Unum Group (UNM)·Q1 2025 Earnings Summary

Executive Summary

• Adjusted operating EPS was $2.04, below S&P Global consensus of $2.19, as elevated disability claim incidence and front‑loaded operating expenses weighed on results; total revenue was $3,091.6M vs consensus $3,340.7M, reflecting net investment losses tied to the pending LTC transfer portfolio recognition *.
• Core operations premiums grew 4.2% (constant currency) with solid margins; RBC rose to ~460% and holding company liquidity reached ~$2.215B, underpinning active capital returns (3.3M shares repurchased for $202.6M) .
• FY25 EPS growth guidance was reduced to +6%–10% (from +8%–12% in Feb), while management reaffirmed “low‑60s” group disability benefit ratio, Closed Block AOI of $140–$170M, and year‑end RBC 425%–450% with liquidity >$2.5B .
• Strategic LTC reinsurance (ceding ~$3.4B LTC reserves and a portion of IDI) remains on track; Q1 net investment losses included mark‑to‑market impacts on the transfer portfolio and asset sales to fund transactions, a key narrative for estimate adjustments and stock reaction catalysts .

What Went Well and What Went Wrong

• What Went Well

  • Capital strength and liquidity: RBC ~460% and holding‑company liquidity ~$2.215B; repurchased ~$203M of stock in Q1 and targeting at least that amount in Q2 .
  • Colonial Life performance: Record first‑quarter premiums; benefit ratio improved to 47.7% vs 48.6% YoY; adjusted operating income $115.7M (+1.8% YoY) .
  • International steady: Unum UK AOI ~£29.5M, benefit ratio improved to 67.1% from 68.1%; Poland premium growth ~18% supported segment AOI $38.7M (+3.5% YoY) .

• What Went Wrong

  • Group disability incidence spike: Benefit ratio rose to 61.8% vs 57.5% YoY; AOI fell to $119.2M (‑27.7% YoY), driven by higher incidence in LTD and STD early in the quarter (January) before normalizing .
  • Group life/AD&D mix: Benefit ratio increased to 69.3% (vs 68.2% YoY) on higher incidence and larger AD&D claims; AOI fell to $69.2M (‑12.2% YoY) .
  • Alternative assets timing: Annualized alternative yield of ~5.1% in Q1 (vs 8%–10% long‑term expectation), with a reporting lag pushing recognition into Q2; contributed to lower Closed Block earnings ($24.4M AOI vs Q4’s $27.7M) .

Financial Results

Note: Values retrieved from S&P Global.*

Segment adjusted operating income (Income before income tax and net investment loss):

Key operating ratios:

KPIs:

Commentary: EPS missed consensus in Q1 (bold miss), while revenue fell below expectations—driven by net investment losses linked to LTC transaction accounting and asset sales; disability ratio drifted higher, offset by steady recoveries, strong capital, and ongoing buybacks .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We came up a little short of our plans with earnings per share of $2.04, reflecting a higher level of disability claims. […] We continue to execute towards our full year growth outlook of 6% to 10%.” — CEO Richard McKenney .
• “We do not have reason to believe the increase in [group disability] in the first quarter is indicative of a reversal of recent favorable trends and therefore believe we can achieve our annual expectation of low 60% for the full year.” — CFO Steve Zabel .
• “The liquidity at the holding company has risen to $2.2 billion […] we anticipate year‑end RBC of 425% to 450% and holding company liquidity exceeding $2.5 billion.” — CFO Steve Zabel .
• “We have agreed to cede $3.4 billion or approximately 20% of long‑term care statutory reserves […] Overall, the transaction is expected to generate approximately $100 million of capital benefits.” — CFO Steve Zabel ; LTC PR details .

Q&A Highlights

• Disability dynamics: January LTC/STD incidence spike normalized through quarter; recoveries remained near expectations; management expects benefit ratio to tick down closer to plan for the rest of the year .
• Persistency and tech: Digital leave/HCM integrations correlate with higher persistency; significant share of new business leverages these capabilities, with ongoing migration of the legacy block .
• Alternative assets: Q1 yield ~5.1% due to reporting lag; management still expects 8%–10% full‑year; Q2 will capture delayed partnership statements .
• Capital deployment: Buybacks of ~$200M in Q1; aim for ≥$200M in Q2; potential to revisit full‑year plans post LTC deal close; dividend increase anticipated in May .
• International backdrop: Poland strong; UK core sub‑500 growth solid, with large‑case sales volatility amid macro/tax changes; overall constructive outlook .

Estimates Context

• EPS: Actual adjusted EPS $2.04 vs S&P Global consensus $2.19 — miss tied to higher disability incidence and front‑loaded OpEx; Q4 2024 was $2.03 vs $2.14 (miss), while Q3 2024 $2.13 vs $2.106 (beat)* .
• Revenue: Actual $3,091.6M vs $3,340.7M consensus — below, reflecting net investment losses linked to LTC transfer portfolio recognition and asset sales; prior quarters were closer to consensus ranges* .
• Implications: Street models likely adjust near‑term disability loss ratio (still “low‑60s” for FY), alternative asset timing (Q2 catch‑up), and incorporate FY25 EPS guidance trim to +6%–10% .

Note: Values retrieved from S&P Global.*

Key Takeaways for Investors

• Near‑term earnings headwind from January disability incidence and alt‑asset timing should fade; management reaffirmed FY loss‑ratio and AOI ranges .
• Capital strength (RBC ~460%, liquidity ~$2.2B) supports ongoing buybacks (≥$200M in Q2) and dividend increases; new $1B repurchase authorization effective Apr 1, 2025 .
• LTC reinsurance (ceding ~20% reserves) de‑risks balance sheet and provides ~$100M capital benefit; transaction accounting explains Q1 investment losses and revenue shortfall .
• Colonial Life and International provide diversification with resilient margins and premium growth; watch large‑case sales volatility in UK .
• Guidance reset to +6%–10% EPS growth aligns with conservative posture; estimate dispersion may narrow as disability incidence normalizes and alt yields catch up .
• Strategic focus on tech/leave platforms should improve persistency and cross‑sell, supporting medium‑term premium growth and margin durability .
• Trading lens: Expect narrative to pivot on evidence of disability normalization (monthly trends) and confirmation of alternative asset catch‑up in Q2; continued buybacks/dividend actions are supportive near term .