Unum Group

Unum Group, a Delaware general business corporation, and its insurance and non-insurance subsidiaries, which collectively with Unum Group we refer to as the Company, operate in the United States, the United Kingdom, Poland, and, to a limited extent, in certain other countries. The principal operating subsidiaries in the United States are Unum Life Insurance Company of America (Unum America), Provident Life and Accident Insurance Company, The Paul Revere Life Insurance Company, Colonial Life & Accident Insurance Company, Unum Insurance Company, Starmount Life Insurance Company, in the United Kingdom, Unum Limited, and in Poland, Unum Zycie TUiR S.A. (Unum Poland). We are a leading provider of financial protection benefits in the United States and the United Kingdom. Our products include disability, life, accident, critical illness, dental and vision, and other related services. We market our products primarily through the workplace.

We have three principal operating business segments: Unum US, Unum International, and Colonial Life. Our other segments are the Closed Block and Corporate segments. These segments are discussed more fully under "Segment Results" included herein in this Item 2.

The benefits we provide help the working world thrive throughout life's moments and protect people from the financial hardship of illness, injury, or loss of life. As a leading provider of employee benefits, we offer a broad portfolio of products and services through the workplace that provide support when it is needed most.

Specifically, we offer group, individual, voluntary, and dental and vision products as well as provide certain fee-based services. These products and services, which can be sold stand-alone or combined with other coverages, help employers of all sizes attract and retain the talented and capable workforce they need to succeed while protecting the incomes and livelihood of their employees. We believe employer-sponsored benefits are the most effective way to provide workers with access to information and options to protect their financial stability. Working people and their families, particularly those at lower and middle incomes, are perhaps the most vulnerable in today's economy yet are often overlooked by many providers of financial products and services. For many of these workers and families, employer-sponsored benefits are the primary defense against the potentially catastrophic financial impact of death, illness, or injury.

We have established a corporate culture consistent with the social value of our products and services. Because we see important links between the obligations we have to all of our stakeholders, we place a strong emphasis on operating with integrity and contributing to positive change in our communities. Accordingly, we are committed not only to meeting the needs of our customers who depend on us, but also to being accountable for our actions through sound and consistent business practices, a strong internal compliance program, a comprehensive risk management strategy, and an engaged employee workforce.

This discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto in Part I, Item 1 contained in this Form 10-Q and with the "Cautionary Statement Regarding Forward-Looking Statements" included below the Table of Contents, as well as the discussion, analysis, and consolidated financial statements and notes thereto in Part I, Items 1 and 1A, and Part II, Items 7, 7A, and 8 of our annual report on Form 10-K for the year ended December 31, 2023.

Operating Performance and Capital Management

For the second quarter of 2024, we reported net income of $389.5 million, or $2.05 per diluted common share, compared to net income of $392.9 million, or $1.98 per diluted common share, in the second quarter of 2023. For the first six months of 2024, we reported net income of $784.7 million, or $4.09 per diluted common share, compared to net income of $751.2 million, or $3.78 per diluted common share in the same period of 2023.

Included in our results for the second quarter of 2024 are:

•A net investment loss of $10.4 million before tax and $8.2 million after tax, or $0.04 per diluted common share;

•Amortization of the cost of reinsurance of $10.3 million before tax and $8.2 million after tax, or $0.04 per diluted common share; and

•Non-contemporaneous reinsurance of $7.0 million before tax and $5.5 million after tax, or $0.03 per diluted common share.

Included in our results for the first six months of 2024 are:

•A net investment loss of $11.6 million before tax and $9.0 million after tax, or $0.05 per diluted common share;

•Amortization of the cost of reinsurance of $20.7 million before tax and $16.4 million after tax, or $0.08 per diluted common share; and

•Non-contemporaneous reinsurance of $14.2 million before tax and $11.2 million after tax, or $0.06 per diluted common share.

Included in our results for the second quarter of 2023 are:

•A net investment gain of $0.9 million before tax and $0.7 million after tax, with a de minimis impact on earnings per diluted common share;

•Amortization of the cost of reinsurance of $11.0 million before tax and $8.7 million after tax, or $0.04 per diluted common share; and

•Non-contemporaneous reinsurance of $9.9 million before tax and $7.9 million after tax, or $0.04 per diluted common share.

Included in our results for the first six months of 2023 are:

•A net investment gain of $1.0 million before tax and $0.8 million after tax, or $0.01 per diluted common share;

•Amortization of the cost of reinsurance $22.0 million before tax and $17.4 million after tax, or $0.09 per diluted common share; and

•Non-contemporaneous reinsurance of $17.2 million before tax and $13.6 million after tax, or $0.07 per diluted common share.

Excluding these items, after-tax adjusted operating income for the second quarter of 2024 was $411.4 million, or $2.16 per diluted common share compared to $408.8 million, or $2.06 per diluted common share, for the same period of 2023. After-tax adjusted operating income was $821.3 million, or $4.28 per diluted common share, in the first six months of 2024, compared to $781.4 million, or $3.93 per diluted common share, in the first six months of 2023. See "Reconciliation of Non-GAAP and Other Financial Measures" contained herein in this Item 2 for a reconciliation of these items.

Our Unum US segment reported adjusted operating income of $357.5 million and $742.7 million in the second quarter and first six months of 2024, respectively, compared to $343.1 million and $655.6 million in the same periods of 2023, due to favorable benefits experience across most product lines as well as an increase in premium income, partially offset by higher operating expenses and commissions. The benefit ratio for our Unum US segment was 58.2 percent and 57.5 percent in the second quarter and first six months of 2024, respectively, compared to 59.9 percent and 60.4 percent in second quarter and first six months of 2023, respectively. Unum US sales decreased 0.4 percent and 0.7 percent in the second quarter and first six months of 2024, respectively, compared to the same periods of 2023.

Our Unum International segment reported adjusted operating income of $42.5 million and $79.9 million in the second quarter and first six months of 2024, respectively, compared to $43.5 million and $81.9 million in the same periods of 2023. Our Unum UK line of business reported adjusted operating income of £32.5 million and £60.7 million in the second quarter and first six months of 2024, respectively, compared to £34.3 million and £65.3 million in the same periods of 2023, primarily due to lower net investment income, partially offset by higher premium income and favorable benefits experience. The benefit ratio for our Unum UK line of business was 69.5 percent and 68.8 percent in the second quarter and first six months of 2024, respectively, compared to 72.3 percent and 70.5 percent in the same periods of 2023. Unum International sales, as measured in U.S. dollars, increased 6.1 percent and 3.3 percent in the second quarter and first six months of 2024, respectively, compared to the same periods of 2023. Unum UK sales, as measured in local currency, increased 5.7 percent and 1.9 percent in the second quarter and first six months of 2024, respectively, relative to the same periods of 2023.

Our Colonial Life segment reported adjusted operating income of $116.9 million and $230.6 million in the second quarter and first six months of 2024, respectively, compared to $115.5 million and $209.4 million in the same periods of 2023, primarily due to higher premium income and favorable benefits experience, partially offset by higher amortization of deferred acquisition costs and higher commissions. The benefit ratio for Colonial Life was 47.8 percent and 48.2 percent in the second quarter and first six months of 2024, respectively, compared to 48.3 percent and 50.7 percent in the same periods of 2023. Colonial Life sales increased 0.7 percent in the second quarter of 2024 and decreased 1.3 percent during the first six months of 2024 compared to the same periods of 2023.

Our Closed Block segment reported income before income tax and net investment gains and losses of $34.3 million and $41.0 million in the second quarter and first six months of 2024, respectively, compared to $30.3 million and $70.2 million in the same periods of 2023, all of which include the amortization of the cost of reinsurance and the impact of non-contemporaneous reinsurance related to the Closed Block individual disability reinsurance transaction. Excluding these items, our Closed Block segment reported adjusted operating income of $51.6 million in the second quarter of 2024, compared to $51.2 million in the same period of 2023, due primarily to an increase in net investment income, mostly offset by elevated benefits in our long-term care product line. Our Closed Block segment reported adjusting operating income of $75.9 million in the first six months of 2024, compared to $109.4 million in the same period of 2023, due primarily to higher benefits in the long-term care product line, partially offset by an increase in net investment income. The net premium ratio for long-term care increased to 93.7 percent at June 30, 2024 from 86.1 percent at June 30, 2023.

A rising interest rate environment could positively impact our yields on new investments, but could also increase unrealized losses in our current holdings. Alternatively, a declining interest rate environment could negatively impact our yields on new investments, but could also reduce unrealized losses in our current holdings. As of June 30, 2024, we do not hold any securities with a decline in fair value below amortized cost which we intend to sell nor any securities for which it is more likely than not that we will be required to sell before recovery in amortized cost. The net unrealized loss on our fixed maturity securities was $2.6 billion at June 30, 2024, compared to $1.6 billion at December 31, 2023, with the increase due primarily to an increase in U.S. Treasury rates. The earned book yield on our investment portfolio was 4.44 percent for the first six months of 2024 compared to a yield of 4.45 percent for full year 2023.

Additionally, a rising interest rate environment could result in reserve decreases while a declining interest rate environment could result in reserve increases, specific to our liability for future policy benefits, as the reserve discount rate assumptions used in the calculation of our liability are updated at each reporting date using a yield that is reflective of an upper-medium grade fixed income instrument, which is generally equivalent to a single-A interest rate matched to the duration of certain of our insurance liabilities. The change in discount rate assumptions on the liability for future policy benefits, net of reinsurance, due primarily to the increase in U.S. Treasury rates during the first six months of 2024, resulted in a decrease to the liability for future policy benefits, net of reinsurance, of approximately $1.7 billion.

We believe our capital and financial positions are strong. At June 30, 2024, the risk-based capital (RBC) ratio for our traditional U.S. insurance subsidiaries, calculated on a weighted average basis using the NAIC Company Action Level formula, was approximately 470 percent, which is above our long-term expectation. We repurchased 6.0 million shares and 2.4 million shares of Unum Group common stock under our share repurchase program, during the first six months of 2024 and 2023, respectively, at a cost of $302.8 million and $100.6 million, respectively, including commissions and excise tax. Our weighted average common shares outstanding, assuming dilution, equaled 190.3 million and 198.1 million for the second quarters of 2024 and 2023, respectively, and 191.9 million and 198.8 million for the first six months of 2024 and 2023, respectively. As of June 30, 2024, Unum Group and our intermediate holding companies had available holding company liquidity of $1,281.0 million that was held primarily in bank deposits, commercial paper, money market funds, corporate bonds, municipal bonds and asset backed securities. See Note 12 of the "Notes to Consolidated Financial Statements" contained herein in Item 1.

Inflation Reduction Act

In August 2022, the Inflation Reduction Act (IRA) was signed into law in the U.S. and includes certain corporate tax provisions effective January 1, 2023. The IRA imposes a new 15 percent corporate alternative minimum tax (CAMT) on adjusted financial statement income (AFSI) on corporations that have average AFSI over $1.0 billion in any prior three-year period, starting with years 2020 to 2022. Our company is an applicable corporation. We have not recorded any CAMT as of June 30, 2024. We do not expect that any CAMT incurred would impact earnings since it would be offset with a credit toward regular income tax in subsequent years. The IRA also imposes a one percent excise tax on the fair market value of corporate stock repurchases after December 31, 2022. This excise tax is recorded as part of the cost basis of treasury stock and is assessed on the fair market value of stock repurchases, reduced by the fair value of any shares issued during the period. We have recorded $1.7 million and $0.4 million of excise tax in stockholders' equity, as part of the cost basis of treasury stock, for the second quarter of 2024 and 2023, respectively, and $2.8 million and $0.5 million for the first six months of 2024 and 2023, respectively.

U.K. Tax Law Change

In June 2021, the Finance Act 2021 was enacted, resulting in a U.K. tax rate increase from 19 percent to 25 percent, effective April 1, 2023.

Global Minimum Tax

The Organization for Economic Co-operation and Development (OECD) has established model rules to ensure a minimum level of tax of 15 percent (Pillar Two) for multinational companies. Several jurisdictions, including the United Kingdom and Ireland, have adopted Pillar Two beginning on or after December 31, 2023. We have not recorded Pillar Two taxes as of June 30, 2024, and we do not expect material impacts in 2024. We will continue to monitor legislative developments and refine our estimates as necessary.

Consolidated Company Outlook

We believe our strategy of providing financial protection products at the workplace puts us in a position of strength. We continue to fulfill our corporate purpose of helping the working world thrive throughout life’s moments by providing excellent service to people at their time of need. Our strategy remains centered on growing our core businesses, through investing and transforming our operations and technology to anticipate and respond to the changing needs of our customers, expanding into new adjacent markets through meaningful partnerships and effective deployment of our capital across our portfolio.

In 2023, we experienced increased earnings driven by the underlying strength of our business and expect positive operating trends in our core businesses to continue in 2024. The products and services we provide deliver significant value to employers, employees and their families, and we believe this will help drive sales and premium growth in 2024.

A rising interest rate environment could continue to positively impact our yields on new investments, but could also continue to create unrealized losses in our current holdings. A declining interest rate environment could negatively impact our yields on new investments but could also reduce unrealized losses in our current holdings. We also may continue to experience further volatility in miscellaneous investment income primarily related to changes in partnership net asset values as well as bond calls.

As part of our discipline in pricing and reserving, we continuously monitor emerging claim trends and interest rates. We will continue to take appropriate pricing actions on new business and renewals that are reflective of the current environment and may continue to utilize derivative financial instruments to manage interest rate risk.

Our business is well-diversified by geography within our markets, industry exposures and case size, and we continue to analyze and employ strategies that we believe will help us navigate the current environment. These strategies allow us to maintain financial flexibility to support the needs of our businesses, while also returning capital to our shareholders. We have strong core businesses that have a track record of generating significant free cash flow, and we will continue to invest in our operations and expand into adjacent markets where we can best leverage our expertise and capabilities to capture market growth opportunities as those opportunities emerge. We believe that consistent operating results, combined with the implementation of strategic initiatives and the effective deployment of capital, will allow us to meet our financial objectives.

Further discussion is included in the "Notes to Consolidated Financial Statements" contained herein in Item 1 and in "Reconciliation of Non-GAAP and Other Financial Measures," "Consolidated Operating Results," "Segment Results," "Investments," and "Liquidity and Capital Resources" contained herein in this Item 2.