Unum Group · NYSE:UNM
Unum — Investor Day (December 2014)
74 slides from Unum's investor day presentation, Dec 16, 2014
Slide 1: 2015 Outlook Meeting
2015 Outlook Meeting December 16, 2014 | New York Exhibit 99.2
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 Today’s Participants Business Segment Presidents Rick McKenney President and Chief Executive Officer Tom Watjen Executive Vice President and Chief Financial Officer Tom White Senior Vice President, Investor Relations Mike Simonds President and Chief Executive Officer, Unum US Peter O’Donnell Presi
Slide 4: Agenda
4 Agenda Introduction State of the Business Financial Performance Investment Performance Closed Block 2015 Outlook Questions & Answers Core Business Segment Overviews Unum US Unum UK Colonial Life Closing Comments Questions & Answers Appendix
Slide 5: es =) fe) OS O = €
es =) fe) OS O = 5 € 5
Slide 6: A Track Record of Consistency and Predictability
A TRACK RECORD OF CONSISTENCY AND PREDICTABILITY… 6 Introduction $0.00 $1.00 $2.00 $3.00 $4.00 2004* 2005* 2006* 2007* 2008 2009 2010 2011 2012 2013 2014 * Does not reflect impact of ASU 2010-26. +5-10% OPERATING EPS 7.2% CAGR * * December 31, 2007 common shares outstanding 0.0% 5.0% 10.0% 15.0% 20.
Slide 7: And the Emergence of Profitable Growth
Sales Growth* Premium Growth* … AND THE EMERGENCE OF PROFITABLE GROWTH 7 Introduction 12-Month Rolling Sales ($MM) (CAGR: 8.8%) * Core Operations, Excludes the Closed Block * Core Operations, Excludes the Closed Block Year-over-Year Change (CAGR: 2.9%) $1,100 $1,150 $1,200 $1,250 $1,300 2Q13 3Q13 4Q
Slide 8: Why: Attractive Businesses, Need for Coverage, Workplace Distribution
8 WHY ... ATTRACTIVE BUSINESSES N EED FOR C OVERAGE W ORKPLACE IS A P OWERFUL D ISTRIBUTION C HANNEL C APABLE OF G ENERATING A TTRACTIVE F INANCIAL R ETURNS Introduction * 9 months 2014 Operating Return on Equity 78% 84% 90% 91% 66% 27% 92% 65% 76% In the US In the UK Yet 13.5% 17.1% 18.2% Operating
Slide 9: Why: Experienced Management Team and Highly Engaged Employees
9 WHY… EXPERIENCED MANAGEMENT TEAM AND HIGHLY ENGAGED EMPLOYEES Years with Unum Company Leaders * Current Position Total Years In Financial Services ENGAGEMENT Introduction Tom Watjen, President & CEO 12 Yrs 20 Yrs 33 Yrs Rick McKenney, Chief Financial Officer 5 Yrs 5 Yrs 21 Yrs Jack McGarry, CEO, C
Slide 10: Why: A History of Transparency and Addressing Issues
10 WHY… A HISTORY OF TRANSPARENCY AND ADDRESSING ISSUES AS THEY EMERGE Introduction
Slide 11: Operating in a Low Interest Rate Environment
11 Rate Environment Management Actions OPERATING IN A LOW INTEREST RATE ENVIRONMENT… Introduction Source: Barclays Capital; U.S. Credit 7-10 years yield to worst, Sterling Corporate 7-10 years yield to worst UK-LTD US-LTD US-Grp Life UK-Grp Life LTC US-VWB Colonial Life CDB ID-RI HIGH RE-PRICING FLE
Slide 12: Why: A History of Transparency and Addressing Issues
12 WHY… A HISTORY OF TRANSPARENCY AND ADDRESSING ISSUES AS THEY EMERGE Introduction
Slide 13: Reposition LTC Block: Action and Implications
13 REPOSITION LTC BLOCK… ACTION AND IMPLICATIONS Action Expected in 4Q2014 Strengthen Long-term care GAAP reserves by $600 to $800 million Implications Year-end 2014 capital metrics remain within or above our original 2014 outlook range Includes First Unum (New York) statutory reserve increase of ap
Slide 14: Continued Strong Outlook
14 CONTINUED STRONG OUTLOOK 2015 Outlook Sales Growth Premium Growth Operating Earnings Growth Operating ROE Introduction * Consolidated After-Tax Operating Earnings including Corporate Segment 2015 Normalized 2015 Normalized 2015 Normalized 2015 Normalized Unum US 2-4% 8-10% 4-6% 4-7% 1-3% 4-7% 12-
Slide 15: State of the Business
State of the Business
Slide 16: Financial Performance
Financial Performance
Slide 17: 2014 Outlook
17 2014 OUTLOOK We continue to expect 2014 full year operating earnings per share growth in our range of 5% to 10% 4Q2014 operating trends Sales and premium growth trends remain solid, with continued momentum Generally solid risk results Continued pressure on net investment income o Includes 50 basi
Slide 18: Operating Earnings Growth Drivers of 2014 Financial Performance
18 OPERATING EARNINGS GROWTH DRIVERS OF 2014 FINANCIAL PERFORMANCE Original 2014 Outlook 5% to 10% Premium Growth Risk Interest Rates + + - - Current 2014 Outlook 5% to 10% Financial Performance
Slide 19: Consistently Strong Returns
19 CONSISTENTLY STRONG RETURNS YTD 2014 Operating Return on Equity 18% 12% 20% 8% 14% 34% YTD % AVERAGE CONSOLIDATED GAAP EQUITY Total 11.0% Financial Performance (as of 9/30/14) Unum US Group Disability Unum US Group Life and AD&D Unum US Supplemental & Voluntary Unum UK Colonial Life Closed Block
Slide 20: Improving Growth in Our Core Businesses
20 Premium Growth IMPROVING GROWTH IN OUR CORE BUSINESSES Sales Growth 2014 Outlook YTD Actual Unum US 0 – 2% 2.3% Unum UK ( £ ) 0 – 2% 1.4% Colonial Life 2 – 4% 3.1% Total * 1 – 3% 3.1% Financial Performance 2014 Outlook YTD Actual Unum US 7 – 10% 18.3% Unum UK ( £ ) 4 – 7% 0.0% Colonial Life 4 – 7
Slide 21: Improving Growth in Our Core Businesses
21 Sales Growth* Premium Growth* IMPROVING GROWTH IN OUR CORE BUSINESSES Financial Performance 12-Month Rolling Sales ($MM) (4-Year CAGR: 3.5%) * Core Operations, Excludes the Closed Block Trendline: 3Q10 – 1Q13 * Core Operations, Excludes the Closed Block Year-over-Year % Change (4-Year CAGR: 2.3%)
Slide 22: Steady, Favorable Risk Experience
22 STEADY, FAVORABLE RISK EXPERIENCE U NUM UK U NUM US C OLONIAL L IFE BENEFIT RATIOS Financial Performance *Year to Date through September 30, 2014 † 73.4% 72.5% 72.7% 71.6% 70.3% 2010 2011 2012 2013 2014* 49.7% 51.9% 52.5% 52.5% 51.7% 2010 2011 2012 2013 2014* 67.0% 71.8% 77.9% 74.3% 71.7% 2010 20
Slide 23: Capital Generation
23 Combined Statutory Net Income * CAPITAL GENERATION Capital Generation Model ($ millions) Financial Performance * Statutory Net Income for traditional US Insurance Companies † Estimate ($ millions) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014† $0.6 -$8.2 $64.1 $58.3 $141.2 -$102.0 -$16.9 $21.
Slide 24: Active Capital Deployment
24 ACTIVE CAPITAL DEPLOYMENT TOTAL $2,796 million* $883 million Share Repurchases Dividends Paid Financial Performance 2008 2009 $700 million --- 2010 2011 $356 million $620 million $104 million $105 million $115 million $121 million 2012 $500 million $134 million 2013 $319 million $147 million 2014
Slide 25: Strong Capital Position
25 Risk Based Capital Holding Companies’ Cash and Marketable Securities STRONG CAPITAL POSITION Year-End 2013 405% $514 million September 2014 400% $720 million Original 2014 Outlook 375% - 400% >$500 million Financial Performance
Slide 26: Investment Performance
Investment Performance
Slide 27: Asset Quality / Interest Rate Management
27 Asset Quality Interest Rate Management Investment Performance
Slide 28: Asset Quality
Invested Asset Distribution Credit Losses Relative to Moody’s Index ASSET QUALITY Investment Grade Corporate 57.3% 28 (Book Value - $42.4B) Investment Performance Investment grade corporate bonds remain our core holding. Formerly 5.12% due to Lehman; Moody’s has subsequently removed it Investment Gr
Slide 29: Implications of Low Interest Rates
10-Year Treasury Investment Grade Bond Spreads IMPLICATIONS OF LOW INTEREST RATES 29 Barclays Single-A Intermediate OAS Investment Performance 3.00% 2.50% 1.00% 0.00% 3.50% 2.00% 1.50% 0.50% 2.50% 1.00% 0.00% 2.00% 1.50% 0.50%
Slide 30: Managing Low Interest Rates
30 MANAGING LOW INTEREST RATES Pricing Flexibility Discount Rate Adjustments Manageable Investable Cash Flows Disciplined Asset Selection Investment Performance
Slide 31: Product Line Sensitivities
31 PRODUCT LINE SENSITIVITIES Investment Performance UK-LTD US-LTD US-Grp Life UK-Grp Life LTC US-VWB Colonial Life CDB ID-RI LOW HIGH LOW HIGH R E - P R I C I N G F L E X I B I L I T Y
Slide 32: Purchase Yields and Margins
32 Total Portfolio Purchase Yields Unum US LTD PURCHASE YIELDS AND MARGINS (Target Margin = 60 bps) Investment Performance 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% Portfolio Yield Liability Discount Rate 81 bps 91 bps
Slide 33: Manageable Investable Cash Flow
33 MANAGEABLE INVESTABLE CASH FLOW Unum US - LTD Colonial ID – Closed Block Long-term Care Unum - Combined Unum US – ID - Recently Issued Investment Performance $8.8 billion $900 million $45.6 billion $240 million $8.2 billion $2.6 billion $270 million $9.1 billion $75 million $2.1 billion $90 milli
Slide 34: UnumGroup
ee @ UNUMGROUP
Slide 35: Business Snapshot: Closed Block
35 BUSINESS SNAPSHOT Closed Block * 50% Closed Block 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 Size and Scale Total Reserves of $29 billion GAAP Equity of $2.9 bill
Slide 36: 2014 Long Term Care Reserve Review
36 2014 LONG TERM CARE RESERVE REVIEW We are conducting a comprehensive review of all assumptions underlying our Long Term Care reserves. Potential GAAP Impacts: Before-tax charge of $600 million to $800 million anticipated. Primarily attributable to reduction in the discount rate in response to cur
Slide 37: 2015 Key Priorities
37 2015 KEY PRIORITIES Operational Effectiveness High quality claims management Cost efficient customer service capabilities Effective implementation of approved rate increases LTC Rate Increases Continue to pursue justified rate increases Offer enhanced policyholder options Lead regulatory outreach
Slide 38: 2015 Financial Outlook
38 2015 FINANCIAL OUTLOOK 2015 Outlook Normalized Sales Growth Premium Growth Operating Earnings Growth Operating ROE Closed Block N/A N/A (4 - 6)% (4 - 6)% (10 – 12)% (4 - 6)% 2 - 3% 2 - 3%
Slide 39: UnumGroup
ee @ UNUMGROUP
Slide 40: Key Messages
40 KEY MESSAGES Continued favorable premium growth trends Persistency remains stable Expect generally stable risk results through disciplined pricing, risk selection and renewals Full year impact of Group LTD 4Q discount rate adjustment Continued Pressure on net investment income from lower investme
Slide 41: Factors Impacting Our 2015 Outlook
41 FACTORS IMPACTING OUR 2015 OUTLOOK 2% to 5% Growth 2015 Outlook +2-3% +4-5% (3-4)% 0-(1)% 0% Premium Growth and Favorable Risk Yield and Discount Rate Pressure Closed Block, Tax and Other Capital Management 2015 Outlook
Slide 42: Capital Outlook
42 CAPITAL OUTLOOK Capital Management Criteria Sept 2014 2014 Projection 2015 Projection 2015 Outlook Risk-Based Capital Ratio for Traditional U.S. Insurance Companies 400% ~400% Holding Companies’ Cash and Marketable Securities ($ millions) $720 >$500 >$500 375% - 400%
Slide 43: Business Segment Outlook
43 BUSINESS SEGMENT OUTLOOK Sales Growth Premium Growth Operating Earnings Growth Operating ROE Core Operations 4 - 6% 4 - 6% 1 - 3% 13 - 14% Total 2 - 5% 11 - 12% 2015 Outlook * Consolidated After-Tax Operating Earnings including Corporate Segment Unum US 2 - 4% 4 - 6% - 3% 12 - 14% Unum UK (£) 7 -
Slide 44: Questions & Answers
Questions & Answers
Slide 45: Core Business Segment Overviews
Core Business Segment Overviews
Slide 46: UnumGroup
UNUMGROUP
Slide 47: Business Snapshot: Unum US
47 BUSINESS SNAPSHOT Unum US * +18% Growth 44% 28% 7% +5% Growth +15% Growth Unum US Employee Benefits Group Long Term and Short Term Disability Group Life and AD&D Voluntary Benefits Individual Disability Benefits Market Characteristics Top 3 market share position across all major product categorie
Slide 48: Unique in Financial Protection
48 UNIQUE IN FINANCIAL PROTECTION EMPLOYEE BENEFITS 44% of Fortune 100 With Unum Benefits AND Broad & Diverse Client Base Strong service – 93% client satisfaction Unmatched expertise – 2,500 benefits professionals Disciplined pricing & underwriting using largest, most diverse private data set Strong
Slide 49: Growth by Engaging Clients and Their Employees
49 GROWTH BY ENGAGING CLIENTS AND THEIR EMPLOYEES Opportunities Within Existing Client Base Market Moving to Employee Pay Improving Sales Momentum 54% 69% Unum US ACA Distraction % of Sales with Employee Contribution 12-Month Rolling Sales ($MM) % of Sales from Existing Clients 6.5% (CAGR) 100% 100%
Slide 50: 2015 Business Outlook
50 2015 BUSINESS OUTLOOK Strong growth momentum Continued strong persistency with deeper relationships Strong sales growth within existing clients, partially offset by our expectation that new large case sales will not duplicate 2014 Stable risk environment as the economy gradually improves Operatin
Slide 51: Interest Rate Impact to 2015 Outlook
51 2015 Growth Outlook INTEREST RATE IMPACT TO 2015 OUTLOOK Unum US 2014 BTOE Growth Risk & Operating Expense NII & Discount Rate 2015 BTOE 4%-6% 4%-6% (7%-9%) 1%-3%
Slide 52: 2015 Financial Outlook
52 2015 FINANCIAL OUTLOOK 2015 Outlook Normalized Sales Growth* Premium Growth Operating Earnings Growth Operating ROE Unum US * 6-8% excluding large employer group - 4% - 10% 4 - 6% 4 - 7% 1 - 3% 4 - 7% - 14% - 14%
Slide 53: UnumGroup
ee @ UNUMGROUP
Slide 54: Business Snapshot: Unum UK
54 BUSINESS SNAPSHOT Unum UK * Unum UK Primary Products Group Income Protection Group Life and Group Dependents Supplementary and Voluntary products: Group Critical Illness, Individual Income Protection (Closed) Market Share # 1 Group Income Protection # 4 Group Life # 3 Group Critical Illness Marke
Slide 55: Strategy
55 STRATEGY Deliver Industry-leading Customer Experience Grow Group Income Protection Market Grow Group Risk Block Introduce Related Products and Services Simplify our Processes and Operations Develop Talent and Leadership Capital Management Strategy Unum UK
Slide 56: 2015 Business Outlook
56 2015 BUSINESS OUTLOOK Unum UK Primary focus remains expanding the UK Group Income Protection market. Re-pricing and re-positioning of our group life block is complete. We are now looking to grow our group risk business: Develop the UK short-term disability market via Sick Pay Insurance product Pr
Slide 57: 2015 Key Priorities
57 2015 KEY PRIORITIES Unum UK Expand the Market Focus on education and CRM to grow the Group Income Protection market Become provider of choice for brokers across all group risk products Explore portfolio diversification opportunities Build Capabilities to Enable Profitable Growth Simplify and stre
Slide 58: 2015 Financial Outlook
58 2015 FINANCIAL OUTLOOK 2015 Outlook Normalized Sales Growth Premium Growth Operating Earnings Growth Operating ROE Unum UK 7 - 9% 10 - 12% 0 - 2% 4 - 7% 1 - 3% 4 - 7% 16 - 18% 15 - 20%
Slide 59: Colonial Life
Colonial Life
Slide 60: Business Snapshot: Colonial Life
60 BUSINESS SNAPSHOT Colonial Life *** +29% Growth 12% Colonial Life Earned Premium $1.26 billion Before Tax Operating Income $295 million Operating Return on Equity 16.9% * * Sales Premium as of 9/30/2014 * * * 4 Quarters Ending 9/30/2014 * Market share based on Eastbridge U.S. Worksite /Voluntary
Slide 61: 2015 Business Outlook
61 2015 BUSINESS OUTLOOK Colonial Life Our 2014 sales success points to execution of our strategic initiatives and investments in sales leadership, distribution effectiveness and sales support. Strong sales fundamentals through third quarter 2014: o New accounts up 9% o New account sales up 17% and
Slide 62: 2015 Plan Drivers - Marketplace
62 2015 PLAN DRIVERS - MARKETPLACE Employers Brokers Consumers Colonial Life Provide solutions for employers to contain costs, administer benefits and help employees make benefits decisions Focus on small employers to expand the market and offset broker exit Leverage broad expertise and partnerships
Slide 63: 2015 Key Priorities
63 2015 KEY PRIORITIES Growth Customer Experience Productivity Colonial Life Grow distribution footprint through sales organization and alliances Achieve balanced sales among target markets Introduce new and updated products Reduce customer effort for consumers and partners Enhance administration ca
Slide 64: 2015 Financial Outlook
64 2015 FINANCIAL OUTLOOK 2015 Outlook Normalized Sales Growth Premium Growth Operating Earnings Growth Operating ROE Colonial Life 5 - 8% 6 - 8% 2 - 4% 5 - 7% 2 - 4% 4 - 6% 15 -17% 15 -17%
Slide 65: Closing Comments
Closing Comments
Slide 66: Closing Comments
66 Good operating businesses with positive long-term trends An intense focus on the management of our closed block Solid financial foundation and predictable cash flow remain an asset We are confident we are taking the actions needed to continue to build value Closing Comments • …and a commitment to
Slide 67: Continued Strong Outlook
67 CONTINUED STRONG OUTLOOK 2015 Outlook Sales Growth Premium Growth Operating Earnings Growth Operating ROE Closing Comments * Consolidated After-Tax Operating Earnings including Corporate Segment 2015 Normalized 2015 Normalized 2015 Normalized 2015 Normalized Unum US 2-4% 8-10% 4-6% 4-7% 1-3% 4-7%
Slide 68: Questions & Answers
Questions & Answers
Slide 69: Appendix: Reconciliation of Non-GAAP Financial Measures
Appendix Reconciliation of Non-GAAP Financial Measures
Slide 70: Slide 70
Slide 71: Reconciliation of Non-GAAP Financial Measures
70 RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Appendix After-Tax Average Operating Allocated Annualized Earnings (Loss) Equity* Operating Return On Equity Nine Months Ended September 30, 2014 Unum US Group Disability 138.9 $ 1,528.2 $ 12.1% Group Life and Accidental Death and Dismemberment 119.8
Slide 72: Slide 72
Slide 73: Reconciliation of Non-GAAP Financial Measures
71 RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Appendix Nine Months Ended September 30, 2014 After-tax Operating Earnings 681.6 $ Net Realized Investment Gain, Net of Tax 24.0 Non-operating Retirement-related Loss, Net of Tax (2.7) Costs Related to Early Retirement of Debt, Net of Tax (10.4) Net I
Slide 74: Reconciliation of Non-GAAP Financial Measures
72 RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Appendix Four Quarters Ended September 30, 2014 (in millions) After-tax Operating Income 905.4 $ Net Realized Investment Gain, Net of Tax 29.8 Non-operating Retirement-related Loss, Net of Tax (4.2) Costs Related to Early Retirement of Debt, Net of Ta