Unum 2007 Annual Report Download - page 24

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
22 Unum 2007 Annual Report
At the end of 2007, all of our financial measurements for capital management compare favorably to our target levels. The combined
RBC ratio for our traditional U.S. insurance subsidiaries was above our target level. Our leverage ratio, when calculated excluding the
non-recourse debt and associated capital of Tailwind Holdings and Northwind Holdings and also allowing 50 percent equity credit for
the adjustable conversion-rate equity security units that were still outstanding at the beginning of the year, was 21.4 percent at the end
of 2007, compared to 26.2 percent at the beginning of 2007, subsequent to our cumulative effect adjustment to equity for the adoption
of the new accounting policies related to deferred acquisition costs and income taxes. Our leverage ratio, when calculated using
consolidated debt to total consolidated capital, was 26.4 percent at the end of 2007, compared to 28.8 percent at the beginning of 2007.
In addition, liquidity at our holding companies is greater than one year of fixed charges.
See “Liquidity and Capital Resources” contained herein for further detail.
Outstanding Legal and Regulatory Issues
During 2007, we continued to make progress in resolving our outstanding legal and regulatory issues, most notably the completion of the
claim reassessment process required by the 2004 and 2005 regulatory settlement agreements. The lead regulators began the examinations
of our claims handling practices and the reassessment process in June 2007 and on February 20, 2008, met with members of our board of
directors and management to report the results and to advise that no fines will be assessed. The final report for the examinations under
the regulatory settlement agreements is expected to be completed by mid-2008.
Other progress on legal and regulatory issues during 2007 includes the following:
 •Wereceivedtwofavorablerulingsdismissing,withprejudice,boththeantitrustandRICOcausesofactioninthecaseentitled
In re Insurance Brokerage Antitrust Litigation. Additionally, in January 2008 the defendants’ motion for summary judgment on
all ERISA claims was granted. Discovery in the case remains stayed while the court considers the proper procedure for handling
of the remaining state law claims and plaintiffs pursue their appeal.
 •Weexecutedasettlementagreementresolvingtheplanbeneciaryclassaction,or401(k)case,whichisoneofthemultidistrict
litigation matters discussed in our litigation footnote. The settlement agreement was finalized and approved by the court in the
fourth quarter of 2007. The entire cost of the settlement was covered by insurance proceeds. In addition, we executed an agreement,
subject to court approval, to settle all claims in the case entitled In re UnumProvident Corp. Securities Litigation. The amount of the
settlement was $40.0 million, of which $28.4 million was covered by insurance proceeds. The net expense of $11.6 million was
included in our second quarter of 2007 operating results.
 •WeresolvedtheputativederivativeactioninLeonard v. UnumProvident Corporation, et al. which asserted claims against us and
various members of our board of directors. The settlement, the terms of which were not material to us, was approved by the court
and the case was dismissed with prejudice during the third quarter of 2007.
Focus for 2008
During 2008, we intend to continue our focus on a number of key areas. Objectives for 2008 include:
 •Consistent execution. We will continue our emphasis on disciplined, profitable growth and strive to better leverage our
leadership position.
 •Continued innovation throughout our businesses. Within Unum US, we plan to more broadly launch Simply Unum in the small
to mid sized employer marketplace. We also plan to capitalize on the introduction of a number of health related products for
Colonial, as well as the launch of a pilot voluntary benefits program in our Unum UK business.
 •Capitalizing on our strong brands and marketplace reputation. We will seek to build on the momentum of 2007 with increased
brand and product awareness.
 •Execution of our strategic and capital initiatives. We formalized our capital management strategy during 2007 and established
several financial targets which will guide our capital management decisions during 2008 and beyond.
 •Continued resolution of outstanding legal and regulatory issues. We completed our claim reassessment process during 2007,
and we expect to resolve additional issues during 2008.
 •Professional development of our employees. We have an increased focus on training and development as well as talent
management and building bench strength throughout our Company.