Unum: Strong Core Business Offsets Ongoing LTC Uncertainty

Core Insights - Unum Group's financial performance shows strong results from its core units, with group life and accidental death and disability returning to pre-pandemic trends, leading to improved profitability [3][5][6] - The Closed Block unit, while contributing significantly to the book value, is viewed as having no economic value due to its obligations in long-term care policies [3][5] - The company has a robust capital position, with a risk-based capital ratio of 440% and $1.4 billion in holding company liquidity, allowing for share buybacks and dividend increases [3][6] Financial Performance - In Q1, Unum reported adjusted EPS of $2.12, beating consensus by $0.15, with net investment income rising 1% to $514 million and core premium growth of 6.6% [5][6] - Unum US saw operating income grow by 23% to $385 million, with premiums increasing by 6.1% to $1.7 billion [3][5] - Colonial Life's operating income rose 21% to $114 million, aided by a 5% increase in investment income [3][5] Closed Block Analysis - The Closed Block unit earned $24 million in Q1, down from the previous year, with a net premium ratio of 93.8% [3][6] - Management does not expect to contribute additional capital to the Closed Block, citing $2.8 billion of excess protection [3][6] - The company aims for $200 million in rate increases for the Closed Block, with 5% achieved in Q1 [3][6] Market Position and Outlook - Unum's shares have been volatile, rising 8% over the past year, with a recent pullback providing a potential buying opportunity [4][6] - The company is targeting a price of $56 per share, which would represent an 8% capital return yield [6] - With strong free cash flow and excess liquidity, Unum is positioned for potential capital distribution and accelerated share buybacks [6]