Executive Summary / Key Takeaways

• Unum Group is executing a dual strategy: systematically de-risking its legacy Long-Term Care (LTC) Closed Block while driving robust, high-margin growth in its core employee benefits franchise. The recent Fortitude Re reinsurance transaction and internal assumption updates significantly reduce LTC exposure and modeling uncertainty.
• Core operations demonstrate strong financial health, with premium growth exceeding 4% year-to-date in 2025 and a return on equity nearing 20%. This performance is underpinned by disciplined pricing, effective claims management, and strategic investments in digital capabilities.
• Technological differentiators like HR Connect, Total Leave, and Gather are enhancing customer satisfaction, improving persistency, and creating competitive moats, positioning Unum as a leader in integrated workplace benefit solutions.
• Despite a Q3 2025 net income dip due to LTC reserve increases, after-tax adjusted operating income for the first nine months of 2025 reached $1,083.7 million ($6.21 per diluted common share), reflecting the strength of core operations.
• Unum maintains robust capital flexibility, with a 455% RBC ratio and $1.98 billion in holding company liquidity as of September 30, 2025. The company is committed to returning capital to shareholders, targeting the top end of its $500 million to $1 billion share repurchase range and increasing dividends in 2025.

Setting the Scene: Unum's Enduring Purpose and Strategic Evolution

Unum Group, founded in 1848 and headquartered in Chattanooga, Tennessee, has evolved into a leading international provider of financial protection benefit solutions. With operations spanning the United States, the United Kingdom, and Poland, Unum's core mission is to help the working world thrive by protecting individuals from the financial hardships of illness, injury, or loss of life. The company's business model centers on offering a comprehensive portfolio of disability, life, accident, critical illness, dental, and vision products, primarily through the workplace. This employer-sponsored approach is particularly vital for lower and middle-income families, providing a crucial defense against unexpected financial impacts.

Unum's strategic journey has been marked by both consistent growth in its core segments and the proactive management of a legacy challenge: its Long-Term Care (LTC) business. The company discontinued individual LTC offerings in 2009 and group LTC in 2012, leading to the formation of a "Closed Block" that historically consumed capital. Unum's overarching strategy now focuses on three key pillars: growing its high-performing core businesses, actively de-risking and managing the Closed Block, and maintaining disciplined capital deployment to enhance shareholder value.

The broader industry landscape currently presents a supportive environment for Unum. A healthy labor market, characterized by stable employment levels and rising wages, contributes to natural growth in Unum's existing client base. The company observes natural growth rates of approximately 3%, which underpins its premium income. This favorable macro backdrop, coupled with sustained interest rates, provides ample opportunities for Unum to expand its reach and profitability.

Technological Edge: Powering Growth and Enhancing Customer Experience

A cornerstone of Unum's competitive strategy and a significant differentiator in the market is its continuous investment in technology and digital capabilities. These innovations are not merely operational enhancements; they are fundamental to attracting and retaining customers, improving efficiency, and building a robust competitive moat.

Unum's core differentiated technologies include platforms like HR Connect, Total Leave, and Gather. HR Connect, for instance, facilitates a tighter, more simplified data connection with employers, resulting in "several points higher persistency on cases utilizing our HR Connect platform over non-HR Connect business since 2023." This quantifiable benefit directly translates into more stable premium income and stronger client relationships.

Total Leave is another critical offering, leveraging Unum's decades of experience in leave management and its deep expertise in the disability business. This platform provides digital resources that allow employers to better manage complex leave scenarios, a top priority for many companies. The company's claims portal for large customers in the UK, the "first of its kind, delivered by a disability insurer in the U.K.," further exemplifies its commitment to innovation in service delivery.

For its Colonial Life segment, Unum employs Gather, a proprietary HR and benefits platform that modernizes enrollment and benefits administration, streamlining the client experience. Complementing this is Agent Assist technology, which enables automated lead generation, CRM, and workflow for independent agents, boosting their productivity and sales effectiveness. In the UK, Help@Hand offers integrated value-added services and delivers comprehensive management information, driving customer engagement and loyalty.

These technological advancements contribute significantly to Unum's competitive moat by creating deep connections with employers and employees, offering a high-quality digital experience backed by human expertise and AI tools. This combination drives stronger engagement and retention, positioning Unum as a trusted partner for integrated benefit solutions. The strategic acquisition of Beanstalk Benefits in the U.S. in Q2 2025 further underscores Unum's commitment to enhancing its digital platform and customer experience ecosystem, with stated goals to "enhance enrollment, underwriting, the client administration experience, and claims processing." These investments contribute to higher persistency, operational efficiency, and a stronger market position, directly impacting Unum's financial performance through sustained premium growth and improved margins.

Core Business Performance: A Foundation of Strength

Unum's core operating segments—Unum US, Unum International, and Colonial Life—continue to demonstrate robust performance, driving the company's overall profitability. For the first nine months of 2025, core operations premium growth was up 4%, reflecting strong persistency and effective sales strategies.

The Unum US segment, a significant contributor, reported premium income of $5,334.9 million for the first nine months of 2025. Despite a slight decrease in adjusted operating income to $982.2 million (down 11.2% from 2024), its underlying benefit ratios remain strong. Group Disability, a key line, maintained a benefit ratio of 61.8% for the nine-month period, within the company's low 60s guidance. This performance is attributed to "favorable recovery trends in long-term disability" and "consistently elevated disabled claim mortality," which led to $105.8 million in reserve releases in Q3 2025. Management views these recovery trends as "sustainable," contributing to an impressive return on equity exceeding 25% for this business. Group Life and AD&D also performed well, with a benefit ratio of 68.4% for the nine months, outperforming the 70% outlook.

Unum International showcased strong top-line growth, with premium income increasing by 13.0% to $798.9 million for the first nine months of 2025. This growth was particularly notable in Unum Poland, which saw an 18.7% increase in premium income, reflecting a "buoyant market with strong growth potential." Unum UK's persistency reached 91.6%, contributing to the segment's overall strength.

Colonial Life also delivered solid results, with premium income growing 3.1% to $1,375.9 million and adjusted operating income rising 1.7% to $349.7 million for the first nine months of 2025. The segment's persistency improved to 78.7% in Q3 2025, 70 basis points higher than the prior year, supported by strong agent recruiting (up 29%) and new agent sales (up 36%).

Managing Legacy: The Closed Block Transformation

The management of the Closed Block, particularly the Long-Term Care (LTC) business, remains a critical strategic focus for Unum. The company has explicitly stated its confidence that "no future capital contributions will be necessary" for this block, a significant shift from its historical capital consumption. This confidence is underpinned by a multi-faceted approach, including strategic reinsurance transactions, proactive assumption updates, and a robust premium rate increase program.

A pivotal development was the closing of the reinsurance transaction with Fortitude Re in July 2025. This deal ceded approximately 21% of Unum's total Closed Block LTC future policy benefits and about 15% of its Unum US individual disability future policy benefits. The transaction involved transferring $953.50 million in cash and $3,230.10 million in fixed maturity securities, marking a "significant milestone in reducing the company's exposure to the legacy long-term care business."

In Q3 2025, Unum undertook its annual reserve assumption review, resulting in a net increase of $478.5 million in GAAP reserves. This increase was largely driven by strategic, one-time nonrecurring actions aimed at de-risking the block. Notably, Unum fully removed the morbidity and mortality improvement assumption, adding approximately $850 million to reserves. This decision was a direct response to "heightened modeling uncertainty" observed in the post-COVID period. Furthermore, the company made a deliberate strategic choice to discontinue adding new employee coverage on existing group LTC cases effective February 1, 2026. While this action foregoes profitable business, it increased reserves by approximately $200 million by removing estimated future margins, aligning with the strategy to "reduce the size of our Closed Block." These increases were partially offset by an expanded premium rate increase program, which reduced reserves by approximately $525 million. Management expresses high confidence in achieving these rate increases, citing a "mature process" and historical success, with a typical timeline of 3 to 5 years for approvals and implementation.

The statutory reserve impact of these Q3 2025 assumption updates is expected to be minimal, with no capital contributions needed. Unum's LTC protections, comprising statutory reserves above best estimate reserves plus excess capital at Fairwind, remain robust at approximately $2 billion. This substantial buffer, coupled with an active hedging program (with $2.5 billion of notional hedges outstanding at Q1 2025 securing treasury rates for LTC cash flows over the next 10 years), reinforces the company's financial stability and ability to manage this legacy business.

Financial Strength and Capital Deployment

Unum's financial position remains exceptionally strong, providing significant flexibility for strategic initiatives and shareholder returns. As of September 30, 2025, the risk-based capital (RBC) ratio for its traditional U.S. insurance subsidiaries was approximately 455%, well above its long-term expectations. Holding company liquidity stood at $1,982.4 million, held in a diversified portfolio of liquid assets.

The company's capital generation model is robust, with normalized after-tax statutory income of approximately $300 million, demonstrating consistent cash generation from its business model. This strong capital position enables Unum to prioritize capital deployment: first, investing in strategic initiatives for core business growth; second, pursuing selective, capability-driven M&A opportunities (typically smaller transactions focused on technology or distribution); and third, returning capital to shareholders.

Unum is committed to shareholder returns, having repurchased $759.20 million of common stock (10.30 million shares) and paid $228.90 million in dividends during the first nine months of 2025. The company is on track to repurchase shares at the "top end" of its $500 million to $1 billion range for 2025 and expects to return approximately $300 million through dividends, totaling about $1.3 billion in capital return for the year. This dynamic approach to capital return reflects Unum's strong financial health and commitment to enhancing shareholder value.

Competitive Landscape and Strategic Positioning

Unum operates in a competitive landscape alongside major players such as Aflac Incorporated (AFL), MetLife, Inc. (MET), Prudential Financial, Inc. (PRU), and Lincoln National Corporation (LNC). Unum distinguishes itself through its specialized focus on workplace benefits and integrated solutions, particularly in group disability and leave management.

Compared to Aflac, which excels in individual supplemental policies, Unum offers a broader suite of employer-focused products, appealing to larger corporate clients with its comprehensive financial protection solutions. Unum's extensive distribution network through brokers and field sales provides an advantage over Aflac's direct-to-consumer model in reaching corporate clients. Against global giants like MetLife and Prudential, Unum's strategy as a focused player in financial protection allows for greater efficiency and specialized solutions for mid-sized employers, though it may lag in global market share and the breadth of product innovation in areas like retirement solutions.

Unum's technological differentiators, such as HR Connect and Total Leave, serve as significant competitive moats. These platforms create deep integrations with employer ecosystems, making Unum's services indispensable and fostering higher persistency rates. This contrasts with competitors who may offer less integrated or less specialized digital tools. The company's long-standing expertise in leave management, particularly its deep understanding of the disability business, provides a proprietary advantage that third-party products struggle to replicate. This expertise allows Unum to offer "expert consulting" and problem-solving capabilities that resonate with brokers, consultants, and employers, shifting the competitive conversation beyond mere price.

While the market remains competitive, Unum's management notes a "normal competitive environment" where pricing is rational, and the "incumbent is favored" due to the value placed on stable, long-term relationships and integrated capabilities. This dynamic allows Unum to maintain fair pricing and strong margins. The company's disciplined underwriting and claims management, which have led to a "decade-long improvement" in recovery rates for group disability, further solidify its competitive standing by ensuring sustainable profitability.

Outlook and Risks

Unum's outlook for 2025 remains positive, with an adjusted EPS target of approximately $8.50. The company anticipates core operations premium growth of 3% to 6% and expects group disability benefit ratios to remain in the low 60s, with Group Life and AD&D around 70%. The Closed Block earnings are projected to be between $90 million and $110 million, reflecting the impact of recent assumption updates and alternative investment income.

Key assumptions underpinning this outlook include continued strong persistency, a healthy labor market, and the effective execution of strategic initiatives. Management expects sales growth to improve in the second half of 2025, leading to "relatively flat" core operation sales for the full year, with strong momentum building into 2026 for Colonial Life. The expense ratio is expected to increase slightly in 2025 due to ongoing investments in technology and people, balanced by productivity gains.

Despite this optimistic outlook, Unum faces several risks. Cybersecurity attacks and other security breaches pose a threat to data integrity and business operations. The company's reliance on artificial intelligence technology also introduces risks related to evolving laws and regulations. In its investment portfolio, the mortgage loan segment is exposed to risks related to vacancy rates and economic conditions that could impact borrower solvency.

For the LTC Closed Block, while significant de-risking actions have been taken, the inherent "modeling uncertainty" related to long-term morbidity and mortality trends remains a factor. The increase in the net premium ratio and the growing proportion of "capped cohorts" could lead to increased volatility in quarterly Closed Block earnings. However, Unum's substantial capital protections and active management strategies are designed to mitigate these risks. The company's business model is largely insulated from medical cost inflation due to its indemnity-based products, and while economic downturns can lead to higher submitted disability claims, these do not necessarily translate into higher paid claims.

Conclusion

Unum Group is strategically positioned for sustained success, leveraging its robust core businesses and a decisive approach to managing its legacy Long-Term Care liabilities. The company's commitment to technological innovation, exemplified by platforms like HR Connect and Total Leave, is not only enhancing customer experience and persistency but also fortifying its competitive advantages in the dynamic workplace benefits market. This technological leadership, coupled with disciplined underwriting and claims management, underpins Unum's industry-leading margins and strong capital generation.

The recent Fortitude Re reinsurance transaction and the comprehensive Q3 2025 reserve assumption updates represent a pivotal moment in Unum's de-risking strategy for the Closed Block, reinforcing confidence in its ability to avoid future capital contributions. With a strong capital base, a clear growth trajectory in its core segments, and a proactive stance on risk management, Unum Group presents a compelling investment thesis focused on predictable, high-quality earnings and consistent shareholder returns. Investors should monitor the continued execution of its premium rate increase program, the performance of its alternative investment portfolio, and the ongoing integration of its digital capabilities as key indicators of its long-term value creation.