Unum Group

Good day and welcome to the Unum Group second quarter 2020 earnings conference call. Today's call is being recorded. At this time, I would like to turn the conference over to Tom White, Investor Relations. Please go ahead, sir.

Great. Thank you, Jonathan. Good morning, everyone, and welcome to the second quarter 2020 earnings conference call for Unum. Our remarks today will include forward-looking statements, which are statements that are not of current or historical fact. As a result, actual results might differ materially from results suggested by these forward-looking statements. Information concerning factors that could cause results to differ appears in our filings with the Securities and Exchange Commission and are located in the sections titled Cautionary Statement Regarding Forward-Looking Statements and Risk Factors in our annual report on Form 10-K, for the fiscal year ended December 31, 2019, and our subsequent form 10Q filings. Our SEC filings can be found in the investor section of our website at unum.com. I remind you that the statements in today's call speak only as of the date they are made, and we undertake no obligation to publicly update or revise any forward-looking statements. and a presentation of the most directly comparable GAAP measures and reconciliations of any non-GAAP financial measures included in today's presentation can be found in our statistical supplement on our website, also in the investor section. So yesterday afternoon, Unum reported second quarter 2020 net income of $265.5 million or $1.30 per diluted common share. compared to $281.2 million or $1.33 per diluted common share in the second quarter of 2019. Net income for the second quarter of 2020 included net after-tax realized investment gains of $25.4 million and an after-tax impairment loss of $10 million on the right of use asset related to one of our operating leases on an office building We do not plan to continue to occupy. Net income in the second quarter of 2019 included a net after-tax realized investment loss of $5.7 million. As a reminder, net realized investment gains and losses include changes in the fair value of an embedded derivative in a modified coinsurance arrangement, which resulted in an after-tax realized gain of $33.1 million in the second quarter of 2020 and an after-tax realized investment loss of $600,000 in the year-ago quarter. Therefore, the net after-tax realized investment loss from sales and credit losses totaled $7.7 million in the second quarter of 2020. So excluding these items, after-tax adjusted operating income in the second quarter of 2020 was $250.1 million, or $1.23 per diluted common share compared to $286.9 million or $1.36 per diluted common share in the year-ago quarter. Participating in this morning's conference call are Unum's President and CEO, Rick McKinney, the Chief Financial Officer, Steve Zabel, and Chief Operating Officer, Mike Simons, as well as Peter O'Donnell, who heads our Unum International business, and Tim Arnold, who heads our colonial life and voluntary benefits businesses. And now I'll turn the call over to Rick for his opening comments.

Thank you, Tom, and good day, everyone. I'd like to thank you all for joining us today on our second quarter earnings call. Despite the many challenges brought on by the COVID-19 pandemic, the corresponding sharp economic downturn and the resulting upheaval in unemployment conditions and workplace environments, we produced solid financial results in the second quarter. The operating trends we experienced were generally consistent with the expectations we discussed in the first quarter. However, the magnitude of the pluses and minuses was different than expected, particularly with mortality trends. We'll outline these impacts as well as other COVID-related impacts on the business in greater detail throughout our commentary today. Before I get into the discussion of the results, I want to express how proud I am of the hard work and dedication of our teams over these past several months through this difficult time. Our teams are feeling challenge and uncertainty in their own lives, but their efforts to support our customers, communities, as well as each other through this time has been exceptional. We have remained true to our purpose of helping people thrive throughout life's moments, and what we are witnessing today has amplified the need for what we do. We are also focused on the disciplined execution of our business plans and adapting to our changing world. We are operating very well in a largely work-from-home setting with high customer satisfaction and solid productivity. In this environment, we continue to be well-prepared to navigate through a variety of economic scenarios. The entire set of circumstances we face today reinforces the need for our core business of providing affordable and accessible financial protection products to individuals and their families through the worksite. The fragility of many Americans' financial lives has never been more obvious than what we are experiencing today. Our focus on delivering great social value remains paramount. It ranges from supporting a family with the loss of a loved one to helping America's workers with short-term disability to many other needs created by this pandemic. It is why we are here. If we turn to the totality of our second quarter financial results, we were pleased with the overall performance this quarter, in the wake of the stressful conditions in the business environment. Adjusted operating earnings per share were $1.23, which is down from the $1.36 of the year-ago second quarter, but was solid overall given the headwinds of the market. We experienced more volatility within our segment results than usual, and we'll walk you through the details throughout our commentary. Starting with our top line, we continued to see growth in premiums, which were up 1.7%. while underlying business origination was more mixed. When you think of our business growth, we think first of customers that are staying with us because of the value of the protections we provide. This is even more true in the midst of the pandemic. Persistency levels are holding up well so far this year with only modest impacts currently. It is reasonable to expect that persistency will be further pressured in the second half of the year as the effects of lower employment levels flow through our blocks particularly in our voluntary benefits businesses. Sales trends showed varying levels of impact dependent on the distribution model, size of customer, and product and services set. Unum US total sales declined just under 3%. International sales increased just over 1%. While Colonial Life sales declined 43%, reflecting the challenges of face-to-face sales. These trends were consistent with our expectations as cases with large companies perform better than smaller businesses and group lines perform better than the voluntary lines. We expect premium income for our core business segments to be flat to a slight increase for full year 2020 after increasing just over 2% in the first half. From a benefits perspective, clearly mortality impacts are the biggest variable on people's minds. When the pandemic started, it was believed to impact older ages much more severely, which meant the belief was that group carriers, such as us, would see less claims as the working population skews younger. In fact, what we saw was that death rates were similar to our overall non-COVID age distribution, negatively affecting our U.S. group life block and our other life insurance blocks within our voluntary benefits businesses and the U.K., On the other hand, higher mortality drove significantly higher claim terminations in the long-term care block, resulting in the interest-adjusted loss ratio of 67%, which is well below historical trends. Steve will provide more detail in his comments, but our experience was generally consistent with the trends for mortality as published in National Studies. Beyond these outsized mortality impacts experienced this quarter, we saw several other less severe anomalies in our benefits trends resulting from the pandemic. which touched every part of the company. In the UK, disability results continue to be challenged by the limitations we are experiencing in accessing the healthcare system to get the information we need to adjudicate and settle claims and return claimants to work. Within Unum US, our growing leave management business experienced higher volumes which drove higher expenses and dampened profitability in the group disability line. Our dental businesses, on the other hand, benefited from unusually low utilization rates producing favorable operating income for UNMUS supplemental and voluntary. And within the group disability line, newly submitted long-term disability claims were slightly higher, but with strong claim recoveries and favorable short-term disability trends, we experienced favorable risk performance in the UNMUS group disability loss ratio. On our investment portfolio, we saw a very dramatic improvement in the credit markets in the second quarter as the Fed became heavily involved in bringing forms of stimulus to aid the economy and the purchase of debt securities. Combined with improved oil prices, we saw reduced credit losses, much lower ratings migration and a sharply improved net unrealized gain position in our fixed income portfolio relative to the first quarter. So far, we are tracking favorably to the credit scenario we laid out in the first quarter. On the other hand, Fed actions in a more difficult economy have pushed interest rates to low levels. So in the world of tightening credit spreads and low government rates, ongoing pressure to new money yields is creating a challenging environment to put money to work for our team. When we bring it all together, we saw excellent statutory earnings generated again this quarter, which has been true for the first half of the year. Our capital metrics remain solid, with RBC at approximately 370% and holding company cash of $1.6 billion. The results this quarter demonstrate the resilience of the franchise and underscore the disciplined approach we take to operating the business, while bringing good value to our customers. Now I'll ask Steve to cover the details of the second quarter results.