Unum 2006 Annual Report Download - page 40

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Group Life Insurance
Group life insurance may be affected by many factors, including the characteristics of the employees insured, the
amount of insurance employees may elect voluntarily, our risk selection process, our ability to retain employer
groups with lower claim incidence rates, the geographical concentration of employees, and mortality rates. Claim
incidence may also be influenced by unexpected catastrophic events such as terrorist attacks and natural disasters,
which may also affect the availability of reinsurance coverage. Changes in any of these factors may adversely affect
our profitability.
Epidemics, Pandemics, Terrorists Attacks, Natural Disasters or Other Extreme Events
Extreme events, including terrorism, can affect the economy in general, our industry, and us specifically. Such
events could materially adversely affect our business and results of operations, and in the event of extreme
circumstances, our financial condition or viability. Beyond obtaining coverage for our facilities, there are few, if
any, commercial options through which to transfer the exposure from terrorism away from us. In particular, in the
event of bioterrorism attacks, epidemics, or other extreme events, we could face significant health care costs
depending on the government’s actions and the responsiveness of public health agencies and other insurers. In
addition, we could also be adversely affected if we do not maintain adequate procedures to ensure disaster recovery
and business continuity for our facilities and operations in the event of such occurrences.
Investments
We maintain an investment portfolio that consists primarily of fixed income securities. The quality and/or yield of
the portfolio may be affected by a number of factors, including the general economic and business environment,
changes in the credit quality of the issuer, changes in market conditions, changes in interest rates, changes in foreign
exchange rates, or regulatory changes. These securities are issued by both domestic and foreign entities and are
backed either by collateral or the credit of the underlying issuer. Factors such as an economic downturn or political
change in the country of the issuer, a regulatory change pertaining to the issuer’s industry, a significant deterioration
in the cash flows of the issuer, accounting irregularities or fraud committed by the issuer, or a change in the issuer’s
marketplace may adversely affect our ability to collect principal and interest from the issuer.
The investments we hold are predominantly invested to support the insurance liabilities of our subsidiaries. The
timing and/or amount of the investment cash flows may not match those of the liabilities.
The investments held by our insurance subsidiaries are highly regulated by specific legislation in each state that
governs the type, amount, and credit quality of allowable investments. Legislative changes could force us to
restructure the portfolio in an unfavorable interest rate or credit environment, with a resulting adverse effect on
profitability and the level of statutory capital.
We use derivative instruments that are hedging in nature. Our profitability may be adversely affected if a
counterparty to the derivative defaults in its payment. This default risk is mitigated by cross-collateralization
agreements.
Dividend Restrictions
Unum Group and certain of its intermediate holding company subsidiaries and/or finance subsidiaries rely on
dividends or extensions of credit from our insurance company subsidiaries, including our U.S. insurance subsidiaries
and Unum Limited, to make dividend payments on our common stock, meet debt payment obligations, and pay our
other obligations. Our insurance company subsidiaries are subject to regulatory limitations on the payment of
dividends and on other transfers of funds to affiliates. The level of statutory earnings and capital in our insurance
subsidiaries could impact their ability to pay dividends or to make other transfers of funds to the holding company,
which could impair our ability to pay our dividends or meet our debt and other payment obligations. See “Liquidity
and Capital Resources” included in “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” contained herein in Item 7 and Note 16 of the “Notes to Consolidated Financial Statements” contained
herein in Item 8 for a discussion of the existing regulatory limitations on dividends.