Unum Group’s (UNM) second quarter operating earnings of 65 cents per share were 4 cents ahead of the Zacks Consensus Estimate. Based on the results, the company has increased its full-year 2009 EPS outlook. The quarterly results reflected growth in Unum U.S. and the Colonial Life segment.

Unum reported net income of $267.2 million or 80 cents per share, compared to net income of $240.3 million or 69 cents per share in the year-ago period, reflecting significant gains from investments. After-tax net realized gains were $51.4 million compared to gains of $17.1 million in the year-ago quarter. EPS results also benefited from a 4.1% reduction in share count.

Book value per share increased to $22.57 at June 30, 2009 from $19.39 at March 31, 2009 and $22.19 at June 30, 2008. Excluding the net unrealized loss on securities and the net gain on cash flow hedges, book value per share at June 30, 2009 was $22.07, compared to $20.86 per share at March 31, 2009 and $21.77 at June 30, 2008.

However, premium income declined 4.7% from the year-ago period while net investment income was down 2.5% year-over-year.

The company has also raised its full-year operating earnings guidance, reflecting its expectations of higher Unum U.S. earnings and a more favorable exchange rate. The company now projects its operating earnings for the full-year in the range of $2.50-$2.60 per share, up from the previous guidance of $2.45-$2.55 per share.

UNM’s capital position remained strong. Second quarter’s combined risk-based capital of approximately 340% for its traditional U.S. insurance companies exceeded the company’s 300% percent threshold target. Leverage was at 18.5%, significantly less than the target of 25%, while holding company liquidity was $475 million, which also exceeded the company’s minimum target.

Unum U.S. reported operating income of $191.3 million, up 11.5% year-over-year. Premium income was however down by 1.9% to $1.2 billion. The benefit ratio slightly improved to 79.6% from 80.7% in the year-ago quarter.

Unum U.K. posted operating income of $67.3 million, down 27.3% from the prior-year period, reflecting foreign exchange fluctuations. Operating income was down by 6.6% in local currency. Premium income decreased 28.3% to $173.4 million or 9.0% in local currency. The benefit ratio improved to 54.4% in the quarter from 58.3% in the year-ago period.

Unum’s Colonial Life segment experienced a 4.5% increase in operating income to $71.3 million. Premium income was up 3.4% to $250.8 million. The benefit ratio was almost unchanged at 46.4% in the quarter compared to 46.9% in the year-ago period.

Individual disability segment’s operating income was down 34.2% year-over-year to $10.0 million. Net investment income decreased 5.5% while the interest adjusted loss ratio remained almost unchanged at 82.0% in the quarter compared to 82.4% in the year-ago period.

Unum has decent risk-adjusted capital levels and its US operations are posting significant growth. The upward revision of its guidance by the management is viewed positively. However, we think that deteriorating economic and employment scenario will restrict earnings growth. Hence, we recommend investors hold the shares.
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