Unum Group · NYSE:UNM
Unum — Investor Day (December 2013)
59 slides from Unum's investor day presentation, Dec 16, 2013
Slide 1: 2014 Outlook Meeting
2014 Outlook Meeting December 16, 2013 | 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 may be considered "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 ra
Slide 3: Today's Participants
3 Today’s Participants Business Segment Presidents Peter O’Donnell President and Chief Executive Officer, Unum UK President and Chief Executive Officer, Unum US Mike Simonds Jack McGarry President and Chief Executive Officer, Closed Block Randy Horn President and Chief Executive Officer, Colonial Li
Slide 4: Agenda
4 Introduction State of the Business Financial Performance Unum US Unum UK Colonial Life Closed Block Investment Performance 2014 Outlook Closing Comments Agenda
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Slide 6: A Track Record of Delivering Results
A TRACK RECORD OF DELIVERING RESULTS 6 Introduction $0.00 $1.00 $2.00 $3.00 $4.00 2004* 2005* 2006* 2007* 2008 2009 2010 2011 2012 2013 OPERATING EPS 7.4% CAGR* * Does not reflect impact of ASU 2010-26 and special items. +3-6% STOCK REPURCHASE HISTORY ($ millions) $- $200 $400 $600 $800 2004 2005 20
Slide 7: Why... Good Businesses, Solid Macros
7 Total 11.6% Employer Paid 46% Employer Paid 31% WHY… GOOD BUSINESSES YTD % AVERAGE CONSOLIDATED GAAP EQUITY 7 SOLID “MACROS” Tremendous need for basic financial protection The workplace is the most efficient way to educate consumers and provide simple solutions For most consumers, if they don’t ge
Slide 8: Why... A History of Transparency and Proactively Addressing Issues
8 WHY… A HISTORY OF TRANSPARENCY AND PROACTIVELY ADDRESSING ISSUES 8 Introduction
Slide 9: Why... Experienced Management Team and Highly Engaged Employees
WHY… EXPERIENCED MANAGEMENT TEAM AND HIGHLY ENGAGED EMPLOYEES Company Leaders * Years with Unum Years In Financial Services 9 Introduction Tom Watjen, President & CEO 19 yrs 32 Yrs Kevin McCarthy, Chief Operating Officer 34 Yrs 37 Yrs Rick McKenney, Chief Financial Officer 4 Yrs 20 Yrs Randy Horn, C
Slide 10: Why... Sound Corporate Governance
WHY… SOUND CORPORATE GOVERNANCE 10 Board Structure • Independence • Separate Chairman & CEO • Commitment to Diversity 92% Yes 31% Shareholder Rights • Staggered Board • Poison Pill • Say on Pay Frequency Phasing Out No Annual Compensation • Pay for Performance • Ownership Requirement Significant ali
Slide 11: State of the Business
State of the Business
Slide 12: Financial Performance
Financial Performance
Slide 13: 2013 Outlook
13 2013 OUTLOOK Continue to expect our 2013 full year operating earnings per share growth to be in upper half of 0% to 6% target range Loss ratio trends continue to be generally stable Premiums on track but sales growth slower than planned in a dynamic market Solid capital generation and active capi
Slide 14: Operating Earnings per Share Performing at Higher End of Target Range
14 6.0% Operating Earnings per Share PERFORMING AT HIGHER END OF OUR TARGET RANGE +6% $2.33 $2.47 9 mos - 2012 9 mos - 2013 Financial Performance
Slide 15: Consistently Strong Returns
15 CONSISTENTLY STRONG RETURNS YTD 2013 Operating Return on Equity Total 11.6% YTD % AVERAGE CONSOLIDATED GAAP EQUITY Financial Performance 13.1% 16.6% 12.3% 13.5% 16.8% 2.8% Unum US Group Disability Unum US Group Life and AD&D Unum US Supplemental & Voluntary Unum UK Colonial Life Closed Block 3Q13
Slide 16: Managed Growth in Our Core Business Segments
16 Market Segmentation Growth Trends in Premium Income MANAGED GROWTH IN OUR CORE BUSINESS SEGMENTS 2.6% 2.4% 5.0% -2.4% Financial Performance 4Qtrs Ending 9/30/2013 Growth Markets Unum US – Core Market – Employee Benefits Unum US – Voluntary Benefits Colonial Life Unum UK – Group LTD Opportunistic
Slide 17: Strong Risk Experience and Expense Discipline
17 Benefit Ratios Other Expense Ratios STRONG RISK EXPERIENCE AND EXPENSE DISCIPLINE Financial Performance * Year to Date through September 30, 2013 72.5% 72.7% 71.6% 2011 2012 2013* Unum US 23.2% 22.3% 22.0% 2011 2012 2013* Unum US 51.9% 52.5% 52.5% 2011 2012 2013* Colonial Life 18.9% 18.2% 18.0% 2
Slide 18: Capital Generation
18 CAPITAL GENERATION Combined Statutory Net Income * Capital Generation Model ($ millions) ($ millions) Financial Performance * Statutory Net Income for traditional US Insurance Companies † Trailing twelve months $574.0 $689.4 $850.3 $682.0 $741.2 $645.7 $664.0 $649.8 $740.6 -$8.2 -$64.1 -$58.3 -$1
Slide 19: UPIL Re-domestication
19 UPIL RE-DOMESTICATION Re-domestication of UPIL to a U.S.-domiciled entity finalized Off-shore Bermuda-based captive is now a U.S. regulated entity $300 million capital contribution from holding company Reserves in UPIL at U.S. Statutory levels consistent with Unum America Capitalization consisten
Slide 20: Active Capital Deployment
20 ACTIVE CAPITAL DEPLOYMENT $ Amount ** SUBTOTAL $494 TOTAL $850-900 Financial Performance • YTD September 30, 2013 ** Amounts in Millions Share Repurchases (YTD) * $269 Dividend Payments (YTD) * Tailwind Debt Retirement (1Q-13) Pension Funding (2Q-13) UPIL Re-domestication (4Q-13) 4Q Share Repurch
Slide 21: Strong Capital Position
21 STRONG CAPITAL POSITION Risk Based Capital Holding Companies’ Cash and Marketable Securities Financial Performance Year-End 2012 Actual 396% $805 million 9/30/13 Actual 397% $678 million 2013 Range 375% - 400% $500 - $600 million
Slide 22: Building Book Value
22 BUILDING BOOK VALUE 10.4% Book Value Per Share (Excluding AOCI) Financial Performance 9.1% CAGR Reported Book Value per Share $31.53 $33.20 $20.84 $23.20 $25.69 $26.33 $29.55 2008 2009 2010 2011 2012 $28.66 $31.63 9/30/2012 9/30/2013
Slide 23: 2014 Outlook
23 2014 OUTLOOK No expected change in the overall business environment Loss ratios are expected to remain stable Investment environment is expected to be generally consistent with 2 nd half of 2013 Operating EPS growth from 5-10% Strong capital generation and active capital deployment: $300 to $600
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Slide 25: Business Snapshot: Unum US
25 BUSINESS SNAPSHOT Unum US * 29% Products – Financial protection products, including: Long Term and Short Term Disability Group Life and AD&D Individual Disability and Voluntary Products Distribution – Broker-driven distribution backed by robust network of field offices and extensive home office s
Slide 26: 2014 Business Outlook
26 2014 BUSINESS OUTLOOK Our strategy is focused on expanding employee access to financial protection benefits, broadening our employer client relationships, and building collaborative marketplace partnerships. We expect solid sales growth in 2014 as investments in new products and capabilities offs
Slide 27: 2014 Key Priorities
27 2014 KEY PRIORITIES Consumers Clients Partnerships Unum US Risk Management Client management strategy Claims service and reporting United Healthcare partnership expansion Exchange and benefit administration connectivity Continued new business and renewal discipline Foundational technology investm
Slide 28: 2014 Financial Outlook
28 Sales Growth 7% to 10% Premium Growth 0% to 2% Op. Earnings Growth 1% to 3% Operating ROE 12% to 14% 2014 FINANCIAL OUTLOOK Unum US
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Slide 30: Business Snapshot: Unum UK
30 BUSINESS SNAPSHOT Unum UK * $695 million $131 million 12.2% Products – Specializing in employer-paid protection products, including: Group Income Protection (GIP) Group Life and Critical Illness Sick Pay Insurance Distribution – Strong broker-driven distribution backed by extensive home office su
Slide 31: 2014 Business Outlook
31 2014 BUSINESS OUTLOOK Focused on expanding the Group Income Protection market by partnering with brokers to encourage employers to expand or commence providing protection to their employees Actions taken during 2013 will lead to higher margins in 2014, with plans focused on: Completing the re-pri
Slide 32: 2014 Key Priorities
32 2014 KEY PRIORITIES Distribution Marketing Operations Unum UK Risk Management Use analytics and targeted marketing to deliver awareness campaigns to specific audiences Enhance messages to HR and Finance Directors on the need for financial protection Strengthen analytical capability to maximise un
Slide 33: 2014 Financial Outlook
33 2014 FINANCIAL OUTLOOK Sales Growth 4% to 7% Premium Growth 0% to 2% Op. Earnings Growth 5% to 8% Operating ROE 16% to 18% Unum UK Growth rates shown in GBP
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Slide 35: Business Snapshot: Colonial Life
35 BUSINESS SNAPSHOT Colonial * $1.2 billion $274 million 16.8% Products – Exclusive focus on voluntary benefits market, including: Accident, Sickness & Disability Life Cancer & Critical Illness Distribution – Agency-driven distribution that is national in scope and backed by extensive home office s
Slide 36: 2014 Business Outlook
36 2014 BUSINESS OUTLOOK Our business plan is centered on growth strategy execution, continuous improvement, strong risk management practices, and talent development. 2014 sales growth will be primarily driven by distribution effectiveness and opportunities in the core commercial and public sector s
Slide 37: 2014 Key Priorities
37 2014 KEY PRIORITIES Distribution Segmentation Products & Services Colonial Life Operational Excellence Build out target segment capabilities Focus on customers who value an integrated approach to benefits counseling, enrollment, and voluntary products Maintain a balanced product and service portf
Slide 38: 2014 Financial Outlook
38 2014 FINANCIAL OUTLOOK Sales Growth 4% to 7% Premium Growth 2% to 4% Op. Earnings Growth 1% to 3% Operating ROE 15% to 17% Colonial Life
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Slide 40: Business Snapshot: Closed Block
40 BUSINESS SNAPSHOT Closed Block * $1.4 billion $95 million 2.8% Products – Legacy block of discontinued products, split primarily between: Individual Disability Long Term Care Distribution IDI sales discontinued in the mid-90s ILTC sales discontinued in 2009 GLTC sales discontinued in 2011 Closed
Slide 41: 2014 Business Outlook
41 2014 BUSINESS OUTLOOK In 2014, we expect BTOE growth of 6-9% driven by LTC asset growth and a slight improvement in loss ratios. The financial performance of individual disability block is stable with predictable run-off of premium and capital. Investment yields will continue to be a concern for
Slide 42: 2014 Key Priorities
42 2014 KEY PRIORITIES Operational Effectiveness Financial Analysis Rate Increases Closed Block Capital Management Improved analytics through new LTC actuarial platform Use new experience analysis to drive deeper Continue pursuit of justified rate increases Stratify rate requests and enhance policyh
Slide 43: 2014 Financial Outlook
43 2014 FINANCIAL OUTLOOK Sales Growth NA Premium Growth -4% to -6% Op. Earnings Growth 6% to 9% Operating ROE 2% to 4% Closed Block
Slide 44: Investment Performance
Investment Performance
Slide 45: Strong Credit Quality
45 STRONG CREDIT QUALITY SALES AND WRITE-DOWNS OF INVESTMENTS WATCH LIST Overall credit quality remains very strong Minimal watch list of potential problem credits Immaterial losses from sales and write-downs 3Q13 realized losses reflect active portfolio optimization Average credit quality remains s
Slide 46: Enterprise Interest Rate Impacts
46 ENTERPRISE INTEREST RATE IMPACTS 2013 Results to Date $3.1 billion invested Overall portfolio yield down 15 bps to 6.32% Interest Rate Headwinds Investing new cash flows at lower rates Adjustments to reserve discount rates as necessary Mitigating Factors Opportunistic deployment Placement of prem
Slide 47: Interest Rate Management – Unum US LTD
47 INTEREST RATE MANAGEMENT – UNUM US LTD Management of Interest Margin Pricing flexibility Discount rate adjustments Margin build-up during credit crisis Manageable amount of new cash flow to invest Investment Performance 2004 2005 2006 2007 2008 2009 2010 2011 2012 3Q- UNUM US LTD INTEREST MARGIN
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Slide 49: Key Messages
49 KEY MESSAGES Slightly more favorable sales environment Improved premium growth; 1-3% growth for core operations Persistency remains favorable, generally consistent with 2013 Maintaining strong margins and profitability through disciplined pricing and risk selection Operating EPS growth from 5-10%
Slide 50: Capital Outlook
50 CAPITAL OUTLOOK Capital Management Criteria 3Q-2013 Actual 2013 Projection 2014 Projection 2014 Outlook Risk-Based Capital Ratio for Traditional U.S. Insurance Companies 397% 390% - 400% 375% - 400% Holding Companies’ Cash and Marketable Securities ($ millions) $678 $500 - $600 >$500
Slide 51: Business Segment Outlook
51 BUSINESS SEGMENT OUTLOOK Total 5 – 10% 11 – 12% Sales Growth Premium Growth Operating Earnings Growth Operating ROE Core Operations 5 – 9% 1 – 3% 2 – 4% 13 – 15% 2014 Outlook * Consolidated After-Tax Operating Earnings including Corporate Segment Closed Block (4 – 6%) 6 – 9% 2 – 4% Total Operatio
Slide 52: Closing Comments
Closing Comments
Slide 53: Good operating businesses with positive long-term trends
53 Good operating businesses with positive long-term trends …and a commitment to disciplined growth An intense focus on the management of our closed block …consistent with our history with these types of issues Solid financial foundation and predictable cash flow remain an asset …leading to signific
Slide 54: A Track Record of Delivering Results
BOOK VALUE PER SHARE (ex AOCI) STOCK REPURCHASE HISTORY ($ millions) A TRACK RECORD OF DELIVERING RESULTS 54 Closing Comments DIVIDEND HISTORY 1.0% CAGR 12.9% CAGR BOOK VALUE PER SHARE (ex AOCI) 9.1% CAGR 2.7% CAGR STOCK REPURCHASE HISTORY ($ millions) OPERATING EPS 7.4% CAGR * +3-6% $0.00 $1.00 $2.
Slide 55: Questions & Answers
Questions & Answers
Slide 56: Appendix: Reconciliation of Non-GAAP Financial Measures
Appendix Reconciliation of Non-GAAP Financial Measures
Slide 57: Reconciliation of Non-GAAP Financial Measures
57 RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Appendix 2012 2011 2010 2009 2008 2007** 2006** 2005** 2004** After-tax Operating Income 3.15 $ 2.98 $ 2.73 $ 2.64 $ 2.54 $ 2.25 $ 1.85 $ 1.69 $ 1.78 $ Net Realized Investment Gain (Loss), Net of Tax 0.13 (0.01) 0.05 - (0.89) (0.12) 0.01 (0.02) 0.06 N
Slide 58: Reconciliation of Non-GAAP Financial Measures
58 RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Appendix After-Tax Average Annualized Operating Allocated Operating Income (Loss) Equity Return On Equity Nine Months Ended September 30, 2013 Unum US Group Disability 151.0 $ 1,534.9 $ 13.1% Group Life and Accidental Death and Dismemberment 113.2 907
Slide 59: Reconciliation of Non-GAAP Financial Measures
59 RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Appendix December 31 2013 2012 (in millions) per share * (in millions) per share * (in millions) After-tax Operating Income 658.7 $ 2.47 $ 662.5 $ 2.33 $ 887.5 $ Net Realized Investment Gain (Loss), Net of Tax (1.9) (0.01) 20.7 0.07 37.1 Non-operating