On August 3, 2021 Unum Group (NYSE: UNM) reported net income of $182.9 million ($0.89 per diluted common share) for the second quarter of 2021, compared to net income of $265.5 million ($1.30 per diluted common share) for the second quarter of 2020 (Press release, Unum Therapeutics, AUG 3, 2021, View Source [SID1234585659]).
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Unum Group Reports Second Quarter 2021 Results
Included in net income for the second quarter of 2021 are the after-tax cost related to the early retirement of debt of $53.2 million ($0.26 per diluted common share), an after-tax impairment loss on the right-of-use (ROU) asset related to one of our operating leases for office space that we are no longer using to support our general operations of $11.0 million ($0.05 per diluted common share), the net tax expense related to a U.K. tax rate increase of $24.2 million ($0.12 per diluted common share), the after-tax amortization of the cost of reinsurance of $15.5 million ($0.08 per diluted common share), and a net after-tax realized investment gain on the Company’s investment portfolio of $0.6 million ($0.01 per diluted common share). Included in net income for the second quarter of 2020 are an after-tax impairment loss on the ROU asset of $10.0 million ($0.05 per diluted common share), as well as well as a net after-tax realized investment gain on the Company’s investment portfolio of $25.4 million ($0.12 per diluted common share). Excluding the items above, after-tax adjusted operating income was $286.2 million ($1.39 per diluted common share) in the second quarter of 2021, compared to $250.1 million ($1.23 per diluted common share) in the second quarter of 2020.
"We are very pleased with our strong second quarter results, highlighted by positive investment returns and aided by improved COVID dynamics relative to the first quarter. Our core business segments exhibited solid underlying fundamental trends, with improving sales and overall stable benefits experience," said Richard P. McKenney, president and chief executive officer. "These favorable results drive an improvement in our outlook for the full year, which we expect to continue to be influenced by the pandemic."
RESULTS BY SEGMENT
We measure and analyze our segment performance on the basis of "adjusted operating income" or "adjusted operating loss", which differ from income before income tax as presented in our consolidated statements of income due to the exclusion of net realized investment gains and losses, amortization of cost of reinsurance, and certain other items. These performance measures are in accordance with GAAP guidance for segment reporting, but they should not be viewed as a substitute for income before income tax or net income.
Unum US Segment
Unum US reported adjusted operating income of $179.3 million in the second quarter of 2021, a decrease of 22.7 percent from $231.9 million in the second quarter of 2020. Premium income for the segment was $1,522.1 million in the second quarter of 2021, which was generally consistent with the $1,522.7 million in the second quarter of 2020. Net investment income for the segment increased 3.8 percent to $183.6 million in the second quarter of 2021, compared to $176.9 million in the second quarter of 2020.
Within the Unum US operating segment, the group disability line of business reported a 21.2 percent decrease in adjusted operating income to $59.9 million in the second quarter of 2021, compared to $76.0 million in the second quarter of 2020. Premium income for the group disability line of business increased 1.1 percent to $672.2 million in the second quarter of 2021, compared to $664.6 million in the second quarter of 2020, due to higher sales in the group short-term disability product line. Net investment income decreased 2.6 percent to $94.0 million in the second quarter of 2021, compared to $96.5 million in the second quarter of 2020, due to a decline in the yield on invested assets and a lower level of invested assets, partially offset by higher miscellaneous investment income. The benefit ratio for the second quarter of 2021 was 74.7 percent, compared to 72.8 percent in the second quarter of 2020, due to higher claims incidence in the group short-term disability product line. Group long-term disability sales were $42.0 million in the second quarter of 2021, a decrease of 23.9 percent from $55.2 million in the second quarter of 2020. Group short-term disability sales were $31.2 million in the second quarter of 2021, an increase of 5.4 percent from $29.6 million in the second quarter of 2020. Persistency in the group long-term disability product line was 90.1 percent for the first half of 2021, compared to 89.4 percent for the first half of 2020. Persistency in the group short-term disability product line was 87.2 percent for the first half of 2021, compared to 86.9 percent for the first half of 2020.
The group life and accidental death and dismemberment line of business reported adjusted operating income of $5.2 million in the second quarter of 2021, a decrease of 73.2 percent from $19.4 million in the second quarter of 2020. Premium income for this line of business was $456.6 million in the second quarter of 2021, which was generally consistent with the $456.3 million in the second quarter of 2020. Net investment income increased 15.5 percent to $26.9 million in the second quarter of 2021, compared to $23.3 million in the second quarter of 2020, due to higher miscellaneous investment income, partially offset by a decline in the yield on invested assets. The benefit ratio in the second quarter of 2021 was 85.2 percent, compared to 81.8 percent in the second quarter of 2020, due primarily to higher average claim size in the group life product line. Sales of group life and accidental death and dismemberment products increased 12.7 percent in the second quarter of 2021 to $63.8 million, compared to $56.6 million in the second quarter of 2020. Persistency in the group life product line was 90.1 percent for the first half of 2021, compared to 88.6 percent for the first half of 2020. Persistency in the accidental death and dismemberment product line was 89.6 percent for the first half of 2021, compared to 87.8 percent for the first half of 2020.
The supplemental and voluntary line of business reported a decrease of 16.3 percent in adjusted operating income to $114.2 million in the second quarter of 2021, compared to $136.5 million in the second quarter of 2020. Premium income for the supplemental and voluntary line of business decreased 2.1 percent to $393.3 million in the second quarter of 2021, compared to $401.8 million in the second quarter of 2020, due to a decline in the voluntary benefits product line as a result of lower sales, partially offset by growth in the dental and vision product line. Net investment income increased 9.8 percent to $62.7 million in the second quarter of 2021, compared to $57.1 million in the second quarter of 2020, due to higher miscellaneous investment income, partially offset by a decline in the yield on invested assets. The benefit ratio for the individual disability product line was 48.4 percent for the second quarter of 2021, compared to 52.8 percent for the second quarter of 2020, due primarily to lower claims incidence. The benefit ratio for the voluntary benefits product line was 44.2 percent in the second quarter of 2021, compared to 43.1 percent for the second quarter of 2020, due to higher claims incidence in the group critical illness product line. The benefit ratio for the dental and vision product line was 77.1 percent for the second quarter of 2021, compared to 36.0 percent for the second quarter of 2020, due to higher utilization compared to lower utilization experienced in the same period of 2020 resulting from the impacts of COVID-19. Relative to the second quarter of 2020, sales in the individual disability product line increased 4.9 percent in the second quarter of 2021 to $14.9 million. Sales in the voluntary benefits product line declined 7.0 percent in the second quarter of 2021 to $43.7 million. Sales in the dental and vision product line totaled $13.0 million for the second quarter of 2021, an increase of 2.4 percent compared to the second quarter of 2020. Persistency in the individual disability product line was 89.0 percent for the first half of 2021, compared to 90.1 percent for the first half of 2020. Persistency in the voluntary benefits product line was 74.5 percent for the first half of 2021, compared to 73.0 percent for the first half of 2020. Persistency in the dental and vision product line was 86.6 percent for the first half of 2021, compared to 81.7 percent for the first half of 2020.
Unum International
The Unum International segment reported adjusted operating income of $24.8 million in the second quarter of 2021, an increase of 64.2 percent from $15.1 million in the second quarter of 2020. Premium income increased 16.8 percent to $183.5 million in the second quarter of 2021, compared to $157.1 million in the second quarter of 2020. Net investment income increased 35.7 percent to $35.7 million in the second quarter of 2021, compared to $26.3 million in the second quarter of 2020. Sales increased 10.0 percent to $33.1 million in the second quarter of 2021, compared to $30.1 million in the second quarter of 2020.
The Unum UK line of business reported adjusted operating income, in local currency, of £16.8 million in the second quarter of 2021, an increase of 66.3 percent from £10.1 million in the second quarter of 2020. Premium income was £115.1 million in the second quarter of 2021, an increase of 3.0 percent from £111.7 million in the second quarter of 2020, due to growth in the in-force block resulting from the impact of rate increases in the group long-term disability product line and higher overall persistency. Net investment income was £24.3 million in the second quarter of 2021, an increase of 22.1 percent from £19.9 million in the second quarter of 2020, due to higher investment income from inflation index-linked bonds, partially offset by a lower yield on fixed-rate bonds. The benefit ratio in the second quarter of 2021 was 82.5 percent, which was consistent with the second quarter of 2020, with improved experience in the group long-term disability product line and lower claims incidence in the group life product line, offset by higher inflation-linked experience in benefits. Sales decreased 3.2 percent to £21.2 million in the second quarter of 2021, compared to £21.9 million in the second quarter of 2020. Persistency in the group long-term disability product line was 89.4 percent for the first half of 2021, compared to 87.7 percent for the first half of 2020. Persistency in the group life product line was 84.3 percent for the first half of 2021, compared to 83.0 percent for the first half of 2020. Persistency in the supplemental product line was 89.2 percent for the first half of 2021, compared to 90.5 percent for the first half of 2020.
Colonial Life Segment
Colonial Life reported a 5.4 percent increase in adjusted operating income to $95.8 million in the second quarter of 2021, compared to $90.9 million in the second quarter of 2020. Premium income decreased 4.3 percent to $419.7 million in the second quarter of 2021, compared to $438.6 million in the second quarter of 2020, due to lower prior period sales. Net investment income increased 13.0 percent to $41.6 million in the second quarter of 2021, compared to the $36.8 million in the second quarter of 2020, due to higher miscellaneous investment income and a higher level of invested assets, partially offset by a decline in the yield on invested assets. The benefit ratio was 51.7 percent in the second quarter of 2021, compared to 50.7 percent in the second quarter of 2020, with unfavorable experience in the accident, sickness, and disability product line, partially offset by improved experience in the life product line.
Sales increased 53.7 percent to $111.1 million in the second quarter of 2021, compared to $72.3 million in the second quarter of 2020. Persistency in Colonial Life was 78.3 percent for the first half of 2021, compared to 77.5 percent for the first half of 2020.
Closed Block Segment
The Closed Block segment reported adjusted operating income of $111.2 million in the second quarter of 2021, an increase from the $36.7 million in the second quarter of 2020. Premium income for this segment declined 0.5 percent in the second quarter of 2021, compared to the second quarter of 2020, due to policy terminations mostly offset by rate increases on certain in-force business in the long-term care line of business. Net investment income decreased 9.7 percent to $294.7 million in the second quarter of 2021, compared to $326.3 million in the second quarter of 2020, due to a decrease in the level of invested assets supporting the individual disability line of business resulting from the reinsurance transaction that occurred in the first quarter of 2021 and fourth quarter of 2020, as well as a decline in the yield on invested assets. These decreases were partially offset by higher miscellaneous investment income, primarily related to increases in the net asset values on our private equity partnerships.
The interest adjusted loss ratio for the long-term care line of business was 74.6 percent in the second quarter of 2021, compared to an interest adjusted loss ratio of 67.0 percent in the second quarter of 2020, driven primarily by lower claimant mortality. The interest adjusted loss ratio for long-term care for the rolling twelve months ended June 30, 2021, excluding the update of assumptions during the fourth quarter of 2020, was 70.0 percent which is below our long-term expected range. The interest adjusted loss ratio for the individual disability line of business was 69.6 percent in the second quarter of 2021, compared to 89.5 percent in the second quarter of 2020, driven primarily by lower submitted claims.
Corporate Segment
The Corporate segment reported an adjusted operating loss of $48.5 million in the second quarter of 2021, which excludes the before-tax cost related to the early retirement of debt of $67.3 million and the before-tax impairment loss on the ROU asset of $13.9 million, compared to an adjusted operating loss of $58.1 million in the second quarter of 2020, which excludes the before-tax impairment loss on the ROU asset of $12.7 million.
OTHER INFORMATION
Shares Outstanding
The Company’s weighted average number of shares outstanding, assuming dilution, was 205.3 million for the second quarter of 2021, compared to 203.7 million for the second quarter of 2020. Shares outstanding totaled 204.3 million at June 30, 2021. The Company did not repurchase shares during the first half of 2021.
Capital Management
At June 30, 2021, the weighted average risk-based capital ratio for the Company’s traditional U.S. insurance companies was approximately 375 percent, and cash and marketable securities in the holding companies equaled $1,717.0 million.
Book Value
Book value per common share as of June 30, 2021 was $53.57, compared to $51.90 at June 30, 2020.
Outlook
The Company expects a decline of approximately 1 percent to 3 percent in after-tax adjusted operating income per share for full-year 2021 relative to full-year 2020, compared to its previous expectation of a 5 percent to 6 percent decline. The improved outlook reflects strong second quarter performance, and the Company’s revised expectations