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UNUMPROVIDENT CORPORATION REPORTS FOURTH QUARTER 2005 RESULTS
CHATTANOOGA, Tenn. (Jan. 30, 2006) – UnumProvident Corporation
(NYSE: UNM) announced today its results for the fourth quarter of 2005.
Income excluding net realized after tax investment gains and losses was $136.0
million ($0.43 per diluted common share) in the fourth quarter of 2005,
compared to $117.7 million ($0.39 per diluted common share) in the fourth
quarter of 2004. (See discussion of non-GAAP financial measures and the related
reconciliation below.)
The income excluding net realized after tax investment gains and losses of
$117.7 million for the fourth quarter of 2004 includes a charge of $87.8
million after tax ($0.29 per diluted common share) related to the settlement of
the multistate market conduct examination and income of $51.1 million after tax
($0.17 per diluted common share) attributable to settlements with the Internal
Revenue Service.
Thomas R. Watjen, president and chief executive officer, said, "Although our
results this quarter were slightly below our expectations, most of our
businesses and product lines are performing well. The results from our U.S.
Brokerage - group income protection line were disappointing, but we have made
organizational changes and are taking other actions to restore this business to
appropriate levels of profitability. This underperformance does not cause us to
change our long-term financial goals, though we do expect a slower rate of
earnings growth in 2006 as a result. Looking back on 2005, I am very encouraged
by the significant progress we made in many areas of the Company and while
challenges remain, our confidence in our future is growing."
Results by Segment
In the following discussions of the Company's segment operating results,
"operating revenue" excludes net realized investment gains and losses.
"Operating income" or "operating loss" excludes income tax and net realized
investment gains and losses.
The U.S. Brokerage segment reported operating income of $103.9 million in the
fourth quarter of 2005, compared to $15.7 million in the fourth quarter of
2004. Excluding the reserve charge of $80.8 million and operating expense
charge of $37.6 million related to the multistate market conduct examination
settlement agreements, operating income in the fourth quarter of 2004 was
$134.1 million.
Within this segment, the U.S. Brokerage group income protection line of business
reported operating income of $13.6 million in the fourth quarter of 2005,
compared to an operating loss of $88.6 million in the fourth quarter of 2004,
which included a reserve charge of $80.2 million and operating expense charge
of $36.5 million related to the multistate market conduct examination
settlement agreements. Excluding these charges, operating income was $28.1
million in the fourth quarter of 2004. In addition, the results for the fourth
quarter of 2004 include $9.9 million in increased net investment income due to
the periodic adjustment of amortization on mortgage-backed securities. The
benefit ratio for group income protection was 93.9 percent in the fourth
quarter of 2005, compared to 92.5 percent in the fourth quarter of 2004,
excluding the impact of the charge related to the multistate market conduct
examination settlement agreements. Claim recoveries and the timing of claim
decisions continued to be adversely impacted by the implementation of
organizational and procedural changes. Claim incidence trends on a submitted
basis in the Company's group long-term income protection line in the fourth
quarter of 2005 were slightly lower compared with the third quarter of 2005 and
with the levels of the year ago quarter. Premium income in group income
protection declined 4.0 percent to $629.7 million in the fourth quarter of
2005, compared to $656.2 million in the fourth quarter of 2004, reflecting
lower sales in recent quarters as the Company has focused on improving the
profitability of the business. Sales of fully insured group long-term income
protection products in the fourth quarter of 2005 declined 14.7 percent to
$68.1 million, compared to $79.8 million in the year ago quarter, and sales of
fully insured group short-term income protection products in the fourth quarter
of 2005 increased 14.0 percent to $32.6 million, compared to $28.6 million in
the year ago quarter. For both of these lines, sales in the core small and
mid-sized markets improved significantly relative to the year ago quarter while
sales in the large case market declined. Premium persistency in the group
long-term income protection line of business was 84.8 percent for both the full
year 2005 and 2004.
The U.S. Brokerage segment's group life and accidental death and dismemberment
lines of business reported operating income of $43.5 million in the fourth
quarter of 2005, compared to operating income of $62.1 million in the fourth
quarter of 2004. The decline in earnings primarily reflects a decline in
revenue in both the group life and AD&D lines and a higher benefit ratio in
the AD&D line. The benefit ratio in the group life line in the fourth
quarter of 2005 was stable relative to the fourth quarter of 2004. Premium
income for these lines of business declined 8.3 percent to $366.1 million in
the fourth quarter of 2005, compared to $399.4 million in the fourth quarter of
2004, reflecting lower sales and persistency in recent quarters as the Company
has focused on improving the profitability of the business in a competitive
market environment. Sales of group life products in the fourth quarter of 2005
declined 7.8 percent to $64.2 million, compared to $69.6 million in the year
ago quarter, with a decline in large case sales offsetting increased sales in
the core small and mid-sized markets. Premium persistency in the group life
line of business was 78.3 percent for the full year 2005, compared to 84.0
percent for full year 2004. The decline in persistency was due to higher
terminations of some larger cases which had been targeted for significant rate
increases.
Also within this segment, the U.S. Brokerage supplemental and voluntary lines of
business reported operating income of $46.8 million in the fourth quarter of
2005, compared to $42.2 million in the fourth quarter of 2004. Excluding the
reserve charges of $0.6 million and operating expense charges of $1.1 million
related to the multistate market conduct examination settlement agreements,
operating income in the fourth quarter of 2004 was $43.9 million. The
improvement in earnings is primarily driven by improved results in the
individual income protection – recently issued and long-term care lines of
business. Premium income increased 6.6 percent to $313.2 million in the fourth
quarter of 2005, compared to $293.7 million in the fourth quarter of 2004. New
annualized sales in the voluntary workplace benefits line of business increased
4.2 percent and individual income protection – recently issued sales increased
5.6 percent in the fourth quarter of 2005 relative to the fourth quarter of
2004, while long-term care sales declined 15.2 percent compared with the year
ago quarter.
The Unum Limited segment reported operating income of $49.3 million in the
fourth quarter of 2005, compared to $46.7 million in the fourth quarter of
2004. Operating income in this segment benefited from strong premium growth, a
slightly lower benefit ratio resulting from favorable claims management
results, and a lower expense ratio relative to the year ago quarter. Premium
income for this segment increased 12.0 percent to $198.2 million in the fourth
quarter of 2005, compared to $177.0 million in the fourth quarter of 2004. New
annualized sales in this segment declined 35.0 percent to $24.9 million in the
fourth quarter of 2005 from $38.3 million in the fourth quarter of 2004 due
primarily to higher sales during 2004 that resulted from the exit of a major
insurer from the U.K. market and due to the competitive environment in the U.K.
for group life products and the Company's decision to maintain its pricing
discipline.
The Colonial segment reported operating income of $38.7 million in the fourth
quarter of 2005, compared to $40.0 million in the fourth quarter of 2004.
Results in this segment in the fourth quarter of 2005 were negatively impacted
by $6.8 million due to litigation costs. Premium income for this segment
increased 5.8 percent to $200.5 million in the fourth quarter of 2005, compared
to $189.5 million in the fourth quarter of 2004. New annualized sales in this
segment increased 5.3 percent to $97.3 million in the fourth quarter of 2005
from $92.4 million in the fourth quarter of 2004.
The Individual Income Protection – Closed Block segment reported operating
income of $33.7 million in the fourth quarter of 2005, compared to income of
$37.8 million in the fourth quarter of 2004. Excluding the reserve charge of
$3.7 million and operating expense charge of $4.9 million related to the
multistate market conduct examination settlement agreements, operating income
in the fourth quarter of 2004 was $46.4 million. The decline in income is
primarily due to the periodic adjustment of amortization on mortgage-backed
securities which increased net investment income by $13.3 million in the fourth
quarter of 2004. Claim incidence trends were generally stable with the levels
of the prior quarter and year ago quarter; however, claim recovery experience
was generally lower than the experience of the prior quarter and year ago
quarter.
The Other segment reported operating income of $8.9 million in the fourth
quarter of 2005, compared to $8.3 million in the fourth quarter of 2004.
The Corporate segment, which includes investment earnings on corporate assets
not specifically allocated to a line of business, corporate interest expense,
and certain other corporate expenses, reported a loss of $43.0 million in the
fourth quarter of 2005, compared to a loss of $31.5 million in the fourth
quarter of 2004. Included in the fourth quarter of 2004 was income of $14.0
million before tax attributable to the interest portion of settlements with the
Internal Revenue Service which entitled the Company to a refund of tax plus
interest.
During the fourth quarter of 2005, the Company recorded an expense of $9.1
million before tax, or $5.9 million after tax ($0.02 per diluted common share),
reflecting a termination fee paid to exit an existing contract with an
information technology provider. The Company has entered into an agreement with
a new provider which is expected to result in a significantly less costly
infrastructure. This fourth quarter expense is reflected primarily in the
operating expenses of the U.S. Brokerage and Colonial segments.
Also during the fourth quarter of 2005, the Company recognized tax benefits
related to U.K. repatriated dividends and group tax relief of $8.8 million
($0.03 per diluted common share).
The Company's average number of shares outstanding, assuming dilution, was
318,681,427 for the fourth quarter of 2005, compared to 302,248,001 for the
fourth quarter of 2004.
Book value per common share at December 31, 2005 was $24.66, compared to $24.36
at December 31, 2004. Excluding the net unrealized gain on securities and the
net gain on cash flow hedges, book value per common share at December 31, 2005
was $20.26, compared to $19.15 at December 31, 2004.
The Company analyzes its performance using non-GAAP financial measures which
exclude certain items and the related tax thereon from net income. The Company
believes operating income or loss excluding realized investment gains and
losses, which are recurring, is a better performance measure and a better
indicator of the profitability and underlying trends in the business. Realized
investment gains and losses are dependent on market conditions and general
economic events and are not necessarily related to decisions regarding the
Company's underlying business. The Company believes book value per common share
excluding unrealized gains and losses on securities and the net gain on cash
flow hedges, which also tend to fluctuate dependent on market conditions and
general economic trends, is an important measure. The Company also believes
that exclusion of charges such as those related to the multistate settlement
agreements enhances the understanding and comparability of the Company's
performance, but this exclusion is not an indication that similar items may not
recur. For a reconciliation to the most directly comparable GAAP measures,
refer to the attached digest of earnings.
UnumProvident Corporation senior management will host a conference call on
Tuesday, January 31 at 10:00 a.m. (eastern) to discuss the results of
operations for the fourth quarter and will include forward-looking information,
such as guidance on future results and trends in operations, as well as other
material information. The dial-in number is (800) 818-5264 for the U.S. and
Canada. For International, the dial-in number is (913) 981-4910.
Alternatively, a live webcast of the call will be available at
www.unumprovident.com in a listen-only mode. About fifteen minutes
prior to the start of the call, you should access the "Investor and Shareholder
Information" section of our website. A replay of the call will be available by
telephone and on our website through Tuesday, February 7. In addition, the
Company's Statistical Supplement for the fourth quarter of 2005 is available on
the Company's website.
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