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Jobs, Low Rates Dent Unum Growth

By    |   Friday, 07 Oct 2011 02:09 PM

The current economic conditions make business tough for an insurer such as Unum Group (UNM). Slow jobs growth means little growth in employee benefits insurance sales, and interest rates are low. That said, the company has managed to keep net profits growing.

Unum Group divides its business into three sectors: Unum US, Unum UK, and Colonial Life. All three groups sell employee benefit insurance products. Unum is the largest provider of group long-term and short-term disability products. The company also sells group life insurance, accidental dismemberment and death coverage, and long-term care insurance.

The current economy affects Unum's business in two ways: The lack of employment growth makes it tougher for the company to grow the amount of sold insurance premiums. In addition, the low interest rate environment puts pressure on portfolio earnings the company needs to pay claims on its insurance products. Looking at these obstacles, it is not surprising that the UNM share price has treaded water for the last five years.

Profit growth

Nevertheless, Unum management has been able to generate steady operating earnings per share (EPS) growth. From an EPS of $1.80 in 2006, earnings increased to $2.69 per share in 2010. For 2011, the company is on track to earn a consensus $2.93 per share. A driving factor in the earnings per share growth is the company's aggressive share buyback program. The number of shares outstanding has been reduced by 9 percent over the last year and a half.

The Unum Group needs a growing employment base to generate higher levels of income growth. A higher interest rate environment would not hurt, either.

The outstanding shares of Unum are 95 percent in institutional hands. The stock provides insurance industry exposure outside of mainstream health and life insurers. Of the 15 stock analysts following the company, 12 have the stock rated as a hold and three rate the stock a buy or strong buy.

The company reports next on Nov. 1.

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The current economic conditions make business tough for an insurer such as Unum Group (UNM). Slow jobs growth means little growth in employee benefits insurance sales, and interest rates are low. That said, the company has managed to keep net profits growing. Unum Group...
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2011-09-07
Friday, 07 Oct 2011 02:09 PM
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