Unum 2008 Annual Report Download - page 25

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Our Colonial Life segment reported an increase in segment operating income of 9.1 percent in 2008 compared to the prior year. Colonial
Life’s sales increased 1.6 percent in 2008 relative to last year, with sales in the commercial market segment for employee groups with less
than 100 lives increasing 6.9 percent. The number of new accounts and the average new case size both increased over the prior year. During
the latter part of 2007, we introduced a new hospital confinement indemnity insurance plan product and a group limited benefit medical plan
product, and in the first quarter of 2008, we introduced the new Colonial Life brand. We are pleased with the marketplace reception for our
new Colonial Life brand and these new product offerings. Colonial Life continues to expand its enrollment capabilities and its product offerings.
In the third quarter of 2008, Colonial Life introduced two new life products and the latest release of its enrollment system, Harmony, which
offers multiple enrollment solutions. In addition, all of Colonial Life’s individual products, including the two new life products, are available
on Harmony.
Our investment strategy continues to provide benefits to our overall business performance. We are focused on both the quality of
our investment portfolio and on investing new money in investments appropriate for our liabilities and with yields that will increase our
portfolio yield. Our net investment income in 2008 was slightly below the level of 2007 due primarily to a decrease in the level of bond call
premiums. Included in 2008 results are net realized investment losses from sales and write-downs of investments related primarily to fixed
maturity securities in the financial institutions, automotive, and media sectors that we either sold or considered other than temporarily
impaired during the third and fourth quarters of 2008. We believe our investment portfolio is well positioned for the current environment,
with historically low levels of below-investment-grade securities, no exposure to subprime mortgages, “Alt-A” loans, or collateralized debt
obligations in our asset-backed or mortgage-backed securities portfolios, and minimal exposure to collateralized debt obligations within our
public bond portfolio. Further discussion is included in “Investments” contained herein.
Strategic and Capital Initiatives
The first priority of our capital management strategy is to maintain sufficient financial flexibility to support our operations over
various economic cycles and to respond to opportunities in the marketplace while positioning our Company for improvements in its credit
ratings. We have several financial targets which guide our capital management decisions including:
• Maintain a risk based capital ratio of 300 percent or greater for our traditional U.S. insurance subsidiaries. This is to be measured
on a weighted average basis using the NAIC Company Action Level formula.
• Maintain leverage at approximately 25 percent. Leverage will be measured as total debt to total capital, which we dene as total
long-term and short-term debt plus stockholders’ equity, excluding the net unrealized gain or loss on securities and the net gain
or loss on cash flow hedges. This target level excludes the non-recourse debt and associated capital of Tailwind Holdings and
Northwind Holdings.
• Maintain cash and liquid investments at our holding companies sufcient to cover one year ofxed charges (measured as interest
expense plus common stock dividends) plus a capital fund which will vary with business and economic conditions.
• Maintain a common stock dividend yield that is near the median of our peer companies.
At the end of 2008, all of our financial measurements for capital management continue to compare favorably to our target levels.
We have completed our $700.0 million authorized share repurchase program, and we have maintained our leverage at 21.5 percent,
compared to 21.4 percent at the end of 2007.
See “Liquidity and Capital Resources” contained herein for further detail.
Economic Environment
Analysis and stress testing are important aspects of understanding our financial risk exposure and developing proactive risk
management efforts. As part of our recessionary analysis, we have identified the following potential challenges to our 2009 business
outlook, as well as what we perceive to be opportunities and mitigating factors, resulting from the current economy.