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Unum 2011 Annual Report
Unum
2011
19
Our Unum UK segment reported a decrease in segment operating income of 11.5 percent in 2011, as measured in Unum UK’s local
currency, relative to 2010. The decrease was driven by less favorable risk results and higher expenses related to Unum UK’s growth plans.
Premium income grew 1.9 percent in 2011 relative to 2010, although premium growth continued to be pressured by pricing actions
resulting from the competitive U.K. market. The benefit ratio for Unum UK was 71.8 percent in 2011 compared to 67.0 percent in 2010,
driven by less favorable risk experience in group long-term disability. Unum UK sales, which were also negatively impacted by the
economy and the competitive pricing environment, declined 18.8 percent relative to 2010, as measured in Unum UK’s local currency.
Persistency in 2011 was below the level of 2010 but remains strong.
Our Colonial Life segment operating income in 2011 was consistent with the level of 2010. Although premium income grew
5.5 percent in 2011 compared to 2010, risk results were less favorable, with an overall benefit ratio of 51.9 percent in 2011 compared to
49.7 percent in 2010, due primarily from less favorable risk results in the accident, sickness, and disability product line. Colonial Life’s sales
increased 2.0 percent in 2011 relative to 2010. The number of new agent contracts increased 6.8 percent in 2011 relative to 2010, but the
number of new accounts declined by 1.8 percent. Persistency in 2011 was below the level of 2010 but remains strong.
Our investment portfolio continued to perform well, with an increase in net investment income of 1.0 percent in 2011 relative to 2010.
The net unrealized gain on our fixed maturity securities was $5.8 billion at December 31, 2011, compared to $3.5 billion at December 31,
2010, driven primarily by a decline in U.S. Treasury rates.
We believe our capital and financial positions are strong. At December 31, 2011, the risk-based capital (RBC) ratio for our traditional
U.S. insurance subsidiaries, calculated on a weighted average basis using the NAIC Company Action Level formula, was approximately
405 percent, compared to 398 percent at December 31, 2010. Our leverage ratio, when calculated using consolidated debt to total
consolidated capital, was 27.6 percent at December 31, 2011, compared to 25.9 percent at December 31, 2010. The increase was due
primarily to $312.3 million of securities lending agreements outstanding at December 31, 2011, partially offset by the 2011 maturity of
$225.1 million of senior notes and our 2011 principal payments on the debt of Northwind Holdings, LLC (Northwind Holdings) and Tailwind
Holdings, LLC (Tailwind Holdings). Our leverage ratio, when calculated excluding the non-recourse debt and associated capital of Northwind
Holdings and Tailwind Holdings and the short-term debt arising from securities lending agreements, was 22.4 percent at December 31,
2011, compared to 22.8 percent at December 31, 2010. The cash and marketable securities at our holding companies equaled
approximately $756 million at December 31, 2011, compared to $1.2 billion at December 31, 2010. During 2011, we repurchased
25.4 million shares of Unum Group’s common stock at a cost of $619.9 million. We have completed the $500.0 million share repurchase
program authorized in 2010 and purchased $475.3 million under our $1.0 billion share repurchase program authorized in February 2011.
Despite the difficult economic environment, we continue to make steady and disciplined progress, executing on our business plans
and maintaining our strong financial position. We remain cautious of the near-term outlook for employment levels and wages, both of
which limit opportunities for premium growth, but we believe we are poised to profitably grow as employment trends improve.
Further discussion is included in “Segment Results,” “Investments,” and “Liquidity and Capital Resources” contained herein.
Long-term Care Strategic Review
Following a comprehensive and strategic review of our long-term care business, in February 2012 we announced that we would
discontinue selling group long-term care. We discontinued selling individual long-term care during 2009. Because both group and individual
long-term care are now considered closed blocks of business, effective December 31, 2011, we reclassified our long-term care products
from the Unum US segment to the Closed Block segment. We also reclassified our other insurance products not actively marketed, including
individual life and corporate-owned life insurance, reinsurance pools and management operations, group pension, health insurance, and
individual annuities, which were previously reported in the Corporate and Other segment to the Closed Block segment. The inclusion of all
closed blocks of business into one operating segment aligns with our reporting and monitoring of our closed blocks of business within a
discrete segment and is consistent with our separation of these blocks of business from the lines of business which actively market new
products. Prior period segment results have been restated to reflect these changes in our reporting classifications.