Unum 2014 Annual Report Download - page 22

20 UNUM • 2014 ANNUAL REPORT
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
The discussion and analysis presented in this section should be read in conjunction with the “Selected Financial Data,” the Consolidated
Financial Statements and notes, and the ”Cautionary Statement Regarding Forward-Looking Statements” included herein.
Executive Summary
2014 Operating Performance and Capital Management
For 2014, we reported net income of $413.4 million, or $1.61 per diluted common share, compared to net income of $858.1 million,
or $3.23 per diluted common share, in 2013. Included in our results for both years are net realized investment gains and losses and
non-operating retirement-related gains or losses. Included in our 2014 results is a reserve increase related to our long-term care block of
business ($698.2 million before tax and $453.8 million after tax, or $1.77 per diluted common share) and costs related to the early
retirement of debt ($13.2 million before tax and $10.4 million after tax, or $0.04 per diluted common share). Included in our 2013 results
is a reserve increase related to unclaimed death benefits ($95.5 million before tax and $62.1 million after tax, or $0.24 per diluted common
share) and a reserve reduction related to group life waiver of premium benefits ($85.0 million before tax and $55.2 million after tax, or
$0.21 per diluted common share). Adjusting for these items, after-tax operating income was $910.4 million, or $3.55 per diluted common
share, in 2014, compared to $882.5 million, or $3.32 per diluted common share, in 2013. The growth in after-tax operating income per diluted
common share is aided by our capital management strategy of returning capital to shareholders through repurchases of our common stock.
See “Reconciliation of Non-GAAP Financial Measures” contained herein for further discussion of these items.
Operating revenue, which excludes net realized investment gains and losses, increased in 2014 relative to the prior year, driven by
growth in premium income. Net investment income, also a significant source of revenue for us, was lower than the prior year. Before-tax
operating income, which excludes net realized investment gains and losses and non-operating retirement-related gains or losses, declined
relative to 2013. Before-tax operating income, when also excluding the reserve adjustments and costs related to the early retirement of
debt, as discussed in the preceding paragraph, increased relative to 2013, with favorable earnings in all of our reporting segments except
Unum US where we experienced slightly less favorable earnings in the group disability line of business.
Our Unum US segment reported a decrease in operating income of 1.4 percent in 2014 compared to 2013. Operating income,
excluding the 2013 reserve adjustments related to unclaimed death benefits and group life waiver of premium benefits, decreased slightly
by 0.3 percent, with lower net investment income and higher expenses offset partially by growth in premium income and overall favorable
risk results. Premium income increased 3.2 percent in 2014 compared to 2013. The benefit ratio for our Unum US segment for 2014 was
70.6 percent, compared to 71.3 percent, or 71.6 percent excluding the reserve adjustments, in 2013. Unum US sales increased 21.0 percent
in 2014 compared to 2013. Persistency remains strong and is generally consistent with our expectations.
Our Unum UK segment reported an increase in operating income, as measured in Unum UK’s local currency, of 6.5 percent in 2014
compared to 2013, with an increase in premium income and overall favorable risk results. Premium income in local currency increased
3.6 percent in 2014 relative to 2013. The benefit ratio for Unum UK was 71.0 percent in 2014 compared to 74.3 percent in 2013. Unum UK
sales in 2014 increased 7.2 percent, in local currency, compared to 2013. Persistency is favorable relative to the prior year, but group life
persistency continues to be lower than our long-term expectations as a result of pursuing rate increases on renewing business.
Our Colonial Life segment reported an increase in operating income of 13.4 percent in 2014 compared to 2013. Operating income,
excluding the 2013 reserve increase related to unclaimed death benefits, increased 5.4 percent in 2014, with growth in premium income
and favorable risk results. Premium income grew 3.4 percent in 2014 compared to 2013. The 2014 benefit ratio for Colonial Life was
51.9 percent compared to 54.1 percent, or 52.5 percent excluding the reserve increase, in 2013. Colonial Life sales increased 11.6 percent
in 2014 compared to 2013. Persistency is generally stable relative to the prior year.
Our Closed Block segment reported a loss in 2014 as a result of the reserve increase for long-term care. Excluding the reserve increase,
operating income increased 12.1 percent in 2014 relative to 2013, with an increase in net investment income and favorable risk results in
our long-term care line of business offset partially by less favorable risk results in our individual disability line of business.