Unum Group Reports Fourth Quarter 2012 Results

  Unum Group Reports Fourth Quarter 2012 Results

Business Wire

CHATTANOOGA, Tenn. -- February 5, 2013

Unum Group (NYSE: UNM) today reported net income of $233.9 million ($0.85 per
diluted common share) for the fourth quarter of 2012, compared to a net loss
of $369.0 million ($1.26 per diluted common share) for the fourth quarter of
2011.

Included in the results for the fourth quarter of 2012 is a net after-tax gain
of $8.9 million ($0.03 per diluted common share) resulting from the combined
impact of net realized investment gains and the amortization of prior period
actuarial losses on the Company’s pension plan. This compares to a net
after-tax loss of $0.3 million (less than a penny per diluted common share) in
the fourth quarter of 2011. Results for the fourth quarter of 2011 also
included net after-tax losses of $619.6 million ($2.12 per diluted common
share) related to the actions taken by the Company related to its long-term
care and individual disability closed blocks. Additionally, the results for
the fourth quarter of 2011 include net tax benefits of $22.7 million ($0.08
per diluted common share) related to an IRS settlement, net of taxes related
to subsidiary dividends.

Adjusting for these items, income on an after-tax basis was $225.0 million
($0.82 per diluted common share) in the fourth quarter of 2012, compared to
$228.2 million ($0.78 per diluted common share) in the fourth quarter of 2011.

“I am pleased with the solid financial and operating results we produced in
the fourth quarter and the growth in operating earnings per share for the full
year 2012. We continued to generate solid results across much of the Company
and showed modest improvement in those areas which had been operating below
our expectations,” said Thomas R. Watjen, president and chief executive
officer. “While there are still challenges ahead, we are well positioned
entering 2013 to create value for our shareholders by remaining disciplined,
maintaining our financial flexibility, and continuing to return excess capital
to our shareholders through share repurchases and dividend increases.”

RESULTS BY SEGMENT

In the following segment financial data, “operating revenue” excludes net
realized investment gains or losses. “Operating income” or “operating loss”
excludes net realized investment gains or losses, non-operating
retirement-related gains or losses, and income tax.

Unum US Segment

Unum US reported operating income of $212.2 million in the fourth quarter of
2012, an increase of 2.3 percent from $207.4 million in the fourth quarter of
2011. Premium income for the segment increased 3.2 percent to $1,117.6 million
in the fourth quarter of 2012, compared to premium income in the fourth
quarter of 2011 of $1,083.0 million.

Within the Unum US operating segment, the group disability line of business
reported a 4.7 percent decline in operating income, with $73.5 million in the
fourth quarter of 2012 compared to $77.1 million in the fourth quarter of
2011. Premium income in group disability increased 0.5 percent to $513.8
million in the fourth quarter of 2012, compared to $511.1 million in the
fourth quarter of 2011, driven primarily by sales growth and stable premium
persistency. The benefit ratio for the fourth quarter of 2012 was 84.5
percent, compared to 84.7 percent in the fourth quarter of 2011. Underlying
these results were higher claim recoveries and lower claim incidence for group
long-term disability, partially offset by the impact of a 50 basis point
decrease in the reserve discount rate during the third quarter of 2012 for
group long-term disability new claim incurrals. Group long-term disability
sales increased 15.4 percent to $86.8 million in the fourth quarter of 2012,
compared to $75.2 million in the fourth quarter of 2011. Group short-term
disability sales increased 13.5 percent to $46.3 million in the fourth quarter
of 2012, compared to $40.8 million in the fourth quarter of 2011. Premium
persistency in the group long-term disability line of business was 90.7
percent for full-year 2012, compared to 90.2 percent for full-year 2011. Case
persistency for this line was 88.8 percent for full-year 2012, compared to
89.0 percent for full-year 2011. Premium persistency in the group short-term
disability line of business was 88.0 percent for full-year 2012, compared to
89.9 percent for full-year 2011. Case persistency for the short-term
disability line was 88.2 percent for full-year 2012, compared to 88.0 percent
for full-year 2011.

The group life and accidental death and dismemberment line of business
reported a 4.8 percent increase in operating income to $55.1 million in the
fourth quarter of 2012, compared to $52.6 million in the fourth quarter of
2011. The increase was driven by favorable premium growth and a lower expense
ratio, which offset an increase in the benefit ratio. Premium income for this
line of business increased 5.5 percent to $326.1 million in the fourth quarter
of 2012, compared to $309.0 million in the fourth quarter of 2011, reflecting
higher recent sales and favorable premium persistency. The benefit ratio in
the fourth quarter of 2012 was 72.5 percent, compared to 70.7 percent in the
fourth quarter of 2011, reflecting higher claim incidence relative to the
year-ago period. Sales of group life and accidental death and dismemberment
products decreased 2.4 percent in the fourth quarter of 2012 to $94.8 million
from $97.1 million in the fourth quarter of 2011. Premium persistency in the
group life line of business was 90.6 percent for full-year 2012, compared to
88.0 percent for full-year 2011. Case persistency in the group life line of
business for full-year 2012, at 88.3 percent, was down slightly from 88.6
percent for full-year 2011.

The supplemental and voluntary line of business reported a 7.6 percent
increase in operating income to $83.6 million in the fourth quarter of 2012,
compared to $77.7 million in the fourth quarter of 2011. The increase was
driven by growth in both the individual disability – recently issued line of
business and the voluntary benefits line of business. Premium income for this
line of business increased 5.6 percent to $277.7 million in the fourth quarter
of 2012, compared to $262.9 million in the fourth quarter of 2011, primarily
reflecting higher sales in the voluntary benefits line of business. The
interest adjusted loss ratio for the individual disability - recently issued
line of business in the fourth quarter of 2012 increased slightly to 32.0
percent from 30.8 percent in the fourth quarter of 2011, due primarily to
higher submitted claim incidence rates, partially offset by higher claim
recoveries. The benefit ratio for voluntary benefits, at 52.0 percent in the
fourth quarter of 2012, was up from 51.5 percent in the fourth quarter of
2011, reflecting higher claim incidence rates for certain of our voluntary
product lines. Relative to the fourth quarter of 2011, sales in the voluntary
benefits line of business increased 2.0 percent in the fourth quarter of 2012
to $41.1 million. Sales in the individual disability – recently issued line of
business decreased 18.7 percent in the fourth quarter of 2012 to $12.2
million.

Unum UK Segment

Unum UK reported operating income of $35.0 million in the fourth quarter of
2012, a decrease of 32.6 percent from $51.9 million in the fourth quarter of
2011. In local currency, operating income for the fourth quarter of 2012
decreased 34.1 percent, to £21.8 million from £33.1 million in the fourth
quarter of 2011.

Premium income increased 3.7 percent to $175.5 million in the fourth quarter
of 2012, compared to $169.2 million in the fourth quarter of 2011. In local
currency, premium income increased 1.6 percent to £109.3 million in the fourth
quarter of 2012, compared to £107.6 million in the fourth quarter of 2011. The
benefit ratio in the fourth quarter of 2012 was 76.2 percent, compared to 69.1
percent in the comparable quarter in 2011. The higher benefit ratio in the
fourth quarter of 2012 reflects unfavorable group life risk experience
relative to the year ago quarter, partially offset by favorable risk
experience in the group long-term disability line of business. The unfavorable
risk experience in group life resulted from a higher average claim size and
higher claim volumes in the fourth quarter of 2012 relative to the fourth
quarter of 2011. The favorable risk experience in group disability resulted
from improved claim recoveries and incidence levels.

Persistency in the group long-term disability line of business was 84.0
percent for full-year 2012, compared to 86.6 percent for full-year 2011.
Persistency in the group life line of business was 82.5 percent for full-year
2012, compared to 89.3 percent for full-year 2011. Sales decreased 40.7
percent to $22.3 million in the fourth quarter of 2012, compared to $37.6
million in the fourth quarter of 2011. In local currency, sales for the fourth
quarter of 2012 decreased 41.8 percent to £13.9 million, compared to £23.9
million in the fourth quarter of 2011, reflecting a significant decline in
group life sales due to our price increases and scaling back sales in certain
market sectors as well as a moderate decline in sales in the group long-term
disability line of business.

Colonial Life Segment

Colonial Life reported a 5.1 percent increase in operating income to $68.3
million in the fourth quarter of 2012, compared to $65.0 million in the fourth
quarter of 2011.

Premium income for the fourth quarter of 2012 increased 4.4 percent to $301.9
million, compared to $289.2 million in the fourth quarter of 2011. The benefit
ratio in the fourth quarter of 2012 was 52.5 percent, consistent with the
fourth quarter of 2011, as higher benefit costs in the life line of business
offset favorable experience in the cancer and critical illness and accident,
sickness, and disability lines of business.

Sales increased 0.2 percent to $126.6 million in the fourth quarter of 2012
from $126.4 million in the fourth quarter of 2011, as a slight increase in
sales to existing accounts more than offset a slight decline in new account
sales. Sales in the public sector were higher in the fourth quarter of 2012
compared with the same period of 2011, while commercial market sales were
lower.

Closed Block Segment

The Closed Block segment reported operating income of $28.8 million in the
fourth quarter of 2012, compared to $30.8 million in the fourth quarter of
2011, excluding the previously discussed charges during the fourth quarter of
2011. This decrease was driven by a decline in income in the long-term care
line of business, partially offset by higher income from the individual
disability line of business.

Premium income for this segment declined slightly in the fourth quarter of
2012 compared to the comparable year-ago quarter, primarily reflecting the
expected run-off of this block of business. The interest adjusted loss ratio
for the individual disability line of business was 83.7 percent in the fourth
quarter of 2012, compared to 84.8 percent in the fourth quarter of 2011,
excluding the reserve charge, reflecting higher claim recovery rates. The
interest adjusted loss ratio for the long-term care line of business increased
to 89.9 percent in the fourth quarter of 2012 from 86.4 percent in the fourth
quarter of 2011, excluding the reserve charge, due to higher claim incidence
rates and higher average new claim size.

Corporate Segment

The Corporate segment reported an operating loss of $34.6 million in the
fourth quarter of 2012, compared to a loss of $18.8 million in the fourth
quarter of 2011. The higher operating loss in the fourth quarter of 2012 was
driven primarily by lower net investment income and slightly higher interest
expense due to the issuance of $250 million of debt during the third quarter
of 2012. Net investment income was lower in the fourth quarter of 2012
compared to the fourth quarter of 2011 due to lower asset levels, a lower
proportion of assets invested at long-term interest rates, and a decrease in
investment income attributable to tax-credit partnerships. However, the
negative impact on net investment income from the tax-credit partnerships was
offset by a lower income tax rate due to the tax benefits recognized as a
result of these investments.

OTHER INFORMATION

Shares Outstanding

The Company’s average number of shares outstanding, assuming dilution, was
273.6 million for the fourth quarter of 2012, compared to 292.6 million for
the fourth quarter of 2011. Shares outstanding totaled 270.2 million at
December 31, 2012. During the fourth quarter of 2012, the Company repurchased
approximately 4.9 million shares at a cost of $100.1 million.

Capital Management

At December 31, 2012, the weighted average risk-based capital for the
Company’s traditional US insurance companies was approximately 396 percent;
leverage was 25.3 percent; and cash and marketable securities in the holding
companies equaled $805 million.

Leverage is measured as total debt to total capital, which the Company defines
as debt plus stockholders’ equity, excluding the net unrealized gain or loss
on securities and the net gain or loss on cash flow hedges. Leverage also
excludes the non-recourse debt and associated capital of Tailwind Holdings,
LLC and Northwind Holdings, LLC and the short-term debt arising from
securities lending agreements.

Book Value

Book value per common share as of December 31, 2012 was $31.87, compared to
$27.91 at December 31, 2011.

Outlook

The Company anticipates growth in after-tax operating income per share for
full-year 2013 to be in the range of zero percent to six percent, including
the effect of expected share repurchases.

NON-GAAP RECONCILIATION

The Company analyzes its performance using non-GAAP financial measures. A
non-GAAP financial measure is a numerical measure of a company’s performance,
financial position, or cash flows that excludes or includes amounts that are
not normally excluded or included in the most directly comparable measure
calculated and presented in accordance with GAAP. The Company believes
operating income or loss which excludes the specified items listed in its
reconciliation is a better performance measure and a better indicator of the
profitability and underlying trends in its business. Realized investment gains
or losses depend on market conditions and do not necessarily relate to
decisions regarding the underlying business of the Company’s segments. The
Company’s investment focus is on investment income to support its insurance
liabilities as opposed to the generation of realized investment gains or
losses. Although the Company may experience realized investment gains or
losses which will affect future earnings levels, a long-term focus is
necessary to maintain profitability over the life of the business since the
Company’s underlying business is long-term in nature, and the Company needs to
earn the interest rates assumed in calculating its liabilities. Certain
components of the net periodic benefit cost for the Company’s pensions and
other postretirement benefit plans, namely the amortization of prior period
actuarial gains or losses, are primarily driven by market performance and are
not indicative of the operational results of the Company’s businesses. The
Company believes that excluding the amortization of prior period gains or
losses from operating income by segment provides investors with additional
information for comparison and analysis of operating results. However,
although the Company manages its non-operating retirement-related gains or
losses separately from the operational performance of its business, these
gains or losses impact the overall profitability of the Company and will
increase or decrease over time, depending on market conditions and the
resulting impact on the actuarial gains or losses in the Company’s pensions
and other postretirement benefit plans. The Company believes leverage
excluding the non-recourse debt of Northwind and Tailwind, the short-term debt
arising from securities lending agreements, and the unrealized gains and
losses on securities and the net gain or loss on cash flow hedges, which also
tend to fluctuate depending on market conditions and general economic trends,
is an important measure. For reconciliation to the most directly comparable
GAAP measures, refer to the attached digest of earnings.

CONFERENCE CALL INFORMATION

Members of Unum Group senior management will host a conference call on
Wednesday, February 6, 2013 at 10:00 A.M. (Eastern Time) to discuss the
results of operations for the fourth quarter. Topics may include
forward-looking information such as the Company’s outlook on future results,
trends in operations, and other material information.

The dial-in number for the conference call is (888) 215-6895 for U.S. and
Canada (pass code 8144225). For international, the dial-in number is (913)
312-0407 (pass code 8144225). A live webcast of the call will also be
available at www.investors.unum.com in a listen-only mode. It is recommended
that webcast viewers access the “Investors” section of the Company’s website
and opt-in to the webcast approximately 5-10 minutes prior to the start of the
call. The Company will maintain a replay of the call on its website through
Wednesday, February 13, 2013. A replay of the call will also be available by
dialing (888) 203-1112 (U.S. and Canada) or (719) 457-0820 (International) –
pass code 8144225.

In conjunction with today’s earnings announcement, the Company’s Statistical
Supplement for the fourth quarter of 2012 is available on the “Investors”
section of the Company’s website.

ABOUT UNUM GROUP

Unum (www.unum.com) is one of the leading providers of employee benefits
products and services and the largest provider of disability insurance
products in the United States and the United Kingdom.

SAFE HARBOR STATEMENT

Certain information in this press release 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 relate to future operations, strategies, financial
results, or other developments and speak only as of the date made. These
forward-looking statements, including statements about anticipated growth in
after-tax operating income per share and planned share repurchases, are
subject to numerous assumptions, risks, and uncertainties, many of which are
beyond our control. The following factors, in addition to other factors
mentioned from time to time, may cause actual results to differ materially
from those contemplated by the forward-looking statements: (1) unfavorable
economic or business conditions, both domestic and foreign; (2) sustained
periods of low interest rates; (3) fluctuation in insurance reserve
liabilities and claim payments due to changes in claim incidence, recovery
rates, mortality rates, and offsets due to, among other factors, the rate of
unemployment and consumer confidence, the emergence of new diseases,
epidemics, or pandemics, new trends and developments in medical treatments,
the effectiveness of claims management operations, and changes in government
programs; (4) legislative, regulatory, or tax changes, both domestic and
foreign, including the effect of potential legislation and increased
regulation in the current political environment; (5) investment results,
including, but not limited to, changes in interest rates, defaults, changes in
credit spreads, impairments, and the lack of appropriate investments in the
market which can be acquired to match our liabilities; (6) ineffectiveness of
our derivatives hedging programs due to changes in the economic environment,
ratings downgrades, capital market volatility, changes in interest rates,
and/or regulation; (7) increased competition from other insurers and financial
services companies due to industry consolidation or other factors; (8) changes
in our financial strength and credit ratings; (9) damage to our reputation due
to, among other factors, regulatory investigations, legal proceedings,
external events, and/or inadequate or failed internal controls and procedures;
(10) actual experience that deviates from our assumptions used in pricing,
underwriting, and reserving; (11) actual persistency and/or sales growth that
is higher or lower than projected; (12) changes in demand for our products due
to, among other factors, changes in societal attitudes, the rate of
unemployment, consumer confidence, and/or legislative and regulatory changes;
(13) effectiveness of our risk management program; (14) the level and results
of litigation; (15) changes in accounting standards, practices, or policies;
(16) fluctuation in foreign currency exchange rates; (17) ability to generate
sufficient internal liquidity and/or obtain external financing; (18)
availability of reinsurance in the market and the ability and willingness of
our reinsurers to meet their obligations to us; (19) recoverability and/or
realization of the carrying value of our intangible assets, long-lived assets,
and deferred tax assets; (20) the effectiveness of our disaster recovery
systems, including our ability to recover our systems and information in the
event of a disaster or unanticipated event and to protect our systems and
information from unauthorized access and deliberate attacks; and (21) events
or consequences relating to terrorism and ongoing military actions, both
domestic and foreign.

For further discussion about risks and uncertainties which could cause actual
results to differ from those contained in the forward-looking statements, see
Part I, Item 1A of our annual report on Form 10-K for the year ended December
31, 2011 and our subsequently filed Forms 10-Q. The forward-looking statements
in this press release are being made as of the date of this press release, and
the Company expressly disclaims any obligation to update or revise any
forward-looking statement contained herein, even if made available on our
website or otherwise.





DIGEST OF EARNINGS

(Unaudited)
Unum Group (UNM:NYSE)
and Subsidiaries


($ in millions,                                                 
except share data)
                    Three Months Ended December     Twelve Months Ended December
                     31                              31
                     2012            2011            2012            2011
                                                                     
Operating Revenue    $ 2,633.6       $ 2,597.4       $ 10,459.2      $ 10,282.9
by Segment
Net Realized
Investment Gain       24.6          7.4           56.2          (4.9      )
(Loss)
Total Revenue        $ 2,658.2      $ 2,604.8      $ 10,515.4     $ 10,278.0  
                                                                     
Operating Income     $ 309.7         $ (616.8    )   $ 1,239.7       $ 370.1
(Loss) by Segment
Net Realized
Investment Gain        24.6            7.4             56.2            (4.9      )
(Loss)
Non-operating
Retirement-related     (11.6     )     (7.9      )     (46.4     )     (31.9     )
Loss
Income Tax            (88.8     )    248.3         (355.1    )    (49.1     )
(Expense) Benefit
Net Income (Loss)    $ 233.9        $ (369.0    )   $ 894.4        $ 284.2     
                                                                     
PER SHARE
INFORMATION
                                                                     
Net Income (Loss)
Per Common Share
   Basic             $ 0.86          $ (1.26     )   $ 3.18          $ 0.94
   Assuming          $ 0.85          $ (1.26     )   $ 3.17          $ 0.94
   Dilution
                                                                     
Weighted Average
Common Shares -        273,444.8       292,624.9       281,355.9       302,399.8
Basic (000s)
Weighted Average
Common Shares -        273,613.2       292,624.9       281,756.8       303,571.0
Assuming Dilution
(000s)
                                                                     
                                                                     
                                                                     
                                                                     
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
                                                                     
                     Three Months Ended December 31
                     2012                            2011
                     (in millions)   per share *     (in millions)   per share *
                                                                     
After-tax            $ 225.0         $ 0.82          $ 228.2         $ 0.78
Operating Income
Net Realized
Investment Gain,       16.4            0.06            4.8             0.02
Net of Tax
Non-operating
Retirement-related     (7.5      )     (0.03     )     (5.1      )     (0.02     )
Loss, Net of Tax
Deferred
Acquisition Costs
and Reserve            -               -               (619.6    )     (2.12     )
Charges for Closed
Block, Net of Tax
Special Tax Items     -             -             22.7          0.08      
Net Income (Loss)    $ 233.9        $ 0.85         $ (369.0    )   $ (1.26     )
                                                                     
                                                                     
                                                                     
                     Twelve Months Ended December 31
                     2012                            2011
                     (in millions)   per share *     (in millions)   per share *
                                                                     
After-tax            $ 887.5         $ 3.15          $ 905.4         $ 2.98
Operating Income
Net Realized
Investment Gain        37.1            0.13            (3.6      )     (0.01     )
(Loss), Net of Tax
Non-operating
Retirement-related     (30.2     )     (0.11     )     (20.7     )     (0.07     )
Loss, Net of Tax
Deferred
Acquisition Costs
and Reserve            -               -               (619.6    )     (2.04     )
Charges for Closed
Block, Net of Tax
Special Tax Items     -             -             22.7          0.08      
Net Income           $ 894.4        $ 3.17         $ 284.2        $ 0.94      
                                                                     
* Assuming Dilution
                                                                     
                                                                     
                                                                     
                     Three Months
                     Ended
                     December 31,
                     2011
                     (in millions)
                                                                     
Closed Block
Segment
   Operating Loss,   $ (922.3    )
   As Reported
   Individual
   Disability          183.5
   Reserve Charge
   Long-term Care      573.6
   Reserve Charge
   Impairment of
   Long-term Care
   Deferred           196.0     
   Acquisition
   Costs
   Operating
   Income, As        $ 30.8      
   Adjusted
                                                                     
                                                                     
                     December 31
                     2012
                     (in millions)
                                                                     
Debt, As Reported    $ 3,211.2
Exclude
Non-recourse Debt     1,018.3   
and Securities
Lending Agreements
   Debt, As          $ 2,192.9   
   Adjusted
                                                                     
Total
Stockholders'        $ 8,612.6
Equity, As
Reported
Exclude Net
Unrealized Gain on
Securities and
   Net Gain on
   Cash Flow           1,275.1
   Hedges
Exclude Northwind
and Tailwind          870.6     
Capital
                       6,466.9
Debt, As Adjusted     2,192.9   
   Total Capital,    $ 8,659.8   
   As Adjusted
                                                                     
   Debt to Capital    25.3      %
   Ratio
                                                                     
                                                                     
                                                                     
                     December 31
                     2012                            2011
                     (in millions)   per share       (in millions)   per share
                                                                     
Total
Stockholders'        $ 8,612.6       $ 31.87         $ 8,169.7       $ 27.91
Equity (Book
Value)
Net Unrealized         873.5           3.23            614.8           2.11
Gain on Securities
Net Gain on Cash      401.6         1.48          408.7         1.39      
Flow Hedges
Subtotal               7,337.5         27.16           7,146.2         24.41
Foreign Currency
Translation           (72.6     )    (0.26     )    (117.6    )    (0.41     )
Adjustment
Subtotal               7,410.1         27.42           7,263.8         24.82
Unrecognized
Pension and           (574.5    )    (2.13     )    (444.1    )    (1.51     )
Postretirement
Benefit Costs
Total
Stockholders'
Equity, Excluding
Accumulated
   Other
   Comprehensive     $ 7,984.6      $ 29.55        $ 7,707.9      $ 26.33     
   Income
                                                                     
                                                                     

Contact:

Unum Group
Investors:
Tom White, 423-294-8996
Rob Lockerman, 423-294-7498
or
Media:
Jim Sabourin, 423-294-6300
 
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