unum group updated_aifa-watjen
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TRANSCRIPT
Thomas R. WatjenPresident and CEO, Unum Group
March 3, 2008
The Association of Insurance andFinancial Analysts Conference
2
Safe Harbor Statement
Statements in this presentation that are not historical facts, such as our earnings per share, return on equity and our Unum US group disability benefit ratio guidance, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties include such general matters as general economic or business conditions; events or consequences relating to terrorism, acts of war and catastrophes, including natural and man-made disasters; competitive factors, including pricing pressures; legislative, regulatory, accounting, or tax law changes; and the interest rate environment. More specifically, they include fluctuations in insurance reserve liabilities; changes in projected new sales and renewals; variations between projections and actual experience in persistency rates, incidence and recovery rates, pricing and underwriting; retained risks in our reinsurance operations; availability and cost of reinsurance; the level and results of litigation, rating agency actions, and regulatory actions and investigations; actual experience in implementing and complying with the multistate market conduct regulatory settlement agreements and the California Department of Insurance settlement agreement; negative media attention; changes in assumptions relating to deferred acquisition costs, value of business acquired or goodwill; the level of pension benefit costs and funding; investment results, including credit deterioration of investments; the ability of our insurance company subsidiaries to pay dividends or extend credit to us and certain of our intermediate holding company subsidiaries and/or finance subsidiaries; and effectiveness of product support and customer service. For further information of risks and uncertainties that could affect actual results, see our filings with the Securities and Exchange Commission, including information in the sections titled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007. The forward-looking statements in this presentation are being made as of the date of this presentation, and we expressly disclaim any obligation to update or revise any forward-looking statement contained herein.
3
Agenda
• Our Business
• A Different Company
• Environment
• Unum US Core/Voluntary Market Strategy
• Outlook
4
Our Business
5
Our Business
Unum Group
Unum US Colonial Unum UK
#1 Group Disability
#1 Group Critical Illness
#2 Group Life
#1 Group Disability
#1 Individual Disability
#3 Voluntary Benefits
#3 Group Life
#3 Group Long-term Care
#2 Voluntary Benefits
6
A Different Company
7
2007
Other0%
Unum US Supplemental& Voluntary
18%
Unum UK12%
Colonial11%IDI-Closed Block
13%
Unum USCore Market
22%
Unum USLarge Case
24%
Unum US Supplemental& Voluntary
13%
IDI-Closed Block16%
Unum USLarge Case
33%
Colonial9%
Unum UK4%
Other1%
Unum USCore Market
24%
2002
A Different Company
More Diversified Earned Premium Base
8
20072002
A Different Company
More Diversified Earnings Base*
* Excludes Corporate segment
Colonial13%
Unum UK7%
Other6%
Unum USGroup Disability
27%
Unum USGroup Life
21%
Unum US Supplemental &
Voluntary18%
IDI-Closed Block8%
Colonial19%
Unum UK25%
Other1%
IDI-Closed Block8%
Unum US Supplemental &
Voluntary18%
Unum USGroup Disability
13%
Unum USGroup Life
16%
9
Credit Quality of Bond Portfolio
Below Baa 5.7%
Baa 37.3%
Aaa 23.2%
Aa8.5%
A25.3%
12/31/07
A20.0%
Aa4.1%
Aaa 27.3%
Below Baa 10.5%
Baa38.1%
12/31/02
A Different Company
Solid Investment Portfolio
10
A Different Company
Strong Interest Margin
20
30
40
50
60
70
80
90
4Q-02 4Q-03 4Q-04 4Q-05 4Q-06 4Q-07
Basis Points
TargetRange
Group LTD
11
A Different Company
Significant Financial Flexibility
3/31/03 2007
RBC 210% 344%
Cash at Holding Company $1,002$ (755)
Debt to Total Capital (as adjusted) 30.2% 21.4%
Market Value $2,370 $8,500 (current)
($ millions)
12
A Different Company
Feb ’08Outlook raised to Stable
Baa1 (Stable Outlook)Moody’s
Feb ’08Outlook raised to Positive
A- (Positive Outlook)Fitch
Aug ’07Outlook raised to Positive
BBB+ (Positive Outlook)Standard & Poor’s
Jan ’08Outlook raised to Stable
A- (Stable Outlook)A.M. Best
Recent ActionCurrent Rating
Ratings History – Financial Strength Ratings
13
Environment
14
Environment: Trends
Demographic trends in both the US and the UK have become immediate public policy priorities.
• Aging population
• Aging workforce
• Low savings rates
• Cost of healthcare
• Possible labor shortage
• US Healthcare reform
• UK Pension reform
• Extensive debate on sustainability of government programs
• Changing role of employer
• Pressure government funded programs
• Increased employee responsibility
Demographic Trends Policy ProposalsPotential impact on our
industry
15
0
20
40
60
80
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
UK A
rticl
es
0
200
400
600
800
1000
US A
rticl
es
US Articles (DJ)
UK Articles (DJ)
Low Personal Savings – Press Article Count in US/UK
Annualized
Aging Population – Press Article Count in US/UK
0
50
100
150
200
250
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
UK
Arti
cles
0
500
1000
1500
2000
2500
US
Arti
cles
US Articles (DJ)
UK Articles (DJ)
Annualized
These trends have captured public attention in both the US and UK markets…
Environment: Trends
16
$700
$2400
Healthcare Spending & Inflation($ billions)
US Inflation rate1991 2007E
Environment: Trend
In the US market, healthcare trends are likely to have a significant impact on US benefits market.
17
• Underinsured, aging population with low savings rate creates a demand for specialized coverage– Limited duration medical coverage and other term structured products– Benefits communication tools and technology
• Increased employer expense management heightens awareness of voluntary products– Cost shift to employee from employer– Simple and portable for employee
• Unum is well positioned for these trends:– Colonial – #2 in Voluntary Benefits– Unum US – Strong VWB, Voluntary Group, and Core Market Group
presence– Unum UK – Emerging VWB market potential
Environment: Our Response Strategy
18
Environment: Well-Positioned Business Mix
Much of our US business has a Voluntary aspect.
Premium Mix - 2007(Unum US and Colonial)
IDI & LTC17%
Voluntary(Colonial & Unum US- VWB)
27%
Employee Paid Group31%
Employer Paid Group22%
Other3%
19
Environment: Well-Positioned Business Mix
A Growing Voluntary Benefits and Core Group Focus
2007Premium Mix
Unum US Supplemental &
Voluntary18%
Unum USCore Market
22%
Colonial11%
Unum UK12%
Unum USLarge Case
24%
IDI-Closed Block& Other
13%
2007Fully-Insured Sales Mix
Unum USLarge Case
14%
Unum US Supplemental& Voluntary
22%
Colonial31%
Unum UK10%
IDI-Closed Block& Other
2%
Unum USCore Market
21%
20
Unum US
Core/Voluntary Market Strategy
21
Converging Trends Point to a Customer Solution
Benefits people desireeasy administration
“Just make it easy for me”
Growth in voluntary and mixed funding
“We have no choice but to pass on more of the cost to employees”
One size does not fit all
“I want to provide a plan that will meet the specific needs of my customers.”
Need for reduced complexity
“I want to feel knowledgeable when I talk about this with
customers”
Easy administration
Voluntary and mixed funding
Reduced complexityChoice
Unum US Core/Voluntary Market Strategy
22
• Simply Unum combines Group & Voluntary coverages on one fully-integrated platform and offers both Unum enrollment resources and employer cost management capabilities.
• The Simply Unum platform is tailored to meet the needs of the 500 lives and less market.
• The platform allows ease of product access and choice, while significantly reducing administrative time.
• Market place reaction from both brokers and customers has been positive.
• National roll-out of the platform will continue through 2008.
Simply Unum.Simply Better.
Unum US Core/Voluntary Market Strategy
23
Simply Unum
• "Simplicity. The people who handle the program for the company don't have to deal with two to three insurance companies; much of enrollment and administration is done electronically, so it tremendously frees up internal people's time."—Broker #1
• “There’s the yearly budgeted amount that we had spent on our disability insurance and our life insurance, the programs we currently offer. He showed me he could offer savings on those programs as well as additional programs we were not currently offering. So it looked like we were getting a better product and better service for less money.”—Employer #3
• "First, the individual enrollment, sitting down with the employees individually and explaining in detail what the benefit was about. That was a big plus right there. For these employees, in a tool and die company, to have the benefits explained at them, I just thought that would be very beneficial."—Broker #7
• “I am not trained in HR, so we shop out our HR to the most user friendly companies we can find. So that's another reason we went to Unum because we don't want to have to deal with the administration problems that the others give us.” —Employer
Sold Case Research - Selected Quotes
24
Simply Unum
• Simply Unum was rolled out in four pilot offices in August of 2007.
• 3,800 quotes in the last five months of the year (29% quotes in these offices).
• Average of 2.8 lines of coverage per quote across group and voluntary lines.
• 286 sold group coverages– 40 lives per coverage– 30 VB cases currently in the enrollment process
• Simply Unum close ratio on par with non-Simply Unum.
• All four offices achieved their Simply Unum and non-Simply Unum sales goal for the fourth quarter.
Sales Results
25
18,840
13,239
2003 2007 2011
Case Sales Growth
* Includes Group, VB & GLTC
Unum US Core/Voluntary Market Strategy
26
2003 2007 2011
Total Core & Supp Group Large
Earned premium growth emerges in 2009 as large case earned premium flattens and growth accelerates in group core and supplemental benefits segment.
Earned Premium Growth2007-2011 5 Yr CAGR
0.9% Total
4.2%Core & Supp
- 4.7%Group Large
Unum US Core/Voluntary Market Strategy
27
Outlook
28
Outlook
• Consistent execution of our operating plans
• Maintain emphasis on disciplined, profitable growth
• Better leverage our leadership position
Focus
29
Outlook
Short-term Guidance: 2008 Expectations
Earnings Per Share $2.35 to $2.40
Return on Equity: Core 15.5% to 16.0%
Total Company 11.0% to 11.5%
Capital PositionLiquidity >$300mmLeverage 24% - 25%
RBC 315% - 325%
30
Outlook
Long-term Trends: 2009 and Beyond
Company Total
15% – 16%16.7%Core Total
20% – 22%24.6%Colonial
26% – 28%38.6%Unum UK
11% - 13%10.9%Unum US
TargetROE
2007ROE
11.5% - 13.0%11.2%
2% - 3%2.1%IDI - Closed Block
31
Closing Comments
• Strong Balance Sheet
• Well Positioned Investment Portfolio
• Diversified Business Mix; Strong Operating Performance
• Disciplined Profitable Growth Strategy
32
Non-GAAP Reconciliation
33
2007 2006
Operating Income Before Income Tax and Net Realized Investment Gain (Loss), As Adjusted 306.8$ 265.0$ Debt Extinguishment Cost (55.6) (2.7) Interest on Federal Income Tax Refund - 2.6 Operating Income Before Income Tax and Net Realized Investment Gain (Loss) 251.2 264.9 Income Tax (Benefit) on Operating Income 74.2 (8.8) Net Realized Investment Gain (Loss), After Tax (16.5) 0.5 Income from Continuing Operations 160.5 274.2 Income from Discontinued Operations, Net of Tax - 1.9 Net Income 160.5$ 276.1$
Three Months Ended December 31
(in millions)
Reconciliation of Non-GAAP Financial Measures
34
12/31/2007 9/30/2007 6/30/2007 3/31/2007 12/31/2006 9/30/2006 6/30/2006 3/31/2006
Net Income (Loss) 0.44$ 0.52$ 0.43$ 0.51$ 0.80$ (0.19)$ 0.38$ 0.23$ Net Realized Investment Gain (Loss) (0.05) (0.08) 0.02 (0.01) - 0.01 (0.01) - Income from Discontinued Operations - - - 0.02 0.01 - 0.01 0.01 After-tax Operating Income (Loss) from Continuing Operations Excluding Net Realized Investment Gain (Loss) 0.49 0.60 0.41 0.50 0.79 (0.20) 0.38 0.22 UK Reserve Release, Net of Tax - 0.03 - - - - - - UK Tax Law Change - 0.01 - - - - - - Regulatory Reassessment Charges, Net of Tax - - (0.10) - - (0.62) - (0.17) Special Tax Items - - - - 0.28 - - - Broker Compensation Settlement, Net of Tax - - - - - (0.04) - - Debt Extinguishment Cost, Net of Tax (0.10) - - - (0.01) - (0.04) (0.01) After-tax Operating Income from Continuing Operations Excluding Net Realized Investment Gain (Loss) and Special Items 0.59$ 0.56$ 0.51$ 0.50$ 0.52$ 0.46$ 0.42$ 0.40$
* Amounts per diluted common share
Three Months Ended *
Reconciliation of Non-GAAP Financial Measures
35
December 31 September 30 June 30 March 31 December 31 September 30 June 30 March 31 December 312007 2007 2007 2007 2006 2006 2006 2006 2005
Total Stockholders' Equity, As Adjusted 7,501.3$ 7,347.2$ 7,158.2$ 6,705.8$ 6,989.8$ 6,725.4$ 6,800.0$ 6,108.2$ 6,049.9$ Net Unrealized Gain on Securities 356.1 346.6 78.0 490.3 534.8 687.9 60.7 256.2 1,040.7 Net Gain on Cash Flow Hedges 182.5 137.0 135.4 180.5 194.2 181.1 126.2 203.6 273.3 Total Stockholders' Equity (Book Value) 8,039.9$ 7,830.8$ 7,371.6$ 7,376.6$ 7,718.8$ 7,594.4$ 6,986.9$ 6,568.0$ 7,363.9$
Quarterly Average Equity, As Adjusted** 7,424.3$ 7,252.7$ 6,932.0$ 6,636.6$ 6,857.6$ 6,762.7$ 6,454.2$ 6,079.0$ Annual Average Equity, As Adjusted** 7,034.3
** First quarter and full year 2007 average adjusted for cumulative effect of accounting principle changes of $422.5 million effective January 1, 2007
(in millions)
As of
Reconciliation of Non-GAAP Financial Measures
36
AdjustedOperating Operating
Income (Loss) Income (Loss)Before Net Allocated Before Net
Average Average Average Realized After-tax After-tax Realized LeveragedAllocated Allocated Leveraged Investment Special Item Interest Investment Return
Equity Debt Equity Gain/Loss Adjustments Expense Gain/Loss On Equity
Twelve Months Ended December 31, 2007Unum US 4,557.2$ (1,301.3)$ 3,255.9$ 371.8$ 43.1$ (59.5)$ 355.4$ 10.9%Unum UK 866.6 (230.5) 636.1 256.1 - (10.7) 245.4 38.6%Colonial 829.8 (220.8) 609.0 159.8 - (10.2) 149.6 24.6%Core Operations 6,253.6 (1,752.6) 4,501.0 787.7 43.1 (80.4) 750.4 16.7%Individual Disability - Closed Block 2,481.4 (663.2) 1,818.2 76.7 (8.6) (29.9) 38.2 2.1%Corporate and Other (1,700.7) 2,415.8 715.1 (148.8) 36.1 110.3 (2.4) -0.3% Total 7,034.3$ -$ 7,034.3$ 715.6$ 70.6$ -$ 786.2$ 11.2%
AdjustedOperating Operating
Income (Loss) Income (Loss)Before Net Allocated Before Net Annualized
Average Average Average Realized After-tax After-tax Realized LeveragedAllocated Allocated Leveraged Investment Special Item Interest Investment Return
Equity Debt Equity Gain/Loss Adjustments Expense Gain/Loss On Equity
Three Months Ended December 31, 2007Core Operations 6,418.2$ (1,594.4)$ 4,823.8$ 226.9$ -$ (20.9)$ 206.0$ 17.1%Individual Disability - Closed Block 2,458.5 (717.1) 1,741.4 15.2 - (7.8) 7.4 1.7%Corporate and Other (1,452.4) 2,311.5 859.1 (65.1) 36.1 28.7 (0.3) -0.1% Total 7,424.3$ -$ 7,424.3$ 177.0$ 36.1$ -$ 213.1$ 11.5%
(in millions)
(in millions)
Reconciliation of Non-GAAP Financial Measures
37
AdjustedOperating Operating
Income (Loss) Income (Loss)Before Net Allocated Before Net Annualized
Average Average Average Realized After-tax After-tax Realized LeveragedAllocated Allocated Leveraged Investment Special Item Interest Investment Return
Equity Debt Equity Gain/Loss Adjustments Expense Gain/Loss On Equity
Three Months Ended September 30, 2007Core Operations 6,324.8$ (1,633.3)$ 4,691.5$ 215.0$ (13.3)$ (19.4)$ 182.3$ 15.5%Individual Disability - Closed Block 2,627.2 (641.9) 1,985.3 19.1 - (7.7) 11.4 2.3%Corporate and Other (1,699.3) 2,275.2 575.9 (17.1) - 27.1 10.0 6.9% Total 7,252.7$ -$ 7,252.7$ 217.0$ (13.3)$ -$ 203.7$ 11.2%
Three Months Ended June 30, 2007Core Operations 6,183.9$ (1,660.4)$ 4,523.5$ 159.4$ 43.1$ (19.6)$ 182.9$ 16.2%Individual Disability - Closed Block 2,657.3 (675.4) 1,981.9 27.8 (8.6) (8.1) 11.1 2.2%Corporate and Other (1,909.2) 2,335.8 426.6 (40.2) - 27.7 (12.5) -11.7% Total 6,932.0$ -$ 6,932.0$ 147.0$ 34.5$ -$ 181.5$ 10.5%
Three Months Ended March 31, 2007Core Operations 6,085.9$ (1,734.5)$ 4,351.4$ 186.4$ -$ (21.0)$ 165.4$ 15.2%Individual Disability - Closed Block 2,647.2 (714.7) 1,932.5 14.6 - (8.8) 5.8 1.2%Corporate and Other (2,096.5) 2,449.2 352.7 (26.4) - 29.8 3.4 3.9% Total 6,636.6$ -$ 6,636.6$ 174.6$ -$ -$ 174.6$ 10.5%
Three Months Ended December 31, 2006Core Operations 6,443.0$ (1,791.7)$ 4,651.3$ 272.9$ (81.7)$ (20.6)$ 170.6$ 14.7%Individual Disability - Closed Block 2,627.2 (711.2) 1,916.0 18.7 - (8.1) 10.6 2.2%Corporate and Other (2,212.6) 2,502.9 290.3 (17.9) (12.2) 28.7 (1.4) -1.9% Total 6,857.6$ -$ 6,857.6$ 273.7$ (93.9)$ -$ 179.8$ 10.5%
Three Months Ended September 30, 2006Core Operations 6,337.8$ (1,741.1)$ 4,596.7$ (29.6)$ 189.4$ (19.5)$ 140.3$ 12.2%Individual Disability - Closed Block 2,610.3 (717.1) 1,893.2 (3.5) 22.1 (8.0) 10.6 2.2%Corporate and Other (2,185.4) 2,458.2 272.8 (35.3) 12.7 27.5 4.9 7.2% Total 6,762.7$ -$ 6,762.7$ (68.4)$ 224.2$ -$ 155.8$ 9.2%
Three Months Ended June 30, 2006Core Operations 6,260.0$ (1,851.9)$ 4,408.1$ 142.9$ -$ (21.6)$ 121.3$ 11.0%Individual Disability - Closed Block 2,582.1 (763.9) 1,818.2 21.6 - (8.9) 12.7 2.8%Corporate and Other (2,387.9) 2,615.8 227.9 (37.6) 11.6 30.5 4.5 7.9% Total 6,454.2$ -$ 6,454.2$ 126.9$ 11.6$ -$ 138.5$ 8.6%
Three Months Ended March 31, 2006Core Operations 6,157.7$ (2,062.5)$ 4,095.2$ 89.7$ 47.3$ (23.2)$ 113.8$ 11.1%Individual Disability - Closed Block 2,549.0 (853.8) 1,695.2 9.5 8.6 (9.6) 8.5 2.0%Corporate and Other (2,627.7) 2,916.3 288.6 (29.3) 3.4 32.8 6.9 9.6% Total 6,079.0$ -$ 6,079.0$ 69.9$ 59.3$ -$ 129.2$ 8.5%
(in millions)
Reconciliation of Non-GAAP Financial Measures
38
December 31 September 30 June 30 March 31 December 31 September 30 June 30 March 312007 2007 2007 2007 2006 2006 2006 2006
Operating Income (Loss) from Continuing Operations Before Net Realized Investment Gain (Loss) 177.0$ 217.0$ 147.0$ 174.6$ 273.7$ (68.4)$ 126.9$ 69.9$ Net Realized Investment Gain (Loss), Net of Tax (16.5) (30.0) 6.5 (3.2) 0.5 3.1 (3.6) 1.5 Income from Discontinued Operations, Net of Tax - - - 6.9 1.9 1.6 1.9 2.0 Net Income (Loss) 160.5$ 187.0$ 153.5$ 178.3$ 276.1$ (63.7)$ 125.2$ 73.4$
(in millions)
Three Months Ended
Reconciliation of Non-GAAP Financial Measures
39
December 31 March 312007 2003
Debt, As Reported 2,690.2$ 2,421.2$ Exclude Non-recourse Debt 912.5 - Debt, As Adjusted 1,777.7$ 2,421.2$
Total Stockholders' Equity, As Reported 8,039.9$ 6,545.3$ Exclude Net Unrealized Gain on Securities and Cash Flow Hedges 538.6 951.7 Exclude Northwind and Tailwind's Capital and Non-recourse Debt 954.7 -
6,546.6 5,593.6 Debt, As Adjusted 1,777.7 2,421.2 Total Capital, As Adjusted 8,324.3$ 8,014.8$
Debt to Capital Ratio 21.4% 30.2%
As of
(in millions)
Reconciliation of Non-GAAP Financial Measures
40
Reconciliation of Non-GAAP Financial Measures
Debt ClaimExtinguishment Reassessment
As Reported Cost Charges As Adjusted
Operating Income (Loss) by Segment Before Income Tax and Net Realized Investment Gain (Loss)Unum US
Group Disability 105.0$ -$ (66.2)$ 171.2$ Group Life and Accidental Death and Dismemberment 217.2 - - 217.2 Supplemental and Voluntary 243.4 - - 243.4 Total Unum US 565.6 - (66.2) 631.8
Unum UK 338.8 - - 338.8 Colonial 245.8 - - 245.8
Core Operating Segments 1,150.2 - (66.2) 1,216.4 Individual Disability - Closed Block 117.9 - 13.2 104.7 Other 17.5 - - 17.5 Corporate (223.2) (58.8) - (164.4) Operating Income by Segment 1,062.4$ (58.8)$ (53.0)$ 1,174.2$
Twelve Months Ended December 31, 2007
(in millions)