Unum(UNM) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the full year 2025, adjusted EPS was $8.13, down year-over-year and below expectations, primarily due to higher than expected benefits experience [4][16] - Adjusted operating income for Unum US was $289.7 million in Q4, a decrease of 13.1% year-over-year, and full year adjusted operating income decreased 11.6% to $1.3 billion [18] - After-tax adjusted operating earnings for Q4 were $322.3 million, or $1.92 per share, and for the full year, it was $1.4 billion, or $8.83 per share [16] Business Line Data and Key Metrics Changes - Core operations premium grew nearly 4.5% in 2025, with Colonial Life showing 3.1% growth and International showing 10% growth [5][12] - Group Disability reported a benefit ratio of 64.2% in Q4, above expectations, driven by lower average size of recoveries and lower-than-expected mortality [15] - Colonial Life's fourth quarter sales increased 10% to $203.9 million, the largest quarterly sales since 2019, and full year sales increased 5.3% to $560.3 million [22] Market Data and Key Metrics Changes - Persistency in US Group was reported at 90.2%, indicating strong customer retention [13] - International segment saw fourth quarter premiums grow 11.5% to $283.9 million, and full year premium increased 10% to $1.1 billion [21] - The corporate segment produced a loss of $51.1 million in Q4, reflecting elevated staffing and IT costs [22] Company Strategy and Development Direction - The company is focused on digital capabilities, with over one-third of the core premium base associated with customers using digital tools [6] - Continued investment in technology is expected to drive growth in 2026, with top-line growth projected in the range of 4%-7% [12][31] - The company aims to reduce legacy exposures and strengthen its employee benefits franchise, with a focus on risk management and capital deployment [11][26] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for 2026, expecting adjusted EPS growth of 8%-12% and strong capital return levels [32][39] - The company anticipates a stabilizing benefit ratio for Group Disability in the range of 62%-64% for 2026, supporting a robust ROE of over 25% [34] - Management highlighted the importance of maintaining disciplined pricing and risk management strategies in a competitive market [80] Other Important Information - The company completed an external reinsurance transaction that ceded roughly 20% of long-term care reserves, reducing potential capital volatility [10] - The company plans to repurchase approximately $1 billion of stock and grow its common dividend per share by 10% in 2026 [38] - Adjusted operating income will exclude Closed Block earnings starting in Q1 2026, aligning with the strategy to reduce the footprint of legacy blocks [27] Q&A Session Summary Question: Drivers of the group's disability loss ratio and outlook for 2026 - Management discussed the favorable market conditions and pricing discipline that support confidence in maintaining strong loss ratios [45][46] Question: 2026 EPS outlook on an apples-to-apples basis - Management indicated expectations for higher top-line growth and consistent benefit ratios, supporting an 8%-12% EPS growth rate [54][56] Question: Competition in the market and pricing dynamics - Management acknowledged ongoing competition but emphasized a disciplined pricing approach to maintain margins [80]