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UNUMPROVIDENT CORPORATION REPORTS SECOND QUARTER 2006 RESULTS
U.S. Brokerage — Group Income Protection Benefit Ratio Stabilizes;
Unum Limited and Colonial Produce Record Quarterly Earnings
CHATTANOOGA, Tenn. (Aug. 2, 2006) – UnumProvident Corporation
(NYSE: UNM) announced today its results for the second quarter of 2006 with net
income of $125.2 million ($0.38 per diluted common share), compared to $171.3
million ($0.55 per diluted common share) for the second quarter of 2005.
Included in the results for the second quarter of 2006 is a net realized after
tax investment loss of $3.6 million ($0.01 per diluted common share), compared
to a net realized after tax investment gain of $42.6 million ($0.13 per diluted
common share) in the second quarter of 2005.
Also included in the second quarter of 2006 is the after tax cost related to the
early retirement of debt of $11.6 million ($0.04 per diluted common share),
resulting from the successful execution of a $300 million debt tender in the
second quarter.
Income, on an after tax basis, excluding net realized investment gains and
losses and the cost related to the early retirement of debt was $140.4 million
($0.43 per diluted common share) in the second quarter of 2006, compared to
$128.7 million ($0.42 per diluted common share) in the second quarter of 2005.
(See discussion of non-GAAP financial measures and the related reconciliation
below.)
Thomas R. Watjen, president and chief executive officer, said, "I am generally
pleased with our results for the second quarter. Most areas of the Company met
or exceeded our expectations, including record profitability in our Unum
Limited and Colonial operations. The one area of the Company which is still
operating below our long-term expectations is our U.S. Brokerage group income
protection business; however, I am encouraged by the progress we made this past
quarter. In addition, we have continued to build financial strength this past
quarter, reducing outstanding debt by $300 million and producing healthy cash
flow and strong statutory earnings.".
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.
U.S. Brokerage Segment
The U.S. Brokerage segment reported operating income of $104.5 million in the
second quarter of 2006, compared to $111.4 million in the second quarter of
2005. Premium income declined 0.4 percent to $1,311.6 million in the second
quarter of 2006 from $1,317.3 million in the second quarter of 2005.
Within this segment, the U.S. Brokerage group income protection line of business
reported income of $10.4 million in the second quarter of 2006 compared to
income of $20.1 million in the second quarter of 2005. The benefit ratio for
this line increased to 95.1 percent in the second quarter compared to 93.5
percent in the second quarter of 2005 due to a lower rate of claim recoveries
offset partially by a decrease in the rate of submitted and paid claims.
Compared to the first quarter of 2006, the benefit ratio for this line declined
slightly to 95.1 percent in the second quarter of 2006 from 95.5 percent in the
first quarter of 2006, excluding the first quarter claim reassessment charge.
This slight improvement relative to the first quarter was primarily due to
improved results in the Company's group long-term income protection line of
business resulting from generally stable claim recovery experience and lower
levels of claim incidence and claim size, which was offset somewhat by an
increase in the benefit ratio in the Company's group short-term income
protection line. Premium income in group income protection declined 2.2 percent
to $622.9 million in the second quarter of 2006, compared to $636.8 million in
the second quarter of 2005, 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 second quarter
of 2006 increased 6.7 percent to $50.9 million, compared to $47.7 million in
the year ago quarter. Sales of fully insured group short-term income protection
products in the second quarter of 2006 increased 27.9 percent to $18.8 million,
compared to $14.7 million in the year ago quarter. Premium persistency in the
group long-term income protection line of business improved to 86.5 percent for
the first half of 2006 compared to 83.2 percent in the first half of 2005.
The U.S. Brokerage segment's group life and accidental death and dismemberment
lines of business reported a 6.5 percent decline in operating income to $44.8
million in the second quarter of 2006, compared to $47.9 million in the second
quarter of 2005. The decline in earnings primarily reflects a decline in
premium income and lower net investment income relative to the year ago
quarter. Premium income for these lines of business declined 2.7 percent to
$361.5 million in the second quarter of 2006, compared to $371.5 million in the
second quarter of 2005, 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 second quarter of 2006 increased 13.0 percent to $43.5 million, compared to
$38.5 million in the year ago quarter. Premium persistency in the group life
line of business improved to 79.9 percent for the first half of 2006, compared
to 75.0 percent for the first half of 2005.
Also within this segment, the U.S. Brokerage supplemental and voluntary lines
of business reported a 13.6 percent increase in operating income to $49.3
million in the second quarter of 2006, compared to $43.4 million in the second
quarter of 2005. The improvement in earnings is primarily driven by improved
results in the individual income protection – recently issued and voluntary
workplace benefits lines of business, which offset lower earnings in the
long-term care line. Premium income increased 5.9 percent to $327.2 million in
the second quarter of 2006, compared to $309.0 million in the second quarter of
2005. New annualized sales in the voluntary workplace benefits line of business
increased 6.2 percent in the second quarter of 2006 compared to the second
quarter of 2005 and sales in the individual income protection – recently issued
line increased 5.0 percent, while long-term care sales declined 17.2 percent
compared with the year ago quarter.
Unum Limited Segment
The Unum Limited segment reported a 35.8 percent increase in operating income
to $56.1 million in the second quarter of 2006, compared to $41.3 million in
the second quarter of 2005. Operating income in this segment benefited from a
lower benefit ratio resulting from favorable risk experience and claims
management and a lower expense ratio relative to the year ago quarter. Premium
income for this segment increased 3.9 percent to $200.7 million in the second
quarter of 2006, compared to $193.1 million in the second quarter of 2005.
Sales in this segment declined 56.5 percent to $20.0 million in the second
quarter of 2006 from $46.0 million in the second quarter of 2005 due primarily
to low activity in the overall U.K. market due to changes in pension
legislation, a decrease in large case sales due to the competitive market in
the U.K. for group products, and the Company's decision to maintain its pricing
discipline.
Colonial Segment
The Colonial segment reported a 14.4 percent increase in operating income to
$49.9 million in the second quarter of 2006, compared to $43.6 million in the
second quarter of 2005. Results in this segment in the second quarter of 2006
benefited from a lower benefit ratio resulting from favorable risk experience
in the income protection line of business. Premium income for this segment
increased 7.1 percent to $209.5 million in the second quarter of 2006, compared
to $195.6 million in the second quarter of 2005, reflecting current and prior
period sales growth and stable persistency. Sales in this segment increased
10.9 percent to $73.1 million in the second quarter of 2006 from $65.9 million
in the second quarter of 2005.
Individual Income Protection — Closed Block Segment
The Individual Income Protection — Closed Block segment reported
operating income of $33.2 million in the second quarter of 2006, compared to
$27.7 million in the second quarter of 2005. The interest adjusted loss ratio
increased to 93.0 percent in the second quarter of 2006 compared to 86.4
percent in the second quarter of 2005, primarily due to a lower rate of claim
recoveries which was offset partially by lower claim incidence rates. Net
investment income for the second quarter of 2006 was $214.0 million, which
includes $23.4 million of investment income related to the bonds transferred to
the Company in conjunction with the Centre Re reinsurance contract recapture in
the third quarter of 2005, compared to $189.7 million in the second quarter of
2005.
Other Segment
The Other segment reported operating income of $8.7 million in the second
quarter of 2006, compared to $13.9 million in the second quarter of 2005,
reflecting the wind down of product lines that are no longer actively marketed.
Corporate Segment
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 $53.7 million in the
second quarter of 2006, compared to a loss of $37.6 million in the second
quarter of 2005. Included in this segment in the second quarter of 2006 is the
before-tax cost of $17.8 million related to early retirement of debt.
The Company's average number of shares (000s) outstanding, assuming dilution,
was 329,905.0 for the second quarter of 2006, compared to 309,108.3 for the
second quarter of 2005.
Book value per common share at June 30, 2006 was $20.40, compared to $26.37 at
June 30, 2005. Excluding the net unrealized gain on securities and the net gain
on cash flow hedges, book value per common share at June 30, 2006 was $19.85
compared to $19.88 at June 30, 2005.
Commenting on the Company's second quarter results, President and Chief
Executive Officer Thomas R. Watjen stated, "Given our performance for the
second quarter, I am comfortable in reiterating our operating earnings per
share guidance for 2006 of $1.65 to $1.70, which includes our expectation that
the U.S. Brokerage group income protection benefit ratio will remain stable at
current levels in the third quarter before beginning to decline later in the
year. At our October 2005 investor meeting we provided guidance on a number of
areas of the business. While we have met or exceeded that guidance for most of
our businesses, the one exception has been the U.S. Brokerage group income
protection benefit ratio, which at the time we felt could decline to the 87% to
88% by late 2007 or early 2008. Based on our recent performance and the time we
believe it will take for the recent changes in the claims management area to
fully take effect, we believe it is appropriate to extend the timeframe needed
to achieve our long-term target for this line of business. We now believe that
a benefit ratio in the 90% to 92% range is a more appropriate objective for
this timeframe, and that the 87% to 88% range is achievable over a longer
timeframe. We intend to discuss our long-term expectations for all of our
business segments at our upcoming investor meeting in New York on November
8th."
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 believes that exclusion of certain other items specified in the
non-GAAP reconciliation enhances the understanding and comparability of the
Company's performance and the underlying fundamentals in its operations, 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
Thursday, August 3 at 9:00 a.m. (eastern) to discuss the results of operations
for the second 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 (888) 208-1812 for U.S. and Canada. For
International, the dial-in number is (719) 457-2654. 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" section of our website. A replay
of the call will be available by telephone and on our website through Thursday,
August 10. In addition, the Company's Statistical Supplement for the second
quarter of 2006 is available on the Company's website.
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