UNUM Corporation reports third quarter earnings; Completes TSA sale announces individual disability insurance agreement

Business Wire, Oct 23, 1996

PORTLAND, Maine--(BUSINESS WIRE)--Oct. 23, 1996--

Board authorizes increased share repurchase

UNUM Corporation (NYSE:UNM) today announced its sixth consecutive quarter of increased operating income.

Citing a 15-percent increase in third quarter 1996 operating income over one year ago, UNUM reported operating income for third quarter 1996 of $76.7 million or $1.05 per share. This excludes after tax realized investment gains of $1.1 million and other special items, which reduced net income by $33.7 million in third quarter 1996. Third quarter 1995 operating income was $66.7 million or $0.92 cents per share.

Third quarter 1996 net income was $44.1 million or $0.60 cents per share. Net income for third quarter 1995 was $66.7 million or $0.92 cents per share. Revenues for third quarter 1996 were $1,023.9 million. Third quarter 1995 revenues were $967.6 million.

This quarter's results were driven primarily by a 20-percent increase in operating income in UNUM's disability segment, strong results in group life and continued improvements in UNUM's Colonial Life & Accident business.

"We continued our disciplined pursuit of profitable growth this quarter and made significant progress on several initiatives that will allow us to make better use of our capital," said James F. Orr III, UNUM chairman and chief executive officer.

"During the past year, we've reviewed many of our businesses to determine their strategic value to the corporation. This quarter we successfully sold our tax sheltered annuity (TSA) businesses to an industry leader and made steady progress toward integrating our Commercial Life business into our UNUM Life Insurance Company of America operation," Orr said. "These actions, combined with the ID reinsurance agreement and an evaluation of several marginal or discontinued product lines, will make a substantial amount of capital available to reinvest in growing our core businesses, fund corporate development efforts or buy back UNUM stock."

TSA sale to Lincoln

On Oct. 1, UNUM sold the TSA business of its UNUM America and First UNUM Life Insurance Company operations to The Lincoln National Life Insurance Company and Lincoln Life & Annuity Company of New York. UNUM announced a year ago its intention to withdraw from the TSA market to sharpen the company's focus on its core businesses. The purchase price was approximately $71 million and the sale is expected to generate approximately $160 million of capital, which may be used to repurchase UNUM common stock. As a result of the sale, UNUM will record a deferred pretax gain of approximately $80 million, which will be recognized as income as Lincoln completes the transfer of policyholder liabilities. The company expects the majority of the profit to be recognized in 1997.

Individual disability reinsurance

UNUM also announced today it has completed a definitive reinsurance agreement with Centre Life Reinsurance Limited, a Bermuda-based reinsurance specialist, for reinsurance coverage of the active life reserves of UNUM America's existing United States non-cancellable individual disability block of business. The reinsurance agreement does not apply to claims incurred prior to Jan. 1, 1996. The agreement, effective Dec. 31, 1996, subject to regulatory approval, is expected to generate slightly more than $200 million of capital, which would be available to repurchase UNUM common stock.

The agreement follows UNUM's decision in 1994 to discontinue sales of its non-cancellable form of individual disability coverage. The product is no longer being sold in the U.S. and has been replaced with a more affordable, higher value individual disability product form.

Under the reinsurance agreement, UNUM will transfer liabilities to Centre Re up to the level of UNUM's statutory active life reserves. UNUM will retain the future GAAP (generally accepted accounting principles) earnings risk up to a threshold and will continue to manage the block of business. Centre Re will assume the risk of unfavorable experience beyond the threshold, up to the level of UNUM's statutory active life reserves. In fourth quarter 1996, UNUM will recognize a pretax charge of approximately $50 million for the minimum future fees to be paid to Centre Re under the agreement.

Third quarter 1996 special items

UNUM's pretax income in third quarter 1996 was impacted by pretax charges totaling $49.5 million.

UNUM recorded a $10.1 million pretax charge for costs associated with the merger of UNUM's Commercial Life operation into UNUM America, including direct costs and a charge for future severance and lease costs.

The company also recognized a pretax charge of $17.0 million in third quarter 1996 in connection with the merger and UNUM's continued efforts to focus on its core products. The charge reflects the write off of certain intangible assets, principally deferred acquisition costs, which have been deemed unrecoverable as a result of continued losses expected in Commercial Life's Association Group disability business.