Unum Group (UNM) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A indicate strong financial metrics, optimistic guidance, and strategic initiatives like LTC derisking and capital management. Management's positive outlook on AI impact and competitive positioning in the disability market further supports a positive sentiment. The company's robust shareholder return plan and strategic growth initiatives suggest a stock price increase in the short term.
Key Financial Performance
Adjusted EPS for 2025 $8.13, down year-over-year. The decline was primarily due to higher-than-expected benefits experience.
Return on Equity (ROE) for Core Operations Approximately 20%, reflecting durable earnings power supported by disciplined underwriting, solid persistency, a focused product mix, and a strong sales force.
Core Operations Premium Growth 4.5% (excluding transaction impacts), with 3.1% growth at Colonial Life and 10% growth in International. Growth was driven by healthy persistency and ongoing demand from employers.
Colonial Life Sales Growth 10% in the fourth quarter and 5.3% for the full year, supported by improved agent productivity and better digital tools.
Unum International Premium Growth 10% for the full year, driven by a sharper broker experience in the U.K. and progress in Poland.
Group Disability Benefit Ratio 64.2% in the fourth quarter and 62.4% for the full year, up from 59% in 2024. The increase reflects normalization after historically low benefit ratios in 2024.
Group Life and AD&D Premium Growth 4.9% for the full year, supported by favorable sales and strong persistency.
Supplemental and Voluntary Lines Premium Growth 5.5% for the full year, excluding the impact of reinsurance.
Closed Block LTC Reserves Reduction $4 billion reduction through external and internal reinsurance transactions, improving the risk profile.
Capital Returned to Shareholders $1.3 billion through share repurchases and dividends, supported by strong statutory earnings.
Risk-Based Capital Levels 440% risk-based capital and $2.3 billion of cash at the holding company, reflecting robust capital levels.
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Operating Highlights
Digital Capabilities: Invested in digital tools like HR Connect, Broker Connect, Total Leave, MyUnum, Gather, and Help@hand to enhance customer experience and operational efficiency. Over 1/3 of core premium base is linked to these capabilities.
New Acquisitions: Completed two small acquisitions to grow the company organically.
International Expansion: Achieved 10% premium growth in international markets, driven by improved broker experience in the U.K. and progress in Poland.
Colonial Life Sales: Colonial Life sales reached a multiyear high with double-digit growth in Q4 2025 and 5.3% growth for the full year.
Core Operations Premium Growth: Core operations premium grew 4.5% in 2025, within the long-term target range of 4%-7%.
Capital Deployment: Returned $1 billion to shareholders through share buybacks and increased dividends by 10%.
Operational Efficiency: Maintained strong pricing discipline and risk selection in group disability and life insurance, achieving industry-leading returns.
Closed Block Risk Reduction: Reduced long-term care reserves by $4 billion through reinsurance transactions and internal actions, improving risk profile.
Focus on Core Business: Shifted focus to core employee benefits franchise by excluding Closed Block earnings from adjusted operating income in 2026.
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Risk or Challenges
Higher-than-expected benefits experience: The primary driver of the softer earnings outcome for both the quarter and the year was higher-than-expected benefits experience, which varied in total and by line throughout the year.
Volatility in group disability margins: Group disability benefit ratio increased to 64.2% in the fourth quarter and 62.4% for the full year, reflecting normalization and volatility after historically low benefit ratios in 2024.
Unfavorable claims experience in international operations: Unum International earnings declined due to unfavorable claims experience in U.K. group disability, despite healthy sales and persistency.
Life claim count volatility and higher expenses in Colonial Life: Life claim count volatility and higher expenses due to sales growth led to lower margins in Colonial Life in the fourth quarter.
Closed Block risks and capital demands: Although progress was made in derisking the Closed Block, it remains a legacy exposure with potential for increased earnings volatility, particularly from long-term care reserves and related risks.
Lower-than-expected statutory earnings: Full year after-tax statutory earnings of $1.1 billion were below the expectation of $1.3 billion to $1.6 billion, largely reflecting lower-than-expected margins.
Elevated corporate segment losses: The corporate segment produced a loss of $51.1 million in the fourth quarter, driven by staffing and IT costs.
Potential pricing dynamics in group disability: Expected pricing dynamics contributed to an increase in the group disability benefit ratio, which could impact future margins.
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Guidance & Outlook
Premium Growth: The company expects top-line growth in the range of 4% to 7% for 2026, driven by new sales and persistency. Unum US premium growth is projected to be between 4% and 6%, Colonial Life is expected to grow 2% to 4%, and Unum International anticipates double-digit growth.
Earnings Per Share (EPS) Growth: Adjusted EPS is expected to grow by 8% to 12% in 2026, reaching a range of $8.60 to $8.90, based on a redefined 2025 base of $7.93 per share.
Margins and Returns: Group disability benefit ratio is expected to stabilize between 62% and 64%, with a robust return on equity (ROE) of greater than 25%. Supplemental and voluntary earnings are projected to be in the $120 million to $130 million range per quarter, with a benefit ratio of 48% to 50%. Colonial Life's ROE is expected to remain in the high teens, and Unum International's ROE is projected to be in the high teens as well.
Capital Deployment: The company plans to repurchase approximately $1 billion of stock and grow its common dividend per share by 10%, deploying approximately $300 million in dividends. This represents a total capital deployment of approximately 100% of the free cash flow generated in 2026.
Capital Position: Risk-based capital levels are expected to remain robust at 400% to 425%, with holding company liquidity between $2 billion and $2.5 billion and leverage under 25%.
Digital Capabilities: Continued investment in digital platforms like HR Connect is expected to drive higher close ratios and persistency, contributing to premium growth and operational efficiency.
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Shareholder Return Plan
Dividend Increase: In 2025, the company increased its dividend by 10%.
Share Buyback: The company repurchased $1 billion of its shares in 2025.
2026 Share Repurchase Plan: The company plans to repurchase approximately $1 billion of stock in 2026.
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Key Q&A
Q:Could you give us a little more detail on the drivers of the group's disability loss ratio and the outlook into '26? What gives you the confidence for the result to stay strong this year?
A:Management explained that the market remains favorable due to investments in lead management and human capital management platforms. They highlighted a strong annual loss ratio of just over 62% for the year and projected a benefit ratio of 62%-64% through 2026, gradually increasing to 65%. They emphasized confidence in claims performance and pricing discipline.
Q:Could you give us a little bit of color on how you view the '26 EPS outlook on an apples-to-apples basis?
A:Management expects an 8%-12% EPS growth rate in 2026, driven by higher top-line growth, disciplined expense management, and capital deployment. They anticipate core business premium margin growth and consistent benefit ratio levels.
Q:What are you seeing in the reinsurance market that's motivating you to make changes to the definition of operating earnings?
A:Management stated that the changes align with their strategy to put LTC (Long-Term Care) behind them. They are actively working on reinsurance transactions and continue to have discussions with counterparties. The changes do not alter their activity around the strategic management of the block.
Q:Can you comment on the risks and opportunities related to artificial intelligence (AI) and its impact on your client base?
A:Management stated that their book of business is well-diversified across industries, mitigating sector-specific risks. They believe AI advancements will reshape work rather than eliminate it. They are monitoring macroeconomic conditions and have not seen significant impacts from AI on their performance.
Q:What are you seeing in the marketplace for LTC (Long-Term Care) liabilities?
A:Management noted continued interest from counterparties in the LTC market, particularly in morbidity and asset risks. They are actively engaged in discussions but do not anticipate any imminent transactions. Interest in the market tends to ebb and flow.
Q:What are you seeing in terms of competition in the disability market?
A:Management described the market as traditionally competitive but not abnormal. They emphasized their disciplined pricing approach and investments in capabilities like lead management and technology, which differentiate them from competitors. They reported strong sales and persistency in the second half of the year.
Q:Why do you believe margins in the disability business will remain in the mid-60s range rather than reverting to pre-COVID levels?
A:Management attributed the improved margins to sustainable changes in claims management and recovery rates, not COVID. They emphasized steady incidence rates and disciplined pricing, projecting benefit ratios to remain in the mid-60s range with no reversion to pre-COVID levels.
Q:Can you talk about exposure to software in the investment portfolio?
A:Management reported less than 1% exposure in their bond portfolio, primarily in investment-grade integrated software providers. They also have about 0.5% exposure in their alternative asset portfolio. They feel well-positioned and are monitoring the sector closely.
Q:Can you discuss the unfavorable claims resolutions and higher incidents in the international business?
A:Management noted increased disability claims and lower-than-expected claim recoveries in the U.K. They attributed this to quarterly volatility and emphasized the long-term strength of the international business, projecting benefit ratios in the low 70s.
Q:How much of your alternatives portfolio will be put into discontinued operations after the earnings change?
A:Management clarified that the entire portfolio backing the LTC block will be excluded from adjusted operating earnings. This change will be made prospectively and does not involve discontinued operations in the accounting sense.
Q:Is there a correlation between corporate layoff announcements and disability claims?
A:Management stated that while layoffs may lead to higher submitted claims, they only pay valid claims. They have not observed an increase in claims related to recent layoff announcements.
Q:What are the drivers of the assumption that the group life benefit ratio will revert to 68%-72% in 2026?
A:Management attributed the assumption to expected normalization in mortality trends rather than pricing changes. They noted favorable group life performance in the past year but expect some volatility.
Q:Can you provide more color on the strong sales in Colonial Life and the outlook for 2026?
A:Management reported a 10% increase in sales, driven by new agents, strong performance in public sector and broker channels, and success with technology platforms. They are optimistic about 2026 but will monitor developments.
Q:What is driving the improvement in statutory earnings to $1.2 billion to $1.4 billion in 2026?
A:Management expects improvement due to top-line growth, productivity gains, and stabilization in benefit ratios. They noted some challenges in 2025 but are optimistic about 2026.
Q:What is the opportunity in paid family medical leave (PFML)?
A:Management sees PFML as part of their disability and leave management business. They are active in states with regulated mandates and view it as an opportunity to expand relationships with existing and new clients. However, they noted that the opportunity varies by state.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the question about the time frame for managing down excess holding company cash and RBC levels, stating only that they would address it annually without providing specific details.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Core
ROEs line
Today
Unum International
base
benefit experience
building
capital generation
capital reserve
capital return
change presentation
claim experience
connection
cost gain
count
decline
digit
entirety
experience UK
footprint
gain reinsurance
group benefit
impact
item
level benefit
line expectation
line term
persistency core
plan
progress Closed
ratio outlook
reinsurance transaction
result Closed
return level
risk capital
runoff
sale persistency
segment loss
share tax
tax share
term care
transaction core
transfer transaction
underwriting
UNM Transcript
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The earnings call summary indicates strong financial metrics, including EPS growth and robust ROE, alongside strategic capital deployment in share buybacks and dividends. The Q&A session revealed confidence in guidance and growth in core businesses, despite some pressures in international markets. The company's proactive management of LTC risk and strategic digital investments further support a positive outlook. The lack of market cap data suggests a moderate reaction, leading to a 'Positive' prediction for stock price movement.
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Positive2-6
The earnings call summary and Q&A indicate strong financial metrics, optimistic guidance, and strategic initiatives like LTC derisking and capital management. Management's positive outlook on AI impact and competitive positioning in the disability market further supports a positive sentiment. The company's robust shareholder return plan and strategic growth initiatives suggest a stock price increase in the short term.
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The earnings call summary and Q&A session reflect a mixed picture. Financial performance and guidance show stability with slight optimism, but there are concerns about morbidity and mortality assumptions and statutory reserving impacts. The Q&A reveals management's cautious approach and some uncertainties, particularly around capital deployment and reserve impacts. Without significant positive catalysts or strong negative indicators, the sentiment remains neutral, suggesting minimal stock price movement.
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