Unum 2014 Annual Report Download - page 43

UNUM • 2014 ANNUAL REPORT 41
The consolidated benefit ratios were 93.8 percent in 2014 compared to 86.5 percent in 2013 and 87.1 percent in 2012. Excluding the
2014 and 2013 reserve adjustments, the benefit ratios for 2014 and 2013 were 84.8 percent and 86.4 percent, respectively. The underlying
risk results in 2014 for each of our principal operating business segments, as well as for the majority of our product lines within those
segments, were favorable or consistent with the prior year periods.
Interest and debt expense for 2014 was higher than the prior year due primarily to the first quarter of 2014 issuance of $350 million
of 4.00% senior notes, partially offset by the second quarter of 2014 retirement of $145 million of principal outstanding on 6.85% debt.
Interest and debt expense for 2014 also includes $13.2 million of costs related to the second quarter of 2014 early retirement of debt.
Interest and debt expense for 2013 was higher than 2012 due primarily to the issuance of $250 million of 5.75% senior notes in the third
quarter of 2012, offset partially by lower interest expense on our floating rate debt and the purchase and retirement of the debt held by
Tailwind Holdings, LLC (Tailwind Holdings) in the first quarter of 2013. See Note 8 of the “Notes to Consolidated Financial Statements”
contained herein for further discussion of our debt.
The deferral of acquisition costs increased in 2014 due primarily to sales growth in each of our principal operating business segments.
The deferral of acquisition costs in 2013 was generally consistent with 2012. Amortization of acquisition costs was higher year-over-year
in both 2014 and 2013 due to growth in the level of the deferred assets in our Unum US and Colonial Life businesses. Also contributing to
the increase in amortization of acquisition costs in 2013 compared to 2012 was a higher level of policy terminations experienced in 2013
relative to assumptions for certain issue years within some of our Unum US supplemental and voluntary product lines.
Other expenses, including compensation expense, increased in 2014 compared to 2013 due to an increase in acquisition-related
expenses, including sales compensation, resulting from higher sales in certain of our product lines, higher expenses related to technology
and other growth-related investments, increased contributions to our defined contribution plans as a result of amendments to these
plans which became effective in 2014, and the settlement loss related to our 2014 pension plan amendment. Partially offsetting these
expense increases is a lower level of net actuarial loss amortization in 2014 compared to 2013 due to pension plan amendments adopted
during 2013. Other expenses, including compensation expense, were in aggregate lower in 2013 relative to 2012 due to active expense
management, the impact of the mid-year 2013 pension plan amendments, and expense reductions associated with reinsurance
agreements entered into during 2013. See Note 9 in the “Notes to Consolidated Financial Statements” contained herein for further
discussion of our employee benefit plans.
Our income tax for 2014 was 21.6 percent of income before income tax, compared to 28.8 percent and 28.4 percent in 2013 and 2012,
respectively. Our effective tax rate differs from the U.S. statutory rate of 35 percent primarily due to tax credits for tax credit partnerships
and foreign earnings taxed at lower rates than the U.S. statutory rate. Our overall rate for 2014 was favorably impacted because a larger
proportion of our 2014 earnings was derived from our foreign operations and taxed at that lower rate due to the long-term care reserve
charge which is taxed at the higher U.S. rate. Our income tax for 2013 and 2012 includes reductions of $6.3 million and $9.3 million,
respectively, to reflect the impact of the decrease in the U.K. corporation tax rate changes on our net deferred tax liability related to
our U.K. operations. Our 2012 income tax also includes a release of an $11.0 million tax liability related to unrecognized tax benefits.
See Note 7 in the “Notes to Consolidated Financial Statements” contained herein for further information on our income tax.
Further discussion of operating results for each of our segments and major product lines is included in “Segment Operating Results” herein.