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Unum Group (UNM)·Q2 2025 Earnings Summary

Executive Summary

  • Revenue of $3.361B and GAAP diluted EPS of $1.92; adjusted operating EPS of $2.07. Revenue was modestly above consensus while EPS missed; management revised full‑year adjusted EPS outlook to approximately $8.50, citing higher benefit ratios in group lines and lower alternative investment yields in the closed block .
  • Core operations premium growth was 4.6% on a constant currency basis; Unum US adjusted operating income fell to $318.2M, while Colonial Life and International were roughly flat versus prior year .
  • Capital strength remained robust: weighted average RBC ~485% and holding company liquidity ~$1.956B; share repurchases of $300.3M in Q2 with full‑year buybacks guided to the top end of the $500M–$1B range .
  • Closed block (LTC) headwinds from lower claimant mortality and higher average new claim size; closed block full‑year earnings guidance lowered to $90M–$110M; long‑term care reinsurance transaction with Fortitude Re closed July 1, reducing LTC exposure .
  • Stock reaction catalysts: EPS miss and guidance reduction, balanced by stronger capital return, LTC de‑risking, and persistent premium growth; near‑term estimate revisions likely to reflect lower EPS trajectory despite resilient core margins .

What Went Well and What Went Wrong

What Went Well

  • Premium growth and persistency: Core operations premium grew 4.6% constant currency; Unum US premium +3.9% and Colonial Life +3.6%; management highlighted persistency above expectations and digital platform benefits (HR Connect) improving retention .
  • Capital and buybacks: Weighted average RBC ~485% and holding company liquidity ~$1.956B; $300.3M repurchased in Q2 with full‑year buybacks targeted at the high end of $500M–$1B .
  • Strategic de‑risking: Closed the $3.4B LTC reinsurance transaction, materially reducing closed block exposure; “a significant milestone in reducing the company’s exposure to the legacy long‑term care business” (CEO) .

What Went Wrong

  • EPS miss and guidance cut: Adjusted EPS of $2.07 missed consensus and full‑year adjusted EPS guided down to ~$8.50 due to elevated benefit ratios in group lines and softer alternative investment income in the closed block .
  • Group margins pressure: Group disability benefit ratio rose to 62.2% (vs. 59.1% LY) on lower recoveries and higher average claim sizes; group life & AD&D benefit ratio increased to 69.7% (vs. 65.4% LY) on higher average claim size and less favorable waiver experience .
  • Closed block volatility: LTC experienced lower claimant mortality and higher average new claim size; net premium ratio (LTC) increased to 94.9% and closed block AOI fell to $3.9M (vs. $51.6M LY), prompting lower FY guidance .

Financial Results

Consolidated Actuals vs Prior Periods

MetricQ2 2024Q1 2025Q2 2025
Revenue ($USD Millions)$3,233.4 $3,091.6 $3,361.4
Net Income ($USD Millions)$389.5 $189.1 $335.6
GAAP Diluted EPS ($)$2.05 $1.06 $1.92
Adjusted Operating EPS ($)$2.16 $2.04 $2.07

Segment Adjusted Operating Income (AOI)

Segment AOI ($USD Millions)Q2 2024Q1 2025Q2 2025
Unum US$357.5 $329.1 $318.2
Unum International$42.5 $38.7 $41.6
Colonial Life$116.9 $115.7 $117.4
Closed Block (LTC & Other)$51.6 $24.4 $3.9
Corporate$(45.3) $(41.1) $(31.7)

Key Margins and Ratios

MetricQ2 2024Q1 2025Q2 2025
Unum US Benefit Ratio (%)58.2% 59.7% 60.7%
Group Disability Benefit Ratio (%)59.1% 61.8% 62.2%
Group Life & AD&D Benefit Ratio (%)65.4% 69.3% 69.7%
Voluntary Benefits Benefit Ratio (%)45.1% 44.1% 44.3%
Individual Disability Benefit Ratio (%)39.0% 35.5% 40.3%
Dental & Vision Benefit Ratio (%)75.3% 73.7% 77.7%
Unum UK Benefit Ratio (%)69.5% 67.1% 75.0%
Colonial Life Benefit Ratio (%)47.8% 47.7% 48.3%
LTC Net Premium Ratio (%)93.7% 94.7% 94.9%

KPIs and Capital

KPIQ2 2024Q1 2025Q2 2025
Weighted Avg RBC Ratio (%)~470% ~460% ~485%
HoldCo Liquidity ($USD Millions)$1,281 $2,215 $1,956
Book Value/Share ($)$55.63 $63.78 $65.76
Book Value/Share ex-AOCI ($)$70.76 $76.17 $77.62
Shares Repurchased ($USD Millions)$179.8 $202.6 $303.3
Weighted Avg Diluted Shares (Millions)190.3 178.9 174.4

Estimates vs Actuals (Q2 2025)

MetricConsensusActualSurprise
Revenue ($USD Millions)3,334.7*3,361.4 +$26.7M (beat)
Primary EPS ($)2.215*2.07 −$0.14 (miss)
EPS – # of Estimates13*——
Revenue – # of Estimates5*——

Values retrieved from S&P Global.*

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted Operating EPS per ShareFY 2025Increase of 6%–10% vs FY 2024 ($8.44) Approximately $8.50 Lowered
Closed Block AOIFY 2025$140M–$170M $90M–$110M Lowered
Corporate Segment LossQ3–Q4 2025—Mid‑$40M per quarter New
Share RepurchasesFY 2025Range $500M–$1.0B Targeting top end of range Raised to high end
Year‑End RBCFY 2025425%–450% 425%–450% Maintained
Year‑End HoldCo LiquidityFY 2025Exceeding $2.5B $2.0B–$2.5B Narrowed
DividendQ3 2025—Declared $0.460 per share (Aug 15 payment) Declared

Earnings Call Themes & Trends

TopicQ-2 (Q4 2024)Q-1 (Q1 2025)Current (Q2 2025)Trend
Digital/technology initiatives (HR Connect, Leave)Strong capability focus (ongoing) Management expects higher persistency from digital integrations HR Connect cases show persistency “several points higher” than non‑HR Connect Strengthening
Macro: wages/employmentFavorable backdrop noted Natural growth ~2%–3%; pipeline healthy Wages and employment tracking expectations Stable
LTC reinsurance/de‑riskingExternal LTC reinsurance announced in Feb; internal restructuring Approvals in progress External LTC reinsurance closed July 1 ; continued rate increase progress (~60% achieved) Advanced de‑risking
Alternative investment yieldsTarget 8%–10% for year 5.1% annualized in Q1 (lag effect) 7% annualized in Q2; still below 8%–10% Improving, below target
Group disability/life marginsElevated vs pre‑pandemic; disciplined pricing GD LR 61.8%; GLR 69.3% GD LR 62.2%; GLR 69.7%; outlook low‑60s/≈70% Slightly higher but within outlook
Capital returnsRobust capital generation and buybacks $200M Q1 buybacks $300.3M Q2; year to top end $500M–$1B Accelerating

Management Commentary

  • “During the quarter we made meaningful progress against our strategic priorities, despite earnings results that did not meet our expectations… Looking ahead, we remain confident in our resilient business model and strong capital position” — Richard P. McKenney, CEO .
  • “We now expect full‑year EPS to be approximately $8.50… We execute this strategy with a company in a robust capital position… $2 billion in holding company cash and a 485% risk‑based capital ratio” — CEO prepared remarks .
  • “Second quarter adjusted after‑tax operating income per share was $2.07… Core operations premium growth was 4.6%… We now expect closed block earnings to be between $90 million and $110 million” — Steve Zabel, CFO .
  • “We repurchased $300 million of shares in the quarter… expect to finish the year toward the upper end of our $500 million to $1.0 billion range” — CEO .
  • Non‑GAAP adjustments: After‑tax amortization of cost of reinsurance $7.7M ($0.05/share), non‑contemporaneous reinsurance $3.9M ($0.02/share), net after‑tax investment loss $13.9M ($0.08/share) .

Q&A Highlights

  • Group disability drivers: Elevated benefit ratio anchored ~62% due to lower recoveries and higher average claim size; management expects low‑60s for FY with stable recoveries and disciplined pricing .
  • LTC volatility: Lower claimant mortality and higher average claim size viewed as quarterly aberration; NPR up 20 bps sequentially; FY closed block AOI cut to $90M–$110M .
  • Buybacks and capital: With RBC ~485% and $2B HoldCo cash, management aims for top end of $500M–$1B repurchases; dynamic approach given excess capital .
  • Technology and persistency: HR Connect and leave platforms improve persistency “several points” and support premium growth; continued migration of customers to connected ecosystem .
  • Medical cost inflation: Minimal direct impact; disability tied to wages rather than medical costs; claims management focuses on outcomes rather than cost trends .

Estimates Context

  • Q2 2025: Revenue beat and EPS miss; consensus revenue $3,334.7M* vs actual $3,361.4M and consensus EPS $2.215* vs actual $2.07 .
  • Near‑term revisions: Likely downward EPS estimate adjustments given benefit ratio trajectory and closed block guidance reset; revenue trajectory supported by persistency and wage/employment trends .
    Values retrieved from S&P Global.*

Key Takeaways for Investors

  • EPS miss and FY guidance cut to ~$8.50 resets the near‑term EPS bar; watch for estimate downgrades but note resilient core margins and premium growth .
  • Elevated group benefit ratios (GD ~62%, GL ~70%) appear within outlook ranges; pricing discipline and claims management underpin sustainability .
  • Capital return is accelerating: robust RBC and liquidity support buybacks at the high end ($500M–$1B), a constructive near‑term stock catalyst .
  • Closed block volatility persisted; FY AOI lowered to $90M–$110M, but LTC reinsurance closing reduces exposure and enhances predictability over time .
  • Digital capabilities (HR Connect, leave) remain a competitive edge, boosting persistency and cross‑sell (VB/IDI), supporting medium‑term premium growth .
  • Monitor alternative investment yields trending toward 8%–10% target; upside to closed block results if yields improve as expected in 2H .
  • Dividend continuity ($0.460 quarterly) and strong book value growth support total return profile alongside buybacks .

Appendix: Segment and Sales Notes

  • Unum US: Adjusted operating income $318.2M; GD sales $45.1M (−30.4% y/y), GSD sales $39.3M (−7.1% y/y); group life & AD&D sales $77.2M (−5.7% y/y) .
  • Supplemental & Voluntary: AOI $123.2M (+6.9% y/y); premium income +9.8% to $482.3M; VB sales −21.8% y/y to $62.2M; IDI sales −8.2% to $23.4M; Dental & Vision sales −20.8% to $15.2M .
  • International: AOI $41.6M; premium income +18.5% to $271.1M; Unum UK AOI £29.4M; benefit ratio 75.0% .
  • Colonial Life: AOI $117.4M; premium income +3.6% to $462.1M; benefit ratio 48.3% .