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2009 Annual Report

Table of contents

  • Page 1
    2009 Annual Report

  • Page 2
    FINANCIAL HIGHLIGHTS 2009 INCOME PER SHARE* Income from Continuing Operations, As Adjusted** Net Realized Investment Gain (Loss) Regulatory Reassessment Charges Special Tax Items and Debt Extinguishment Costs Other Income from Continuing Operations Income from Discontinued Operations Net Income BOOK...

  • Page 3
    The Building Blocks of Success Unum continued to make steady progress in 2009, buoyed by a back-to-basics approach to business and a relentless focus on customers. With its strong foundation, Unum is well-positioned to help people protect theirs - by providing financial security for when they may ...

  • Page 4
    ... our operations to be responsive and responsible in our chosen markets, which included instilling greater discipline in the pricing and underwriting of our business. This has significantly reduced the risk in our business plan. We have also worked to build a "fortress" balance sheet with a well...

  • Page 5
    ... these benefits through three distinct, but similarly focused businesses - Unum US, Colonial Life, and Unum UK - which are market leaders in making disability, life, accident, and critical illness products accessible in the workplace. Protecting working people when they need it most, we paid nearly...

  • Page 6
    ... our matching gifts program. In addition to giving generously, our employees also lent countless hours of their time to thousands of needy organizations. These benefit a wide array of organizations, with a special focus on disabilities, health and wellness, the arts and, most significantly, public...

  • Page 7
    ... our industry plays in protecting people's financial well-being. Working people today face dangerous gaps in their financial security, and we at Unum are advocates for continued cooperation between the public and private sectors to address this critical need. Many individuals who have protection...

  • Page 8
    A Partner In Building Stronger Businesses 6

  • Page 9
    ... landscape of employee benefits, offering expertise, innovative products, and relevant solutions that help them manage their businesses and take care of their employees. By offering insurance products that include disability, life and critical illness, Unum helps employees protect their families...

  • Page 10
    ...Innovative Solutions For U.S. Companies UNUM US Unique Products To Meet Diverse Needs In 2009, Unum US supported 72,000 businesses and organizations and protected more than 17 million people. Employers know competitive benefits are a must-have in recruiting and retaining a talented workforce. Their...

  • Page 11
    ...and straightforward administration. Simply Unum, our integrated platform of products and online administrative, enrollment, and claims services, is transforming the benefits marketplace through an approach to benefits that simplifies processes while still offering broad choice. Working as a bene...

  • Page 12
    An Agent Of Change In The U.K. Benefits Market UNUM UK New Products To Expand The Market "Mind the gap. Mind the gap, please." This familiar refrain for passengers of London's Underground could easily be Unum UK's business mantra. Government welfare reforms have created a need to illustrate the ...

  • Page 13
    businesses make the most of their benefits programs by enabling individuals to protect their lifestyles, supporting their financial security if they become unable to work because of illness or injury. In the current economic climate, and amidst government reforms, the need for Unum's cutting-edge ...

  • Page 14
    ...Colonial Life culture. Against a backdrop of rising health insurance costs, economic pressures, increasing shift of benefits decision-making responsibility to employees, and changing workplace demographics, Colonial In 2009, Colonial Life supported approximately 60,000 businesses and organizations...

  • Page 15
    ...insurance products helps address gaps that may exist in a strong financial safety net. Individual protection includes disability, accident, life, cancer, critical illness, hospital confinement, and limited benefit medical coverage. As a complement to an employer's core benefits program, Colonial...

  • Page 16
    ... new opportunities. We will then evaluate returning capital to our shareholders through dividends and by repurchasing our shares. Frank: In a nutshell, we believe our portfolio is strong. Its quality has held up very well despite the challenging environment, and our assets are generally well matched...

  • Page 17
    ... downgrades and negative outlooks for many insurance companies in this environment. We will continue to focus on executing our business plans, and ultimately we are not hindered by our current ratings in the marketplace. We sold $1 billion of new business in 2009 and issued $350 million of debt...

  • Page 18
    ... Vice President and Chief Financial Officer Robert O. Best Executive Vice President, Global Business Technology Susan L. Ring President and Chief Executive Officer, Unum UK Regulatory Compliance Committee Gloria C. Larson, Chairperson Kevin T. Kabat A.S. MacMillan, Jr. Edward J. Muhl Audit...

  • Page 19
    ... Statements of Comprehensive Income (Loss) 92 Notes to Consolidated Financial Statements 153 Reports of Independent Registered Public Accounting Firm and Management's Annual Report on Internal Control Over Financial Reporting 156 Cautionary Statement Regarding Forward-Looking Statements 17

  • Page 20
    ...Financial Data At or for the Year Ended December 31 (in millions of dollars, except share data) 2009 2008 2007 2006 2005 Income Statement Data Revenue Premium Income Net Investment Income Net Realized Investment Gain (Loss) Other Income Total Benefits and Expenses Benefits and Change in Reserves...

  • Page 21
    ... Included in these expenses are regulatory claim reassessment charges (credits) and broker compensation settlement expenses of $(12.8) million, $33.5 million, and $22.3 million in 2007, 2006, and 2005, respectively. (4) Amounts reported for 2006 and 2005 include income tax benefits of $91.9 million...

  • Page 22
    ...of a more balanced business mix across our product lines and the markets we serve. Through our investment risk strategy, we have managed our claim reserve discount rates relative to investment portfolio yield rates, avoided certain asset class problems, and continued to operate within a conservative...

  • Page 23
    ... sales growth by market segment was in the public sector, with growth of 11.8 percent. The number of new accounts and new contracts both increased relative to the prior year, while the average new case size declined. New initiatives for 2009 included continued implementation of a new enrollment...

  • Page 24
    ... and 2005 regulatory settlement agreements. The lead regulators conducted a final examination and presented their findings to Unum Group's board of directors and management on April 14, 2008. The report of the multistate market conduct examination for the Maine Bureau of Insurance, Massachusetts...

  • Page 25
    ...our Unum US group disability line of business $66.2 million and increased 2007 before-tax operating earnings for our Individual Disability - Closed Block segment $13.2 million. Acquisitions and Dispositions During the first quarter of 2008, we established a new company, Unum Ireland Limited, which...

  • Page 26
    ...and group long-term care, and voluntary benefits products in our Unum US segment; individual disability products in our Unum UK segment; disability and cancer and critical illness policies in our Colonial Life segment; and, the Individual Disability - Closed Block segment products. The reserves are...

  • Page 27
    ... all product lines. The estimation methods we have chosen are those that we believe produce the most reliable reserves at that time. Claim reserves supporting our Unum US group and individual disability and group and individual long-term care lines of business and our Individual Disability - Closed...

  • Page 28
    ...for the Colonial Life lines of business are: (1) the timing, rate, and amount of estimated future claim payments; and (2) the estimated expenses associated with the payment of claims. The following table displays policy reserves, incurred claim reserves, and IBNR claim reserves by major product line...

  • Page 29
    ...dollars) Policy Reserves % Total Total Net Group Disability Group Life and Accidental Death & Dismemberment Individual Disability - Recently Issued Long-term Care Voluntary Benefits Unum US Segment Unum UK Segment Colonial Life Segment Individual Disability - Closed Block Segment Corporate and...

  • Page 30
    Unum 2009 Key Assumptions Management's Discussion and Analysis of Financial Condition and Results of Operations The calculation of policy and claim reserves involves numerous assumptions, but the primary assumptions used to calculate reserves are (1) the discount rate, (2) the claim resolution ...

  • Page 31
    ... the variance for both the group long-term disability line of business and the Individual Disability - Closed Block segment is the claim resolution rate. We believe that these ranges provide a reasonable estimate of the possible changes in reserve balances for those product lines where we believe it...

  • Page 32
    ... 2008 (in millions of dollars) Unum US Group Disability Group Life and Accidental Death & Dismemberment Supplemental and Voluntary Individual Disability - Recently Issued Long-term Care Voluntary Benefits Unum UK Group Disability Group Life Individual Disability Colonial Life Totals 4 4 15 17 10...

  • Page 33
    Unum 2009 Annual Report The degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of pricing observability. Financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted ...

  • Page 34
    ... • Security credit ratings/maturity/capital structure/optionality • Corporate actions • Underlying collateral • Prepayment speeds/loan performance/delinquencies/weighted average life/seasoning • Public covenants • Comparative bond analysis • Derivative spreads • Relevant reports...

  • Page 35
    ... market. As of December 31, 2009, the key assumptions we generally used to estimate the fair value of these types of securities included those listed below. Where appropriate, we have noted the assumption used for the prior period as well as the reason for the change. • Risk free interest rates...

  • Page 36
    ... date. • Any other key measures for the related security. We evaluate available information, including the factors noted above, both positive and negative, in reaching our conclusions. In particular, we also consider the strength of the issuer's balance sheet, its debt obligations and near term...

  • Page 37
    ..., sector credit ratings, future business prospects and earnings trends, issuer refinancing capabilities, actual and/or potential asset sales by the issuer, and other data relevant to the collectibility of the contractual cash ï¬,ows of the security. We take into account the probability of default...

  • Page 38
    ... income securities, and currencies, as well as a fixed-interest U.K. corporate bond fund and an index-linked U.K. government bond fund. Assets for our OPEB plan are invested primarily in life insurance contracts. We believe our investment portfolios are well diversified by asset class and sector...

  • Page 39
    ... basis through annual liability measurements, periodic asset/liability studies, and quarterly investment portfolio reviews. Risk tolerance is established through consideration of plan liabilities, plan funded status, and corporate financial condition. The long-term rate of return on assets used in...

  • Page 40
    Unum 2009 Management's Discussion and Analysis of Financial Condition and Results of Operations The fair value of plan assets in our OPEB plan was $11.9 million and $12.0 million at December 31, 2009 and 2008, respectively. These assets represent life insurance contracts to fund the life ...

  • Page 41
    ... Benefits and Change in Reserves for Future Benefits Commissions Interest and Debt Expense Deferral of Acquisition Costs Amortization of Deferred Acquisition Costs Compensation Expense Other Expenses Total Income from Continuing Operations Before Income Tax Income Tax Income from Continuing...

  • Page 42
    ... on bonds in Unum UK for which interest income is linked to a U.K. inï¬,ation index, the impact of which was largely offset by lower claim reserves due to lower claim payments which are also linked to inï¬,ation, (iii) during 2009 we earned lower interest rates on our ï¬,oating rate invested assets...

  • Page 43
    ... the amortization related to Unum US internal replacement transactions as well as slightly elevated persistency in certain policy issue years. Other expenses, as reported, decreased slightly in 2009 relative to 2008. Excluding the effect of the lower exchange rate for translating Unum UK's expenses...

  • Page 44
    ...of Financial Condition and Results of Operations Consolidated Sales Results Year Ended December 31 (in millions of dollars) 2009 % Change 2008 % Change 2007 Unum US Fully Insured Products Administrative Services Only (ASO) Products Total Unum US Unum UK Colonial Life Individual Disability - Closed...

  • Page 45
    Unum 2009 Annual Report Segment Results Our reporting segments are comprised of the following: Unum US, Unum UK, Colonial Life, Individual Disability - Closed Block, and Corporate and Other. In the following segment financial data and discussions of segment results, "operating revenue" excludes ...

  • Page 46
    ...Management's Discussion and Analysis of Financial Condition and Results of Operations Unum US Segment The Unum US segment includes group long-term and short-term disability insurance, group life and accidental death and dismemberment (AD&D) products, and supplemental and voluntary lines of business...

  • Page 47
    ...and Voluntary Individual Disability - Recently Issued Group Long-term Care Individual Long-term Care Voluntary Benefits Subtotal Total Fully Insured Products ASO Products Total Sales Sales by Market Sector Group Disability, Group Life, and AD&D Core Market (< 2,000 lives) Large Case Market Subtotal...

  • Page 48
    ..., and the number of new accounts increased by 19.5 percent compared to 2008. Sales for our individual disability line of business, of which approximately 90 percent are in the multi-life market, decreased 10.9 percent compared to 2008, and sales of group long-term care decreased 30.4 percent. We...

  • Page 49
    ... Annual Report Unum US Group Disability Operating Results Shown below are financial results and key performance indicators for Unum US group disability. Year Ended December 31 (in millions of dollars, except ratios) 2009 % Change 2008 % Change 2007 Operating Revenue Premium Income Group Long-term...

  • Page 50
    ... was $4.4 million related to a 2008 broker compensation settlement agreement. During 2009, Unum America entered into a quota share reinsurance agreement with RGA Americas Reinsurance Company, Ltd. under which Unum America will cede a closed block of group long-term disability claims. The reinsurance...

  • Page 51
    Unum 2009 Annual Report Unum US Group Life and Accidental Death and Dismemberment Operating Results Shown below are financial results and key performance indicators for Unum US group life and accidental death and dismemberment. Year Ended December 31 (in millions of dollars, except ratios) 2009 % ...

  • Page 52
    ... 2008 due primarily to lower paid claim incidence rates for both group life and the accidental death and dismemberment lines of business. The deferral of acquisition costs increased in 2008 due primarily to increased sales in the group core market segment. Amortization of deferred acquisition costs...

  • Page 53
    ... results and key performance indicators for Unum US supplemental and voluntary product lines. Year Ended December 31 (in millions of dollars, except ratios) 2009 % Change 2008 % Change 2007 Operating Revenue Premium Income Individual Disability - Recently Issued Long-term Care Voluntary Benefits...

  • Page 54
    Unum 2009 Management's Discussion and Analysis of Financial Condition and Results of Operations rate. The interest adjusted loss ratio for long-term care increased in 2009 relative to the prior year due primarily to an increase in paid claim incidence rates. The benefit ratio for voluntary bene...

  • Page 55
    ... line. Unum UK Segment Unum UK includes insurance for group long-term disability, group life, and individual disability products sold primarily in the United Kingdom through field sales personnel and independent brokers and consultants. Operating Results Shown below are financial results and key...

  • Page 56
    .... These index-linked bonds match the claim reserves associated with certain of our group long-term disability policies that provide for inï¬,ation-linked increases in disability benefits. The decrease in 2009 net investment income attributable to these index-linked bonds was generally offset by...

  • Page 57
    Unum 2009 Annual Report related to the inï¬,ation index-linked group long-term disability policies. Although over the intermediate-term the investment return from index-linked bonds generally matches the index-linked claim payments and reserves, the effect on investment income from the inï¬,ation ...

  • Page 58
    ... provider of group disability insurance in the U.K. Our strategy for future growth combines optimizing the performance of our existing business while developing new market opportunities. We intend to optimize performance of the existing business by (i) improving customer service, (ii) expanding...

  • Page 59
    Unum 2009 Annual Report Colonial Life Segment The Colonial Life segment includes insurance for accident, sickness, and disability products, life products, and cancer and critical illness products issued primarily by Colonial Life & Accident Insurance Company and marketed to employees at the ...

  • Page 60
    ... accident, sickness, and disability line of business. The life product line reported a lower benefit ratio in 2009 relative to the prior year due to a change in the mix of life business and the resulting lower change in the active life reserve. The cancer and critical illness product line reported...

  • Page 61
    Unum 2009 Annual Report Colonial Life's sales in 2009 increased 1.1 percent relative to last year, with 7.2 percent growth in new account sales and a decline of 2.3 percent in existing account sales. We experienced sales growth of 11.8 percent in the public sector market and a slight increase in ...

  • Page 62
    ... to lower interest rates on ï¬,oating rate assets as well as a lower level of assets supporting this closed block of business, partially offset by an increased level of prepayment income on mortgage-backed securities. We also received fewer bond call premiums and consent fees during 2009 compared to...

  • Page 63
    ... marketed, including individual life and corporate-owned life insurance, reinsurance pools and management operations, group pension, health insurance, and individual annuities. We expect operating revenue and income resulting from these insurance products to decline over time as these business lines...

  • Page 64
    ... is a securities litigation settlement accrual of $11.6 million. Insurance Product Results Operating revenue for our insurance products was $133.1 million in 2009, compared to $135.1 million and $138.6 million in 2008 and 2007, respectively. These closed lines of business had operating income of...

  • Page 65
    ...2009 Annual Report Segment Outlook The general economic outlook for corporate bond defaults continues to be high relative to historical levels. We have tested whether our capital plans have sufficient cushion to absorb possible losses. We believe the current level of cash and marketable securities...

  • Page 66
    ... 2009 Management's Discussion and Analysis of Financial Condition and Results of Operations • The maximum investment per issuer group is limited based on internal limits reviewed by the finance committee of Unum Group's board of directors and approved by the boards of directors of our insurance...

  • Page 67
    ...our investment policy guidelines. We are currently reviewing our investment strategy as well as our tolerance levels. Realized investment gains and losses, before tax, are as follows: Year Ended December 31 (in millions of dollars) 2009 2008 2007 Fixed Maturity Securities Gross Gains on Sales Gross...

  • Page 68
    ... on securities issued by a large specialty chemical company. The company reported fourth quarter 2008 earnings that were weaker than expected, which limited its prospects of refinancing its 2009 debt maturities. The company had been pursuing asset sales to raise cash but was unable to do so in time...

  • Page 69
    ... $15.0 million on bonds issued by a large media company. The company was the subject of a leveraged buyout that placed a large amount of debt on the balance sheet during 2007. Because of our outlook for the future business prospects of this issuer, the length of time these securities had been in an...

  • Page 70
    ...2009, we recognized a loss of $14.2 on the sale of securities issues by a large publisher of yellow page advertising. The company had suffered from deterioration in print directories' advertising as well as a significant rise in bad debt expenses due to the impact of the recession on small business...

  • Page 71
    ...Communications Consumer Cyclical Consumer Non-cyclical Energy (Oil & Gas) Financial Institutions Mortgage/Asset-backed Sovereigns Technology Transportation U.S. Government Agencies and Municipalities Utilities Redeemable Preferred Stocks Total $ 2,077.1 3,365.4 2,376.1 1,299.9 4,873.7 3,033.3 3,045...

  • Page 72
    ... of 2008 and continuing into the early part of 2009 resulted primarily from the significant widening of credit spreads that occurred in the overall market. Unrealized Loss on Investment-Grade Fixed Maturity Securities Length of Time in Unrealized Loss Position 2009 (in millions of dollars) December...

  • Page 73
    Unum 2009 Annual Report Unrealized Loss on Below-Investment-Grade Fixed Maturity Securities Length of Time in Unrealized Loss Position 2009 (in millions of dollars) December 31 September 30 June 30 March 31 2008 December 31 Fair Value < 100% >= 70% of Amortized Cost 90

  • Page 74
    ... See "Critical Accounting Estimates" contained herein and Note 4 of the "Notes to Consolidated Financial Statements" for a discussion of the process we use to monitor and evaluate our fixed maturity securities for determining other-thantemporary impairments. At December 31, 2009, our mortgage/asset...

  • Page 75
    ... and sales of invested assets, provide the primary sources of cash. Debt and/or securities offerings provide an additional source of liquidity. Cash is applied to the payment of policy benefits, costs of acquiring new business (principally commissions), operating expenses, and taxes, as well as...

  • Page 76
    Unum 2009 Management's Discussion and Analysis of Financial Condition and Results of Operations Our policy benefits are primarily in the form of claim payments, and we have minimal exposure to the policy withdrawal risk associated with deposit products such as individual life policies or ...

  • Page 77
    ... investments to support the ï¬,oating rate debt. Proceeds from the acquisition of business in 2008 relate to the Unum UK acquisition of a group long-term disability claims portfolio. Proceeds from the disposition of business in 2007 relate to the sale of GENEX. Financing Cash Flows Financing cash...

  • Page 78
    ... debt obligations, and/or to pay expenses. These payments by our insurance and non-insurance subsidiaries may take the form of interest payments on loans from the parent to a subsidiary, operating and investment management fees, and/or dividends. During 2008, Unum Group received $100.0 million from...

  • Page 79
    ...held directly or indirectly by an insurance subsidiary and only indirectly by Unum Group. Unum Group's RBC ratio for its traditional U.S. insurance subsidiaries, calculated on a weighted average basis using the NAIC Company Action Level formula, was approximately 382 percent at the end of 2009, with...

  • Page 80
    ... of Financial Condition and Results of Operations In 2009, Unum Group issued $350.0 million of unsecured senior notes in a public offering. These notes, due in 2016, pay semi-annual interest at a fixed rate of 7.125%. The notes are callable at or above par and rank equally in right of payment with...

  • Page 81
    ...nal settlement with the Internal Revenue Service concerning audit adjustments for certain tax years, but we are unable to estimate a reasonably reliable amount for the potential cash settlement. See Note 7 of the "Notes to Consolidated Financial Statements" for additional information. Long-term debt...

  • Page 82
    ... default. This collateral, which is not reï¬,ected in the preceding table, had a market value of $22.4 million at December 31, 2009. Ratings AM Best, Fitch, Moody's, and S&P are among the third parties that assign issuer credit ratings to Unum Group and financial strength ratings to our insurance...

  • Page 83
    ... insurance subsidiaries as of the date of this filing. AM Best Fitch Moody's S&P Issuer Credit Ratings Financial Strength Ratings Provident Life & Accident Provident Life & Casualty Unum Life of America First Unum Life Colonial Life & Accident Paul Revere Life Paul Revere Variable Unum Limited...

  • Page 84
    ... rate investments include fixed maturity securities, mortgage loans, policy loans, and short-term investments. Fixed maturity securities include U.S. and foreign government bonds, securities issued by government agencies, corporate bonds, mortgagebacked securities, and redeemable preferred stock...

  • Page 85
    ..., 2009 (in millions of dollars) Notional Amount of Derivatives Fair Value Hypothetical FV + 100 BP Change in FV Assets Fixed Maturity Securities (1) Mortgage Loans Policy Loans, Net of Reinsurance Ceded Liabilities Unrealized Adjustment to Reserves, Net of Reinsurance Ceded and Other (2) Long-term...

  • Page 86
    Unum 2009 Quantitative and Qualitative Disclosures About Market Risk The effect of a change in interest rates on asset prices was determined using a duration implied methodology for corporate bonds and government and government agency securities whereby the duration of each security was used to ...

  • Page 87
    ... Group. Operating segment risk committees for Unum US, Unum UK, and Colonial Life oversee risk specific to their business. These committees are responsible for identifying, measuring, reporting, and managing insurance and operational risks within their respective areas, consistent with corporate...

  • Page 88
    ... Balance Sheets December 31 2009 2008 Assets Investments Fixed Maturity Securities - at fair value (amortized cost: $35,905.4; $34,407.6) Mortgage Loans Policy Loans Other Long-term Investments Short-term Investments Total Investments Other Assets Cash and Bank Deposits Accounts and Premiums...

  • Page 89
    Unum 2009 Annual Report December 31 (in millions of dollars) 2009 2008 Liabilities and Stockholders' Equity Liabilities Policy and Contract Benefits Reserves for Future Policy and Contract Benefits Unearned Premiums Other Policyholders' Funds Income Tax Payable Deferred Income Tax Short-term ...

  • Page 90
    Unum 2009 Consolidated Statements of Income Year Ended December 31 (in millions of dollars, except share data) 2009 2008 2007 Revenue Premium Income Net Investment Income Realized Investment Gain (Loss) Total Other-Than-Temporary Impairment Loss on Fixed Maturity Securities Other-Than-Temporary ...

  • Page 91
    Unum 2009 Annual Report Consolidated Statements of Stockholders' Equity Year Ended December 31 (in millions of dollars) 2009 2008 2007 Common Stock Balance at Beginning of Year Common Stock Activity Balance at End of Year Additional Paid-in Capital Balance at Beginning of Year Common Stock ...

  • Page 92
    ... and Benefit Payments from Policyholder Accounts Net Short-term Debt Repayments Issuance of Long-term Debt Long-term Debt Repayments Cost Related to Early Retirement of Debt Issuance of Common Stock Dividends Paid to Stockholders Purchases of Treasury Stock Other, Net Net Cash Provided (Used) by...

  • Page 93
    Unum 2009 Annual Report Consolidated Statements of Comprehensive Income (Loss) Year Ended December 31 (in millions of dollars) 2009 2008 2007 Net Income Other Comprehensive Income (Loss) Change in Net Unrealized Gains and Losses on Securities Before Reclassification Adjustment: Change in Net ...

  • Page 94
    ... long-term care insurance, life insurance, employer- and employee-paid group benefits, and other related services. We market our products primarily to employers interested in providing benefits to their employees. We have three major business segments: Unum US, Unum UK, and Colonial Life. Our...

  • Page 95
    ...derivatives accounting policy which follows. Private equity fund limited partnerships are accounted for using the equity or cost method, depending on the level of ownership and the degree of inï¬,uence over partnership operating and financial policies. Short-term Investments: Short-term investments...

  • Page 96
    ... of our intent and/or ability to sell the asset or transfer the liability at the measurement date. Valuation techniques used for assets and liabilities accounted for at fair value are generally categorized into three types: the market approach, the income approach, and the cost approach. We...

  • Page 97
    ... and the costs of acquiring the new policy are capitalized and amortized in accordance with our accounting policies for deferred acquisition costs. Loss recognition is generally performed on an annual basis. Insurance contracts are grouped for each major product line within a segment when we perform...

  • Page 98
    ... policyholder account values. We perform loss recognition tests on our policy reserves annually, or more frequently if appropriate, using best estimate assumptions as of the date of the test, without a provision for adverse deviation. We group the policy reserves for each major product line within...

  • Page 99
    ...translation gain or loss is generally reported in accumulated other comprehensive income, net of deferred tax. Accounting for Participating Individual Life Insurance: Participating policies issued by one of our subsidiaries prior to its 1986 conversion from a mutual to a stock life insurance company...

  • Page 100
    ... the April 1, 2009 opening balance of retained earnings $14.3 million, net of tax of $7.7 million, with a corresponding adjustment to accumulated other comprehensive income (loss). ASC 715 "Compensation - Retirement Benefits." In December 2008, the FASB issued a new accounting standard, now included...

  • Page 101
    ...on our financial position or results of operations. ASC 855 "Subsequent Events." In May 2009, the FASB issued a new accounting standard, now included in ASC 855, to provide subsequent events guidance. This topic was previously addressed only in the auditing literature, and is largely similar to the...

  • Page 102
    Unum 2009 Notes To Consolidated Financial Statements ASC 944 "Financial Services - Insurance." In September 2005, the American Institute of Certified Public Accountants modified GAAP to provide accounting guidance, now included in ASC 944, for modifications or exchanges of certain insurance ...

  • Page 103
    Unum 2009 Annual Report Note 3. Fair Values of Financial Instruments Presented as follows are the carrying amounts and fair values of financial instruments. The carrying values of financial instruments such as short-term investments, cash and bank deposits, accounts and premiums receivable, and ...

  • Page 104
    ... in our overall management of interest rate risk, which minimizes exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts. Short-term and Long-term Debt: Fair values are obtained from independent pricing services or discounted cash...

  • Page 105
    ... • Security credit ratings/maturity/capital structure/optionality • Corporate actions • Underlying collateral • Prepayment speeds/loan performance/delinquencies/weighted average life/seasoning • Public covenants • Comparative bond analysis • Derivative spreads • Relevant reports...

  • Page 106
    ... fair value hierarchy and reï¬,ects the judgment of management regarding what market participants would use in pricing assets or liabilities at the measurement date. Financial assets and liabilities categorized as Level 3 are generally those that are valued using unobservable inputs to extrapolate...

  • Page 107
    ... Securities United States Government and Government Agencies and Authorities States, Municipalities, and Political Subdivisions Foreign Governments Public Utilities Mortgage/Asset-Backed Securities All Other Corporate Bonds Redeemable Preferred Stocks Total Fixed Maturity Securities Other Long-term...

  • Page 108
    ... Securities United States Government and Government Agencies and Authorities States, Municipalities, and Political Subdivisions Foreign Governments Public Utilities Mortgage/Asset-Backed Securities All Other Corporate Bonds Redeemable Preferred Stocks Total Fixed Maturity Securities Other Long-term...

  • Page 109
    ... and Sales Level 3 Transfers Into Out of End of Year (in millions of dollars) Earnings Fixed Maturity Securities Foreign Governments Public Utilities Mortgage/Asset-Backed Securities All Other Corporate Bonds Redeemable Preferred Stocks Total Fixed Maturity Securities Equity Securities Embedded...

  • Page 110
    ...dollars) Available-for-Sale Securities United States Government and Government Agencies and Authorities States, Municipalities, and Political Subdivisions Foreign Governments Public Utilities Mortgage/Asset-Backed Securities All Other Corporate Bonds Redeemable Preferred Stocks Total Fixed Maturity...

  • Page 111
    ... Value Available-for-Sale Securities United States Government and Government Agencies and Authorities States, Municipalities, and Political Subdivisions Foreign Governments Public Utilities Mortgage/Asset-Backed Securities All Other Corporate Bonds Redeemable Preferred Stocks Total Fixed Maturity...

  • Page 112
    .... Unrealized losses on investment-grade fixed maturity securities principally relate to changes in interest rates or changes in market or sector credit spreads which occurred subsequent to the acquisition of the securities. At December 31, 2009, the fair value of below-investment-grade fixed...

  • Page 113
    ... date. • Any other key measures for the related security. We evaluate available information, including the factors noted above, both positive and negative, in reaching our conclusions. In particular, we also consider the strength of the issuer's balance sheet, its debt obligations and near term...

  • Page 114
    Unum 2009 Notes To Consolidated Financial Statements reports and forecasts, sector credit ratings, future business prospects and earnings trends, issuer refinancing capabilities, actual and/or potential asset sales by the issuer, and other data relevant to the collectibility of the contractual ...

  • Page 115
    ... 31, 2009, we had no commitments for commercial mortgage loan originations. In the normal course of business, we receive collateral from unaffiliated third parties through transactions which include both securities lending and also short-term agreements to purchase securities with the agreement to...

  • Page 116
    ... individual and group long-term care and individual and group disability products. All other product portfolios are periodically reviewed to determine if hedging strategies would be appropriate for risk management purposes. Our cash ï¬,ow hedging programs are as follows: • Interest rate swaps are...

  • Page 117
    ...when the credit ratings of the counterparty fell below our internal investment policy guidelines. At the time of termination, the contracts were in a loss position of $39.1 million. Consistent with our collateralization agreement, we had previously posted securities as collateral. During 2009, after...

  • Page 118
    ...the timing of anticipated settlements of interest rate swaps outstanding under our cash ï¬,ow hedging programs at December 31, 2009, whereby we receive a fixed rate and pay a variable rate. The weighted average interest rates assume current market conditions. (in millions of dollars) 2010 2011 2012...

  • Page 119
    ... unilaterally terminate the reinsurance agreement except in extreme circumstances resulting from regulatory supervision, delinquency proceedings, or other direct regulatory action. Cash settlements or collateral related to this embedded derivative are not required at any time during the reinsurance...

  • Page 120
    Unum 2009 Notes To Consolidated Financial Statements Locations and Amounts of Derivative Financial Instruments The following table summarizes the location and fair values of derivative financial instruments, as reported in our consolidated balance sheets at December 31, 2009. Asset Derivatives (...

  • Page 121
    .... The decrease relates primarily to an increased rate of claim recoveries for our group long-term disability and individual disability - recently issued lines of business in Unum US and in our Individual Disability - Closed Block segment. Claim resolution rates are very sensitive to operational and...

  • Page 122
    ... unpaid claims and claim adjustment expenses is as follows: (in millions of dollars) 2009 December 31 2008 2007 Policy and Contract Benefits Reserves for Future Policy and Contract Benefits Total Less: Life Reserves for Future Policy and Contract Benefits Accident and Health Active Life Reserves...

  • Page 123
    Unum 2009 Annual Report A reconciliation of the income tax expense (benefit) attributable to income from continuing operations before income tax, computed at U.S. federal statutory tax rates, to the income tax expense (benefit) as included in our consolidated statements of income, is as follows: ...

  • Page 124
    Unum 2009 Notes To Consolidated Financial Statements Our consolidated statements of income include amounts subject to both domestic and foreign taxation. The income and related tax expense (benefit) are as follows: (in millions of dollars) 2009 Year Ended December 31 2008 2007 Income Before Tax...

  • Page 125
    ... to our uncertain tax positions as a result of settlements or lapses in statutes of limitations during 2009 or 2008. We file federal and state income tax returns in the United States and in foreign jurisdictions. We are under continuous examination by the Internal Revenue Service (IRS) with regard...

  • Page 126
    ...due 2011, callable at or above par Notes @ 7.0% due 2018, non-callable Medium-term Notes @ 7.0% to 7.2% due 2023 to 2028, non-callable Junior Subordinated Debt Securities @ 7.405% due 2038 Long-term Debt Notes @ 5.859% due 2009 Repurchase Agreements, Weighted Average @ 2.71% due 2009 Short-term Debt...

  • Page 127
    ...2009 Annual Report Senior Secured Notes In 2007, Northwind Holdings, LLC (Northwind Holdings), a wholly-owned subsidiary of Unum Group, issued $800.0 million of insured, senior, secured notes due 2037 (the Northwind notes) in a private offering. The Northwind notes bear interest at a ï¬,oating rate...

  • Page 128
    ... to certain specified long-term disability claims incurred between January 1, 1999 and December 31, 2001 that were in payment status on January 1, 2006 pursuant to a reinsurance agreement between Tailwind Re and Unum America. The ability of Tailwind Re to pay dividends to Tailwind Holdings will...

  • Page 129
    ..., for $25, shares of Unum Group common stock on May 15, 2007 and which entitled the holder to contract adjustment payments at the annual rate of 3.165 percent, payable quarterly, and (b) a 1/40 or 2.5 percent ownership interest in a senior note issued by Unum Group due May 15, 2009 with a principal...

  • Page 130
    ...was closed to new entrants on December 31, 2002. The following tables provide the changes in the benefit obligation and fair value of plan assets and statements of the funded status of the plans. Pension Benefits U.S. Plans (in millions of dollars) 2009 2008 Non U.S. Plans 2009 2008 OPEB 2009 2008...

  • Page 131
    Unum 2009 Annual Report The amounts recognized in our consolidated balance sheets for our pension and OPEB plans at December 31, 2009 and 2008 are as follows: Pension Benefits U.S. Plans (in millions of dollars) 2009 2008 Non U.S. Plans 2009 2008 OPEB 2009 2008 Current Liability Noncurrent ...

  • Page 132
    ... invests in corporate bonds with maturity dates greater than 10 years. Investment in U.K. index-linked bonds is achieved through ownership of a fund that traces the Financial Times Stock Exchange 5 year Index-linked Index. The target allocation for the assets is 60 percent equity securities and 40...

  • Page 133
    ... Inputs (Level 3) (in millions of dollars) Total Invested Assets Equity Securities: U.S. Large Cap U.S. Mid Cap U.S. Small Cap International Emerging Markets Fixed Income Securities: U.S. Government Corporate Alternative Investments: Private Equity Funds of Funds Hedge Funds of Funds Cash...

  • Page 134
    ... Active Markets for Identical Assets or Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (in millions of dollars) Total Plan Assets Diversified Growth Assets U.K. Fixed-interest Corporate Bonds U.K. Index-linked Government Bonds Cash...

  • Page 135
    ...generally based on periodic studies of compensation trends. For measurement purposes at December 31, 2009 and 2008, the annual rate of increase in the per capita cost of covered postretirement health care benefits assumed for the next calendar year was 9.00 percent for benefits payable to retirees...

  • Page 136
    ... of our former Canadian branch operation and our previously owned subsidiary GENEX. These benefits were either terminated or frozen. A one percent increase or decrease in the assumed health care cost trend rate at December 31, 2009 would have increased (decreased) the service cost and interest cost...

  • Page 137
    ...an amount at least equal to the minimum annual contribution required under ERISA and other applicable laws, but generally not greater than the maximum amount that can be deducted for federal income tax purposes. We had no regulatory contribution requirements for 2009 and 2008; however, we elected to...

  • Page 138
    ... adjustment based on the volume weighted average price of Unum Group common stock during the term of the agreement. Any price adjustment payable to us was to be settled in shares of Unum Group common stock. Any price adjustment we would have been required to pay was to be settled, at our option, in...

  • Page 139
    ...20,000 shares were available at December 31, 2009. The stock options have a maximum term of ten years after the date of grant and generally vest after three years. Under the stock plan of 1999, comprised of the Provident Companies, Inc. stock plan of 1999 and the UnumProvident Corporation stock plan...

  • Page 140
    ... vesting upon retirement is recognized over the implicit service period. Forfeitable dividend equivalents on nonvested stock awards are accrued in the form of additional restricted stock units. The weighted average grant date fair values per share for nonvested stock awards granted during 2009, 2008...

  • Page 141
    Unum 2009 Annual Report Stock Options Stock option activity is summarized as follows: Remaining Contractual Term Intrinsic Value (000s) Shares (000s) Weighted Average Exercise Price Outstanding at December 31, 2008 Granted Exercised Expired Outstanding at December 31, 2009 Exercisable at ...

  • Page 142
    ... seven percent relates to business reinsured either with companies rated A- or better by AM Best, with overseas entities with equivalent ratings or backed by letters of credit or trust agreements, or through reinsurance arrangements wherein we retain the assets in our general account. Approximately...

  • Page 143
    ...: Unum US, Unum UK, Colonial Life, Individual Disability - Closed Block, and Corporate and Other. The Unum US segment includes group long-term and short-term disability insurance, group life and accidental death and dismemberment products, and supplemental and voluntary lines of business, comprised...

  • Page 144
    ... Care Voluntary Benefits 463.7 594.7 492.4 4,873.1 Unum UK Group Long-term Disability Group Life Individual Disability 503.1 147.8 35.2 686.1 Colonial Life Accident, Sickness, and Disability Life Cancer and Critical Illness 625.8 165.6 223.7 1,015.1 Individual Disability - Closed Block Corporate...

  • Page 145
    Unum 2009 Annual Report Selected operating statement data by segment is presented as follows: Individual Disability - Closed Block (in millions of dollars) Unum US Unum UK Colonial Life Corporate and Other Total Year Ended December 31, 2009...Other Income Operating Revenue Operating Income (...

  • Page 146
    ... no material revenues or assets attributable to foreign operations other than those reported in our Unum UK segment. We report goodwill in our Unum US segment and in our Unum UK segment, which are the segments expected to benefit from the originating business combinations. At December 31, 2009 and...

  • Page 147
    .... Under the terms of the settlement, which was subject to approval of the court, we agreed to implement or continue certain corporate governance measures and pay plaintiffs' attorneys' fees in an amount to be determined by the court. In January 2010, the court approved this settlement and awarded an...

  • Page 148
    ...vs. UnumProvident Corporation, Paul Revere Life Insurance Company, et al., judgment was entered in plaintiff's favor on his breach of contract and bad faith claims, and the plaintiff was awarded contract, emotional distress, and punitive damages, as well as attorneys' fees. We appealed that judgment...

  • Page 149
    ... information relating to the subsidiaries' policies and practices on one or more aspects of broker compensation, quoting insurance business, and related matters. Additionally, we have responded to investigations about certain of these same matters by state attorneys general and the U.S. Department...

  • Page 150
    .... This is a putative class action alleging that we breached fiduciary duties owed to certain beneficiaries under certain group life insurance policies when we paid life insurance proceeds by establishing interest-bearing retained asset accounts rather than by mailing checks. Plaintiffs seek to...

  • Page 151
    ... claims arise from the sale of corporate-owned life insurance policies to Public Service Company of Colorado by Mallon in 1984 and 1985. These policies were reinsured to Reassure America Life Insurance Company, a subsidiary of Swiss Reinsurance Company, as of July 2000. In response to the complaint...

  • Page 152
    Unum 2009 Notes To Consolidated Financial Statements Note 15. Statutory Financial Information Statutory Net Income, Capital and Surplus, and Dividends Statutory net income for U.S. life insurance companies is reported in conformity with statutory accounting principles prescribed by the NAIC and ...

  • Page 153
    Unum 2009 Annual Report Restrictions under applicable state insurance laws limit the amount of ordinary dividends that can be paid to a parent company from its insurance subsidiaries without prior approval by regulatory authorities. For life insurance companies domiciled in the United States, that ...

  • Page 154
    ... quarterly results of operations for 2009 and 2008: 2009 (in millions of dollars, except share data) 4th 3rd 2nd 1st Premium Income Net Investment Income Net Realized Investment Gain (Loss) Total Revenue Income Before Income Tax Net Income Net Income Per Common Share Basic Assuming Dilution...

  • Page 155
    Unum 2009 Annual Report Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders Unum Group We have audited the accompanying consolidated balance sheets of Unum Group and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of...

  • Page 156
    Unum 2009 Management's Annual Report on Internal Control Over Financial Reporting The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. The ...

  • Page 157
    Unum 2009 Annual Report Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders Unum Group We have audited Unum Group and subsidiaries' internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control-...

  • Page 158
    ...state insurance department market conduct examinations and other inquiries, other governmental investigations and actions, and negative media attention. • Effectiveness in supporting new product offerings and providing customer service. • Actual experience in pricing, underwriting, and reserving...

  • Page 159
    ...8996 Corporate Information Susan N. Roth Corporate Secretary 1 Fountain Square Chattanooga, TN 37402 800 718 8824 Transfer Agent Computershare Trust Company, N.A. P.O. Box 43078 Providence, RI 02940-3078 800 446 2617 COMMON STOCK INFORMATION Common stock of Unum Group is traded on the New York Stock...

  • Page 160
    ... trademark and marketing brand of Unum Group and its insuring subsidiaries. All the paper used in this annual report is Elemental Chlorine Free. The papers used for the cover and pages 1-16 of this book contain 10% Post Consumer Waste. Unum Group 1 Fountain Square Chattanooga, TN 37402 www.unum.com...