Unum Group · NYSE:UNM
Unum — Investor Day (December 2016)
96 slides from Unum's investor day presentation, Dec 15, 2016
Slide 1: 2017 Outlook Meeting
2017 Outlook Meeting December 15, 2016 | New York Exhibit 99.1
Slide 2: Safe Harbor Statement and Non-GAAP Financial Measures
Safe Harbor Statement and Non-GAAP Financial Measures Certain information in this presentation constitutes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those not based on historical information, but rather rel
Slide 3: Today's Participants
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 Officer Rick McKenney
Slide 4: Agenda
Agenda Introduction State of the Business Financial Performance Unum US Unum UK Colonial Life Closed Block 2017 Outlook Closing Comments Questions and Answers Appendix
Slide 5: Introduction
Introduction @e @e UNUMGROUP
Slide 6: Today's messages
Introduction Today’s messages Leading provider of ancillary employee benefits at the worksite in the US and UK Strong brand and reputation in our markets Operating trends are very strong Consistent capital generation and deployment Making investments to fuel growth in our core businesses Successfull
Slide 7: 2016 Update From Original 2016 Outlook
Introduction 2016 Update From Original 2016 Outlook Top end of expected earnings range In-line with sales and premium expectations (+5%) Stable Closed Block results Executed dental transaction Share repurchases of approximately $400 million Increased dividend 8% Capital position strong at 400% RBC
Slide 8: 2017 Outlook
Introduction 2017 Outlook Consistent earnings growth High-single-digit sales growth; Mid-single-digit premium growth Strong margins despite interest rate headwinds UK operations solid – Foreign exchange impact Continued capital deployment – Share repurchases and dividends Uncertainty with positive b
Slide 9: 2017 Current Topics
Introduction 2017 Current Topics Rising interest rates / inflation Employee / wage growth Discount rate Surplus earnings LTC margins No disintermediation risk Tax reform Current tax rate today ~32% UK rate currently 17% Regulatory reform Little impact
Slide 10: Diversified Employee Benefits Provider
Introduction Diversified Employee Benefits Provider *Before tax results excluding corporate segment
Slide 11: A leading franchise
Introduction A leading franchise
Slide 12: Strong market positions
Introduction strong market positions All market positions based on inforce premiums, 2015 *Based on multilife
Slide 13: Quality and Reputation
Introduction Quality and Reputation
Slide 14: Growth: Operating EPS and Book Value per Share
Introduction GROWTH OPERATING EPS BOOK VALUE PER SHARE (ex AOCI) 4 5.3% ase wo Kuen $38.39 8.9% cacr ; 293 4 a. i Bone 8 8 200 8 7009 0102 IEMA MIS MIS SMIG ml 708 2009 7010207012013 aA OHS 3H
Slide 15: Where we excel
Distribution and Relationship Management Extremely successful at recruiting, managing and motivating a specialized sales organization Managing brokerage and agency employee benefits distribution and building external partnerships In-house enrollment services Pricing and Risk Selection Dynamic and pr
Slide 16: Voluntary expertise
Introduction Voluntary expertise
Slide 17: Franchise Positioned for the Future
Closing Comments Franchise Positioned for the Future Strong operational performance Leading market positions Solid financial foundation Well positioned for post-election economy Proven ability to manage through a challenging environment
Slide 18: State of the Business
State of the Business @e @e UNUMGROUP
Slide 19: Financial Performance
Financial Performance @e @e UNUMGROUP
Slide 20: 2016 Outlook update
Financial Performance 2016 Outlook update 2016 results benefited from positive volatility, but the majority of our favorable results reflected strong underlying fundamental performance We continue to expect 2016 full year operating earnings per share growth at-to-slightly above our range of 3% to 6%
Slide 21: 2016 actual results relative to our outlook
Financial Performance 2016 actual results relative to our outlook
Slide 22: Accelerating premium growth
Financial Performance Accelerating premium Growth… In billions of US dollars unless otherwise noted
Slide 23: Steady, favorable risk experience
Financial Performance Steady, favorable risk experience… † Excluding Reserve Adjustments
Slide 24: Well managed expense trends
Financial Performance Well managed expense trends…
Slide 25: Results in strong operating margins
Financial Performance Results in Strong operating margins
Slide 26: 2017 issues and strategies
Interest Rates Tax Rates Foreign Exchange Rates Share Price Financial Performance 2017 issues and strategies
Slide 27: Interest rates
Financial Performance interest rates Pricing Flexibility Discount Rate Adjustments Manageable Investable Cash Flows Disciplined Asset Selection
Slide 28: Interest rates
Financial Performance interest rates 1Barclays Single-A OAS *Long modified duration = 14.17; Aggregate modified duration = 7.49
Slide 29: Unum US LTD Discount Rate
Unum US LTD Discount Rate We anticipate a 50 basis point reduction in the new claims discount rate for Unum US LTD effective 1Q2017 While the current margin is very healthy, the run-off of higher yielding assets purchased in 2008-2009 will erode the existing margin over time Recent rise in interest
Slide 30: Unum US Group Disability Benefits Experience
Unum US Group Disability Benefits Experience Our rate increases on renewals have largely offset the impact of the discount rate adjustment Our group disability benefit ratio is also favorably impacted by strong risk results, stable incidence and excellent claim recovery trends We anticipate the grou
Slide 31: Long-term Care Discount Rates
Long-term Care Discount Rates LTC reserve margin continues to be in good shape for 2016 2017-2018 pressure remains given current all-in yields relative to our long-term assumptions GAAP-to-Statutory reserve differential of $900 million GAAP reserve increase related to interest rates would not create
Slide 32: Investment Asset Quality
Financial Performance Interest rates 1High risk assets broadly comprise all investments other than investment grade bonds and includes below investment-grade and unrated bonds/loans, common and preferred stock equities, "alternative investments", such as private equity and hedge fund holdings, real
Slide 33: Asset holdings are transparent and match liabilities
Financial Performance Interest rates Our asset holdings are very transparent and match our liabilities very well. The majority of high risk assets are BB-rated bonds, with very little equity market exposure.
Slide 34: Investment grade bonds remain our core holding
Financial Performance Interest rates 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 35: Tax Rates
We anticipate the 2017 tax rate in the 31.5% - 32.0% range 2016 benefited from a UK tax rate reduction, which we do not expect in 2017 Volatility in UK interest rates creates movements in the tax rate We are monitoring potential changes to the US corporate tax rate and do not reflect any changes in
Slide 36: Foreign exchange rates
Our 2017 plan anticipates an exchange rate of 1.25 compared to 1.37 for 2016 Operating EPS impact from the lower exchange rate is approximately $0.03 or 1% of EPS growth Financial Performance Foreign exchange rates
Slide 37: Share Price
Financial Performance Share Price
Slide 38: Strong Capital Generation
Financial Performance Strong Capital Generation * Statutory Net Income for traditional US Insurance Companies † Ending September 30, 2016
Slide 39: Additional sources of cash to the holding company
Financial Performance Additional sources of cash to the holding company 1Includes Tax Sharing Agreement and Other General Services Agreements
Slide 40: Sources and uses of cash
2016 Highlights The debt issuance in excess of our 2016 maturity was largely targeted at funding the acquisition of Starmount Life $100 million of the issuance was an acceleration of a planned 2017 issuance 2017 Expectations Dividends from the US Insurance Companies are expected to be over $100 mill
Slide 41: Financial Performance Closing Comments
Our focus remains on enhancing our risk management capabilities and the disciplined execution of all that we do Our core businesses continue to generate best-in-class operating margins, balancing growth with profitability Our capital generation model remains strong We have proven our ability to mana
Slide 42: Unum US
Unum US @e @e UNUMGROUP
Slide 43: Unum US Business Snapshot
Unum US Business Snapshot Singular focus on employee benefits at the worksite Broad set of products Group Long Term and Short Term Disability Group Life and AD&D Voluntary Benefits Individual Disability Benefits Top 5 market share position across all major product categories Emerging Dental and Visi
Slide 44: Market Trends
Employers remain committed to benefits, 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, but …insurance is highly regulated and complex Interest rate
Slide 45: Unum US strategy
Unum US COLLABORATING TO INCREASE CAPABILITY AND REACH INCREASING CONSUMER PARTICIPATION IN VOLUNTARY PROGRAMS Our commitment to risk the development of our and our are the foundation of who we are as a company.
Slide 46: Risk management disability example
Unum US Risk management disability example
Slide 47: Broaden client relationships
Unum US Broaden client Relationships *KSAR, “2013 Unum NCO Customer Relationship Survey” (2013)
Slide 48: Starmount acquisition
Unum US Starmount acquisition Strong Platform Founded in 1983 by the Sternberg family 220 employees based in Baton Rouge, LA Exceptionally strong client and broker service orientation Anticipate growing dental and vision from $130 million to $500 million block over the next 5 years Integration on tr
Slide 49: Our plan for consumers
Unum US Our plan for consumers
Slide 50: Strong Digital Partnerships
Unum US Strong Digital Partnerships
Slide 51: 2017 Business outlook
Our strong overall results reaffirm the validity of our key strategies: client expansion, consumer engagement and collaborative partnerships, underpinned by strong risk management We anticipate solid operating earning growth Disciplined top line growth Consistent risk management Improving operationa
Slide 52: Unum US 2017 Financial Outlook
Unum US 2017 Financial Outlook
Slide 53: Unum UK
Unum UK @e @e UNUMGROUP
Slide 54: 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 # 5 Group Life # 4 Group Critical Illness # 2 Dental Market Scope Over 10,000 employers served 1.6
Slide 55: Doing well in a challenging environment
2016 YTD* results are encouraging Sales up 17% (13% excluding dental) over prior year with strong growth in core segments1 Earned premium growth of 5% (1% excluding dental) despite the difficult environment Earnings growth of 5% (2% excluding dental) despite increasing interest rate pressure While l
Slide 56: Operating environment
Unum UK Operating environment
Slide 57: 2017 Key Priorities
Rate program – Implement larger price increases across interest rate sensitive product lines, while maintaining solid persistency results Grow other Group Risk products – Accelerate growth in non-interest rate sensitive product lines (Life, Critical Illness and Dental), leveraging analytics and prop
Slide 58: New Administrative Platform Implementation
Unum UK New Administrative Platform Implementation New Products can be implemented at speed, in line with business needs to meet growth demands We have removed legacy constraints, creating a growth platform that supports the development of enhanced digital capabilities A reduction in the time taken
Slide 59: Unum UK vision and growth strategy
Unum UK To be working Britain's first choice for a back-up plan VISION GROW INCOME GROW OTHER EXPAND INTO PROTECTION BLOCK GROUP RISK PRODUCTS ADJACENT AREAS Drive growth of Prudently expand the Diversify Unum UK's Group Income Protection Group Life business, grow products and services market while
Slide 60: Well placed to deal with uncertainty
The UK’s decision to leave the EU creates significant uncertainty in our operating environment Lower economic growth and the lower interest rate outlook will have a negative impact on our growth expectations in the short to medium term However, we have moved quickly to adjust our plans to deal with
Slide 61: Unum UK 2017 Financial Outlook
Unum UK 2017 Financial Outlook
Slide 62: Colonial Life
Colonial Life @e @e UNUMGROUP
Slide 63: Colonial Life Business snapshot
Primary Products Accident, Sickness and Disability Life (Term, UL, WL) Cancer and Critical Illness Market Share1 # 6 Voluntary Carrier with 4% market share Product Sales # 2 in STD and Cancer # 3 in Accident # 3 in Hospital Indemnity / Supplemental Medical Size and Scale Over 80,000 clients served O
Slide 64: Market Potential and opportunities
Colonial Life Market Potential and opportunities The total market opportunity within the US benefits market is significant and growing Increase employer penetration, especially below 100 lives Increase employee penetration in offered products Cross-sell additional products to employees Part-time wor
Slide 65: Market Potential and opportunities
Colonial Life Market Potential and opportunities Increase penetration mainly through employees who are not offered all of the products or coverage levels they need or by getting workers who decline coverage Expand distribution to employers who do not offer benefits or do not extend coverage to all e
Slide 66: Millennial Opportunity
Colonial Life Millennial Opportunity 1 US Census Bureau (2015) 2-4 LIMRA (2016)
Slide 67: New business formations
Colonial Life New business formations Source: BLS We expect the post election environment to be more conducive to job creation by new business establishments
Slide 68: Colonial Life Strategic Overview
Colonial Life Strategic Overview
Slide 69: Market landscape
Colonial Life Market landscape Consistent growth requires a relentless focus on turning market challenges into opportunities. Brokers interest in voluntary benefits is at an all time high and many brokers are just beginning to introduce these products to their clients. Despite strong interest in vol
Slide 70: Competitive environment
Colonial Life Competitive environment Competitive Advantages Distribution system / market reach Continued focus and success on Recruiting and Development Enrollment capabilities Proprietary enrollment system (Harmony) Plug and play capabilities Face-to-face, telephonic and electronic self serve Nati
Slide 71: Accelerated Growth
Colonial Life Accelerated Growth Territory expansion – significant investment in expansion plans Territory growth New Districts / Sales Managers Investment in success of existing districts New Sales reps / recruits Enhanced rep success Persistency investments Account management strategy Consumer ret
Slide 72: 2017 business outlook
Colonial Life 2017 business outlook Our 2016 sales demonstrate the success of our strategic initiatives and investments in sales leadership, distribution effectiveness and sales support Strong sales fundamentals through third quarter 2016: New account sales up 12.5%, Existing account sales up 12.7%
Slide 73: Colonial Life 2017 financial outlook
Colonial Life 2017 financial outlook
Slide 74: Closed Block
Closed Block @e @e UNUMGROUP
Slide 75: Closed Block Business snapshot
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 *Last Twelve Months Ending September 30, 2016 In $ Million, as of September 30, 2016 *% of
Slide 76: LTC Inforce Premium and Risk Experience
Closed Block LTC Inforce Premium and Risk Experience As of 6/30/2016
Slide 77: LTC Block Characteristics
Closed Block LTC Block Characteristics Performance since 2014 Reserve Update Reserve Adequacy Studies complete, and we feel comfortable with our position Interest Rates – continue to be a pressure point, but 2016 in-line with assumptions Interest rates assumed flat for five years, then gradual rise
Slide 78: Closed Block strategy
Our strategy remains unchanged. We have made excellent progress on financial analysis and rate increases for LTC. Our focus now includes an emphasis on financial analysis of the CDB block and broader capital management activities. Closed Block strategy Continue to implement structural changes to enh
Slide 79: Reimbursement versus indemnity
Indemnity policies are not impacted by utilization rates Utilization rates increase as the cost of care increases Utilization rates are also impacted by the length of the claim, because costs increase as the length of the claim increases. Indemnity policies pay the same amount regardless. Indemnity
Slide 80: Closed Block 2017 key priorities
LTC Rate Increases Continue to pursue justified rate increases Offer enhanced policyholder options Lead regulatory outreach program Operational Effectiveness High quality claims management Cost efficient customer service Effective communication and implementation of rate increases Financial Analysis
Slide 81: Closed Block 2017 Financial Outlook
Closed Block 2017 Financial Outlook
Slide 82: 2017 Outlook
2017 Outlook @e @e UNUMGROUP
Slide 83: 2017 Outlook Key Messages
2017 Outlook Key Messages Continued solid premium growth trends in our core businesses Disciplined approach to sales growth Strong persistency Expect to have generally stable benefits experience due to focus on disciplined pricing, risk selection, and management of renewals Pressures from low intere
Slide 84: Factors impacting expected operating EPS growth
2017 Outlook 2017 OUTLOOK FACTORS IMPACTING EXPECTED OPERATING EPS GROWTH — ae 5) % : (o) 3-6% 3-5% (1-2)% PREMIUM GROWTH | YIELD & DISCOUNT | TAX OTHER CAPITAL 2017E EPS & OPERATIONS | RATE PRESSURE i | WANAGEMENT GROWTH
Slide 85: Strong Capital Position Anticipated
Strong Capital Position Anticipated, Driven by Continued Exceptional Statutory Results Maintain RBC Ratio at approximately 400% Increase Holding Company cash position Leverage reduced by approximately 1% 2017 Outlook 2017 Expectations
Slide 86: An outlook with building momentum
2017 Outlook An outlook with building momentum * Consolidated After-Tax Operating Earnings including Corporate Segment
Slide 87: 3% to 6% Operating EPS Growth
3% to 6% Operating EPS Growth Absorbing the impacts of: LTD discount rate adjustment Lower foreign exchange rate Impact of higher stock valuation Non-recurring tax items Strong capital generation driven by strong statutory earnings trend Stable to improving capital metrics 2017 Outlook Closing Comme
Slide 88: Closing Comments
Closing Comments @e @e UNUMGROUP
Slide 89: Key Takeaways
Closing Comments Key Takeaways Strong operating performance Leading market positions Solid financial foundation Strong capital generation that funds growth and fuels capital deployment Substantial leverage to rising interest rates Proven ability to manage through a challenging environment
Slide 90: Questions and Answers
Questions and Answers @e @e UNUMGROUP
Slide 91: Reconciliation of Non-GAAP Financial Measures
Appendix Reconciliation of Non-GAAP Financial Measures
Slide 92: Reconciliation of Non-GAAP Financial Measures
Appendix Reconciliation of Non-GAAP Financial Measures
Slide 93: Reconciliation of Non-GAAP Financial Measures
Appendix Reconciliation of Non-GAAP Financial Measures
Slide 94: Reconciliation of Non-GAAP Financial Measures
Appendix Reconciliation of Non-GAAP Financial Measures
Slide 95: Reconciliation of Non-GAAP Financial Measures
Appendix Reconciliation of Non-GAAP Financial Measures
Slide 96: Reconciliation of Non-GAAP Financial Measures
Appendix Reconciliation of Non-GAAP Financial Measures