UNM Q4 Deep Dive: Flat Sales and Margin Pressures Underscore Guidance Reset

Employee benefits provider Unum Group (NYSE:UNM) missed Wall Street’s revenue expectations in Q4 CY2025, with sales flat year on year at $3.25 billion. Its non-GAAP profit of $1.92 per share was 9.1% below analysts’ consensus estimates.

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StockStory’s Take

Unum Group’s fourth quarter saw revenue and non-GAAP earnings fall short of Wall Street expectations, resulting in a negative market reaction. Management attributed the weaker results primarily to higher-than-expected benefits experience in group disability and life insurance, which was amplified by lower recoveries and reduced mortality within claimant blocks. CEO Richard Paul McKenney described the outcome as “softer” than anticipated, noting that the company’s core return on equity remained resilient despite earnings volatility. Leadership emphasized that these trends, though adverse for the quarter, were not indicative of a lasting shift in the company’s underlying earnings power.

For 2026, management’s guidance is anchored in expectations of premium growth within the company’s long-term 4% to 7% target and a stabilizing benefit ratio in group disability. Unum Group’s leadership pointed to digital investments and enhanced HR platform integration as key catalysts for future growth. CFO Steven Andrew Zabel stated, “With disciplined focus on our margins, our EPS will return to growth of 8% to 12%, driven by our high ROE businesses.” The company also plans to maintain robust capital returns through continued share buybacks and dividend increases, supported by strong free cash flow generation.

Key Insights from Management’s Remarks

Management pointed to adverse benefits experience and volatility in claim recoveries as central factors in the quarter’s underperformance, while highlighting digital adoption and capital actions as ongoing priorities.

• Benefit ratio volatility: Management identified an elevated group disability benefit ratio, mainly driven by lower average size of recoveries and lower mortality among claimants, as the primary earnings headwind. This volatility, while unfavorable in the quarter, was described as a normal part of the business cycle.
• Persistency and digital engagement: The company highlighted persistency rates above 90% in key segments, attributing this to increased adoption of its digital platforms such as HR Connect and MyUnum. These tools are designed to integrate benefits administration with employer HR systems, enhancing customer loyalty and retention.
• Colonial Life momentum: Colonial Life posted double-digit sales growth in Q4, with strong agent recruitment and productivity improvements. Management linked this to new agent assist tools, which streamline workflows and have achieved full adoption for new business submissions.
• International segment claims pressure: Unum International experienced strong premium growth but saw margins contract due to higher disability claims, particularly in the UK. Leadership noted that market conditions remain favorable and that government health initiatives could provide future tailwinds.
• Closed block risk reduction: The company completed a significant long-term care (LTC) risk transfer and internal reinsurance transaction, reducing LTC reserves and deemphasizing the closed block in ongoing financial reporting. Management believes this positions Unum Group for less earnings volatility and sharper focus on its core employee benefits franchise.

Drivers of Future Performance

Management’s outlook for the coming year centers on steady premium growth, margin stabilization, and continued capital return driven by digital adoption and risk management.

• Digital platform expansion: Unum Group expects ongoing investments in digital capabilities, such as HR Connect and Broker Connect, to improve sales close rates and persistency, supporting top-line growth within the 4% to 7% range.
• Margin stabilization in core businesses: Leadership anticipates that benefit ratios, particularly in group disability, will stabilize between 62% and 64%. This is expected to drive return on equity in the mid-20% range, though management cautioned that pricing dynamics and claim variability could create quarterly fluctuations.
• Capital deployment and risk reduction: The company plans to return nearly all of its free cash flow to shareholders through buybacks and dividend increases, while remaining vigilant about legacy risk exposures and further LTC block reductions. Management flagged that capital flexibility will be preserved to support organic growth and selective acquisitions.

Catalysts in Upcoming Quarters

Going forward, the StockStory team will watch (1) the impact of digital platform adoption on persistency and new business growth, (2) stabilization of benefit ratios in group disability and international lines, and (3) further progress in reducing long-term care block exposure through risk transfer or reinsurance. Execution on capital deployment and the ability to manage claim volatility will also be key signposts.

Unum Group currently trades at $73.25, down from $75.66 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free).

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