Unum 2011 Annual Report Download - page 75

Unum 2011 Annual Report
Unum
2011
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No significant restrictions exist on our ability to use or access these funds, with the exception of funds held in the U.K. During the fourth
quarter of 2011, we repatriated £150.0 million, or approximately $232.1 million, from our U.K. subsidiaries, which was subject to repatriation
tax effects of $18.6 million. We currently have no intent, nor do we foresee a need, to repatriate additional funds. We believe we hold
domestic resources sufficient to fund our liquidity requirements for the next 12 months and that our current level of holding company cash
and marketable securities can be utilized to mitigate potential losses from defaults. If we repatriate additional funds from our subsidiaries in
the U.K., the amounts repatriated would be subject to repatriation tax effects which generally equal the difference in the U.S. tax rate and
the U.K. tax rate.
Unum Limited is expected to adopt new capital requirements and risk management standards under Solvency II effective January 1,
2014. Solvency II requirements, which result from a fundamental review of the capital adequacy standards for the European insurance
industry, have not been fully finalized, but the current proposals contain amended requirements on capital adequacy and risk management
for insurers. We continue to assess the impact on our capital requirements. Our Bermuda-based insurance subsidiary is subject to regulation
by the Bermuda Monetary Authority (BMA). During 2010, the BMA initiated a comprehensive review of its insurance regulatory and solvency
framework and continued to work with European regulators throughout 2011 toward completion of the assessment. It is too early to assess
the impact, but the insurance industry may ultimately be subject to new rules regarding governance, administrative and accounting processes,
and/or long-term capital requirements. See “Capital Requirements” contained in Item 1 of our Annual Report on Form 10-K for the fiscal year
ended December 31, 2011 for additional information.
During 2012, we intend to retain a level of capital in our traditional U.S. insurance subsidiaries such that we maintain a weighted
average RBC level well above capital adequacy requirements. We also expect Unum Limited to operate above the FSA capital adequacy
requirements and minimum solvency margins.
Consolidated Cash Flows
Operating Cash Flows
Net cash provided by operating activities was $1,193.7 million for the year ended December 31, 2011, compared to $1,196.8 million
and $1,237.0 million for 2010 and 2009, respectively. Operating cash flows 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 flows for 2010 and 2009 include pension
contributions of approximately $176.9 million and $79.7 million, respectively.
The fluctuation in the income tax adjustment to reconcile 2011 and 2010 net income to net cash provided by operating activities
was due primarily to decreases in the deferred tax liability related to the 2011 deferred acquisition cost charge and reserve charges for our
long-term care and individual disability closed blocks of business.
Investing Cash Flows
Investing cash inflows consist primarily of the proceeds from the sales and maturities of investments. Investing cash outflows
consist primarily of payments for purchases of investments. Net cash used by investing activities was $410.3 million for the year ended
December 31, 2011, compared to $1,073.7 million and $1,213.9 million for 2010 and 2009, respectively.
Our sales of available-for-sale securities increased in 2011 compared to 2010, but declined in 2010 relative to 2009. Proceeds from
maturities of available-for-sale securities were lower in 2011 compared to 2010 primarily due to a significant decrease in bond calls.
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.