OUTLOOK WITH CONTINUED GROWTH *Consolidated After-Tax Operating Earnings including Corporate Segment
Slide 42: Closing Comments
42 4% to 7% Operating EPS Growth Anticipated trends ●Stable margins in our core business lines ●Difficult UK environment due to Brexit ●Continued, but declining, drag from low interest rates Awaiting final tax reform legislation; Expected to be net positive to our business Consistent return
Slide 43: State of the Business
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Slide 44: Unum US
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Slide 45: Unum US Business Snapshot
45 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 Em
Slide 46: Unum US Strategy
Unum US CUSTOMER PRODUCTS RISK MANAGEMENT EXPERIENCES & SERVICES & DISTRIBUTION EFOEIE Differentiated customer Market leadership Expanded competence in Unique focus experience that in expanded set tisk management and on people and improves as the of products and distribution through data values-base
Slide 47: Unum US Market Trends
47 Employers are more committed to benefits than ever, but …need help with cost, administration, and employee engagement Consumer need for financial protection is growing, but …they don’t understand our products well Technology enabling new distribution and offerings, but …insurance is highly
Slide 48: Growth Through Better Client Experiences
48 Unum US GROWTH THROUGH BETTER CLIENT EXPERIENCES • Talented and engaged workforce of employee benefit experts • Customer focused implementation of Lean Process Improvement • Digital and Automation investments delivers through Agile • Deep integration with select Human Capital Management (HCM) pla
Slide 49: Growth Through Better Client Experiences
49 Unum US GROWTH THROUGH BETTER CLIENT EXPERIENCES 1Unum US, NCG(>2,000); Source: Unum, “Large Case Customer Account Manager Relationship Survey” (2017)
Slide 50: Growth Through Product Expansion: Dental & Vision
50 Unum US GROWTH THROUGH PRODUCT EXPANSION *YTD quotes through mid-November Unum Dental & Vision 2 regions rolled out for Unum in 2017 (~50% of the market); roll out to remaining regions in 1Q18 In 2017, regions with access to Starmount dental experienced 10-15% higher disability & life quote a
Slide 51: Growth Through Product Expansion: Medical Stop-Loss
51 Unum US GROWTH THROUGH PRODUCT EXPANSION • Medical Stop-Loss is a $15B market with ~15% growth in the past three years, and ROEs in the high teens to the low 20’s. • Coverage is sold through the same brokers as Group and Voluntary benefits • Provides Unum access to medical plan designs, allowing
Slide 52: Risk Management and Distribution
52 Unum US RISK MANAGEMENT AND DISTRIBUTION
Slide 53: Unum US Summary
53 Our strong overall results reaffirm the validity of our key strategies: strong client experience, product leadership and investments in data-driven risk management and distribution ●We anticipate solid operating earning growth after a strong 2017 ● Disciplined top line growth ● Consistent risk
Slide 54: Unum US 2018 Financial Outlook
54 Unum US 2018 FINANCIAL OUTLOOK
Slide 55: Colonial Life
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Slide 56: Colonial Life Business Snapshot
56 Colonial Life BUSINESS SNAPSHOT Primary Products ● Accident, Sickness and Disability ● Life (Term, UL, WL) ● Cancer and Critical Illness Market Share* ● #6 Voluntary Carrier with 6% market share ● Product Sales: - #2 in STD and Cancer - #3 in Accident - #3 in Hospital Indemnity, UL & WL and C
Slide 57: Colonial Life Strategy
Colonial Life STRATEGY + To protect 5 million customers by 2020 Rearen ane onphalasenesie pany ie it modern, fit experiences + Grow and leverage our ributic ‘h I indivi focus on th + Public and private sectors + Sold direct to employers or through “America’s Brokers” GROWTH/DISTRIBUTION CUSTOMER EXP
Slide 58: Colonial Life Key Messages
58 Colonial Life continues to deliver, strong, consistent results, driven primarily by strong premium income growth and diligent expense management. 2018 is expected to deliver slightly lower earnings growth, driven by accelerating investments in our future growth. Investments in distribution
Slide 59: Territory Expansion
59 There is opportunity for continued territory expansion We opened 3 new territories in 2017 and expect to continue adding 2-4 new territories per year for the foreseeable future. We will continue to invest in broker and public sector support resources to ensure we continually drive execution
Slide 60: Persistency and Retention
60 Despite maintaining industry leading persistency, customer persistency remains a key area of focus. We are focused on the customer experience and are investing in people, process and technology to drive higher levels of engagement and satisfaction at the employer and consumer levels. Examples
Slide 61: Leveraging Dental
61 Expand Colonial Life’s market position and distribution opportunities by integrating competitive, best-in-class, dental and vision products into our portfolio. A dental vision offering provides our distribution a leading capability to compete in the employer core benefit market. On track to
Slide 62: Millennials
62 Colonial Life MILLENIALS Millennials are a growing share of the workforce. Studies indicate that Millennials value face-to-face consultation when purchasing insurance. Millennials value the types of products and advice Colonial Life offers. Over 35% of Colonial’s YTD 2017 sales were to Mill
Slide 63: 2017 Year-to-Date Results
63 Colonial Life 2017 YEAR-TO-DATE RESULTS Our 2017 YTD sales demonstrate the success of our strategic initiatives and investments in sales leadership, distribution effectiveness and sales support ● Solid sales fundamentals through third quarter 2017: - New account sales up 8.6%, Existing account
Slide 64: Colonial Life 2018 Financial Outlook
64 Colonial Life 2018 FINANCIAL OUTLOOK
Slide 65: Unum UK
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Slide 66: Unum UK Business Snapshot
66 Unum UK BUSINESS SNAPSHOT Primary Products ● Group Income Protection ● Group Life ● Supplementary and Voluntary products: Group Critical Illness, Dental, Individual Income Protection (Closed) Market Share ● #1 Group Income Protection (38%) ● #5 Group Life (9%) ● #3 Group Critical Illness (14%
Slide 67: Unum UK Business Strategy Overview
67 Unum UK BUSINESS STRATEGY OVERVIEW
Slide 68: Doing Well in a Challenging Environment
68 2017 YTD September results are stable in a very challenging environment ● Sales up 11% on prior year with strong growth in Dental and Critical Illness. ● Earned premium growth of 2% despite pricing strategy on interest rate sensitive products. ● Profit lower than 2016 due to lower natural growth
Slide 69: Unum UK Operating Environment
69 Unum UK OPERATING ENVIRONMENT
Slide 70: Unum UK 2018 Key Priorities
70 Optimal Financial Management – Deliver focused rate increases in interest rate sensitive products, targeting increased small case sales and optimizing investment returns. Monitor and mitigate environmental challenges – e.g. Brexit. 2017 challenges to insured workforce, wage growth and claims
Slide 71: Unum UK Summary
71 Brexit continues to generate significant uncertainty and ambiguity in our market place and the economic outlook. Lower economic growth, wage inflation and interest rate outlook continues to have a negative impact on our growth expectations in the short to medium term. We continue to monitor
Slide 72: Unum UK 2018 Financial Outlook
72 Unum UK 2018 FINANCIAL OUTLOOK
Slide 73: Closed Block
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Slide 74: Closed Block Business Snapshot
74 Closed Block BUSINESS SNAPSHOT Legacy Discontinued Blocks ● Individual Disability ● Long-term Care Distribution ● IDI Sales discontinued in mid-1990’s ● ILTC Sales discontinued in 2009 ● GLTC Sales discontinued in 2011 In $ Million, as of September 30, 2017, excludes MV (FAS 115) adjustment *
Slide 75: LTC Inforce Premium and Risk Experience
75 Closed Block LTC INFORCE PREMIUM AND RISK EXPERIENCE As of September 30, 2017
Slide 76: Closed Block Strategy
Closed Block STRATEGY FINANCIAL ANALYSIS LTC RATE INCREASES CAPITAL MANAGEMENT ie it justified rate i i manage the blocks. increases. changes to enhance financial flexibility. + Continue to build out LTC and IDI ify hi impr [i it the long financial platforms. policyholder options. term capital needs
Slide 77: Closed Block Key Messages
77 Closed Block KEY MESSAGES We have achieved rate increase approvals for 85-90% of the estimated value embedded in our LTC GAAP reserves. We have exceeded our LTC new money yield targets while maintaining our aggregate investment credit profile. Better than expected interest margins have offset
Slide 78: Premium Rate Increase Program
78 Closed Block PREMIUM RATE INCREASE PROGRAM We have made significant progress on our current rate increase program, and reserves have no value estimated for future rate increase programs. We have had success in larger, more complex states since last Investor Day. However, phasing in approvals
Slide 79: LTC Loss Ratio and Reserve Outlook
79 Closed Block LTC LOSS RATIO AND RESERVE OUTLOOK Reserve Adequacy studies complete; we feel comfortable with our position. Since our 2014 reserve update, the cumulative LTC interest-adjusted loss ratio has been 89.7%, which is at the upper end of our expected 85-90% range. Our outlook is the l
Slide 80: Closed Individual Disability Block
80 Closed Block CLOSED INDIVIDUAL DISABILITY BLOCK In 3Q07, we securitized a large portion of our closed individual disability block into a special purpose reinsurance vehicle – Northwind. Northwind continues to perform as expected, with an expected debt payoff in 2020. This highlights the predi
Slide 81: Closed Block Summary
81 Overall Closed Block earnings are expected to remain consistent in 2018 compared to 2017. Over the long term, we expect gradually declining income trends for this segment as these closed blocks of business wind down. We will continue to execute on our well-defined strategy of implementing l
Slide 82: Closed Block 2018 Financial Outlook
82 Closed Block 2018 FINANCIAL OUTLOOK
Slide 83: Closing Comments
83 Closing Comments
Slide 84: Key Takeaways
84 Closing Comments Key Takeaways Strong operating performance Leading market positions in growing markets Solid financial foundation provides substantial flexibility Strong capital generation that funds growth and fuels enhanced capital deployment Substantial leverage to rising interest r
Slide 85: Questions and Answers
85 Questions and Answers
Slide 86: Reconciliation of Non-GAAP Financial Measures
86 Appendix Reconciliation of Non-GAAP Financial Measures
Slide 87: Reconciliation of Non-GAAP Financial Measures
87 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 accordanc
Slide 88: Reconciliation of Non-GAAP Financial Measures
88 Appendix RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Four Quarters Ended September 30, 2017 (in millions) Net Income 975.3$ Excluding: Net Realized Investment Gain (net of tax expense of $20.9) 36.4 Loss from Guaranty Fund Assessment (net of tax benefit of $7.2) (13.4) After-tax Operating Incom
Slide 89: Reconciliation of Non-GAAP Financial Measures
89 Appendix RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (in millions) per share* (in millions) per share* (in millions) per share* (in millions) per share* Net Income 727.3$ 3.19$ 683.4$ 2.88$ 931.4$ 3.95$ 867.1$ 3.50$ Excluding: Net Realized Investment Gain (Loss) (net of tax expense (benefit) of
Slide 90: Reconciliation of Non-GAAP Financial Measures
90 Appendix RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (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 (Book Value) 9,448.6$ 42.11$ 8,968.0$ 39.02$ 8,663.9$ 35.96$ 8,521.9$ 33
Slide 91: Reconciliation of Non-GAAP Financial Measures
91 Appendix RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (in millions) Benefit Ratio (in millions) Benefit Ratio Year Ended December 31, 2013 Premium Income 4,517.1$ 1,232.2$ Benefits and Change Reserves for Future Benefits 3,222.4 667.0 Unclaimed Death Benefits Reserve Increase (75.4) (20.1) Group