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14 UNUM • 2014 ANNUAL REPORT
Repositioning the
Closed Block
A Q&A with CFO Jack McGarry and SVP
and President of Closed Block Operations
Steve Mitchell about Unum’s Closed
Block segment of business, made up
of products the company no longer
actively sells but still services.
What is the Closed Block and why is
it so important to Unum’s business?
Jack: Several years ago we made the
decision to discontinue selling certain prod-
uct lines, such as long-term care and older
individual disability policies, and separate
them from our ongoing business operations
for financial reporting purposes. Although
the premium associated with the Closed
Block is small, more than 30 percent of
Unum’s capital is tied up in these products.
Even though we no longer sell new products
associated with this business, we have signif-
icant obligations to these policyholders.
Is our relationship with Closed Block
customers different from policyholders
of other products?
Steve: We’re proud of our service levels with
all of our products, and the Closed Block is
no different. We maintain high standards of
quality for both our service and claim inter-
actions, and we’re mindful that often these
customers have other products with Unum —
so the level of service we provide directly
impacts our brand.
What are the challenges facing
the Closed Block?
Jack: There are two fundamental challenges,
particularly with long-term care. First, this is
an immature business for us and for the entire
industry. Therefore, the historical data that
exists is relatively new and evolving. In spite
of the age of the business, we believe we
have a good understanding of the trends and
information available to us today, and we’re
confident we have the appropriate level of
resources focused on the right issues.
Second, these product lines are very sensitive
to the interest rate environment because
we’re collecting money today with the intent
of paying it out perhaps 30 years down the
road. In the meantime, we rely on investment
income to provide funding for what we
ultimately pay out on those claims. The
persistently low interest rates hamper our
investment returns, which in turn creates
an even bigger challenge for this business.
Q
A