Unum's new profit measure gets a boost. Its forecast still falls.

Unum has changed what goes into its adjusted earnings, bringing a favorable reserve adjustment into the headline number. Even with that boost, the workplace insurer lowered its annual profit forecast.

The more telling problem sits in group disability insurance. More of each premium dollar is being absorbed by benefits, even after removing the reserve adjustments that make the headline results difficult to compare.

A claims trend the adjustment does not erase

Research by Ticker Byline shows that Unum's group disability benefit ratio worsened by 9.3 percentage points from a year earlier after excluding disclosed reserve updates and refinements. The ratio rose to 70.6% from 61.3%, while premiums grew 4%.

The benefit ratio compares the cost of policy benefits with premium income. A higher ratio leaves less premium revenue to cover expenses and contribute to profit.

Unum cited higher claim incidence, earlier pricing actions and larger average long-term disability claims, as well as less favorable reserve changes. President and Chief Executive Officer Richard P. McKenney said underlying earnings fell short of the company's expectations as elevated disability claim submissions offset strength in voluntary benefits.

The pressure had already appeared in the June quarter, when the disability benefit ratio was 65.8%, up from 62.2% a year earlier. The latest results show it continuing into the September quarter.

The new profit number needs a new comparison

Following discussions with Securities and Exchange Commission staff, Unum now includes annual reserve assumption updates and refinements in adjusted operating earnings. Those updates change estimates of future policy costs. The revision leaves GAAP net income unchanged.

The new presentation gives Unum adjusted EPS of $2.20 for the quarter, including a net 33-cent reserve benefit. The comparable prior-year figure is $2.81, restated to the current definition and including a 75-cent reserve benefit.

Subtracting those disclosed reserve effects leaves approximately $1.87 versus $2.06, or about 9% lower. That comparison uses the rounded per-share figures. It shows why the weaker result cannot be explained only by a smaller reserve boost.

The published annual adjusted EPS range fell to $8.30 to $8.50 from July's $8.60 to $8.90. July's measure excluded annual reserve updates; the new range includes the net 33-cent benefit. The changed definition is part of the comparison.

There is a stronger side to the portfolio

Colonial Life provided a counterweight. Its benefit ratio improved to 47.0% from 48.2% after excluding the notable reserve items, and premiums rose 3%.

Unum also retained substantial capital buffers. It reported about $1.4 billion of holding-company liquidity and an approximately 485% risk-based capital ratio for its traditional U.S. life insurers. It spent $202 million on share repurchases during the quarter, including associated costs.

The $419.7 million GAAP net loss reflects another large item: investment losses recognized ahead of a planned long-term care reinsurance transaction with Fortitude Re. That pending transfer is separate from the disability claims trend.

The next operating test is whether claims costs stabilize as premium revenue grows. The Unum company profile tracks the earnings definitions, financial position and pending reinsurance transaction alongside the quarterly results.