2013 Outlook Meeting December 17, 2012 Exhibit 99.1 |
2 Safe Harbor Statement 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 relate to future operations, strategies, financial results, or other developments and speak only as of the date made. These forward-looking statements 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) legislative, regulatory, or tax changes, both domestic and foreign, including the effect of potential legislation and increased regulation in the current political environment; (3) sustained periods of low interest rates; (4) 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; (5) fluctuation in insurance reserve liabilities; (6) investment results, including, but not limited to, realized investment losses resulting from defaults, contractual terms of derivative contracts, and impairments that differ from our assumptions and historical experience; (7) the lack of appropriate investments in the market which can be acquired to match our liability cash flows and duration; (8) changes in interest rates, credit spreads, and securities prices; (9) increased competition from other insurers and financial services companies due to industry consolidation or other factors; (10) changes in demand for our products due to, among other factors, changes in societal attitudes, the rate of unemployment, and consumer confidence; (11) changes in accounting standards, practices, or policies; (12) changes in our financial strength and credit ratings; (13) rating agency actions, state insurance department market conduct examinations and other inquiries, other governmental investigations and actions, and negative media attention; (14) effectiveness in managing our operating risks and the implementation of operational improvements and strategic growth initiatives; (15) actual experience that deviates from our assumptions used in pricing, underwriting, and reserving; (16) actual persistency and/or sales growth that is higher or lower than projected; (17) effectiveness of our risk management program; (18) the level and results of litigation; (19) currency exchange rates; (20) ability of our subsidiaries to pay dividends as a result of regulatory restrictions or changes in reserving or capital requirements; (21) ability and willingness of reinsurers to meet their obligations; (22) changes in assumptions related to intangible assets such as deferred acquisition costs, value of business acquired, and goodwill; (23) 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 (24) events or consequences relating to political instability, terrorism, or acts of war, both domestic and foreign. For further information 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 presentation are being made as of the date of this presentation, 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. |
3 Today’s Participants Kevin McCarthy Executive Vice President and Chief Operating Officer President and Chief Executive Officer Executive Vice President and Chief Financial Officer Tom Watjen Rick McKenney |
4 A Look at Our Performance 2012 Assessment 2013 Outlook Closing Comments / Question & Answer Agenda |
What’s Working |
6 Full Year 2002 Before-tax Operating Earnings by Segment* Operating Performance BALANCED EARNINGS * Excludes Corporate Segment 9M2012 Does not reflect the impact of ASU 2010-26 or the segment reporting changes implemented in 4Q2008 |
7 Market Segmentation Growth Trends in Premium Income Operating Performance MANAGED GROWTH IN OUR CORE BUSINESS SEGMENTS 2.6% 5.0% ($ millions) Growth Markets Unum US – Core Market – Employee Benefits Colonial Life Unum US – Voluntary Benefits Unum UK – Group LTD Opportunistic Markets Unum US – Large Case – Employee Benefits Unum US – ID – Recently Issued Unum UK – Group Life |
8 Growth Trends in Premium Income Operating Performance MANAGED GROWTH IN OUR CORE BUSINESS SEGMENTS Data – Trailing 4 quarters |
9 New Account Growth % of Sales from Existing Relationships Operating Performance MANAGED GROWTH IN OUR CORE BUSINESS SEGMENTS |
10 Colonial Life Unum US Benefit Ratios Operating Performance DISCIPLINED UNDERWRITING * Excludes special items |
11 Colonial Life Unum US Other Expense Ratios Operating Performance EXPENSE MANAGEMENT RIGOR * Excludes special items |
12 Operating Earnings Per Share Operating Performance SOLID PROFITABILITY Years 2004-2008 do not reflect the impact of ASU 2010-26 and special items * EPS Growth Rate |
13 YTD 2012 Return on Equity Operating Performance 19% 11% 20% 10% 13% 27% YTD % AVERAGE CONSOLIDATED GAAP EQUITY* CONSISTENTLY STRONG RETURNS * Excludes Corporate segment |
14 Claimant Research Persistency Brand STRONG MARKET ACCEPTANCE % Satisfied Unum Industry Average Unum Rank Overall handling 91% 87% #1 Clear explanation 88% 83% #1 Quality of interaction 90% 86% #1 Likely to recommend 90% 87% #1 LTD Claimant Satisfaction Source: 2011 GenRe Survey of LTD Claimants |
15 Image and Reputation External Recognition Brand BROAD RECOGNITION Source: Internal surveys of employees, brokers, and customers Best Places to Work in Insurance 2009 – 2012 Best Places to Work in Maine, Tennessee, and South Carolina 2006 – 2012 Forbes Magazine – Top 150 Most Reputable Companies Center for Political Accountability – Corporate Leader in Political Disclosure and Accountability Newsweek Magazine – Green Companies - #34 |
16 Investment Performance STRONG CREDIT QUALITY Default Experience Watch List Watch List 1 Formerly 5.12% due to Lehman, Moody’s has subsequently removed it Sales and Write-downs of Investments Sales and Write-downs of Investments * Includes Supranationals Breakdown of UK and EuroZone Exposure |
17 2012 Results to Date: $2.7 billion invested New money yield of 4.88% (hedge-adjusted) Overall portfolio yield down 13 bp to 6.54% Current investment portfolio market value $51.8 billion Interest Rate Impacts: Investing new cash flows at lower rates Decreases to reserve discount rates Potential persistency impacts as result of price increases Mitigating Factors: Placement of premium rate increases Measured reduction in interest reserve margins Operating effectiveness (expense management and risk management) Investment Performance ACTIVE INTEREST RATE MANAGEMENT |
18 Balance Sheet QUALITY BALANCE SHEET Source: Moody’s Investor Service Goodwill and Intangibles (% of Stockholders Equity) * Weighted average RBC for traditional US Insurance Companies Capital Management Asset Quality Low Level of Intangibles Solid Investment Portfolio Liabilities Comfortable Leverage Low Disintermediation Risk Capital Insurance Company Strength (RBC) Holding Company Cash Levels |
19 Book Value Per Share Balance Sheet BUILDING BOOK VALUE (Excluding AOCI) |
20 ($ millions) ($ millions) Combined Statutory Net Income* Capital Generation Model Capital Management STABLE CASH FLOW * Statutory Net Income for traditional US Insurance Companies excluding special items STATUTORY NET INCOME U.S. $600 - $650 U.K. $100 - $150 $700 - $800 CAPITAL REQUIRED TO SUPPORT CURRENT GROWTH +/- $50 INTEREST EXPENSE $150 EXCESS CAPITAL GENERATED ANNUALLY BEFORE DIVIDENDS $550 - $650 |
21 ($ millions) Risk-Based Capital Holding Companies Cash and Marketable Securities Capital Management STRONG CAPITAL POSITION IN 2012 As of 9/30/2012 |
22 Capital Management CONSISTENT RETURN OF CAPITAL TO SHAREHOLDERS Rating Agency Actions S&P Upgrade Share Repurchases 2008 2009 $700 million --- Moody’s Upgrade Fitch Upgrade A.M. Best Upgrade 2010 2011 $356 million $620 million TOTAL $2,176 million * Projection for 2012 Dividend Increase --- +10% +12% +14% $578 million S&P Upgrade Moody’s Upgrade 2012 $500 million * +24% |
Key Challenges |
24 Operating Performance Unum UK - Group Life Long-term Care Interest Rate Management Key Challenges |
25 Key Messages Operating Performance UNUM UK – GROUP LIFE Our primary focus is to stabilize profitability in 2013 and improve returns and growth over the medium term. Our segmented growth strategy and focus on rate increases is expected to improve profitability; however, pressure on new sales and persistency is also likely. We are evaluating reinsurance alternatives to reduce volatility. We continue to remain focused on operating effectiveness. Operating Results |
26 Key Messages Operating Performance LONG-TERM CARE • Primary Risks: • Interest Rates – we see 2 to 3 years of sufficient margin for low interest rates. • Risk Experience – claim volatility expected given very young age of block; IALR estimated in range of 85% to 90% (+/- 5%). • Primary risk mitigating factor is our ability to raise rates on in-force business. Interest Adjusted Loss Ratio * Excludes $573.6 million reserve charge. Including this charge, the IALR was 179.3%. |
27 10-Year Single-A Bond Yields Key Messages Interest Rate Management Limited amount of new cash flow to invest relative to portfolio size Strong interest margins Hedges cover 20% of LTC cash flows for 2013 Pricing adjustments Source: Bloomberg Nov 2011 |
28 Interest Rate Management 2013 INVESTABLE CASH FLOW |
29 Interest Rate Management PRODUCT LINE SENSITIVITIES |
2012 Assessment |
31 2012* Annual Outlook 2012 9 Months Actual Sales Growth 5 - 8% 6.1% Premium Growth 0 - 2% 2.7% Earnings Per Share Growth 6 - 12% 5.4% Return on Equity 11 - 12% 12.2% 2012 Assessment * Original outlook for 2012 as of November 16, 2011 |
32 2012 Assessment FACTORS THAT IMPACTED OUR 2012 OUTLOOK * November 16, 2011 Annual Investor Meeting |
2013 Outlook |
34 We anticipate the general environment for 2013 to be similar to 2012. Below average economic growth with limited employment growth A continuation of today’s low interest rates While the environment will remain challenging, the need for our products and services remains strong. We are taking the needed actions to protect our solid margins and returns. The impact of our pricing and risk actions will build in 2014 and beyond We expect to maintain our consistent plan of returning capital to shareholders. $500 million of share repurchases and continued dividend increases Maintain solid capital metrics and ratings While we anticipate 2013 operating growth to be below our long-term targets, we expect positive operating EPS growth in 2013. Ninth consecutive year of operating EPS growth 2013 Outlook KEY MESSAGES |
35 2013 Outlook FACTORS IMPACTING OUR 2013 OUTLOOK |
36 2013 Outlook CAPITAL OUTLOOK Capital Management Criteria 2012 Projection September 30, 2012 Actual 2013 Projection Risk-Based Capital Ratio for Traditional U.S. Insurance Companies 375% - 400% 407% 375% - 400% Leverage 22% - 23% 25% 24% - 25% Holding Companies Cash and Marketable Securities ($ millions) $500 - $800 $762 $500 - $800 |
37 2013 Outlook Sales Growth Premium Growth Earnings Growth ROE Unum US 3 - 6% 1 - 3% 0 - 2% 12 - 14% Unum UK ($) (15 - 20)% (17 - 20)% (1) - 1% 15 - 17% Colonial Life 3 - 6% 3 - 5% 1 - 3% 15 - 17% Core Operations 1 - 5% 0 - 2% 0 - 2% 13 - 15% Closed Block 15 – 20% 2 - 4% Total Operations* (2 - 5)% 10 - 12% Capital Management 6 - 8% 0 - 1% Total 0 - 6% 11 - 12% * Consolidated After-Tax Operating Earnings including Corporate Segment |
Closing Comments |
39 Good businesses with positive long-term trends We remain committed to disciplined growth Not tempted to “stretch” in these uncertain times Our solid financial foundation and predictable cash flow remain an asset Leading to a consistent capital deployment strategy We have a realistic but cautious outlook for the environment Confident we are taking the actions needed to build value Closing Comments |
40 Closing Comments A Look At Our Performance |
Question and Answer |
Reconciliation of Non-GAAP Financial Measures |
43 Reconciliation of Non-GAAP Financial Measures Year Ended December 31 2002 * (in millions) Unum US Group Disability 289.9 $ Group Life and Accidental Death and Dismemberment 224.1 Supplemental and Voluntary 165.9 Total Unum US 679.9 Unum UK 69.5 Colonial Life 137.5 Closed Block 170.4 Corporate (155.0) Total Operating Income by Segment 902.3 Net Realized Investment Loss (309.1) Income Tax (196.3) Income from Continuing Operations Before Cumulative Effect of Accounting Principle Change 396.9 Income from Discontinued Operations, Net of Tax 11.4 Cumulative Effect of Accounting Principle Change, Net of Tax (7.1) Net Income 401.2 $ * Does not reflect the impact of ASU 2010-26 or the segment reporting changes implemented in Q4 2008. 2012 2011 Unum US Group Disability 219.6 $ 225.2 $ Group Life and Accidental Death and Dismemberment 165.8 155.9 Supplemental and Voluntary 249.5 228.4 Total Unum US 634.9 609.5 Unum UK 96.3 138.8 Colonial Life 206.0 205.1 Closed Block 66.7 93.1 Corporate (73.9) (59.6) Total Operating Income by Segment 930.0 986.9 Net Realized Investment Gain (Loss) 31.6 (12.3) Non-operating Retirement-related Loss (34.8) (24.0) Income Tax (266.3) (297.4) Net Income 660.5 $ 653.2 $ (in millions) Nine Months Ended September 30 |
44 Reconciliation of Non-GAAP Financial Measures (in millions) benefit ratio (in millions) benefit ratio Unum US Premium Income 4,481.1 $ 4,703.6 $ Benefits and Change in Reserves for Future Benefits 3,681.3 82.2% 4,263.4 90.6% Regulatory Reassessment Charge (76.5) (349.2) Benefits and Change in Reserves for Future Benefits, Excluding Regulatory Reassessment Charge 3,604.8 80.4% 3,914.2 83.2% 2006 Year Ended December 31 2007 (in millions) Other Expense Ratio (in millions) Other Expense Ratio Unum US Premium Income 4,481.1 $ 4,703.6 $ Other Expenses 927.5 20.7% 958.5 20.4% Regulatory Reassessment Charge 10.3 (15.0) Other Expenses Excluding Regulatory Reassessment Charge 937.8 20.9% 943.5 20.1% Year Ended December 31 2007 2006 |
45 Reconciliation of Non-GAAP Financial Measures 2011 2010 2009 2008 2007** 2006** 2005** 2004** After-tax Operating Income 2.98 $ 2.73 $ 2.64 $ 2.54 $ 2.25 $ 1.85 $ 1.69 $ 1.78 $ Net Realized Investment Gain (Loss), Net of Tax (0.01) 0.05 - (0.89) (0.12) 0.01 (0.02) 0.06 Non-operating Retirement-related Loss, Net of Tax (0.07) (0.06) (0.09) (0.03) (0.04) (0.05) (0.05) (0.04) Deferred Acquisition Costs and Reserve Charges for Closed Block, Net of Tax (2.04) - - - - - - (2.37) Regulatory Reassessment Charges, Net of Tax - - - - (0.10) (0.79) (0.16) (0.29) Special Tax Items and Debt Extinguishment Costs 0.08 (0.03) - - (0.10) 0.23 0.14 0.17 Other, Net of Tax - - - - - (0.04) 0.01 0.01 Income (Loss) from Continuing Operations 0.94 2.69 2.55 1.62 1.89 1.21 1.61 (0.68) Income (Loss) from Discontinued Operations - - - - 0.02 0.02 0.03 (0.18) Net Income (Loss) 0.94 $ �� 2.69 $ 2.55 $ 1.62 $ 1.91 $ 1.23 $ 1.64 $ (0.86) $ * Amounts per diluted common share. ** Does not reflect the impact of ASU 2010-26. Year Ended December 31* 2012 2011 (in millions) per share * (in millions) per share * After-tax Operating Income 662.5 $ 2.33 $ 677.2 $ 2.21 $ Net Realized Investment Gain (Loss), Net of Tax 20.7 0.07 (8.4) (0.03) Non-operating Retirement-related Loss, Net of Tax (22.7) (0.08) (15.6) (0.05) Net Income 660.5 $ 2.32 $ 653.2 $ 2.13 $ * Amounts per diluted common share. Nine Months Ended September 30 |
46 Reconciliation of Non-GAAP Financial Measures After-Tax Average Operating Allocated Annualized Income (Loss) Equity Return On Equity Nine Months Ended September 30, 2012 Unum US Group Disability 144.5 $ 1,503.5 $ 12.8% Group Life and Accidental Death and Dismemberment 108.0 897.0 16.0% Supplemental and Voluntary 163.7 1,618.5 13.5% Total Unum US 416.2 4,019.0 13.8% Unum UK 73.1 787.4 12.4% Colonial Life 133.9 1,051.1 17.0% Closed Block 43.8 2,121.5 2.8% Corporate (4.5) (715.5) Total 662.5 $ 7,263.5 $ 12.2% Nine Months Ended September 30, 2011 Unum US Group Disability 148.3 $ 1,504.1 $ 13.1% Group Life and Accidental Death and Dismemberment 101.5 840.2 16.1% Supplemental and Voluntary 149.7 1,527.2 13.1% Total Unum US 399.5 3,871.5 13.8% Unum UK 112.4 775.1 19.3% Colonial Life 133.3 978.2 18.2% Closed Block 57.7 2,388.4 3.2% Corporate (25.7) (319.0) Total 677.2 $ 7,694.2 $ 11.7% (in millions) |
47 Reconciliation of Non-GAAP Financial Measures September 30 December 31 September 30 December 31 2012 2011 2011 2010 Total Stockholders' Equity, As Reported 8,673.3 $ 8,169.7 $ 8,995.8 $ 8,484.9 $ Net Unrealized Gain on Securities 892.2 614.8 894.0 416.1 Net Gain on Cash Flow Hedges 400.3 408.7 421.1 361.0 Total Stockholders' Equity, As Adjusted 7,380.8 $ 7,146.2 $ 7,680.7 $ 7,707.8 $ Average Equity, As Adjusted 7,263.5 $ 7,694.2 $ September 30 2012 2011 2010 2009 Total Stockholders' Equity (Book Value) 31.53 $ 27.91 $ 26.80 $ 24.25 $ Net Unrealized Gain on Securities 3.24 2.11 1.31 1.16 Net Gain on Cash Flow Hedges 1.46 1.39 1.14 1.12 Subtotal 26.83 24.41 24.35 21.97 Foreign Currency Translation Adjustment (0.29) (0.41) (0.34) (0.23) Subtotal 27.12 24.82 24.69 22.20 Unrecognized Pension and Postretirement Benefit Costs (1.54) (1.51) (1.00) (1.00) Total Stockholders' Equity, Excluding Accumulated Other Comprehensive Income 28.66 $ 26.33 $ 25.69 $ 23.20 $ December 31 (per share) (in millions) September 30 2012 (in millions) Debt, As Reported 3,239.8 $ Exclude Non-recourse Debt and Securities Lending Agreements 1,045.2 Debt, As Adjusted 2,194.6 $ Total Stockholders' Equity, As Reported 8,673.3 $ Exclude Net Unrealized Gain on Securities and Net Gain on Cash Flow Hedges 1,292.5 Exclude Northwind and Tailwind Capital 855.7 6,525.1 Debt, As Adjusted 2,194.6 Total Capital, As Adjusted 8,719.7 $ Debt to Capital Ratio 25.2% |