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Unum Group Well Poised for Growth; Low Interest a Drag

On May 27, 2016, we issued an updated research report on Unum Group UNM.

Unum Group’s first-quarter 2016 earnings per share surpassed the Zacks Consensus Estimate and improved year over year. Strong performance at Unum U.S. and Unum U.K. were partially offset by a soft performing Colonial Life. The quarter witnessed strong premium improvement with a stable benefits experience.

The insurer’s conservative pricing and reservation practices have contributed to its overall profitability. So the company targets 3–6% earnings growth over 2015 in 2015.

Though Unum U.S. experienced sales decline in the first quarter, management noted that improving rates offset the interest rate pressure. Management estimates Unum U.S. sales growth between 2% and 4% in 2016 and expects sustained persistency and sales improvement in existing client relationships to drive results in the upcoming quarters. The Colonial Life Segment is expected to benefit from a rise in premium and investment income, along with favorable risk results.

Riding on its operational strength, the company has built a solid capital position. To enhance flexibility, the company extended the $400 million credit facility by another five years. Recently, the company also issued $600 million in senior notes in two tranches. Unum Group aims risk-based capital ratio between 375% and 400% in 2016.

The company also remains focused on enhancing its shareholder value. Recently, the board of directors authorized a $750 million share buyback program and hiked dividend by 8%.

However, Unum U.K. has remained soft over the last few quarters and benefit ratio has deteriorated. Though management expects to improve its results through changes in business mix, premium rate increases, intensifying focus on new market sales, and capitalization of strategic opportunities, it anticipates a low interest rate environment to weigh on its earnings. Also, a stricter credit spread has been putting pressure on profit margins and impacting net investment income yields.

Nonetheless, the Zacks Consensus Estimate for 2016 and 2017 is currently pegged at $3.81 and $4.10, respectively. These translate into a year-over-year increase of 4.6% and 7.6%. The expected long-term earnings growth rate is currently pegged at 7%.

Stocks to Consider

Some better-ranked accident & health insurers are Amerisafe, Inc. AMSF, Employers Holdings, Inc. EIG and Trupanion, Inc. TRUP. While Amerisafe sports a Zacks Rank #1 (Strong Buy), Employers Holdings and Trupanion carry a Zacks Rank #2 (Buy).

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UNUM GROUP (UNM): Free Stock Analysis Report
 
AMERISAFE INC (AMSF): Free Stock Analysis Report
 
TRUPANION INC (TRUP): Free Stock Analysis Report
 
EMPLOYERS HLDGS (EIG): Free Stock Analysis Report
 
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