Steven A. Zabel
Executive Vice President & Chief Financial Officer at Unum Group
Great. Thanks, Rick, and good morning to everyone. As Rick mentioned, we were extremely pleased with the strong finish to the year across-the-board. The 4th-quarter capped another year of solid growth as evidenced by our results. For the full-year, sales were up 6.1% in Unum International, down 1.4% in Colonial Life and up 6.5% in Unum US, where we saw record absolute sales and growth of nearly 20% in the 4th-quarter, which is our largest sales quarter of the year. Premium for our core operations increased 3.6% in the quarter compared to a year-ago and finished up 5% for the full-year. This is within the expectation laid out last February and consistent with our long-term expectation of 4% to 7% annual premium growth. Margins across the business continued to be robust. Unum US results saw continued sustainability in both Disability and life results highlighted by a disability benefit ratio of 59% for the full-year and 60.4% in the 4th-quarter. Meanwhile, Group Life and AD&D finished with a benefit ratio of 66.3% for the year and 66.7% for the quarter. Looking ahead, we expect performance for both of these lines to continue and are maintaining our outlook for both benefit ratios. Specifically for disability, we firmly believe that the results we are seeing are durable for the near to mid-term as we continue to see support for these levels in our operations and in the market. And therefore, reiterate our outlook for a benefit ratio in the low-60s. For Group Life and AD&D, we think current trends will continue for the near-term and therefore believe the benefit ratio outlook will be around 70% with potential period-to-period favorability as we have recently experienced. We also saw strong margin performance beyond Unum US. Colonial Life delivered one of its highest quarters of earnings on record and international continues to produce earnings in-line with its earnings outlook, which we did raise earlier this year to the mid to-upper GBP20 million range per quarter. Both franchises are well-positioned to continue these strong operating trends as we enter 2025. All of these factors enabled us to-end the year with after-tax adjusted operating income of $1.6 billion and after-tax adjusted operating earnings per share of $8.44, which represents growth of 10.2% over full-year 2023. The strong earnings power for GAAP was also apparent in our statutory results with full-year after-tax operating earnings of over $1.3 billion, which was within our outlook of $1.2 billion and $1.4 billion. Earlier, Rick mentioned our capital priorities and detailed our aspirations to grow the business while also returning capital to shareholders. Our consistent and powerful cash-flow generation model provides us with significant capital flexibility, which was further enhanced in 2024 without the need to fund LTC. As a result, we returned $1.3 billion to shareholders in the form of share repurchases and dividends. This was an increase of 2.5 times from our deployment of just over $500 million in 2023. Our top capital priority is to reinvest organically into the business. The strength of our persistency and new account sales metrics are a testament to the value of our offering in the market and the success we are seeing with the key strategic initiatives that Rick discussed. Investing in these capabilities to grow our core business and increase efficiency is a key priority. As a result, the full-year 2024 adjusted operating expense ratio of 21.7% was consistent with 2023. In 2025, we expect the expense ratio to increase slightly as we balance continued investment to maintain our differentiation in-markets with realizing further productivity gains. So then focusing in on the 4th-quarter, results represented a continuation of some of the strong trends we've seen throughout the year, mainly around margin sustainability and group disability and life. We did see some pressure in our supplemental and voluntary lines that I will discuss in a moment. However, we don't expect that to persist in 2025. All-in all, this produced after-tax adjusted operating earnings per share of $2.03 for the quarter and $8.44 for the full-year, representing 10.2% growth over 2023. Notably, this growth level follows multiple years of double-digit EPS growth. So then I'll now briefly review our 2024 results by segment, provide updates on the closed-block and then shift to our 2025 outlook. In Unum US, full-year adjusted operating income of $1.4 billion increased 6.2% over 2023. As mentioned earlier, these results were bolstered by sustained group disability margins, but also group life performance with the Group Life and AD&D product-line experiencing full-year adjusted operating earnings growth of 62.8%. While this quarter saw pressure from our supplemental and voluntary lines, specifically voluntary benefits, we view these impacts as transitory and believe results in 2025 should return to more normal levels, specifically quarterly earnings around $121 million compared to the $104 million in the 4th-quarter. Then from a growth perspective, Unum US earned premium grew 4.6% to $6.9 billion due to natural growth, higher sales and solid persistency, which is near our 5.7% expectation. Moving to Unum International, the segment continued to show strong trends in its underlying earnings power and top-line growth. Adjusted operating income of $157.8 million for full-year 2024 was relatively flat compared to the prior year, but didn't have the benefit of high levels of UK inflation seen in 2023. As such, the underlying earnings power of the business grew in 2024 and when adjusting for the impact of inflation, UK. Earnings grew approximately 15% over 2023. 4th-quarter UK results of GBP27.6 million were in-line with our outlook for adjusted operating earnings levels in the mid to-upper GBP20 million range. As we enter 2025, we expect to grow off of this range and believe the upper GBP20 million range remains an appropriate outlook. We are pleased with the growth levels in the UK, highlighted by full-year premium growth of 9.4% and sales growth of 6.6%. While the UK business is the major driver of this segment, Poland saw another year of significant growth, increasing premiums 24.2%, while sales grew 4.2%. Then turning to colonial, while sales were down for the full-year, premium did grow steadily at 3.3%. Despite slower levels of growth, margins remained outstanding and 4th-quarter adjusted operating earnings were some of Colonial's best-ever at $122.7 million. Full-year results of $466.7 million were up 16.6% over 2023 and equated to a return-on-equity of 19.7% compared to 18.1% in the prior year. So before covering the closed-block results, the corporate segment, which consists predominantly of corporate debt-related expenses, produced a loss of $50.4 million in the quarter and we expect this level of loss to continue into 2025. Switching gears to the closed-block of business and focusing on this quarter, adjusted operating earnings were $27.7 million. This brings full-year earnings to $137.8 million, which is in-line with our outlook of $130 million to $160 million. The LTC net premium ratio, which is indicative of a lifetime benefit ratio expectation, increased slightly to 94.6% from 94.5% in the 3rd-quarter of 2024. Further, LTC incidents remained above long-term expected levels and was generally consistent with our experience in the 3rd-quarter. We continue to believe the elevated incidents rates has been a function of inventory levels normalizing in the environment following the pandemic and we may continue to see some of this volatility going-forward. Lastly, for the closed-block, our alternative investment portfolio, which largely backs LTC, produced income of $30.5 million in the quarter or a yield of 9.1% on an annualized basis. Since inception of this portfolio, our diversified alternative portfolios produced returns which are in-line with our long-term expectation of 8% to 10%. And moving on from quarterly results, I'll now take a look -- take a few moments to address the overall position of our LTC block. 2024 saw a handful of positive trends, including the higher for longer rate environment as well as our success regarding our premium rate increase program. Both of these factors drove pronounced impacts to our block that I'll describe. First, through the end of 2024, we have achieved over 50% of our current premium rate increase program expectation. We are pleased with both the pace and the receptiveness from regulators for these requests. A key element of this success has been offering policyholders flexibility. We regularly present choices for coverage adjustments and other methods that we made better suit their present financial and insurance needs. Second, the higher-rate environment has had major benefits to LTC over the last few years and this was no different in 2024. Our hedge program remain active and with $2.6 billion of outstanding notional at year end with average hedge rates of 4.3%, exceeding our best estimate ultimate assumption for the 30-year treasury of 4.25%. In addition, as we discussed earlier in the year, we took the opportunity to extend the horizon of investable cash flows hedged from five years up to 10 years in some cases. Overall, we are very pleased with the impacts of our hedge program and the prudent risk management it provides. As Rick mentioned in his opening, we no longer anticipate the need for further capital contributions for LTC. Our 2024 capital deployment demonstrated this, allowing us to concentrate further on expanding our core operations and returning value to our shareholders. Our confidence is reinforced by the $2.6 billion of protection, which consists of the difference between our best estimate reserves and our recorded statutory reserves, plus excess capital at fairwind. With the sustained levels of interest rates, we were able to release a large portion of our premium deficiency reserve in Fairwind. Due to tax impacts on reserve releases in the Fairwind excess capital, the level of protection decreased as expected from $2.8 billion reported last year to $2.6 billion this year. On an economic basis, we are in a similar position of strength to last year as this capital will stay-in fair wind. We provided update sensitivities to show the relative size that changes in assumptions have against our protection level. I'd like to take a pause here and describe a little bit the sensitivities that we show in the materials that are on the screen. And as I'm looking at the table on the right-side of the page, what we've done is looked at the major assumptions that we have within our best estimate assumption set for our economic reserve for this line-of-business. And what we have done for both the premium rate increase as well as the morbidity and mortality improvement is just give an indication of what the impact of removing the benefit of those assumptions from our best estimate assumptions would impact our best estimate reserve. For policy lapses and mortalities, claim incidents and claim resolutions, we've really taken the approach to take a one-standard deviation variance to our best estimate assumption forever and show the impact of what that would have on our best estimate reserve. And then the last sensitivity that we gave was to take the new money rate for the 30-year treasury and take that down to 3.25% for an ultimate rate and the impact that would have on our best estimate. We obviously do not think that these will all occur together, but wanted to give the market some indication of the sensitivities for these various key assumptions within our best estimate reserve and be able to relate that back to the level of protection that we do believe we have between our recorded regulatory reserves and our best estimate reserve. So this further validates our view that we will no longer need to contribute capital to the block. Considering all of this, we are pleased with the position of our block and we will continue to pursue all of our options, both internally and externally to best actively manage it. Internally, we will focus on risk management actions such as implementing hedging strategies and advancing our premium rate increase program. Externally, we will continue to seek opportunities for economic risk transfer. These actions remain a top priority as we move into 2025. For your reference, we have updated the LTC key metrics and block demographics and they can be found in the appendix of today's presentation. So stepping back, 2024 was an incredible year for the company and as we turn to 2025, we see many of the same tailwinds and opportunities to win. So with all that considered, it's time to talk about our outlook for this year. I'll start with our view of business growth and earnings power and then discuss how that plays into capital generation. The key theme of our 2025 outlook is consistency with the strong results that we saw in 2024. The major trends that drove those 2024 results are expected to continue into 2025, specifically our group disability and life product margins. The durability of these trends drive high levels of earnings power and lead to robust free-cash flow generation and capital optionality. These sustained margins paired with top-line growth and a thoughtful share repurchase strategy drive expected earnings per share growth of 8% to 12% in 2025. I will now turn to our expectations for top-line growth and returns of our core businesses. Following our core operations sales growth of 4.3% in 2024, we expect sales to build momentum in 2025, including continued success in Unum US and international with colonial resurging to the 5% to 10% growth range. There are different stories across lines of premium growth, but importantly, we believe core operations growth will continue to produce results in-line with our long-term expectation of 4% to 7%. It's also noteworthy that our International segment continues to produce very strong growth results while maintaining its solid level of margins seen post-pandemic. Returns on equity across-the-board are robust and sector-leading, driven by the sustained product margins I referenced earlier. Now pivot from GAAP metrics to our capital expectations in 2025. Our capital generation model continues to grow after a fantastic 2024 with our sources of expected capital totaling $1.5 billion to $1.8 billion. This compares to our outlook last year of $1.4 billion to $1.6 billion. As a reminder, our cash generation is driven by earnings in our US insurance subsidiaries, which will convert to dividends to our holding company. Dividends from our UK operations and other fees charged to our operating companies, specifically asset management fees. This is all fueled by our strong earnings across our businesses. We do not expect major changes in our capital usage in 2025. Specifically, we will continue to service our debt at leverage consistent to current levels, steadily increase our dividend and return capital through a sizable share repurchase program. For 2025, we expect to buy-back between $500 million and $1 billion of shares as we assess our capital deployment priorities throughout the year. For context, in 2024, we repurchased approximately $700 million of shares after removing those shares repurchased in conjunction with our PCAPS transaction in the 4th-quarter. So now turning to Page 12 in the presentation, I will finish with our expectation for capital levels at the end of 2025. We expect capital levels to continue to be strong and well-above our targets, which are calibrated to maintain our current ratings. This includes risk-based capital in our traditional subsidiaries to be between 425% and 450%, holding company liquidity to be greater than $2 billion and ample leverage capacity between 21% and 22%. As we always do, we will ensure a prudent approach to capital management and do not plan for sudden changes to our capital structure. That considered, over-time, we do plan to manage these metrics back-down closer to targets. However, in the near-term, this position grants us immense capital flexibility and allows us many options to further advance our business strategy and return more capital to shareholders. So to wrap-up our prepared remarks, we are extremely pleased with how the company performed in 2024 and excited for the opportunities for our businesses in 2025. We will continue to deliver on our promises to more-and-more customers, create a desired workplace for our employees and deliver industry-leading margins for our shareholders. I will now turn it over to Rick for his closing comments before going to your questions.
