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 (Provident), The Paul Revere Life Insurance Company, Colonial Life & Accident Insurance Company (Colonial Life & Accident), 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 segments: Unum US, Unum International, and Colonial Life. Our other operating 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 disability, life and voluntary products, on both individual and group bases, 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. We see important links between the obligations we have to all of our stakeholders, and 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, 2024.

Operating Performance and Capital Management

For the first quarter of 2025, we reported net income of $189.1 million, or $1.06 per diluted common share, compared to net income of $395.2 million, or $2.04 per diluted common share, in the first quarter of 2024.

Included in our results for the first quarter of 2025 are:

•A net investment loss of $206.8 million before tax and $163.4 million after tax, or $0.91 per diluted common share;

•Amortization of the cost of reinsurance of $9.6 million before tax and $7.6 million after tax, or $0.04 per diluted common share; and,

•Non-contemporaneous reinsurance of $6.8 million before tax and $5.4 million after tax, or $0.03 per diluted common share.

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

•A net investment loss of $1.2 million before tax and $0.8 million after tax, with a de minimis impact on earnings per diluted common share;

•Amortization of the cost of reinsurance of $10.4 million before tax and $8.2 million after tax, or $0.04 per diluted common share; and,

•Non-contemporaneous reinsurance of $7.2 million before tax and $5.7 million after tax, or $0.04 per diluted common share.

Excluding these items, after-tax adjusted operating income for the first quarter of 2025 was $365.5 million, or $2.04 per diluted common share compared to $409.9 million, or $2.12 per diluted common share, for the first quarter of 2024. See "Reconciliation of Non-GAAP and Other Financial Measures" contained herein in this Item 2 for further discussion and a reconciliation of these items.

Our Unum US segment reported adjusted operating income of $329.1 million in the first quarter of 2025 compared to $385.2 million the same period of 2024, due primarily to unfavorable benefits experience, higher operating expenses, and higher commissions, partially offset by higher premium income. The benefit ratio for our Unum US segment was 59.7 percent in the first quarter of 2025, compared to 56.8 percent in first quarter of 2024. Unum US sales increased 1.2 percent in first quarter 2025 compared to the same period of 2024.

Our Unum International segment reported adjusted operating income of $38.7 million in the first quarter of 2025 compared to $37.4 million the same period of 2024. Our Unum UK line of business reported adjusted operating income of £29.5 million in the first quarter of 2025 compared to £28.2 million the same period of 2024 due to higher premium income and favorable benefits experience, partially offset by higher operating expenses. The benefit ratio for our Unum UK line of business was 67.1 percent in the first quarter of 2025, compared to 68.1 percent in the same period of 2024. Unum International sales, as measured in U.S. dollars, decreased 19.1 percent in the first quarter of 2025 compared to the same period of 2024. Unum UK sales, as measured in local currency, decreased 28.0 percent in the first quarter of 2025 compared to the same period of 2024.

Our Colonial Life segment reported adjusted operating income of $115.7 million in the first quarter of 2025 compared to $113.7 million the same period of 2024, due primarily to higher premium income and favorable benefits experience, partially offset by higher operating expenses. The benefit ratio for Colonial Life was 47.7 percent in the first quarter of 2025, compared to 48.6 percent in the same period of 2024. Colonial Life sales increased 2.2 percent in the first quarter of 2025 compared to the same period of 2024.

Our Closed Block segment reported income before income tax and net investment gains and losses of $8.0 million in the first quarter of 2025 compared to $6.7 million in the same period of 2024, which includes 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 $24.4 million in the first quarter of 2025, which is generally consistent with the $24.3 million in the same period of 2024. The net premium ratio for long-term care increased to 94.7 percent at March 31, 2025 from 93.8 percent at March 31, 2024.

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 March 31, 2025, 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 for which an impairment loss was not recorded. During the first quarter of 2025, we recognized impairment losses totaling $152.4 million as a result of our intent to transfer certain fixed maturity securities related to the anticipated reinsurance transaction with Fortitude Reinsurance Company Ltd. (Fortitude Re). During the first quarter of 2024, no impairment losses on fixed maturity securities were recorded. The net unrealized loss on our fixed maturity securities was $2.1 billion at March 31, 2025, compared to $2.6 billion at December 31, 2024, with the decrease due primarily to a decrease in U.S. Treasury rates as well as net investment losses recorded on certain fixed maturity securities related to the anticipated reinsurance transaction with Fortitude Re. The earned book yield on our investment portfolio was 4.25 percent for the first three months of 2025 compared to a yield of 4.44 percent for full year 2024.

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 decrease in U.S. Treasury rates during the first quarter of 2025, resulted in an increase to the liability for future policy benefits, net of reinsurance, of approximately $0.2 billion.

We believe our capital and financial positions are strong. At March 31, 2025, 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 460 percent, which is in line with our expectation. We repurchased 3.3 million shares and 2.5 million shares of Unum Group common stock under our share repurchase program during the first quarter of 2025 and 2024, respectively, at a cost of $202.6 million and $123.0 million, respectively, including commissions and excise tax. Our weighted average common shares outstanding, assuming dilution, equaled 178.9 million and 193.3 million for the first quarter of 2025 and 2024, respectively. As of March 31, 2025, Unum Group and our intermediate holding companies had available holding company liquidity of $2,214.5 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.

Closed Block Long-Term Care and Unum US Individual Disability Reinsurance Transaction

In February 2025, Unum America entered into a master transaction agreement with Fortitude Re which, subject to receipt of regulatory approvals and the satisfaction or waiver of other customary closing conditions, is expected to result in the execution of a coinsurance agreement (anticipated reinsurance agreement) during 2025.

This anticipated reinsurance agreement is to reinsure a portion of our Closed Block long-term care business and a portion of our Unum US individual disability business on a coinsurance basis to Fortitude Re. The anticipated reinsurance agreement represents approximately 21 percent of total Closed Block long-term care future policy benefits and approximately 15 percent of Unum US individual disability future policy benefits as of December 31, 2024. Fortitude Re will establish and maintain a collateralized trust account for the benefit of Unum America to secure its obligations under the anticipated reinsurance agreement.

The transaction is expected to result in approximately $430 million pre-tax ceding commission paid to Fortitude Re. As part of the anticipated reinsurance transaction with Fortitude Re, we plan to transfer, upon closing the transaction, fixed maturity securities with an amortized cost of $3,159.4 million and a fair value of $3,274.8 million as of March 31, 2025. During the first quarter of 2025, we recognized impairment losses totaling $152.4 million based on our intent to transfer these assets. As of March 31, 2025, the portfolio we intend to transfer has a total unrealized gain of $115.4 million which is subject to change based on interest rate and credit spread environments at time of closing. In preparation for the anticipated transaction, fixed maturity securities with a fair value of $151.6 million and amortized cost of $175.1 million were sold during the first quarter of 2025, resulting in a $23.5 million net loss. Although we intend to transfer a significant portion of our fixed maturity securities portfolio as part of this transaction, the overall credit profile of our remaining portfolio will not change.

Immediately prior to entering into the anticipated reinsurance agreement with Fortitude Re, Unum America will recapture the aforementioned Closed Block long-term care business from Fairwind Insurance Company (Fairwind), an affiliated captive reinsurer, and assume the aforementioned Unum US individual disability business from Provident, an affiliate.

See Notes 4 and 14 in the "Notes to Consolidated Financial Statements" contained herein in Item 1 and "Investments" and "Liquidity and Capital Resources" contained herein in this Item 2 for further information.

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, Ireland, and Poland have adopted Pillar Two beginning on or after December 31, 2023. We have not recorded Pillar Two taxes as of March 31, 2025, and we do not expect material impacts in 2025. 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 2024, we experienced increased earnings driven by the underlying strength of our business and expect positive operating trends in our core businesses to continue in 2025. 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 2025.

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. 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.