U.K. puts drag on Unum profits

U.K. puts drag on Unum profits

November 2nd, 2011 by Ellis Smith in Business Around the Region

The Unum headquarters in downtown Chattanooga.

Photo by John Rawlston/Times Free Press.

Thomas R. Watjen, president and CEO of Unum, speaks to media after an annual meeting held at the company's headquarters in downtown Chattanooga.

Photo by Dan Henry/Times Free Press.

Chattanooga-based Unum Group reported after-tax operating income of $221.5 million for the third quarter, or 74 cents per share, missing Wall Street consensus estimates by a penny.

A 26 percent drop in revenue at Unum's business in the United Kingdom helped to cut overall sales and left the insurer with results that were "slightly below expectations," said Tom Watjen, president and CEO of Unum.

Investment losses dragged down net income $15.2 million to $205.6 million, posing a challenge that has been magnified by high unemployment and low interest rates, he said.

"While there is no cause for alarm, it's something we need to address -- through profitable growth, through continued emphasis on expense management and generally just working smarter," Watjen said. "And as I've said before, I don't see these headwinds lessening in the foreseeable future."

Jimmy Bhullar, an analyst for JPMorgan who covers Unum, said the company's management was doing the best it could under the circumstances.

"The company and management team has done all they can do in the current economy," Bhullar said. "Even though the earnings were in line, the quality of the earnings was not that great."

With smaller disability margins in the U.S. and the U.K., the insurer's share buyback program is a welcome boost to the stock, he added.

Unum improved third-quarter 2010 operating income by $1.6 million, and the company's share buyback program boosted per-share earnings by 6 cents, the company reported.

For the full year, Unum continues to anticipate per share growth in after-tax operating income of between 6 percent and 12 percent, a range that includes the share buyback campaign.

By segment, Unum US saw the best performance of the group over the year, increasing earnings by 7 percent to $219.5 million, in spite of higher payouts for both long-term and short-term disability customers.

Unum UK saw the size and severity of new claims increase in the third quarter, and increased premium income from rate increases was not enough to stem losses in that segment, the company reported.

The insurer's Colonial Life group reported a 5.6 percent decline in operating income to $70.3 million as cancer claims increased, though declines were offset somewhat by a 5.3 percent increase in premium income to $283.7 million.