Unum 2010 Annual Report Download - page 73

Unum 2010 Annual Report
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During 2011, we intend to retain a level of capital in our traditional U.S. insurance subsidiaries such that we maintain a weighted
average RBC well above capital adequacy requirements. We also expect Unum Limited to operate above FSA capital adequacy
requirements and minimum solvency margins.
Unum Limited is expected to adopt new capital requirements and risk management standards under Solvency II effective January 1,
2013. Solvency II standards, which result from a fundamental review of the capital adequacy standards for the European insurance industry,
are still being developed and have not yet been adopted. We continue to assess the impact on our capital requirements. Certain of our
insurance subsidiaries are also subject to regulation by the Bermuda Monetary Authority (BMA). Last year the BMA initiated a comprehensive
review of its insurance regulatory and solvency framework and hopes to complete its assessment during the summer of 2011. It is too
early to assess the impact on our insurance subsidiaries, but we may ultimately be subject to new rules regarding capital requirements.
See “Capital Requirements” contained herein for additional information.
Consolidated Cash Flows
Operating Cash Flows
Net cash provided by operating activities was $1,196.8 million for the year ended December 31, 2010, compared to $1,237.0 million
and $1,326.1 million for 2009 and 2008, respectively. Operating cash ows are primarily attributable to the receipt of premium and
investment income, offset by payments of claims, commissions, expenses, and income taxes. Premium income growth is dependent not
only on new sales, but on renewals of existing business, renewal price increases, and persistency. Investment income growth is dependent
on the growth in the underlying assets supporting our insurance reserves and on the earned yield. The level of commissions and operating
expenses is attributable to the level of sales and the first year acquisition expenses associated with new business as well as the maintenance
of existing business. The level of paid claims is affected partially by the growth and aging of the block of business and also by the general
economy, as previously discussed in the operating results by segment. Operating cash ows for 2010, 2009, and 2008, include pension
contributions of approximately $176.9 million, $79.7 million, and $140.9 million, respectively.
The uctuation in the income tax adjustment to reconcile 2009 and 2008 net income to net cash provided by operating activities was
due primarily to changes in the deferred tax asset related to the change in the fair value of an embedded derivative in a modified
coinsurance arrangement.
Investing Cash Flows
Investing cash inows consist primarily of the proceeds from the sales and maturities of investments. Investing cash outows consist
primarily of payments for purchases of investments. Net cash used by investing activities was $1,073.7 million for the year ended
December 31, 2010, compared to $1,213.9 million and $424.7 million for 2009 and 2008, respectively.
Our sales of available-for-sale securities declined in 2010 relative to 2009. Proceeds from maturities of available-for-sale securities
were higher in 2010 compared to 2009 primarily due to a significant increase in bond calls and bond maturities. Proceeds from sales and
maturities of available-for-sale securities in 2009 were lower than 2008 primarily due to lower sales of fixed maturity securities, a decrease
in bond maturities and bonds that were called at par, and the translation of investment proceeds from our U.K. operations at lower
exchange rates.