Employee benefits provider Unum Group (NYSE: UNM) reported Q2 CY2025 results exceeding the market’s revenue expectations, with sales up 4.2% year on year to $3.38 billion. Its non-GAAP profit of $2.07 per share was 6.5% below analysts’ consensus estimates.

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StockStory’s Take

Unum Group’s second quarter was marked by higher-than-expected claims costs and weaker investment income, leading to a significant miss on non-GAAP profit expectations despite solid revenue growth. CEO Rick McKenney described the quarter as one where "results fell short of our expectations, particularly in GAAP earnings," attributing the underperformance mainly to elevated claims in group products and the Closed Block. Management also cited persistency and steady premium growth across most lines as offsetting some of the margin pressure, but acknowledged that sales momentum remained slower than anticipated.

Looking forward, Unum Group’s updated outlook centers on maintaining premium growth through strong customer retention and ongoing digital investments, while facing continued uncertainty in claims experience. CFO Steve Zabel noted, “We now expect full-year EPS to be approximately $8.50,” reflecting revised expectations after a challenging first half. Management is focused on executing strategic reinsurance transactions, further derisking the legacy long-term care block, and leveraging excess capital for share repurchases, but cautioned that claims volatility and investment returns will play pivotal roles in near-term performance.

Key Insights from Management’s Remarks

Management pointed to claims volatility and lower alternative investment income as key drivers of the quarter’s profit shortfall, while highlighting premium growth and ongoing strategic initiatives.

• Claims cost variability: Elevated claims in group disability and life insurance lines drove margins below expectations, with the group disability benefit ratio higher than planned at 62%. Management attributed this to larger average claim sizes and some normalization in recoveries after unusually strong results last year.
• Persistency and premium growth: Persistency, or the rate at which customers renew their policies, remained above expectations in most segments. This supported continued premium growth, especially in the U.S. voluntary benefits and international businesses, despite slower new sales.
• Digital platform investments: Unum’s HR Connect platform continues to show higher persistency among participating customers. Management emphasized that digital capabilities are improving retention and helping win new business, even as competitive pressures rise.
• Closed Block reinsurance transaction: The company closed a major external reinsurance deal for the legacy long-term care (LTC) block, reducing risk exposure and freeing up capital. However, the Closed Block continued to experience claims pressure, and lower-than-expected returns from alternative investments further impacted segment earnings.
• Capital deployment and shareholder returns: Unum increased its dividend by 10% and repurchased $300 million in shares during the quarter. Management expects to finish the year at the top end of its previously announced $500 million to $1 billion share repurchase range, prioritizing capital returns while maintaining a strong capital buffer.

Drivers of Future Performance

Unum’s outlook is shaped by sustained premium growth, steady persistency, and ongoing LTC derisking, but faces margin headwinds from claims volatility and investment income.

• Premium growth and persistency: Management expects core premium growth in the 3% to 6% range for the year, underpinned by strong policyholder retention and digital investments. Persistency is anticipated to offset slower sales momentum in core operations.
• Margin pressures from claims and investments: Ongoing volatility in group disability and LTC claim sizes, as well as alternative investment income returning toward the lower end of targeted yields, are expected to weigh on margins and profit growth in the near term.
• LTC block derisking and capital actions: The company will continue to explore further reinsurance transactions and other strategies to reduce LTC risk. Management intends to use excess capital for share buybacks, but cautioned that future capital deployment will depend on claims trends and sustainable cash generation.

Catalysts in Upcoming Quarters

In the coming quarters, our team will monitor (1) whether group claims experience stabilizes, supporting margin recovery; (2) progress on further LTC risk transfer transactions and their impact on capital flexibility; and (3) the extent to which digital initiatives like HR Connect continue to drive persistency and offset sluggish sales. Persistent investment income trends and the pace of premium growth in international and voluntary benefits will also be crucial signposts.

Unum Group currently trades at $70.34, down from $80.96 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).

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